1. Prices, Production and Exports
2. Electricity Shortages and Diesel
3. Rice, Inflation and Oil
4. Massachusetts Hosts a Meeting
5. Energy Briefs

1. Prices, Production and Exports

It was another week of volatility for oil prices as a potpourri of fundamentals, financial crisis, hearings, unemployment and a looming recession drove oil prices one way and then another. After losing $4 a barrel on Monday as speculators closed positions, prices recovered on Wednesday after the EIA reported that US gasoline stockpiles had fallen by 4.5 million barrels the previous week, twice what analysts had expected. On Friday, prices rose again to close out the week at $106 a barrel after the report that US jobs had declined for the third straight month, confirming fears that the US was headed for a recession. This time oil prices rose on bad economic news in expectation that there will be more interest rate cuts, a weaker dollar, and a flight to safe assets such as oil.

US gasoline prices rose to a record $3.30 on Friday and most analysts believe they will continue rising. The EIA is holding that average gasoline prices will peak at $3.50 later this spring, but many are predicting a spike to the vacinity of $4 a gallon.

In the wake of the inconclusive attack on Basra, Shiite cleric al-Sadr is calling for a million-man demonstration against the US “occupation” on Wednesday, the 5th anniversary of the fall of Baghdad. Some fear the demonstration could set off events destabilizing the  government. In the meantime Iraq is still exporting oil from Basra at slightly below pre-attack levels.

OPEC reports March shipments were down about 85,000 b/d from February due to extensive maintenance and other problems in Nigeria that cut exports there to the lowest in five years. Of more interest was the report that Russia failed to increase its oil production for the third month in a row and the first quarter production was down by one percent from a year earlier. Moscow, however, is still predicting that production will grow by 1.7 percent this year, well below the 11 percent increase in 2003. Russin pipeline exports to Europe recovered to 4.23 million b/d in March, but many believe the surge was in anticipation of forrthcoming export taxs and that Moscow’s exports will soon drop.

2. Electricity Shortages and Diesel

Stories of current and imminent shortages of electric power are becoming more frequent each day. A combination of inadequate rain for hydro power, unaffordable oil and coal for thermal power, and rapidly increasing demand is leaving country after country with inadequate power for national grids.

It is becoming apparent that one of the unforeseen consequences of globalization is that there is simply not enough power being produced in the world to run the flood of inexpensive electric consumer goods – TVs, kitchen appliances, air conditioners — that are pouring from the factories of Asia onto the world.

The increasingly frequent “rolling blackouts” that are appearing around the world unfortunately are killing “essential” systems – water pumps, hospitals, banking computers, factories, TV stations, and telephone exchanges – as well as the less-essential consumer devices.

While electric companies may eventually be able to make special arrangements to exempt organizations that are vital to the economy from blackouts, there are massive numbers of organizations around the world that are completely dependent on electricity to keep functioning. For these, the choice is generate their own electricity with their own generators or shut down.

What is developing is a new and potentially very large demand for gasoline and particularly diesel fuel as the national power grids fall further and further behind in their ability to keep up with demand for electricity. Higher prices and shortages are clearly in store as more and more Chinese-made small and medium sized electric generators come into service around the world.

3. Rice, Inflation and Oil

Rice prices increased by 50 percent in the last two weeks to an all-time high as importing countries scrambled to hold off social unrest by securing supplies from the few exporters still willing to sell. As the staple food for 3 billion people, 33 countries are facing unrest as the price of food and energy becomes unaffordable.

There are multiple reasons behind the sudden price increase ranging from weather-related poor harvests, hoarding, and world-wide inflationary pressures resulting from high energy costs to the financial crisis. Major rice exporters such as India, China, and Vietnam have already curtailed or stopped exports to hold down domestic prices.

Among the hardest hit countries so far have been Bangladesh, the Philippines, and Pakistan where millions now face seriously restricted diets.

Even rich oil states are facing problems. Nigeria is one of the world’s largest importers of rice and Kuwait is now shut off from the Indian rice that is the staple food for most of the 1.3 million foreigners working in the country. Even the Saudis have removed the import duties on imported food. In Pakistan 80 million people are estimated to be at risk of not receiving sufficient food.

This situation is too complex to foresee future developments. If it gets worse, widespread food riots could topple governments. If millions are faced with starvation, pressure to stop production of biofuels will increase. Leverage of food exporting nations in world affairs will increase.

4. Massachusetts Hosts a Meeting

Last week Chairman of the Committee on the Environment of the Massachusetts legislature hosted a meeting on Peak Oil. The standing-room-only meeting heard presentations from Dick Lawrence, co-founder of ASPO-USA; economist Roger Bezdek one of the co-authors of the Hirsch Report on Peak Oil; John Kaufman, member of the Portland (OR) Energy Task Force; and Sen. Bob Duff and Rep. Terry Backer from the Connecticut General Assembly.

The material covered in the presentations should be familiar to readers of this publication. The meeting’s purpose was to provide background for the establishment of a Peak Oil Caucus in the Massachusetts legislature. The US Congress and the Connecticut legislature already have caucuses and other states are close to establishing bodies or legislation to deal with peak oil.

There is clearly a massive educational job ahead. As one speaker at the meeting pointed out, peak oil has not yet made it into the Presidential campaign. The various energy plans that have been proposed are directed at lowering gasoline prices or have little appreciation for the urgency or seriousness of the problem.

5. Energy Briefs

(clips from recent Peak Oil News dailies are indicated by date and item #)

  • Shell CEO van der Veer said easy-to-produce oil and gas would likely peak in the next 10 years. Van der Veer said while depletion of maturing conventional resources would certainly play a key role in peak production, lack of access to remaining large reserves, such as in Saudi Arabia, was also a central component in his forecast. (4/2, #2)
  • Diesel shortages are appearing across China from southern Guangdong to the northern Tianjian. Long queues of trucks and cars stretching over one kilometer have appeared at some gas stations; and at one point, diesel was rationed to 300 yuan. (4/2, #8)
  • In South Africa, year-over-year mining production for January was down 10.7 percent owing largely to the electricity supply crisis that led to mine closures, with gold production in particular feeling the effects. (4/4, #3)
  • Aloha, ATA and Skybus airlines halted passenger service last week, casualties of fierce competition and rising fuel prices. (3/31, #17)
  • Ecuador wants to increase its participation in oil projects to more than 50 percent following contract negotiations with private firms. (4/4, #5)
  • A court-appointed expert in Ecuador has recommended that Chevron pay $7 billion to $16 billion if it loses a marathon lawsuit over oil-field contamination in the Amazon. (4/4/, #6)
  • Venezuela’s lawmakers approved the first reading of a new tax on oil companies that will take as much as 60% of their gains from sudden increases in world oil prices. (4/4, #7)
  • ConocoPhillips said on Thursday its first-quarter oil and natural gas production, just below 1.8 million barrels/day, was down more than 2 percent from fourth-quarter levels, hurt by an unplanned shutdown of a natural gas processing plant. (4/4, #11)
  • BP America announced a new significant oil discovery at their Kodiak well in the deepwater Gulf of Mexico in 5000 feet of water. Further appraisal will be required to determine the size and commercial potential of the discovery. (4/4, #13)
  • In Alberta, TransAlta Corp., facing rising unease over greenhouse-gas emissions from their coal-fired generating plants, has announced a deal with Alstom to develop a large carbon capture and storage facility (4/4, #14)
  • India’s Oil and Natural Gas Corp ONGC.BO plans to invest $450 million over three years in exploration and production at San Cristobal oilfield in Venezuela, a senior government official said on Saturday. (4/5, #6)
  • India’s oil imports increased to 2.48 million b/d in February, 8.1 percent more than a year earlier to meet a demand that surged 10.9 percent. (4/2, #11)
  • Pressure from the Kremlin on BP’s joint venture in Russia, TNK-BP, may before long lead the British oil company to cede control to either Rosneft or Gazprom, the Russian stateowned energy companies. (4/5, #17)
  • Russia failed to grow its oil output for a third month in a row in March and closed the first quarter with a one percent production decline year-on-year. Energy Ministry data showed on March oil production edged down to 9.76 million barrels per day from 9.79 million bpd in February, and well below the post Soviet high of 9.93 million bpd reached in October last year. (4/3, #16)
  • Libya says it will review all future contracts with oil companies in a bid to reap more benefit for the country, a senior Libyan government official told Dow Jones Newswires. (4/1, #4)
  • The American Trucking Associations is calling for the return of a uniform national speed limit of 65 mph for all cars and trucks to help cope with the soaring price of diesel. (6/4, #21)
  • Europe’s refineries are shutting around 900,000 barrels per day of capacity for maintenance in April, more than many expected at a time when diesel supply in Europe is running low. Even at 900,000 bpd, or about 5.5 percent of Europe’s total capacity, the schedule is lighter than it was in April 2007, when well over 1 million bpd was shut.
  • US lawmakers scolded oil industry executives for booking huge profits on record gasoline prices while not investing more in renewable energy. Executives were asked to explain why they should not forfeit $18 billion in tax breaks after posting profits of $123 billion. (4/2, #6)