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Impacts of financial downturn on energy project lending (video & transcript)
Monica Trauzzi:, OnPoint, E&E TV
What will the economic crisis and financial bailout mean for the future of energy projects? Do certain industries have more to lose? How will cleantech projects, oil and gas development, and carbon capture-and-storage research fare as a result of the economic downturn?
During today’s OnPoint, Michael Schewel, a partner at law firm McGuireWoods and an energy project financing expert, gives his take on the effects of the financial downturn on investments in the energy sector.
(16 October 2008)
OPEC moves up emergency meeting as oil prices plummet
Jad Mouawad, International Herald Tribune
Oil prices plummeted on Thursday, falling below $70 a barrel for the first time in 16 months, and prompting the OPEC cartel to call for an emergency meeting next week.
The rapid decline in prices had alarmed petroleum executives and oil producers who are becoming increasingly nervous that oil’s wild roller coaster undermines the stability of energy markets.
Oil prices have dropped sharply in recent weeks amid the economic crisis and lower consumption in developed nations.
(16 October 2008)
In global crisis, oil insulates Gulf
Caryle Murphy, Christian Science Monitor
Economists say that Arab states such as Saudi Arabia will feel the pinch, but a year of record oil prices provides a deep cushion.
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Despite repercussions here that have included a downward slide in oil prices and trouble in stock markets, government officials and outside experts forecast that their region will suffer, but not as much as most.
Saudi economist and consultant Ihsan Buhulaiga says that events emanating from Wall Street in recent weeks have created “a very serious crisis” already impacting Gulf nations.
But, he predicts, the effects will not be as severe as in the G-7 industrialized nations, where “we’re talking about zero growth or contraction.” Gulf nations’ growth will slow down, but remain “positive,” he adds.
“Gulf countries are going to feel the pinch,” says Howard Handy, chief economist at Samba Financial Group in Riyadh. “But I think from everything I’ve seen so far, it is not going to be fatal.” Given their “vast reserves and surpluses” generated by record high oil prices earlier this year, the Gulf states are facing the global crisis “from a position of great strength,” he adds.
Even with less revenue from falling oil sales, Saudi Arabia and other states will be able to pay their bills and finance many of their large development projects.
(16 October 2008)
Drill-baby-drill, meet $75 oil
Ben Rooney, CNNMoney
As the price of crude tumbles from the summer’s record highs, what will become of the push to increase drilling?
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“Drill-baby-drill!”
With the price of oil falling below $75 a barrel Wednesday – down about 49% from last summer’s highs – the industry’s battle cry is sounding less and less convincing.
But falling oil prices are not the only reason why the air is coming out of the drilling balloon. The credit crunch has hampered oil companies’ ability to fund big-ticket drilling projects. Meanwhile, the prices that producers pay for raw materials and labor remain high.
“Any project that assumed oil would average $100 over the next 10 to 20 years is being seriously reconsidered at this time,” said Richard Ward, senior cost analyst at IHS Cambridge Energy Research Associates (CERA).
As recently as July, tapping deep water sources and extracting crude from Canadian oil sands – two very expensive production methods – were seen as economically viable ways to deal with the energy crisis. At that time, the price of oil was above $140 a barrel.
Now that the price has fallen below $75 a barrel, and could go even lower, many experts say the future of these projects is uncertain.
(16 October 2008)
China’s Shrewd Long-Term Oil Plan: What America Can Learn
Keith Fitz-Gerald, Seeking Alpha
Iraq recently signed its first oil deal in 35 years with a foreign company.
And – quite surprisingly to many observers – the company wasn’t one of ours.
Not surprisingly, the U.S. news media barely acknowledged the deal – even though the agreement was major news throughout the rest of the world.
According to reports from Baghdad, the 22-year deal between the Iraqi government and the China National Petroleum Co. involves $55 billion, or 87% of Iraq’s current total revenue at a conservative long-term estimate of $100 a barrel.
The deal is actually a renegotiated version of a 1997 agreement between China and a Saddam Hussein-led Iraq. That original deal included production-sharing rights, but profits, The New York Times reported. The payments will be made in cash – and won’t be “in kind” payments of crude oil, the newspaper said.
While this deal, on its face, appears to be just another global oil-services contract, it’s actually a very significant development in the hunt for long-term energy supplies. In fact, it actually demonstrates that – when it comes to nailing down those long-term oil supplies – China is an expert, and is playing a very deep game. And the outcome of that game will certainly have substantial long-term implications for consumers and investors both here in the United States, and in markets abroad. Here’s why:
(16 October 2008)
