April 2008 Archives

There has been much hand-wringing in the media about high prices at the pump, as the Energy Information Administration reported another rise in average retail conventional gasoline prices to $3.615/gal as of Monday.

Two of the main 3 candidates have jumped in with the genius idea to put a gas tax "holiday" into effect this summer, cutting out 18.4 cents/gal from unleaded and 24.4 cents/gal from diesel.

But really, does the US driver pay a lot at the pump?

Each Wednesday petroleum markets wait breathlessly for inventory data from the Energy Information Adminstration, and depending on the estimates from the EIA prices will move sharply in one direction or the other.

These weekly data are estimates, as the EIA freely admits, from a sampling of the reams of information submitted by refiners, trading companies, majors, terminal operators, etc.

A talking head on television this weekend was discussing the worldwide price of rice, and noted that its relationship to gold had changed little. Over the past several months, she said, the amount of rice that an ounce of gold would buy had not changed significantly.

This, of course, led The Barrel to check what had happened to the relationship between gold and oil these last few months. The numbers are sobering.

The week just ended can't help but leave everyone gasping for air.

Between last Friday and today, June NYMEX crude rose about $2.50. Given everything that happened this week on the supply side, it might be considered stupendous that it didn't go higher.

Add one more country to the list of places that are facing a reduction in output, albeit temporarily, because of what has been referred to as "tension": the United Kingdom.

This tension is a labor dispute at the Ineos Grangemouth refinery this weekend. If the workers there strike, and the refinery is shut down, it may reduce world supply by more than 600,000 b/d.

A couple of notes here on Earth Day, about morality, energy economics and going green:

One suspects China will find much to like in the Bush administration's global warming plan which the president announced April 16 in the White House Rose Garden:

A national goal (voluntary, or aspirational, if you will), allowing greenhouse gas emissions to continue to increase (albeit, as per the plan, at a slower rate) until 2025, when the growth would stop and emissions would start to decline; and allowing emissions from coal-fired power plants to grow and peak within 10 to 15 years, before they begin to decline.

What the energy world doesn't need now is a big boost to demand. It could do without even a small boost to demand. But presumptive Republican presidential candidate John McCain just proposed one.

But by the standards of demand-boosting policies in other parts of the world, McCain's "gas-tax" holiday wouldn't amount to that much. In an economic address Tuesday, he proposed that Congress suspend the 18.4 cent federal gas tax and 24.4 cent diesel tax from Memorial Day to Labor Day, which is approximately late May to early September. He also said the US should stop adding to the Strategic Petroleum Reserve; the daily 90,000 b/d or so being put into the reserve is a minuscule amount in respect to world demand, but given that all pricing is done on the margin, may be having an outsized impact.

The Barrel attended a speech in New York by Bill McKibben, an environmentalist and author who has been sounding the alarm over global warming for over 20 years.

In his presentation, McKibben cited a study by NASA scientist James Hansen, which called 350 parts per million as the safe upper limit for atmospheric carbon dioxide. That is far lower than previous estimates of 450 ppm, which is what most environmental groups had been calling for.

With evidence mounting of the economic malaise in the US and beyond, the world's leading oil demand forecaster has moved to cut its estimates for 2008 once more.

You don't have to be an Iowa farmer to take issue with some of what Saudi Oil Minister Naimi said Thursday at the Petrostrategies conference in Rome.

"Despite the ethanol boom, petroleum prices remain high and energy consumers are no more secure than they were before," Naimi told the conference.

This year's 36th annual Howard Weil Energy Conference in New Orleans helped underscore the industry's fickle nature as 2007 buzz phrase "MLP" vanished into the graveyard of cliches only to be replaced by a crazyquilt of shale play mania.

There's no shortage of bleak predictions in the oil industry these days. Here's the April 7 version.

Fereidun Fesharaki is the well-known chairman and CEO of Hawaii-based Facts Global Energy. He has been co-chairman for many years of the Middle East Petroleum & Gas Conference, taking place this year in Doha, Qatar. His association with the meeting is strong enough that is has been called "the Fesharaki meeting."

Computer model forecasts of the economic impact of legislation to reduce US greenhouse gas emissions are driven by, and no smarter than, the assumptions upon which they are based.

"The economic impacts can change significantly under alternative assumptions regarding costs and the availability of new technologies," the Energy Information Administration noted. Or, put another way, worst-case assumptions in, worst-case results out, and so-forth.

.... The government of Iraqi Prime Minister Nuri al-Maliki, the Bush administration, and some very big international oil companies, including Chevron, Royal Dutch Shell, BHP Billiton and Total.

Shell, while it is negotiating a services contract to increase production from the giant Kirkuk oil field in northern Iraq, is also negotiating jointly with Australia's BHP for the development of the Missan oilfield in the south.

Chevron and Total jointly are negotiating the giant West Qurna Stage One oilfield development, also in southern Iraq.

When one looks around at some of the reasons why supply is merely inching up around the world, government decisions that have impacted supply adversely abound.

We've generally stayed away from the political battles of 2008, though that might get tougher as the nominating process moves on and the general election moves closer.

But The Barrel found this link interesting.

While onshore transportation fuel emissions restrictions have tightened dramatically, with on-road diesel going from 500 ppm sulfur to just 15ppm in the US, and in Europe down to as low as 10ppm, emissions restrictions on ship fuel -- known as bunker fuel -- have lagged.

The International Maritime Organization has been taking steps to cut shipborne emissions, setting up Sulfur Emissions Control Areas in the North Sea and Baltic Sea, in which bunker fuel faces a 1.5% (15,000 ppm) sulfur limit, rather than the 4.5% in effect in the open sea.