2. The Nigerian Inauguration
3. Impact on Developing Countries
4. Energy Briefs
Last week’s news did little to clarify the US gasoline situation for the summer driving season. Wholesale gasoline prices dropped 10 cents per gallon prior to the Wednesday stocks report, based on analysts’ expectations that the stockpile situation would improve. Gasoline production did increase last week while imports dropped a bit. Despite the high prices, however, demand for gasoline continues to run more than 100,000 b/d above the same week last year. The net result was that total US gasoline stocks rose by 1.43 million barrels vs. the week before last, though well below the increase necessary to alleviate concerns about the adequacy of stocks for the summer driving and hurricane seasons. Gasoline stocks are particularly low in the upper Midwest and along the East Coast.
After the report was digested, wholesale gasoline gained back the 10 cents it had lost earlier to close unchanged. Many are skeptical that US refineries can produce enough gasoline to keep up with increases in demand this summer; much less cope with the aftermath of a possible hurricane strike along the gulf coast.
The major news of the week, however, was the continuing increase in gasoline prices, to a national average of more than $3.20 a gallon – up nearly 40 percent since the beginning of the year. Citing a much different figure than they shared in March ($2.75 gasoline for the summer), the EIA opined that the run-up still had a ways to go, but that prices should start dropping in June. On Capitol Hill, there was much fulminating and talk about breaking up the oil companies.
US demand for gasoline is starting to be felt abroad. In Germany, gasoline reached $7.10 a gallon last week and the British expect that petrol will soon hit £1 per liter. The EIA still maintains we can import enough gasoline to get through the driving season and to lower prices later this summer. Consider us skeptical.
It was a relatively quiet week in Nigeria. Some oil production came back online but seven oil workers, including three Americans and four Britons, were taken hostage and hauled off into the swamps. A nationwide oil workers strike protesting the sale of the Port Harcourt refinery was settled after the government agreed to a 15 percent wage increase for oil workers.
This week a coalition of labor and civic groups are planning two days of nationwide strikes and demonstrations to protest the inauguration of the new President after what they see as a fraudulent election. The government has responded by declaring a holiday and threatening to crush demonstrations by force. It is unclear just how the situation will develop. The unions, who last week demonstrated their ability to stop oil production, have said they do not want to destroy Nigeria’s economy, but want to send a clear message they are unhappy about the manner of the new President’s election.
Another important factor will be the actions of the main insurgent group, the MEND, who recently announced they were through with kidnappings of foreigners and were about to embark on a program to destroy more of the country’s oil infrastructure. These attacks are supposed to coincide with the inauguration of the new president on Tuesday. It could be a bad week for oil exports.
A combination of droughts, high oil prices, and shortages is causing economic hardships in an increasing number of countries. In many places, power outages are becoming a normal part of daily life. Blackouts range from an hour or so to many hours a day, depending on where one lives. Short outages are merely annoyances, but as they lengthen, vital services such as refrigeration and water supplies are threatened as well as economic development.
Last week an emergency government loan allowed Senegal’s power company to purchase enough fuel to avert a total shutdown of the country’s power grid. In Uganda, the government asked the parliament for $300 million to deal with the current electricity, gasoline and diesel shortages. Ghana’s GDP will drop by $1.4 billion this year due to electricity shortages. The country began “load-shedding” last September. Many countries are importing large diesel generators as a quick way to increase generating capacity. These, however, are relatively inefficient and will require the purchase of increasingly expensive diesel fuel.
In India, Pakistan, and Bangladesh the blackouts are now commonplace and there is no end in sight. The problem is complicated by the need to keep irrigation pumps operating in order to insure food supplies. Despite optimistic talk of importing LNG, pipelines, nuclear and hydro plants, these solutions are many years or decades away if they happen at all. For the immediate future, the shortages are likely to increase.
“These executives [82% of 553 financial executives surveyed from oil and gas companies] are deeply concerned about declining oil reserves, a situation they see as irreversible and worsening.”
Bill Kimble, w/ audit, tax and advisory firm KPMG LLP
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. ASPO-USA will hold its 2007 World Oil Conference, October 17-20, at the Hilton Americas in downtown Houston, Texas.