1. Gasoline and Crude
2. Nigeria's General Strike
4. Energy Bills
5. Energy Briefs
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This week’s petroleum status report contained several surprises. Contrary to expectations, refinery utilization fell again to 87.6 percent vs. the 95 percent that would be desirable for this time of the year. Expansions at US refineries in recent years, however, resulted in gasoline production remaining the same as the previous week. Steady production and gasoline imports of 1.3 million b/d led to an increase of 1.8 million barrels in total US gasoline stockpiles which are still low considering that the peak summer driving season is nearly here. US gasoline consumption continues to be 9.5 million barrels a day – 1.5 percent above last year. An increase in crude imports coupled with the low refinery utilization resulted in an unusually large buildup of 6.9 million barrels in the US crude stockpile to an 11 year high.
Worldwide, the dispute between the IEA and OPEC continues, with the IEA forecasting a
shortage for the 2nd half of 2007 and OPEC maintaining that all is well. Chinese imports for May were up 11 percent over last year and world oil production remains stagnant.
Last week even the Wall Street Journal expressed its concern by noting that, “World oil demand is rising twice as fast as a year ago, straining the petroleum industry's ability to keep up with global needs and likely resulting in higher and more-volatile prices for some time to come.” The Journal concluded that the global economy has adapted to the doubling of oil prices during the past three years, bolstering demand and paving the way for higher prices in coming years.
Over the weekend, the government acceded to the demands of the unions, thereby ending the four-day general strike that brought the Nigerian economy to nearly a complete halt. Loading of crude on tankers apparently continued during most of the strike, but oil production was halted for at least two days. As the strike entered its third day, world oil prices began to rise on concerns that the strike would be prolonged, but will probably settle back this week.
The government’s agreement to the strikers’ demands marks the second major concession to pressure in two weeks. The settlement coupled with the recent release of an imprisoned militant leader suggests that the government is running scared in the face of rampant unrest. During the strike, the trade unions raised the larger issue of the division of the massive oil revenues between the ruling elite and the rest of the country’s 140 million people.
Last week, the one-month ceasefire between the militants and the government was broken by a series of engagements between one of the militant organizations and government forces. At least two dozen militants were killed during the fighting, leading to threats of further reprisals against the vulnerable oil infrastructure.
The recently released militant leader Dokubo-Asari has begun to make public statements calling into question the viability of the Nigerian federation and demanding that the oil rich delta be given its independence.
As the June 26th deadline for settling the details of Caracas’s nationalization of the Oronoco
heavy oil processing facilities nears, one or more of the major oil companies (Exxon, Conoco,
Chevron, Statoil, BP and Total) seems to be on the verge of rejecting Venezuela's terms and
pulling out of the country. On Friday, President Chavez, who had just met his energy minister to review the progress in negotiations, said "Well if they do not want (to accept the terms), I told the minister to tell them they can go, that they should leave, that we, in truth, do not need them."
The day before, ExxonMobil’s CEO said he expected negotiations would go on beyond the June 26 deadline set by the government. Speculation centers on Conoco, which refused to sign preliminary agreements, and Exxon as the two most likely candidates to pull out of Venezuela and take the nationalization issue to the courts.
Despite much brave talk of going it alone on the part of Chavez, the departure of one or more major oil companies is likely to further reduce Venezuela’s sagging oil production. The Oronoco heavy oil projects which have the capacity to produce 600,000 b/d are already reported to be producing less that 400,000 b/d.
It was a busy week on Capitol Hill culminating with the Senate’s passage of a new energy bill. After much contentious debate and compromise, the centerpiece of the bill became an increase in average fuel economy for all cars, SUVs, and light trucks, from 25 to 35 miles per gallon by model year 2020. The bill’s passage was a major defeat for car manufacturers, which had fought for a much smaller increase in fuel economy standards.
A crucial component of the original plan that would have raised taxes on oil companies by about $32 billion and used the money on tax breaks for wind power, solar power, ethanol and other renewable fuels was cut out in the compromise. Also lost was a provision that would have required electric utilities to greatly increase the share of power they get from renewable sources of energy.
The final bill calls for a vast expansion of renewable fuels over the next decade — to 36 billion gallons a year of alternatives to gasoline — but does little to actually promote those fuels through tax breaks or other subsidies.
From a peak oil perspective, the bill does little to prepare the country for imminent oil depletion and much higher energy costs. The whole issue will now be fought over again in the House of Representatives. Given the balance of forces and ideologies in the current Congress and the general perception that we still have some time to go before energy prices and shortages become much more painful, it is unlikely that much of a start on mitigating the consequences of peak oil will be made in this Congress.
ExxonMobil blames rising prices on consumers, who are using about 1.5 percent more gasoline this year than last despite high prices. "The industry is producing record volumes of gasoline today, but the consumer is burning record volumes of gasoline today."
Rex W. Tillerson, CEO ExxonMobil, at recent annual meeting.
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