1. Oil and Gasoline
3. Iran Rations Gasoline
4. The IEA's Economist
5. Energy Briefs
Crude oil rose to a 10-month high in New York last week and gasoline extended its three-day climb on expectations that demand will accelerate with the summer travel season. Last week’s EIA stockpiles report showed gasoline stocks falling by 749,000 barrels in the face of analysts’ predictions of a 1.5 million barrel increase. Even though refinery utilization recovered by 1.8 percent and imports were a healthy 1.1 million b/d, higher demand, which has been averaging 9.54 million b/d, 1.4 percent above last year, is drawing down stockpiles. Distillates stocks were down by 1.5 million barrels as refiners concentrated on gasoline. The American Petroleum Institute, which surveys stockpiles and does not always agree with official EIA estimates, reported that gasoline stocks were down an impressive 5.3 million barrels and that demand for gasoline was approaching 10.5 million b/d.
The EIA warned last week not to expect gasoline production to increase or decrease directly with changes in refinery throughput. As refiners can produce gasoline using partially processed feedstocks from storage, when sections of refineries are out of service gasoline production can increase even though refinery utilization drops.
So far the numbers and recent history suggest that higher prices are in store before Labor Day, apart from potential hurricane damage. If the much more pessimistic API numbers are anywhere near correct, even shortages seem possible.
The second shoe dropped last week when Exxon, Conoco, and Petro-Canada announced they were pulling out of Venezuela rather than accede to President Chavez’s terms for handing over their stakes in the Oronoco heavy oil projects to the national oil company, PDVSA. Negotiations over compensation for the multi-billion investments could last for up to 6 months and would go to international arbitration if no accord is reached. After that the US companies could seek to attach PDVSA assets, such as refineries of its subsidiary, Citgo Petroleum, pending a final agreement. Venezuela President Hugo Chavez has said he might sell Citgo or cut off oil sales to the US, which gets 14% of its oil imports from Venezuela.
Four other international companies—Chevron, Statoil, BP, and Total apparently accepted the accord that will keep them involved in the Orinoco projects.
Chavez still hopes to attract more than $21 billion in foreign investment to boost Venezuela's oil production to 5.2 million b/d by 2012, up from 2.4 million b/d currently. Analysts say the nationalization program likely will disrupt those plans. Venezuela's oil production has fallen 25% since Chavez took office in 1999, largely as a result of the layoffs of more than 20,000 experienced PDVSA engineers and executives. Last week, Chavez was in Moscow on an arms-buying mission, but also to invite Russian oil companies to replace the US companies in developing the Oronoco oil basin.
The government has been warning for weeks that it would start rationing soon, but the announcement Tuesday night -- only three hours before the measure went into effect at midnight -- startled Iranians and sent them rushing to fill their tanks. Long lines turned violent at several gas stations and at least 12 were set on fire after station managers closed at midnight to adjust their pumps for the rationing cards.
Under the rationing plan, owners of private cars can buy 100 liters of fuel per month at the subsidized price of 38 cents per gallon. Taxis can get 800 liters a month.
Because so much of its refining capacity was destroyed in the Iran-Iraq war, Tehran must import approximately 50 percent of its gasoline. The large subsidy means that the government budget is absorbing an onerous loss of nearly $2 per gallon on half the gasoline consumed. There is also increasing talk that an embargo on gasoline imports might be the next step in pressuring Tehran to begin serious negotiations over its nuclear program.
Members of Iran’s parliament are already highly critical of the rationing move, saying that consumption should be cut through free market pricing rather than arbitrary limits. Over the weekend Iran’s supreme leader Ayatollah Ali Khamenei weighed in to support the government’s “brave” move.
At a minimum, rationing is bound to result in a black market for gasoline and may result in further disturbances. Members of parliament are already talking of coming back in special session to deal with the situation.
In an important interview for the French daily Le Monde last week, Fatih Birol, the International Energy Agency’s chief economist, implied that peak oil is just around the corner. Birol said “if Iraqi production does not rise exponentially by 2015, we have a very big problem, even if Saudi Arabia fulfills all its promises. The numbers are very simple, there's no need to be an expert.”
Speaking of Saudi Arabia he said, “I understand the Saudi government claims 230 billion barrels of reserves, and I have no official reason not to believe these numbers. Nevertheless, Saudi Arabia - as well as other producing countries and oil companies - should be more transparent in their numbers. Oil is a crucial good for all of us and we have the right to know how much oil, as per international standards, is left. “
This interview marks another major step in the IEA’s admission that world wide petroleum production is unlikely to grow as much as they have been forecasting in the recent past. By saying that he has no “official” reason to doubt Saudi claims that they will be able to increase production to 15 million b/d in the by 2015, Birol implies that there is room to doubt the claim. By emphasizing the importance of Iraq, he is recognizing that it is the only country with enough potential to substantially increase production in the next 5-10 years.
Without substantial increases in output from both these countries, the world in unlikely to reach the optimistic production goals forecast in the IEA’s official projections.
“Contrary to public perceptions, renewable energy is not the silver bullet that will soon solve all our problems.” Shell’s chief warned that supplies of conventional oil and gas will struggle to keep pace with rising energy demand; he called for greater investment in energy efficiency.
— Jeroen van der Veer, CEO of Royal Dutch Shell, reported by The Times.