1. Crude Oil and Gasoline
2. The IEA's Medium Term Oil Market Report
4. Energy Briefs
Brent crude touched an 11-month high of $77.68 on Friday -- a dollar short of last August's $78.65 all-time record. Oil has gained more than $6 in the last two weeks on a wave of buying by funds. There are a number of factors contributing to the higher prices including: an IEA projection that supplies will be tighter in the second half of the year; partial closure of a pipeline bringing North Sea gas and oil to shore; high levels of demand for gasoline in the US this summer; maintenance shutdowns on Norwegian platforms; and the possibility that a hurricane could damage Gulf oil production next month.
Last week’s US stockpiles report contains a mixed picture of what might affect the rest of the summer. Demand for gasoline was reported as hitting 9.63 million b/d which is just short of the July 2005 all-time high when 9.72 million b/d were consumed. Thanks to an average of 1.4 million b/d of gasoline imports, US gasoline inventories rose by 1.2 million barrels during the week ending July 6th. Gasoline inventories have increased in 9 out of the last 10 weeks, thereby easing fears that gasoline shortages will develop later this summer despite the consumption levels.
In Sioux Falls, Iowa, however, gasoline prices climbed to an average of $3.27 per gallon on Friday - up about 25 cents in two weeks. The July 1 shutdown of an oil refinery in Coffeyville, Kansas - caused by flooding - and the closing this week of a key piece of oil processing equipment at the BP Whiting, Indiana refinery are to blame.
The surprise of the week came last Monday when the International Energy Agency (IEA) in Paris released its Medium Term Oil Market Report. For the first time, this normally mundane projection began with an ominous sentence, "Despite four years of high oil prices, this report sees increasing market tightness beyond 2010, with OPEC spare capacity declining to minimal levels by 2112.”
The IEA starts with the assumption that the world’s economy will grow at an annual rate of 4.5 percent and that demand for oil will grow by 2.2 percent each year until 2012. Demand for oil will increase from the current 86.1 million b/d to 95.8 million b/d. Most of this increase in demand will be coming from Asia. This, as critics and the IEA itself have already pointed out, assumes that higher oil prices do not trigger a worldwide economic recession, or worse, thereby significantly cutting demand.
When the IEA looked around at just where this 9 million b/d increase is going to come from, and recognizing that worldwide depletion from existing fields is running at an annual rate of 3 million b/d, the agency acknowledged that the numbers simply don’t add up. First the IEA correctly noted that an insurgency in Iraq and rampant nationalism in Iran and Venezuela suggest that there will be little if any increase in production from these countries in the next five years. Increases in Nigerian production will have to come from offshore fields as the IEA sees little chance that shut-in production will be restored soon.
The IEA foresees non-OPEC supplies increasing during the forecast period to 52.56 million b/d from 49.98 million b/d today, with the growth rate diminishing after 2009. The Agency also sees natural gas liquid production, which is not subject to OPEC quotas, increasing from 4.86 million b/d to 7.08.
To close the demand/supply gap by 2012 IEA forecasts these increases by OPEC states will be needed: Saudi Arabia, 1.77 million b/d to 12.57 million b/d in 2012; the United Arab Emirates, 500,000 b/d to 3.38 million b/d; Angola, 500,000 b/d to 2.17 million b/d; Kuwait, 420,000 b/d to 3.06 million b/d; Nigeria, 370,000 b/d to 2.84 million b/d; Qatar, 210,000 b/d to 1.16 million b/d, Algeria, 190,000 b/d to 1.56 million b/d; and Libya, 170,000 b/d to 1.92 million b/d. This is a tall order.
Although getting close, the IEA is not yet ready to say that world oil production will peak soon, perhaps plateau, and then decline. For now the Agency will say that non-OPEC “conventional crude” may have reached a plateau, not a peak. They are clinging to the notion that there is still growth potential in “non-conventional” resources and perhaps in the unexplored parts of Iraq and Saudi Arabia.
The Agency, however, clearly recognizes that there are serious impediments in the way of increasing production as easily as in the past. New supplies from deepwater and arctic fields are becoming harder to develop, posing greater technological challenges and requiring higher levels of investment.
Officials from Pemex said an explosion Tuesday and two more later in the week shut down different sections of a 36-inch pipeline carrying natural gas from central Mexico City to Guadalajara. The group claiming responsibility for the pipeline attacks is the "military zone command of the People's Revolutionary Army," or EPR, a tiny rebel group that staged several armed attacks on government and police installations in southern Mexico in the 1990s.
While some US analysts downplayed the significance of the attacks, the lack of natural gas forced some 1200 factories to shut down or reduce production and caused $10s of millions in lost revenue. Among the factories losing production were those belonging to Honda, Nissan, Kellogg and Hershey. By the end of week the pipelines were repaired and production is expected to return to normal this week. The rebels vowed to carry out further attacks on Mexico's 14,000 km of pipelines.
“The latest report from the International Energy Agency makes scary reading. You don't have to be a ‘peak oil’ doom-monger to believe the world faces an energy crunch. Investors, and everyone else for that matter, need to think through the implications of a significantly higher oil price.”
--- Tom Stevenson, The Telegraph (UK)
ASPO-USA will be issuing a special edition of the Peak Oil Review this week. The entire issue will cover our summary response to the NPC’s’s “Facing the Hard Truths about Energy” report being issued this week. Our special issue will go out between late Monday and sometime Wednesday, depending on events.
The NPC will present their report on Wednesday July 18th at 9 a.m. in Salons D&E of the Marriott Hotel at 1331 Pennsylvania Ave. N.W. in Washington D.C. To tune in by webcast, check their website (www.npc.org) for details. The NPC will also be posting their report on-line sometime this week, portions of it possibly as early as today (July 16th).
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.