1. Crude and Gasoline
2. The OPEC Meeting
3. In the Congress
4. African Power Crisis
5. Energy Briefs
It was another volatile week as oil prices first fell with the stock market and then spiked to a new intra-day high in New York of $78.77 a barrel after US crude stocks fell by 6.3 million barrels --- ten times what analysts were expecting. After the report was digested, oil prices fell on profit-taking, increased gasoline stocks, and concerns about the US economy.
Gasoline, diesel and heating-oil stockpiles climbed in the week ended July 27 as refiners raised operating rates to 93.6 percent of capacity, the highest in 13 months. With US refineries doing well, concerns of gasoline shortages during the remainder of the summer driving season have subsided to be replaced by worries about the worldwide crude supply in the face of increasing demand. While the US commercial crude stockpile is still well above normal, it has been decreasing for the past month. If US refineries continue to process 16+ million b/d and US imports continue to average around 10.2 million b/d as they have in recent weeks, the US crude inventories would continue to decline by 5 million barrels per week.
The stock market fell on Friday after a report showing weaker-than-expected job growth was followed by reports of slowing service-sector growth and further turmoil in the mortgage market. Then oil fell on concerns that the US could be approaching a recession. The balance between tightening oil supplies and fears of an economic downturn probably will be the predominant force affecting oil prices for the rest of the summer.
The OPEC meeting scheduled for September 11th in Vienna could turn out to be a watershed event. Last fall OPEC cut production by about 1 million b/d in order to counter falling oil prices. Since the cuts, however, world demand has continued to grow by what may be a million b/d. An even higher price increase occasioned by OPEC production cuts has been avoided by greatly reduced oil consumption in poor countries and the drawdown in oil stockpiles outside the US.
Lately, there have been numerous reports speculating about what OPEC will decide about production levels at the September meeting. The “official” OPEC position still seems to be that the “market is well supplied” and that there is no obvious need for a production increase. Recently, however, the IEA and US Secretary Bodman have asked OPEC to increase production immediately in order to avert shortages in the near future. Bodman went so far as the say that $80 oil would threaten the US economy.
Thus far responses from OPEC officials have been all over the board. The most conciliatory remarks came from the organization’s Secretary General who said OPEC would be “uncomfortable” if oil prices went above $80 a barrel. Other oil ministers, especially from countries that have little hope of raising production in the near term, have reiterated that high prices stem from refining and geopolitical problems and that they are dead set against a significant production increase in September
At the September meeting, the issue of a production increase likely will depend on Saudi Arabia, as it is the only OPEC country that might be capable of significantly increasing output. Last week the Saudis announced that they expect to add half-a-million b/d to their maximum production capacity of 10.8 million bpd by year’s end. If this is the true level at which the Saudis are able to produce marketable grades of oil for an extended period, then they may be able to increase production. Many observers are skeptical. Saudi willingness to increase production is a complicated question bound up with Iraq, Iran, arms sales, and a myriad of other factors.
On Saturday, the US House of Representatives passed legislation to increase the use of renewable energy and promote conservation at the expense of the oil and gas industry. The new bills include a provision that would require that 15 percent of electricity from private utilities come from renewable energy sources. Republicans called it a "no-energy bill" because it lacks new drilling incentives, and they derided the emphasis on renewables as "green pork." The White House and the electricity industry are strongly opposed to the Renewable Electricity Standard, saying that it would raise electricity prices and put unequal burdens on states.
A companion bill would repeal roughly $16 billion in tax breaks for the oil industry enacted in 2005. Some of the money would be used to pay for the research grants and renewable-fuel projects. Republicans and oil-state Democrats criticized provisions in the tax portion of the House bill that would repeal reduced tax rates for major integrated oil companies, and drop foreign income tax deductions for companies that produce oil and natural gas overseas.
The House did not to allow a vote on an amendment requiring cars and light trucks to achieve a fleet average of 35 miles per gallon by 2019. The measure, similar to one the Senate passed in June, drew fierce opposition from automakers, the United Automobile Workers and, crucially, John D. Dingell. As chairman of the Energy Committee, Dingell says he wants to deal with fuel standards in global warming legislation later this year.
The House and Senate bills now go to a conference committee which will attempt to reconcile the differences. After reconciliation, the bills have to get through a possible Presidential veto. ``This isn't even close to being over,'' said Tom Kuhn, president of the lobbying group for the utilities. Given the current balance of forces in Washington, it seems likely that nothing will really be settled until after the 2008 elections, unless much higher energy costs intervene first.
The twin scourge of drought and $75 oil is causing unprecedented hardships all over Africa. This year at least 25 of the 44 sub-Saharan countries are facing serious electricity shortages.
Some nations, like Ghana, have tried to deal with their power crises by leasing gas generators, producing emergency power at exorbitant rates until new power plants can be built. In Nigeria, Angola and some other nations, virtually all businesses and many residents run private generators to supplement public service, adding to costs and increasing pollution. Daily electricity output in Nigeria has dropped 60 percent from its peak, and blackouts cost the economy $1 billion a year.
In Kenya, Tanzania, Uganda and parts of West Africa, drought has shrunk rivers and cut the generating capacity of hydroelectric dams. Drought in Ghana has crippled gold and aluminum production and set off blackouts in Togo and Benin, which buy power from Ghana.
Zambia’s plan, like those of most other nations, is to build its way out of the power crunch. It plans $1.2 billion in generating upgrades and new capacity, financed mostly by China and India. South Africa plans more than $20 billion in upgrades; Congo is contemplating a hydroelectric station that by itself would increase capacity outside South Africa by 50 to 75 percent. The best answer, most experts agree, would be for nations to cooperate on large regional power plants that could supply power more cheaply and efficiently than dozens of smaller ones. In the meantime, the situation is likely to get worse.
"Supply is going no place, and demand is rising 2.5% to 3% a year.”
— Economist Philip Verleger Jr. of Aspen, Colo.
“US natural gas production is declining despite a large increase in the number of producing wells . The US natural gas peak was at 22 Tcf/a in 1973 with about 100,000 wells; 2005 production was at 19 Tcf/a with 400,000 wells.”
— Jean LaHerrere, ASPO-France