1. Production and Prices
2. The Energy Bill
5. Energy Briefs
Oil prices had a quiet week in front of the holidays. Many traders were said to be in a low risk mode, protecting their annual bonuses, prior to the end of the year. News of the week was highlighted by a Turkish military incursion into northern Iraq, a winter storm in Northeastern US, an unexpected 7.6 million barrels drop in US commercial crude inventories, and a statement by the incoming OPEC President that a production increase in February should not be ruled out.
Public oil production figures are somewhat confused at present. All agree that OPEC increased production substantially in the fall. Most of this increase came from higher Saudi production and Iraqi exports through the usually inoperable northern Iraqi pipeline to Turkey. The UAE had a major oilfield shutdown for maintenance in November which led to expectations of additional OPEC increases when production resumed in December. Oil Movements, a British tanker-tracker firm, now expects that OPEC shipments during December will fall. Earlier reports had Oil Movements saying OPEC production was on the rise.
China’s diesel shortage appears to be continuing and diesel imports continue to climb. A warmer winter is now forecast for most of the US. Last Friday, oil prices jumped $2.25 to close at $93.31 based on a report that US consumer spending had jumped 1.1 percent in November; however bad economic news suggesting tough economic conditions in 2008 continues to accumulate.
President Bush signed the new energy bill last week which, in addition to raising CAFE standards to an average 35 mpg by 2020, contains provisions for the electrification of transportation; improved standards for appliances and lighting; energy savings in buildings, industry, and public institutions. The bill also contains provisions for increased energy-related R&D and a variety of other initiatives.
Missing from the final bill were provisions to increase taxes on the oil industry and to impose mandatory standards for renewable fuels. These were opposed by the White House and lost narrowly in a Senate vote. The Democrats promise to revisit these subjects next year.
In a related development, the EPA Administrator overruled the unanimous opinion of his legal and technical staff and blocked California's effort to cut greenhouse gases from cars and trucks. California’s emission regulations, which have either been adopted or are nearing adoption by 18 states, would have the effect of overriding the new CAFÉ standards by requiring car makers to produce vehicles considerably more efficient than the newly adopted 35 mpg average. California will take the matter to court.
The energy bill mandates increases in biofuels production to 36 billion gallons by 2022. Corn ethanol production is capped at 15 billion gallons per year starting in 2015; the remainder is expected provided by “advanced biofuels”, the majority of which are expected to be cellulosic biofuels which have not yet been commercially produced. [Ed. note: Congressman Roscoe Bartlett, the country’s most out-spoken elected official on the subject of peak oil, was strongly against the corn ethanol measure. ASPO-USA agrees with him.]
PEMEX announced last week that Mexico’s production for the first 11 months of this year averaged 3.09 million barrels per day, down 188,000 b/d from the same period last year and from a peak of 3.38 million b/d in 2004. Production in November was 2.9 million b/d and output from the Cantarell oil field dropped to 1.3 million b/d from a high of over 2 million three years ago.
Mexico’s Energy Minister said recently that PEMEX’s average daily production will drop by 1 million barrels to 2.1 million barrels within nine years unless Mexico's Congress changes laws to give the company more independence and allow more private investment in the oil industry. A drop of this magnitude, coupled with increasing domestic consumption, would largely eliminate exports. Oil now accounts for 16 percent of Mexico’s export revenues and provides 40 percent of the Federal budget.
Legislators will discuss an energy reform bill in the Congressional session that begins in February. The bill would allow private companies to invest in oil refining and pipelines to free up funds for PEMEX to spend on exploration and production. Under Mexican law PEMEX controls the oil industry from production to refining to selling gasoline to consumers. Mexico has not built a new refinery in 20 years; it has to import 40% of its gasoline from the United States. In November PEMEX’s gasoline imports increased to 382,000 b/d, up 12.8 percent from October, due to refining problems and a growing car fleet.
Russia’s natural gas monopoly has been much in the news lately as board chairman Medvedev became the favorite to become Russia’s next President. President Putin is rumored to become Russia’s next Prime Minister, chairman of Gazprom, or both. Political infighting has produced claims that Putin has $40 billion stashed away in Switzerland, a claim he vigorously denies.
Last week, Russia, Kazakhstan and Turkmenistan signed an agreement to build a natural gas pipeline along the Caspian Sea coast. The deal ended months of arguments over the price of gas supplies and reaffirms Russia's monopoly on gas supplies from Central Asia. The agreement will likely disappoint the U.S. and the European Union, which have been lobbying for a rival pipeline to be built under the Caspian Sea, bypassing Russia.
The new pipeline agreement has again raised concerns about whether Gazprom will be able to supply customers in Europe much longer. Developed fields are almost exhausted, and tapping new reserves involves technical difficulties. The 550 billion that Gazprom produces each day is just enough to satisfy its domestic market which means that it must import gas from Central Asia to resell to customers in Europe. Since only the Europeans pay full market rate, Gazprom relies on its export sales for most of its earnings.
The Central Asia countries are beginning to cut natural gas deals with China which has the potential of reducing supplies to Europe.
“There is real concern out there about the availability of oil in the world.”
—US Energy Secretary Bodman following the signing of the comprehensive energy bill
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.