Random Notes  

The IMF has warned about the hazard another oil price shock poses to the world economy. One could say this is stating the obvious.

Releasing its bi-annual World Economic Outlook overnight, the global organisation downgraded its forecasts for world economic output by 0.1 percentage points to 4.3 per cent next year, warning of "potentially serious adverse effects on the global economy" from any further "substantial" jumps. While the impact of higher prices had so far been "surprisingly moderate", this was mainly because consumers viewed the price movements as temporary. But future movements would be "less benign", the IMF argued.

A fundamental de-coupling of price movements from "long-run market fundamentals" had occurred, the IMF said, meaning oil prices were now at the mercy of unpredictable shifts in confidence about supply, rather than a steady build in demand.

"With recent oil price increases owing less to demand pressures, further price increases could have a less benign impact, especially if they had a significant effect on consumer confidence and therefore spending," it said. And furthermore, "with the market very tight and long-run futures prices increasingly poorly grounded, a substantial further jump in oil prices cannot be ruled out."

There was an almost one in six chance that benchmark crude oil could top $US80 a barrel, the IMF said, based on observations from options markets.

While many observers are looking for prices to remain high, not all of the oil companies are convinced, according to this report from the International Herald Tribune (via Rigzone). The article also takes a brief look at the propsects for tar sands and heavy oil in Canada and Venezuela. Stuart at The Oil Drum also has a post up on "low quality hydro-carbons" (I've cast a jaundiced eye over tar sands, shale and coal-to-liquids in the past).

High prices are changing the economics of marginal oil developments; but oil companies are not betting the prices will last.

With benchmark prices topping $70 a barrel on Aug. 30, and contracts for future delivery holding above $60, the companies are looking again at projects demanding expensive technology and secondary recovery techniques, and at unconventional reserves in Canada and Venezuela. Investment in Canadian oil sands and shale projects topped $6 billion in 2004, while production of extra-heavy crude from Venezuela's Orinoco belt has risen 20 percent in two years. But, while some analysts say high prices are here to stay, and most industry observers expect them to hold at least into 2006, most major oil companies are still basing their long-term plans on an assumption that supply and demand will eventually return prices to historic average levels, said Yasser Elguindi, an industry specialist and senior managing director of Medley Global Advisors, based in New York.

"Oil companies still are not sure that a paradigm shift has occurred in the oil market and are still conservatively pricing a $20 to $30 long-term oil price," Elguindi said in a telephone interview last week.

Royal Dutch Shell is a case in point. "With a $15 billion per year investment program and upward pressures on price and costs, Shell plans for medium term cash neutrality at around $25 per barrel," the company said in its most recent strategy review. At that level, oil from the Persian Gulf, costing $2 to $4 per barrel to produce and accounting for more than 60 percent of global proven reserves, would still be profitable. Unconventional reserves would be far less so. Middle East producers, not surprisingly, are hastening to bring new oil into production.

...

Although usually excluded from the global tally, Canada's sands reserves are impressive. According to the producers' association they contain 315 billion barrels of potential crude bitumen, of which 174 billion barrels are in areas under active development. For comparison, oil reserves in the Middle East total 727 billion barrels.

In Venezuela's Orinoco belt, extra-heavy crude, which is heavier than water and nonfluid in normal conditions, has been under development since the 1980s. Four joint ventures between the state oil company, Petroleos de Venezuela, and foreign partners now extract 600,000 barrels a day of extra-heavy crude and upgrade it into a synthetic light crude that can be marketed and refined internationally. Yet, the technical challenges mean that in both Canada and Venezuela the investment is higher, and must be sustained for longer, than in conventional crude oil developments. Indirect costs may be higher too.

"Investors tend to analyze unconventional oil projects in isolation, but the reality is that there are associated infrastructure development costs that must be factored into the price," Elguindi, of Medley, said.

These costs may be calculable. The future oil price is not. The difference will determine how fast unconventional resources are developed. "While we do not believe that oil prices will stay at $70 for the long term, we must certainly also believe that the long term price is no longer $25," Elguindi said.

The NRMA is asking for the ACCC to be able to control petrol prices. They also note that high prices are likely to be here for good, regardless of opportunistic rises in refiner margins.

Today's summit will include representatives from federal and state governments as well as business, motoring, farming and consumer groups. However, the four big oil companies - Caltex, Shell, BP and ExxonMobil - have refused to attend. The NRMA will push for a fresh inquiry by the Australian Competition and Consumer Commission to examine the pricing practices of oil companies. "The refiners have been engaging in some opportunistic profiteering and they should be required to pull their horns in," Mr Evans said.

The motoring organisation, which has more than 2 million members, will also propose tax incentives for the development and use of alternative fuels as well as state government subsidies to reduce prices. A new poll by the NRMA found 70 per cent of motorists wanted more regulation of oil firms and less than one in four motorists blamed service stations for high fuel costs.

An NRMA summit discussion paper said the price of petrol was likely to "settle around $1.20 per litre, but will be prone to price shocks caused by events such as hurricane damage, large-scale industrial accidents, and terrorism attacks". The paper said the rising price of fuel had "massive implications" for the Australian economy and would affect the whole community.

Hurricane Rita is looking very ominous for those in Texas now - The Oil Drum, Rigzone and WorldChanging have commentary and, on the first two, regular updates. Stuart at TOD also has a note on the linkage between global warming and hurricane strength. I hope my regular readers in Texas all come through unscathed - good luck guys.

Mike Ruppert has a characteristically alarming analysis of the fallout in the wake of Rita. I'm surprised it wasn't called "The Wind, It Has Begun".

A Bloomberg article today contains a quotation from a Wall Street energy expert as saying, “‘Rita is developing into our worst-case scenario,’ said John Kilduff, vice president of risk management at Fimat USA in New York. ‘This is headed right into our other major refining center just after all the damage done to facilities in Louisiana. From an energy perspective it doesn't get any worse than this.’”

The Chairman of Valero Energy agrees with the Bloomberg assessment calling Rita a potentially national disaster. His opinion is important because Valero operates more refineries in the US than any other company.

CNN is now predicting $5 per gallon gasoline and this will not likely go away with market manipulations. We had not yet experienced the permanent spikes resulting from Katrina, and the emergency reserves of the United States’ Strategic Petroleum Reserve and the International Energy Agency have already been tapped once and not refilled.

The South Texas Project nuclear plant – one of the largest in the country – is being completely shut down in preparation for Rita’s landfall. It is only 12 miles from the Texas coast and almost dead center in the hurricane’s projected path. Texas has its own power grid but catastrophic electricity shortages could easily ripple throughout the country in a short time. Electricity lost from that that facility will only be added to what is lost from other facilities powered by now critically short supplies of natural gas.

For those of you who expect FEMA to behave any differently in Texas than it did in New Orleans you are in for a crude awakening. FEMA will do what it must now do to preserve even a functioning part of America’s governing and economic infrastructure. Saving lives will be one of the least important functions in its mandate. While I had serious doubts about America’s ability to recover from Katrina, I am certain that – barring divine intervention – the United States is finished; not only as a superpower, but possibly even as a single, unified nation with the arrival of Hurricane Rita.

Woodside is reporting the Chinguetti project off Mauritania is on schedule and will be producing from February 2006 (as did Hardman in their results briefing yesterday). They have also continued drilling the nearby Tevet prospect.



Japan says China is pumping oil and/or gas from the East China Sea. China agrees and says it is happy to discuss this with Japan. Both sides seem to be saying that Chinese drilling is on China's side of the maritime border, albeit near a disputed area, so I'm not sure why the Japanese are making so much fuss about it.

WorldChanging has an introductory article on biodiesel.

let's say you do have a diesel car, live where it's still relatively warm, and want to give this whole biodiesel thing a try. While some truck stops may have biodiesel/petrodiesel mixes available (usually "B5," 5% bio, or "B20," 20% bio), most biodiesel aficionados actually make it themselves. And that remains one serious advantage of biodiesel: it's the only fuel for your car you can make at home in the kitchen.

Instructions for making biodiesel at home aren't too hard to find online, but one of the better recipes comes from a site that's rapidly becoming one of my favorites: inhabitat, a site which mixes innovation, design and sustainability. Inhabitat writer Sarah Rich gives a detailed DIY guide for "brewing biodiesel," using a process that she uses herself. It's a good mix of science and straightforward step-by-step instructions, and makes me long for an as-yet-unavailable diesel hybrid.

WorldChanging also has a post on a conference on CO2.

Through September 29, researchers will present papers on issues such as the future of long-term energy demand, uses of atmospheric sampling, the value of autonomous underwater vehicles for monitoring the ocean, the carbon cycle in Africa, comparisons of climate/carbon models and actual atmospheric measurements, and crafting an effective response to CO2 build-up. (The links here go to abstracts; the proceedings will be available on the ICDC7 website once the event begins.)

Expect some real news to come out of this conference, and expect that the mainstream media in the US will be picking up more of it than they might otherwise (the BBC is likely to have substantive coverage, as well, but this is just the sort of thing they tend to follow closely). Katrina -- and now Rita -- has sensitized the America press to the risks arising from intense weather events. Given the increasingly clear connection between hurricane strength and a warming climate, news about what we can expect from -- and what we can do about -- global warming is likely to draw some attention.

Energy Bulletin has an article on the continuing shortage of solar panels (due to rising demand in all sorts of places). LJ notes this has been going on for some time now.

Finally, the beginnings of a bird flu epidemic may have appeared in Indonesia.

Its been quite a day out there.