Food Or Fuel  

The Australian government has announced plans to make biodiesel made from animal fat tax free like biodiesel produced by other processes as part of their strategy to encourage development of biofuels. BP have announced plans to expand their production of ethanol from their own facilities, and to also buy sugar based ethanol from CSR and a new wheat based ethanol producer in WA. Queensland producer "Global Ethanol" is also expanding production in the US - hopefully not using some ludicrous coal based ethanol production process.

Mr Howard released the Biofuels Action Plan in December last year, bringing together plans by oil companies, members of the Independent Petroleum Group and the major retailers to develop a competitive biofuels market in Australia. He said that plan showed that the industry expected to not only meet but exceed biofuel targets of 350 megalitres by 2010. "Today's announcement by BP contributes to more than half the Government's target and affirms industry's expectation," he said.

BP president Garry Heuston said their investment in biofuel production was the culmination of many years work and demonstrated their ability to deliver cleaner fuels. "BP believes biofuels have an important role to play in strengthening Australia's security of supply," he said in a statement.

Under the BP plan, it will produce 110 million litres of biodiesel a year from its Bulwer Refinery in Queensland using tallow feedstock supplied through a contract with Colyer Fehr Tallow Pty Ltd. BP has also signed a MOU with Primary Energy Pty Ltd to buy the entire output from its new ethanol plant to be constructed at Kwinana, Western Australia. BP has also contracted to buy 23 million litres of ethanol from CSR over two years. That will come from CSR's Sarina distillery near Mackay, Queensland.

I'm not sure if there is any speculation about "peak wheat" yet but the sugar market is already being affected by increasing biofuel production, prompting warnings of peak sugar, with Jerome a Paris noting the feedback effects that occur as we approach the limits to growth.

Sugar: Prices soar as Brazil’s flexfuel cars set the pace

A mixture of free-trade politics, speculative flows of “hot” money and environmental concerns have also helped make sugar the best performing commodity this year.

(...) for once China does not appear to be the central driver of a dramatic reversal in the fortunes of a commodity market.

Instead it has been Brazil’s thirst for ethanol, derived from sugar cane, to power “flexfuel” cars that also run on petrol that has pushed sugar to a 25-year high.

One more commodity used to fuel our cars' limitless needs is running out...

About half of Brazil’s sugar cane crop is used for domestic ethanol production, with flexfuel cars accounting for almost 50 per cent of domestic new car sales. They also represent a budding export industry, with the US, Sweden and Britain already selling the environment-friendly cars.

In the past 12 months sugar has come to be seen as an energy crop because of the growth in demand for ethanol, says Sergey Gudoshnikov, senior economist at the International Sugar Organisation, which represents most of the world’s producers.

So demand is skyrocketing, because of our need for energy, and oil-substitutes. An indirect sign of peak oil, if that was ever needed. And it's happening really, really quickly.

...

... production is already lagging behind demand, and the market is getting very tight, making it vulnerable to external shocks like hurricanes (heh, in Australia this time). Isn't it strange that this is happening at the very moment these external shocks seem to become more frequent?

It is really starting to look like we are getting to the end of a lot of things at the same time, as we switch from the most depleted to others, making the depletion of these catch up extra quickly. Of course, sugar itself cannot be "depleted", but the land used to grow it can, or can reach very real limits. The article suggests that Brazil's production is stagnating despite increased land use, due to unfavorable weather impact (in that case, droughts, but these seem to happen all too frequently, and what will it be the other years?).

Bloomberg has a report on the bright prospects for gas producers in Australia like Woodside and Chevron on the back of rising LNG demand in Asia. They report that Indonesia will restrict gas exports in future to meet local demand, and also note that Qatar has a moratorium on additional gas exports (all reserved for the US ?) - signs of the coming crunch for energy importers ?

Woodside Petroleum Ltd. and Chevron Corp. may be best placed among LNG companies in Australia to benefit from surging demand for the fuel as Indonesia faces difficulty in meeting supply contracts, a consultant said.

Woodside's A$5 billion ($3.5 billion) Pluto liquefied natural gas project and Chevron's Gorgon venture are likely to be the next projects to start up in Australia, said Frank Harris, co-head of global LNG at Edinburgh-based Wood Mackenzie Consultants Ltd. Inpex Corp. and ConocoPhillips also may capitalize on increased demand for Australian LNG, he said.

Asian LNG demand may surge 40 percent to 137.8 million metric tons in 2010, and gain 43 percent to 197.4 million tons by 2015, Wood Mackenzie estimates. Indonesia, the world's biggest LNG exporter, said this week it won't extend some contracts to sell the fuel after 2010 as the gas is needed within the country.

``Australia has to be the beneficiary of the situation in Indonesia,'' Harris said in an interview in Sydney. ``Australia is perceived as a blue-chip supplier with huge reserves upside, while all its key competitors in the Pacific Basin supply business have got some sort of issue.''

This isn't entirely consistent with a report earlier in the week that the Chinese are giving up on the Gorgon project, which will presumably fill WA environmentalists with happiness while dismaying Chevron, Exxon and Shell. This could be just a Chinese negotiating tactic of course, or they could perhaps be making a strategic decision to rely more on Iranian and Indonesian gas - though the Indonesians are currently complaining about the commercial terms for some earlier deals.

China's top offshore oil firm has called off talks with Chevron over buying liquefied natural gas (LNG) from the US firm's Gorgon project in Australia, a senior CNOOC executive says.

State-run CNOOC - at the forefront of China's efforts to promote the use of cleaner-burning LNG to replace coal and oil - is building a string of terminals to receive imported LNG along the country's affluent coast. China has not secured any new LNG contracts since two big deals in 2002, casting a cloud over the future of as many as 18 new import terminals it is considering building.

...

Indonesia, Asia Pacific's only OPEC member but far richer in gas than in oil, has been pushing since January to raise prices in the long-term Tangguh contract, initially agreed in 2002 with a ceiling at the equivalent of $US25 a barrel of oil. Oil is now trading above $US62, and LNG prices have soared along with it, as top consumers Japan and South Korea vie with new buyers such as China, India and the US.

CNOOC, which has a 17 per cent stake in Tangguh, has contracted to lift 2.6 million tonnes a year - about a third of its capacity - over a 25-year period, to a terminal in Fujian. Tangguh, in the remote Indonesian province of Papua and operated by energy giant BP, has also secured contracts to supply 3.7 million tonnes per year (tpy) to the US West Coast via Mexico and 1.1 million tpy to South Korea. It is expected to produce 7.6 million tpy from two trains, with output expected from the fourth quarter of 2008.

The Indonesians aren't the only ones unhappy with LNG deals signed with China in recent years - Woodside and their north west shelf partners are also rueing not linking LNG prices to oil prices.

A landmark gas contract with China stands to cost Australia's biggest natural resources project up to A$20 billion in lost sales due to contractual terms that fail to account for the increase in oil prices to record levels, the Australian Financial Review reports Friday.

The 25-year gas contract between China National Offshore Oil Co. (CEO) and the North West Shelf Venture was struck at prices that are half those enjoyed by project operator Woodside Petroleum Ltd. (WPL.AU) on other major contracts, the paper says.

The 2002 liquefied natural gas contract doesn't contain clauses allowing the six North West Shelf partners to alter prices in line with changes in the oil price, potentially costing A$3.5 billion in lost revenue over the next six years alone, it adds.

Though Woodside has now restarted oil and gas production after Cyclone Glenda, they haven't had a great week, with the newish Mauritanian government extracting a large "oil price bonus payment" from them (along with partners ROC and Hardman) - which is kind of ironic given my speculation in the wake of last year's military coup that the previous regime's demise may have been due to them possibly "looking at renegotiating the rules under which foreign energy companies operated".

In other Woodside news, they are about to commence development on the Vincent oilfield, offshore near Exmouth.

Crikey has an article by Michael Pascoe asking which will crash first - Gulf stockmarkets are the US housing market ?

Almost unremarked on by the western media, the Gulf stock markets have been suffering a very wild ride over the past month, crashing over a confidence wobble and presently trying to stabilise with some official help.

Meanwhile, the US home market – the real estate boom that has underpinned the Consumer of Last Resort for the past two years – is having a smaller but perhaps more serious wobble of its own.

The question for investors is whether either of these issues is internationally serious. The answer is that the first is more fascinating but the second is the one that counts.

It's been a very important week for the Gulf stock markets themselves as attempts are being made to build a floor under the bursting bubble. Aside from the Saudi Royal family promising to kick in a few billion of its own in support – reminiscent of some of Wall Street's kings pledging to buy in late 1929 – the Saudis have allowed foreigners to buy stocks there for the first time, although they're still excluded from the IPO casino.

The Gulf States' markets have been riding the oil price bubble to enormous excess, so that the falls of 20%, 30% and even 50% around the region up to the middle of the month are actually not unreasonable. The worry is that, in these feudal states, citizen speculators aren't used to having their bets go wrong and are likely to blame their rulers who are supposed to control just about everything.

The Financial Review's "Lies and Statistics" column this weekend (hidden behind their stupid paywall) has a look at the supply problems facing the nuclear power industry, concluding that "nuclear power cannot offer a medium term, stand-alone solution to carbon emissions" (in spite of all the propaganda coming out of the nuclear power industry to the contrary).

The "Capital Idea" column is also a good one this week, with Brian Toohey taking aim at the "easy target" of Tony Blair and criticising Kim Bezley's obseqeious behaviour during the British Labour party leader's recent visit, and pointing out that "Blair is a descredited politican who is rightly in such bad odour that he has to step down before the next UK election - chalk up one for democracy !".

Blair told the Australian Parliament Iraq and Afghanistan were now engaged in a "titanic struggle to be free of a legacy of oppression, stagnation and servitude".

They're not. Apart from Iran, the main winners from the invasion - assuming the death squads eventually disband - are Iraqi Shiite clerics who support religious oppression, female servitude and economic stagnation. They have already won constitutional changes installing Islam as the source of all laws.

...

Nor does terrorism threaten our values, as Blair claims. Terrorism may threaten a relatively small number of lives, but it can't threaten our values. Only we can do that.

And we (or our respective goverments anyway) are doing a thorough job of it.

Exxon's new chairman appears to be taking a marginally less neanderthal approach than his unloved and unmissed predecessor Jabba, making some soft warbling noises regarding global warming but still maintaining the head in the sand approach as far as business goes.

If Rex Tillerson has his way, Exxon Mobil will no longer be the oil company that environmentalists love to hate.

Since taking over as Exxon's chairman three months ago from Lee Raymond, an abrasive personality who dismissed fears of global warming and branded environmental activists "extremists", Mr Tillerson has gone out of his way to soften Exxon's public stance on climate change.

"We recognise that climate change is a serious issue," Mr Tillerson said last week, pointing to a recent company report that acknowledged the link between the consumption of fossil fuels and rising global temperatures. "We recognise that greenhouse gas emissions are one of the factors affecting climate change."

But despite the shift in style to a less adversarial tone, the substance of Exxon's position has not changed with the new chairman. The company said the recent report only clarified its long-held position on global warming. Indeed, Mr Tillerson noted that he, like Mr Raymond before him, remained convinced that there was "still significant uncertainty around all of the factors that affect climate change".

I've been watching "As It Happened: 2013 - Oil No More" on SBS (very intermittently, as it is clashing with the opening game of the football season). It contained some interesting interview sections, interspersed with the fairly silly (nothing compared to the ridiculous umpiring decisions in the football though) oil crash scenario presented in the fictional part.

In the spirit of April Fools Day, 2013: Oil No More will screen on SBS Television on Saturday 1 April at 7.30 pm in the As It Happened timeslot.

More than 80% of the global economy relies on petroleum. What would happen if the world's oil supply dried up overnight? This hard-hitting, doco-drama unravels the catastrophic scenario and examines the responsibility of the media, politicians and corporate leaders.

Directed by Stephane Meunier and starring Hippolyte Girardot,Gwendoline Hamon and Helena Noguerra. 2013: Oil No More is a doco-drama based on the idea that oil companies, having vastly overstated their oil reserves to keep their value high, are faced with a wave of terrorist attacks aimed at jeopardising oil supplies to the West. Reluctantly, the oil companies have to announce that there is only two years of supply left.

2013: Oil No More features dramatised interviews with 'scientists', 'economists', 'environmentalists' and 'Green politicians' and follows the fictitious life of greedy stock broker Paul. He has invested 90% of his company's shares in oil and watches with glee as the price of petrol skyrockets, until his professional and personal life are directly affected as a disastrous recession takes hold of the oil-dependent world.