[as you get further and further back in time, fewer and fewer links actually work...So it goes]
Return of Son of the Trade Gap Grows Even Worse, Yet Again
With boring regularity, the trade deficit has risen to yet another record. So where are the equilibrating forces that will staunch the hemorrhage of dollars? Offset by capital inflows. Once again the proverbial Belgian dentist has favored the US with her stock market money. But why? US returns in March q.v. were better, but weren't that great compared to, say, the Dax. q.v. When she begins to factor currency risk into the equation, will she continue to send all her euros abroad? A quick uptick in the euro, continued drops in the Dow/Nasdaq, and she could be looking at a loss. If so, how quickly will she then want to repatriate her money?
The US just went through the warmest first quarter for any year ever
Iranian institute's appraisal of Russia's appraisal of Saudi actions in Central Asia. q.v. ... and their appraisal of US role in Central Asia. q.v.
Taliban warns neighbors not to let Russia launch air strikes. q.v.
Wash. Post on the mysterious Itera Corp. q.v. Also q.v.
Amnesty International's Report on the Saudis
Read Amnesty's assessment of the sorry state of basic human rights in Saudi Arabia. The Saudis are currently the largest foreign supplier of crude to the US and have been an important supplier for decades, but they never seem to get beyond having a prehensile judicial system.
If you don't trust Amnesty, read the State Department's assessment. q.v. "The Government commits and tolerates serious human rights abuses. Citizens have neither the right nor the legal means to change their government. Security forces continued to abuse detainees and prisoners, arbitrarily arrest and detain persons, and facilitate incommunicado detention; in addition there were allegations that security forces committed torture. Prolonged detention without charge is a problem. Security forces committed such abuses, in contradiction to the law, but with the acquiescence of the Government.
The Saudis, for their part, feel they have made major improvements. Prince Turki Mohammed Bin Saud Al-Kabeer, speaking before the UN Human Rights Commission, pointed out that the kingdom's laws completely prohibit torture and punish violators. He believes that recent steps taken to make Saudis more aware of the importance of human rights have been effective, and that reforms that would permit prisoners to be advised by attorneys are in the works.
For fairness, you might want to read the report for, say, Israel. q.v. Sigh ...
Spare Production Capacity
View EIA estimates of how much excess production capacity each OPEC member has to play around with. q.v. If EIA is right, the world is producing fairly close to capacity. While OPEC could help consuming counties by producing a bit more, the amount available is not all that great.
Alyeska Trouble - Throughput Drops Again
1996 -- 525,506,504 bbls.
1997 -- 487,094,963 bbls.
1998 -- 440,496,271 bbls.
1999 -- 393,523,457 bbls.
Alaska forecasts that North Slope production will continue to slide. q.v. EIA is relatively sanguine about the possibilities of substituting gas for oil in the post-2005 period, believing that $4/MCf in 1988$ will prevail at the US-Canadian border, which will be enough to let the Alaskan gas in using other portions of the Alaska natural gas transportation system. q.v. This seems a little far-fetched. Of course, there's still a lot of oil in the coastal plain that would be worth going after. q.v.
Much of What You Need to Know About OPEC ...
... has been assembled by EIA. The information ranges from oil trade statistics to history to rules of thumb* on how bad a disruption will be. It's well worth reading. There's also a separate section on oil disruptions. q.v.
You might also be interested in respected oil analyst Phil Verleger's reasoning behind his expectation of sharply higher prices in the fourth quarter of 2000. q.v. (PDF)
*For every million barrels per day of oil disrupted, world oil prices could increase by $3-5 per barrel.
Visual History of American Oil and Gas Drilling: The Pin Cushion
The US was and is an amazing oil province. These graphics from USGS show just how widespread a role the industry played. Displayed in five year increments, the maps depict what was drilled between 1900 - 1992.
Unfortunately, the ensuing years since have not been good ones: reserves fell very substantially in 1998. For or oil, it was the worst decline ever -- a drop of 7 percent in one year. The drop for natural gas was 2 percent. Only 24 percent of 1998 oil production was replaced by proved reserve additions. According to EIA, crude oil reserve additions would have been even smaller in the absence of a few large, long-term development projects that were continued by their operators in the face of low oil prices. q.v. (PDF)
Safer Nuclear Storage, Part 1
The problems of disposing of spent nuclear fuel are truly daunting. It has to be done right and stay right for thousands of years. It is often said to be not so much a technical problem as a political one. The traditional technical solution is to vitrify the waste and then hide it away in a safe place, but political leaders have long played a cynical game when deciding what's safe and in whose backyard the place should be. Last week the President vetoed the most recent attempt to do something, and Congressional attempts to do something useful are rare indeed. But there may be an important technical development that will reduce the political incentive to continue playing games. q.v.
Where the Oil Delivery System Is Most Vulnerable
Nice of EIA and the National Defense University to provide a handy guide to the chokepoints. Bet you didn't spend too much time worrying about Bab el-Mandab before, but now you can.
The Good and Bad News On Global Warming
Watch out, the models are getting significantly better. Read the overview of what one US Government - sponsored model (NOAA's Geophysical Fluid Dynamics Laboratory at Princeton) has been saying. OK, so there isn't much good news when you quadruple atmospheric CO2. But it's not going to quadruple (US carbon emissions are projected by EIA to increase 33 percent over 1990 levels by 2010 and 47 percent by 2020, making Kyoto a bit of a farce). By the way, planting new forests won't work. Still, trading offsets/CO2 credits should be good clean fun, however futile.
But the really bad news may yet prove to be the changes brought on by reversed ocean currents. The New Scientist warns that recently confirmed changes may herald a European ice age.
Pete's Self-Explanatory Guide to the Zen-Like Absence of a US Energy Policy
GTL fuels may turn out to be a necessary precursor for a new generation of very efficient, clean-burning engines. Also called FT fuels (for the Fischer-Tropsch process that some are based on), or synfuels, they are the focus of intense development efforts. It won't be an easy job, even if the chemistry can be figured out and the fuels can be manufactured at competitive prices, because their use often requires major infrastructure changes. Comparable efforts in the late 70s proved to be something of a boondoggle, when the economic justification implicit in $40 oil disappeared by the mid-80s, but the quest for reduced pollutants adds impetus this time. On this topic:
Keep in mind that there are lots of ways to look at synfuels. As K. Derr, Chevron's CEO, pointed out in a recent speech, "[twenty years ago,] we had subsidized synthetic-fuel projects to help rescue America from costly oil imports but as things turned out, imports rescued us from a costly dependency on synfuels!"
Thanks to Scott Palmer for suggesting this topic and these links.
The Illustrated Field Trip Continues: Urengoy
The world's largest gas field, holding maybe 300 Tcf not far from the Pur River in west Siberia at the Arctic Circle. Pressure declines have been a problem, but there's enough to supply Europe for decades.
Pete's Play of the Day: An Illustrated Field Trip
Play of the millennium for that matter...nondescript desert, nothing much to see: 150 miles long, 26 miles wide and holding a sea of oil. Ghawar, in Saudi Arabia, is the largest oil field in the world and probably the planet's most valuable bit of real estate. It's said to hold 75 - 85 billion barrels, which is several times the remaining proved reserves of the United States. In addition: an account of a trip to Ghawar by a Japanese oilman, q.v.
Higher Oil Prices to Stay High
Dave Costello, the US government's best forecaster of all near-term energy developments, expects oil prices to remain high for the next year, even if OPEC has mercy, because of the inventory situation. He's usually right.
Pete, who is not usually right, thinks the following are likely:
(1) The disconnect between the stocks of the oil majors and oil prices should end, even if OPEC brings oil prices down somewhat. Stock prices of the rest of the market should remain under pressure, particularly if the Fed weighs in with another round of interest rate increases in response to oil prices. (See discussion of inflationary impact below.)
(2) Watch the market bid up firms with large undeveloped resources in central asia. (Pete here confesses that he has been known to dabble in the breed, however expensive a hobby it has always been). For many years the market put no value on owning vast quantities of oil and gas in the middle of nowhere with no way to get it somewhere. But now, with Secretary Richardson reduced to a stock comic figure who can only huff and puff, the market may suddenly think companies in this position are worth a lot. They're probably not except in the very long run, but Pete doesn't mind. And "harvesting the spoils of the cold war" is more of an energy policy than begging OPEC. (See General Odom's remarks on the continuation page.)
(3) Watch out for a change in fortunes for the Euro. Higher oil prices are paid world wide in dollars, but as soon as OPEC stabilizes prices toward the end of March, short term capital flows involving the US may go negative as European investors begin to repatriate funds from a weakening US stock market. Unlike the US, German oil demand is down and it's likely Germany will work it's way through the spike more quickly.
Ultimate Recovery from US Oil and Gas Reserves: Betting the Farm
There is no more important question in domestic petroleum policy than the ultimate recovery to be expected from US resources. Of course, the real figure can never be known, but how well it can be estimated is of key importance. For instance, will there be enough gas to scrap the current generation of nuclear reactors and replace them with gas-fired combined cycle turbines? Wall Street and the current administration think so. Wall Street refuses to fund any further nukes, which means that the technology will fade out as the current generation of operating licenses expires in the post-2005 period. And everyone and their brother is putting up a small, but not necessarily inefficient combined- cycle plant to sell into the deregulated electricity market. But has the street done the requisite due diligence research to be sure its capital will be fully returned over the 30 year amortization periods the projects are typically funded? Pete thinks the gas isn't there toward the end, so he doubts whether anyone really has been diligent.
This is because nobody really understands the phenomena that produced most of the growth in reported oil and gas reserves. It turns out that from 1977 to 1995, 89 percent of the growth in US oil reserves, and 74 percent of gas reserves, came from "ultimate recovery appreciation" rather than the discovery of new fields. Ultimate recovery appreciation is a little tricky. It means that more oil was found by correcting past estimates than by finding new fields. Put another way, in theory, the corrections for any given year should be positive or negative randomly, but for some reason, over the long run and until last year, they kept going up and going up a lot. q.v. Perhaps the definition of proved reserves is too restrictive; perhaps companies don't really report their true reserves; or perhaps the smaller fields found after 1970 are materially different than the giant fields that were discovered in earlier decades.
Two years ago, EIA put an analyst on the case to look at the problem of ultimate recovery appreciation and how well the agencies charged with measuring resources were at estimating what was happening. Specifically, EIA looked at the inferences being drawn from EIA's proprietary data series on field-level proved reserves by those agencies. The results of that analysis are not reassuring but should be required reading for anyone with an opinion on oil policy. q.v. (PDF file)
Because the data are so fluid, it becomes very difficult to forecast the correct relationship, meaning that the key category of inferred resources could be wrong by more than an order of magnitude. To make matters worse, ultimate recovery appreciation went negative for oil in the most recent year, suggesting that simple approaches that multiply proved reserves by some factor to arrive at a value for how much this element will yield in the future may be far off. For reasons that an not clear, EIA hasn't reported anything more and no longer even collects the field-level reserves data required to understand the problem. Perhaps it's time to put some more effort on getting this one right.
One of the reasons the utility sector is so moribund is that it was told by the government and the market in the 60s to build oil plants for environmental reasons, and to build coal plants in the 70s to avoid oil imports. Each prescription was soon superceded by events and proved wrong. Each was costly. The electric industry politely refers to the refuse of bad policies of the 60s and 70s as stranded assets. Perhaps we should try to track down what is happening to domestic petroleum reserves before betting the farm that we can generate most of our future electricity needs from natural gas.
EIA has announced changes to reserves reporting requirements. q.v.
Saudis End Japanese Concession
Saudi Arabia refused to extend the concession held for 40 years by a key Japanese company after the company refused to pay $2 billion for a Saudi internal railroad project and Japan generally refused to more than double its daily take from the Saudis.
The Petroleum Industry and Price Controls: Some History
The curious thing to remember about the price controls of
the mid-70s was that it was the industry that wanted them. To be accurate, it wasn't
domestic producers that wanted price controls, it was several very large refiners who had
to pay through the nose for foreign supplies after the OPEC increases of 1974.
Because they lacked access to cheaper domestic crude and were at a severe competitive
disadvantage, they insisted on leveling the playing field by getting the
"Entitlements Program" adopted by the republican administration. That
administration, you may recall, was also running the Cost of Living Council, a small
regulatory agency that was given explicit authority to control prices for all major
sectors of the economy following the collapse of the Bretton Woods system in 1971.
The general controls were allowed to lapse in late 1974 (fortunately), but controls were
kept on oil and gas.
The Entitlements Program subsidized importing refiners with both revenues and/or domestic crude disgorged from refiners with disproportionate access to domestic crude. As everyone realized, you couldn't have a mandatory allocation program without also having price controls, and vice versa. And so we were stuck with a really hideous regulatory program. It went away eventually, but the damage was done.
The reassertion of the OPEC cartel's ability to jack up prices reintroduces the same anti-competitive forces back into the US industry. The specter of "windfall profits," collusion between the international majors and OPEC, and the knee-jerk response of the political sector to these real or imagined evils is lurking there somewhere. It is important that the industry not get it wrong again.
Are Rising Oil Prices Inflationary?
Even though Sec. Richardson and others disagree, the truth is that rising oil prices are not necessarily inflationary. They do put upward price pressure throughout the economy, as everyone tries to pass the increase through, but it isn't necessarily true that this results in a general, inflationary price increase. Much depends on how rapidly the money supply is growing. When, as now, the Fed is not accommodating, one can make a strong case that oil price increases -- in a commodity where demand is very inelastic and there is no possibility of a material near term boost in supply (unless OPEC allows it) -- must be met by reduced demand in those other sectors where demand is highly elastic. That is, the sudden, near tripling of oil prices in the past 18 months is almost certainly having a deflationary effect. With Mr. Greenspan intent on bursting the market bubble, the deflationary effect may become more pronounced. True, it hasn't shown up in the statistics yet, but fortunately it appears that OPEC understands and may permit the supply restrictions to expire at the end of March.
For a contrary view, see the Dismal Scientist's analysis. q.v.
Questionable Energy Policies, Part 2: Sen. Schumer Spits Into the Wind
Senator Schumer wants the administration to immediately begin withdrawing 500,000 barrels of Strategic Petroleum Reserve oil per day and continue doing so through March 31 to push down prices. "If we just announced we were doing it, OPEC's unity would crack," he is reported to have said. Yeah, right. Perhaps the senator can get us a good deal on that bridge in Brooklyn that Pete hears is still for sale.
Chevron's Program to Combat Global Warming
Chevron claims that per unit CO2 emissions from fuel production are down 15% from 1991 levels. In addition: Chevron has limited its use of electricity in office buildings through the Environmental Protection Agencys Green Lights program, and reduced its emissions of methane (another greenhouse gas) from US oil and gas operations under EPAs Energy Star program. The company also completed the Escravos Natural Gas Plant and is developing a natural gas pipeline project to further reduce gas flaring in West Africa. Recently, Chevron also began operations at a West African offshore oil production platform that re-injects, rather than flares, co-produced natural gas. Who writes this stuff? But if this doesn't seem like much of a program, consider the argument raised by Chevron's CEO: "...the economic health in the developing nations is a bigger environmental concern [than global warming]. And fossil fuels are one of the keys to helping these nations improve their economies. The under-developed world cannot afford environmental improvement until they can sustain economic growth."
Shell's Program on Green House Emissions
Unlike the other international majors, Shell both accepts the Kyoto approach and actually has a program to do something to mitigate the effects of global warming. An interesting component involves the use of shadow carbon pricing. "Applied as a cost - or a benefit - to a project, carbon pricing will affect the ranking of our investment options. Any project that comes to the Shell board with emissions above 100,000 tonnes of carbon per annum must carry a sensitivity for a variety of carbon cost levels - 5, 20 and 40 dollars per tonne. This allows us to 'weight' each project. Heavy carbon emissions drive up the notional cost and therefore make a project less attractive." Read the details.
Shell Disses Uncle
According to Bloomberg, Shell has decided to go ahead with a major investment in Iran despite the possibility of US sanctions for dealing with a blacklisted country. The Shell action throws into question both the advisability of the US sanctions and whether they can be enforced in light of WTO rules. Wonder what the shadow carbon price was? (above) Meanwhile, the US government claimed to be "clearly disappointed and very much concerned." q.v.
There are increasing signs that oil companies are less and less eager to play along with unilateral economic sanctions. Last week, Shell announced (below) that it was going ahead with a major investment in Iran, leaving it to the US to seek extraterritorial enforcement of its regulations to the contrary. Conoco's president, A.W. Dunham, has written an interesting essay, America Should Find Alternatives to Unilateral Trade Sanctions, q.v. In addition: a good but dated analysis of the legal issues, q.v.; more recent statutory background, q.v.; and a ham-fisted, industry-sponsored lobby's attempt to end sanctions, q.v. Also see Pete's editorial.
Editorial: Sec. Richardson as King Canute
With the exception of Schlesinger, the energy secretaries have not been a distinguished lot. True, Richardson may be better than Reagan's dentist, but, once again, Pete is not impressed...
Editorial: On Unilateral Sanctions
Being good and being smart are not necessarily the same.
Editorial: Why the US Needs Oil Import Controls
Dirigiste to a fault, Policy Pete calls for restrictions on oil imports.
Coherent opposing views are welcome. Please email yours.
Marx on Palmerston q.v.
1) Recent energy history: 1999 1998 1997 Source: EIA Not-so-recent energy history Source: Senate Foreign Affairs
2) Short-term energy forecasting model. Source EIA
Foreign Ownership of US Energy Assets
EIA's just-released official tabulation shows that the foreign-owned share of the US energy industry remains strong. When considering the figures, keep in mind that they are for 1997 and don't include the impact of British Petroleum's takeover of Amoco. Even so, in 1997 foreign companies owned 24.8 % of gasoline outlets, 23% of refining capacity, 13.4% of domestic crude production, 6 % of domestic gas production and 7.4 % of crude reserves plus 8.1% of gas reserves. As Amoco was in the top 5 for almost all categories, the real share owned by foreign companies is really much, much larger and, in the case of Alaska, dominant. Of course, if BP also buys Conoco....
Have the Saudis Been Playing a Double Game?
Even though the Saudi government has disowned Osama bin Laden, USA Today reports that Saudi businessmen may have been financing his activities for years. Being one of very few nations to recognize the Taliban regime in Afghanistan was strange but forgivably Saudi; messing around with competing future oil supplies is downright unfriendly.
Venezuela: When Hedging Is A Sure Thing
Recent events call into question the advisability of allowing cartel members to use US commodity markets without oversight. On Nov. 10, Venezuelan Oil Minister Ali Rodriguez talked the price up by announcing that OPEC production restrictions would be kept in place beyond their scheduled end in March, 2000. While Pete doesn't know if Mr. Rodriguez warned the trading room in advance, it seems a reasonable question in light of PDVSA's announced entry into the futures/derivatives market on October 28, 1999.
PDVSA's American subsidiary imported more crude into the USA in 1998 than Exxon, Amoco, Chevron, and Shell. The problem is that Venezuela's adherence to / setting of OPEC supply limitations is what produces price swings; any advanced knowledge of OPEC intentions among market participants provides a conclusive advantage.
Pete thinks the Commodity Futures Trading Corporation should examine the positions taken by PDVSA after October 28 to determine if Mr. Rodriguez was shooting ducks in a bucket. In addition, the Comptroller of the Currency should determine whether US banks or financial intermediaries who may have served as counterparties to derivatives transactions, if any, exercised appropriate due diligence.
East Timor As A Natural Gas Play
Read the Reuters/Yahoo story and a good analysis from Oil and Gas Online. There seems to be a certain irony putting Australia in charge.
Spoils of the Cold War: Is the Oil of Central Asia Rightfully Ours?
Pete wouldn't have thought so, but so says (or maybe sort of says) Lt.-Gen. William E. Odom, USA, Ret., former head the NSA and director of National Security Studies at the Hudson Institute. "To put it another way, the fruits accruing from ending the Cold War are far from fully harvested. To ignore the Transcaucasus and Central Asia could mean that a large part of that harvest will never be gathered." Read what General Odom actually wrote in a link to US Policy Toward Central Asia and the Transcaucasus and then read a link to Graham Fuller's Geopolitical Dynamics of the Caspian Region. "Chinas need for oil will be growing faster than any other country in the world in the next decades, due to its rapid industrialization. China is already involved in the Caspian, because of its recent oil deals with Kazakstan and Chinese willingness to bring a pipeline from the shores of the Caspian to the Yellow Sea in China. China now threatens Russia geopolitically." Pete's not too sure about that one either, but it sounds like petroleum geopolitics can get pretty interesting.
Riding Down the Hubbert Curves
M. King Hubbert showed as long ago as 1956 what would happen to the petroleum supply curve as the world used up this remarkable but finite resource. He explained it all to Congress in June, 1974. Too bad they didn't listen. Here's what he had to say. For two other sites with lots of interesting and sometimes dire information on the difficulties of the downward slope, try The Coming Global Oil Crisis and Brain Food. Probably the best source on the implications of the downward slope can be found in the Hubbert Center newsletter at the Colorado School of Mines. On the other hand: USGS. And on still someother way-out-there-but-definitely-interesting hand, read the abiogenic origin school of thought represented by Cornell's Professor Thomas Gold. Pete wouldn't bet the oil patch on it though.
The Royal Society Weighs In
Public discussion of energy / environmental issues is often particularly near-sighted: environmental groups understand that global warming is a problem but often fail to think through the logical implications for energy production. The Royal Society promotes excellence in science. Read what they have to say about the future of nuclear power.
When Majors Merge ...
Pete is concerned that no one blinked when the tiger ate Mobil's Pegasus. We all know that Joel Klein of the Antitrust Division was busy counting how many browsers can dance on the head of an operating system. Prices have recovered more than a bit and Mobil wasn't in that much trouble to start with, so long as $10 oil didn't last. It didn't and Mobil didn't have to fall on its sword, although it was a damned decent gesture and all that. Here is Exxon management's explanation of the benefits.
Pete regrets that the FTC is willing to wink at sharply diminished competition just because things looked a little dodgy last March. We need all the Sisters we can find.