With plunging oil prices, the consumers are clearly thrilled but the oil producers, particularly OPEC, not so much. This video below and the image, courtesy of CNN, clearly explains the gigantic complexities that impacts the price of oil. With $2/gallon already in some parts of the US, the current geopolitical scene will get even more volatile in the months ahead.
Image courtesy: CNN Money
via Visual.ly
Here is a nice infographic that tries to answer one simple question reg. fossil fuels and their emissions..
What if we burned all the fossil fuels we have? infographic by OpenCanada.
We all know the American military is now engaged in two wars (one in over-drive – Afghanistan; and the other in a subdued mode in Iraq) for nearly a decade. The costs of these wars are taking a toll on the country’s morale and also on the budget. Did I say it is freaking expensive to fight a war in the punishing terrains of Afghanistan? If you haven’t already known this by now, here is something to perk you up. According to an article published in Slate, the Army and Marines pay only $1 a gallon for the fuel itself but up to $400 a gallon for the truck convoys that move it through Pakistan and up the Khyber Pass. Whoa! That’s some ungodly amount of greens for fueling our fight against the enemy!
Sometimes it is not even the money you pay but it is the amount of pain you have to endure to get this fuel safely across that makes this totally ridiculous! The insurgent on the border areas often burn the NATO -commissioned tankers to the ground as they travel from Pakistan to Afghanistan. here are some stunning stats, courtesy of NY Times (via HuffingtonPost)
Apparently, there is another dimension to the toll it is taking – this one is on the environment. In light of all these impacts, the Pentagon is now making a serious push to rid itself of oil, at least in meaningful levels. If done right, this is could not only result in a significant agency wide monetary saving but also will create an environmentally-friendly fighting force that can reach.
Here is the link to the article on Slate and the one on HuffPost.
Spoken like a true businessman: “Nobody is contending that we should not encourage, should not invest, should not allow renewable energy to grow,” he said. “We are investing in solar energy and are looking at wind and believe it will gradually take an increasing share, but it will take time.” This is somewhat true as many nations are looking at bleak economic prospects and scrambling for resources to invest in alternative energy research! What scares me is the fact that our political leaders (in certain Party) are turning a blind eyes to what’s happening and refusing to invest in progressive economic ideas! Can we, please, prioritize this issue and get working on moving away from oil for good? Our money is fast vaporizing – as fast as the petrol itself and soon we will be left with nothing!
Saudi Arabian Oil Co. Chief
Executive Officer Khalid al-Falih said the world probably will
rely for decades to come on fossil fuels, mainly oil, natural
gas and coal.
“Even though the share of fossil fuels in the energy mix
may decline over the longer term, the absolute quantities of
energy from these sources will continue to rise simply because
total energy demand is set to expand so significantly,” he said
in a speech today at the World Energy Congress in Montreal.
Coal, oil and natural gas are forecast to account for four
out of every five units of energy consumption “for the
foreseeable future,” he said. Alternative fuels will grow
gradually, with their use for power-generation growing faster
than for transportation, he said.
Saudi Aramco, as his company is known, maintains spare
capacity near 4 million barrels a day, a level that has “helped
assure market stability,” al-Falih said. Aramco is the world’s
biggest crude-oil producer.
Except for 2008, it was the lowest July gasoline demand number since 2003. Don’t you think it has something to do with the sputtering economic recovery? But the interesting contrast comes from the automobile manufacturers with many of them reporting profitable quarters resulting from brisk sales. Increasing fuel efficiency of the newer models should have some impact in this reduction in demand and it should only get healthier from here on as the new vehicles become more stingy with the fuel consumption. I feel that this demand vs. supply equation will start shifting slowly over the next decade as more and more hybrids & fully-electric vehicles creep into the market space.
At 9.3 million barrels a day, US gasoline deliveries (a measure of demand) fell slightly (0.03%)in July 2010 compared with July 2009, continuing weak deliveries for the first half of the year, according to figures from the American Petroleum Institute (API). Except for 2008, it was the lowest July gasoline demand number since 2003.
Total petroleum demand, on the other hand, rose 3.8% in July over a year ago. This includes a strong 11.6% increase for deliveries of low sulfur distillates, which are primarily diesel fuels used in trucking, and a 6.9% increase in kerosine jet fuel deliveries.
Removing these subsidies should make automobile travel fairly expensive (plus adding the carbon taxes would make it even worse) and will enable a proper “apples-to-apples” comparison of all modes of transportation. It will be interesting to see how the arguments of high-speed rail will start to look more appealing.
The Guardian recently reported that Bloomberg New Energy Finance has issued a report that found government subsidies for fossil fuels around the world just plain blow out renewable energy subsidies ten-to-one. Yes, for every dollar the auto execs don’t want spent on plug-in vehicles, there are more than ten bucks given to keep the gas and oil companies in the crudeblack. The report found that governments spent somewere between $43 and $46 billion on renewable energy and biofuel industries in 2009. By comparison, governments gave $557 billion to the fossil fuel industry in 2008.Read more at green.autoblog.com
(Source: U.S. Government Accountability Office)
Background
In 2008, GAO reported that 1,088 oil industry mergers occurred between 2000 and 2007. Given the potential for price effects, GAO recommended that the Federal Trade Commission (FTC), the agency with the authority to maintain petroleum industry competition, undertake more regular retrospective reviews of past petroleum industry mergers, and FTC said it would consider this recommendation. GAO was asked to conduct such a review of its own to determine how mergers and market concentration—a measure of the number and market shares of firms in a market—affected wholesale gasoline prices since 2000.
GAO examined the effects of mergers and market concentration using an economic model that ruled out the effects of many other factors. GAO consulted with a number of experts and used both public and private data in developing the model. GAO tested the model under a variety of assumptions to address some of its limitations. GAO also interviewed petroleum market participants.
Study Findings
Image Courtesy: GAO
GAO examined seven mergers that occurred since 2000—ranging in value and geography and for which there was available gasoline pricing data (see table)—and found three that were associated with statistically significant increases or decreases in wholesale gasoline prices. Specifically, GAO found that the mergers of Valero Energy with Ultramar Diamond Shamrock and Valero Energy with Premcor, which both involved the acquisition of refineries, were associated with estimated average price increases of about 1 cent per gallon each. In addition, GAO found that the merger of Phillips Petroleum with Conoco, which primarily involved the acquisition of oil exploration and production assets, was associated with an estimated average decrease in wholesale gasoline prices across cities affected by the merger of nearly 2 cents per gallon. This analysis provides an indicator of the impact that petroleum industry mergers can have on wholesale gasoline prices. Additional analysis would be needed to explain the price effects that GAO estimated.
GAO used two separate measures of market concentration, one which measured the number of sellers at wholesale gasoline terminals and another which measured the market share of refiners supplying gasoline to those sellers, and found that less concentrated markets were statistically significantly associated with lower gasoline prices. For example, for wholesale terminals with more sellers—i.e., terminals that were less concentrated—GAO estimated that prices were about 8 cents per gallon lower at terminals with 14 sellers than at terminals that had only 9 sellers. This result is consistent with the idea that markets with more sellers are likely to be more competitive, resulting in lower prices. Using the second measure of concentration, GAO similarly found a statistically significant association between prices and the level of refinery concentration, with less concentrated groups of refineries associated with lower prices.
GAO Recommendation
This study reinforces the need to review past petroleum industry mergers, and GAO continues to recommend that FTC conduct such reviews more regularly and develop risk-based guidelines to determine when to conduct them. FTC reviewed a draft of this report and supports GAO’s recommendation to conduct more reviews of past petroleum industry mergers.
Click here to download the full report.
(Source: Autoblog, Bloomberg & ThisDay)
America might get most of its oil from Canada, but the moves that Organisation of Petroleum Exporting Countries (OPEC) makes still reverberate here. Thus, a statement by the Kuwaiti Oil Minister Sheikh Ahmed al-Abdullah al-Sabah to reporters yesterday probably won’t help decrease domestic gasoline prices any time soon. OPEC’s al-Sabah said that the organization will not consider increasing production until the price of a barrel of oil reaches $100.
Crude oil traded in New York has climbed almost 60 percent this year, after plunging more than $100 in five months at the end of 2008 as the global recession curbed demand for fuel.
Oil futures rose above $71 a barrel yesterday for the first time in seven months, and traded at $71.18 as of 9:14 a.m. on the New York Mercantile Exchange.
OPEC had in the wake of the record oil plunge noted that its revenue had been adversely affected, a development which prompted members countries to set back 35 of the 150 projects due to come on line in the next few years to expand supply. OPEC predicted stronger demand as it decided May 28 in Vienna to keep production quotas unchanged. OPEC agreed at three meetings last year that the 11 members with production quotas would reduce output by 4.2 million barrels a day.
OPEC Secretary General, Abdalla El-Badri , had stated that falling prices of crude oil would not only affect investments in both the upstream and downstream, but will delay future investments.
He raised fears that if the present situation does not change, it will lead to cancellation of future investments and automatically affect oil supply to the market.Following the recent price rally, OPEC at its May 28 meeting agreed to leave outputs at their present levels. Lead producer, Saudi Arabia had predicted that oil prices would likely rise to around $75 a barrel by the end of the year on the back of growing demand in Asia .
OPEC President, Angola ’s Oil Minister, Botelho de Vasconcelos had noted that oil should be between $70 and $75 a barrel to cover the costs of production.OPEC’s Director of Research, Hasan Qabazard , had at an Energy conference a fortnight ago expressed fears that oil prices could fall again because fundamentals were still weak.The OPEC scribe had noted that oil markets were still weak, pointing out that the current price “rally may be unsustainable in the short term because the “rally is driven by funds rather than fundamentals”. However, United States investment bank, Goldman Sachs had stated that a potential economic rebound alongside production cuts by the OPEC could prop up price to $85 a barrel by the end of the year and $95 a barrel by the end of 2010.
TransportGooru Musing:
1. The power of the cartel and its influence in manging the oil prices can only be countered with sustained investments world over in alternative fuel technologies such as electric vehicles ( like in US, Japan and Europe) and hydrogen technology (Norway has a solid lead here).
2. The developing economies are going to have a tougher time in this round compared against the previous years, especially with the recession still showing its strong grip in many countries. Especially, for China and India high oil prices can be crippling as they are battling to out of the recession.
3. Speculative trading in the markets should be reined in (a very hard to execute. Period.
4. Above all, the only real sense of control remaining for ordinary people against this oil mafia is to simply repeat what they did in 2008 – stop driving unless it is really, really necessary. If there is a transit alternative, park the damn car and take the bus or train. Try and find if you have a carpool option available in your city. It might be ridiculous to think about this “shun your car” as an option here. But the secret lies in the “power of one” – as an individual your contribution might be negligible but if done effectively in every community it can make a serious impact.
(Source: Financial Times)
Reducing America’s reliance on oil by raising petrol prices to European levels through increased taxes or regulation is not politically feasible, says Steven Chu, US secretary of energy.
The admission comes as Congress considers a cap- and-trade system that opponents say will substantially increase petrol prices just as oil prices soar to their highest level in six months.
In the past Mr Chu, a Nobel laureate, has argued that, if the US wanted to reduce its carbon emissions, policymakers would have to find a way to increase petrol prices to levels in Europe. But in an interview on Wednesday with the Financial Times, Mr Chu said: “At this moment, let me be frank, it is not politically feasible.”
Higher petrol prices are likely to be one of the biggest potential sticking points ofPresident Barack Obama’s cap-and-trade system when the bill moves from the Democrat-controlled House of Representatives to the more conservative Senate late this year.
Mr Chu’s move against using taxes to raise US petrol prices is likely to frustrate environmental advocates who believe that the only way seriously to change Americans’ consumption habits is through higher prices.
Unlike Europe, the US hardly taxes its fuel, leading to pump prices that are often one third of those in Europe and to the average American consuming double the amount of oil of his European counterpart.
But Mr Chu warns that Americans will have to learn to live with higher petrol prices even if Washington does not enact policy that boosts them.
“Regardless of what one does in any sort of taxation, I believe that prices of oil and natural gas will go up in the coming decades,” he said, adding: “They will naturally go up just because of fundamental supply and demand issues.”
Mr Chu was adamant that a cap-and-trade system would be necessary to cut emissions. “We need to begin to put a price on carbon. We need to ratchet down the carbon,” he said.
The bill currently under consideration in Congress would reduce emissions by about 2 per cent a year.
A key question, however, was “how to help the US make the transition”, he said. Many states are heavily dependent on coal, or have energy-intensive industries, and the administration will need to win over lawmakers from these states to have a chance of passing the legislation.
