After 85 days, BP has finally succeeded in containing the gushing oil spill in the Gulf of Mexico waters. After closing valves and vents on the containment cap during a test on Thursday, the well has stayed in place for two full days.
Although this is a very positive sign, both BP and the White House have warned that the containment cap does not represent a permanent fix – there is still much more work to do to seal the well shut for good, and to clean up the hundreds of millions of spilled oil. “We’re encouraged by this development, but this isn’t over,” said the U.S. government’s lead contact in the region, retired Coast Guard Admiral Thad Allen.
BP will likely release the flow of oil again, siphoning it up to ships on the surface as it continues to drill a relief well to permanently shut the well with mud and cement. The well is expected to be ready in early August.
Investors welcomed news of the containment caps success, sending BP shares higher in trading today. However, since the rig explosion in April nearly $65 billion has been knocked off BP’s market value.
The official Saudi Press Agency (SPA) reported that King Abdullah has ordered a halt to new oil exploration to preserve the Kingdom’s vast hydrocarbon resources.
“I told them the Cabinet that I have ordered a halt to all oil explorations so part of this wealth is left for our sons and successors,” King Abdullah told Saudi scholars studying in Washington. However, a senior oil ministry official told Zawya Dow Jones that the King’s words should not be interpreted as a full-fledged ban, but rather as a warning that future explorations should be carried out mindfully with an eye towards future generations.
Saudi Arabia possesses the world’s largest recoverable oil resources with 260.1 billion barrels at the end of 2009. It is the largest member of the Organization of Petroleum Exporting Countries (OPEC) and recently announced the discovery of a new oil field and a non-associated gas field to add it its substantial holdings. Saudi Arabia pumped an average of 8.26 million barrels a day in June 2010, about 209,000 barrels above its target.
U.S. crude prices have fallen 9.7% since March, finishing the quarter down $8.13, the first quarterly price decrease since Q4 2008. This has triggered worries over the state of global demand in the wake of continued strain in global financial markets and sluggish job growth.
The U.S. Energy Information Administration (EIA) reports growth in gasoline stocks and distillates inventories, disproving forecasts which predicted a fall. On the other hand, crude stocks dropped by 2.01 million barrels; twice the expected rate.
The onset of Hurricane Alex actually helped to stem the price fall by forcing a stop in 26.3% of oil production and 14.4% of natural gas production in the Gulf of Mexico region.
In the wake of the catastrophic oil spill in the Gulf of Mexico, the Obama administration moved last week to ban all offshore drilling operations in the Gulf region for six months until further investigation into the cause of the BP gusher, which has been spilling oil into the ocean since April.
However, a judge in New Orleans struck down the ruling, calling it “rash and heavy-handed.” The Obama administration appealed immediately, saying that continued drilling poses a danger to oil workers and to the environment that “the president does not believe we can afford.”
It is a contentious issue that has even brought in Abdalla Salem El Badri, the Secretary General of OPEC. After meeting with European ministers in Brussels, Mr. El-Badri urged the United States to reconsider its ban on offshore drilling, warning that a six month hiatus would hold back oil supplies. “We should not really ban it and we should not jump to conclusions,” he told reporters.
Achim Steiner, the head of the U.N. Environment Program (UNEP), says the world needs a fresh infusion of investment in the new “green economy.” So far, nations around the world have pledged $500 billion for “green spending” on a wide variety of projects, from solar plants to transportation sector initiatives. However large that number appears, Steiner warns that it is still not sufficient.
Of the $500 billion pledged, 40% of funds comes from China, which means many developed countries are falling short in their commitment to a green economy, Steiner says. In 2008, the UNEP called for a global investment of $750 billion, equivalent to 1% of global GDP to be funneled into a “Global Green New Deal.”
“The green economy is not a luxury, but a 21st century imperative on a planet of six billion, rising to 9 billion in just 40 years,” said Steiner and Pavan Sukhdev, leader of UNEP’s Green Economy Initiative in a statement released in advance of this weekend’s G20 Summit in Toronto.
G20 delegates re-affirmed their pledge to phase out the “inefficient” subsidies to the fossil fuel industry, which by some estimates amount to $300-$500 billion/year. The International Energy Agency estimates that elimination of these subsidies could help reduce greenhouse gas emissions by around 7% over the next ten years.
Data from the BP Statistical Review of World Energy shows global energy consumption fell by 1.1% last year, with oil and and natural gas usage down across the board.
Global coal use, however, has remained steady. In fact, as a percentage of world primary energy usage, coal has risen to levels not seen since 1971.
On the other hand, oil’s percentage of global energy usage has fallen consistently over the past decade; from 39.00% in 1999 down to 34.77% in 2009.
As oil production becomes more difficult and expensive, coal is increasingly being employed as a source of transportation fuels. Nations like South Africa and China have been expanding their coal-to-liquid (CTL) programs, and China reportedly has six major CTL projects under development.
CTL processes may present an alternative way to generate liquid fuel, but it comes at a price. CTL produces nearly double the greenhouse gas emissions of conventional fuel production from oil, and many climate and environmental advocates worry that if CTL programs become more widespread the world would experience increased emissions levels.
The Organization for Economic Co-operation and Development (OECD) is urging G20 nations to end subsidies for fossil fuels and to follow through with the pledge made after last year’s gathering in Toronto to phase out these massive subsidies over the near- to medium- term.
OECD chief Angel Gurría calls these subsidies, which by some estimates may be as much as $557 billion a year in developing nations and over $100 billion in the industrialized world, a “wasteful use of scarce budget resources.” There is a contradiction, he says, because”many governments are giving subsidies to fossil fuel production and consumption that encourage greenhouse gas emissions, at the same time they are spending on projects to promote clean energy.”
According to some estimates, eliminating fossil fuel subsidies may help to reduce total global greenhouse emissions by 10% from their expected 2050 levels. This would greatly assist G20 nations with other policy initiatives to mitigate the effects of global warming.
The BP oil spill in the Gulf of Mexico – which has become the largest environmental disaster in United States history – has also re-ignited public awareness of the climate and energy bill awaiting approval in the Senate.
President Obama has vowed to acquire all the remaining votes needed to pass this legislation, saying in the wake of this catastrophe, the United States must re-address its energy policies.
“If we refuse to take into account the full cost of our fossil fuel addiction – if we don’t factor in the environmental costs and national security costs and true economic costs – we will have missed our best change to seize a clean energy future,” said the President. He also noted that America “consumes more than 20% of the world’s oil, but has less than 2% of the world’s oil reserves.”
Speaking of the bill, Mr. Obama says “the votes may not be there right now, but I intend to find them in the coming months.”
U.S. Senators John Kerry and Joseph Liberman have unveiled a much anticipated climate bill as a counteroffer to the version passed nearly a year ago by the House of Representatives, calling it the “American Power Act.”
The bill’s main goal is to reduce U.S. carbon dioxide emissions; aiming for a reduction of 17% by 2020 and over 80% by 2050. These reductions would be achived by imposing new emission limits on factories, utilities and transportation vehicles, which in aggregate emit nearly 6.4 billion metric tons of pollution every year – a level second only to China. A regulated market for the trade of pollution credits is included in the legislation, as are tax and loan incentives to expand domestic nuclear power plant construction.
In response to the Gulf of Mexico oil spill catastrophe, the proposed expansion of offshore drilling now includes protection measures for states who do not want offshore rigs off their coasts. Concessions to the oil, coal and gas industries have been included in the hopes of drumming up support for the bill, which the Obama administration sees as essential to establishing a comprehensive energy policy in the United States. However, it appears unlikely that debate upon this legislation will commence this year.
Turkey and Russia signed agreements on Wednesday for the construction of Turkey’s first nuclear power plant and the development of a pipeline project to carry Russian oil from the Black Sea, through Turkey to the Mediterranean.
Turkey, a U.S. ally, served as NATO’s foremost base during the Cold War, but its relations with Moscow have rapidly developed since the fall of the Soviet Union. Both countries have vowed to triple their bilateral trade volume to around $100 billion in the next five years.
The power plant construction, near Turkey’s Mediterranean coastal town of Akkuyu, is expected to take seven years, said Turkey’s Prime Minister Recep Tayyip Erdogan, who oversaw the signing with visiting Russian President Dmitry Medvedev.
The two leaders also signed an agreement to work on a pipeline project that would pump Russian oil from the Black Sea port of Samsun in northern Turkey to the Ceyhan oil terminal on the Mediterranean in southern Turkey, where an oil refinery would be set up. From there, the oil would be shipped to Europe.
The goal of the project is to bypass Turkey’s Bosporus strait to alleviate the congested oil tanker traffic through the narrow waterway that bisects Istanbul en route from the Black Sea to the Mediterranean.
Russia’s gas exports have made it the second largest trading partner of Turkey. Both sides have recently been working to improve their diplomatic relations and trade ties.
“By taking these steps, Turkey is taking its position as an energy hub to a much different level,” Erdogan said. “The solidarity with Russia on this issue is of utmost importance.”
On Wednesday, Turkey and Russia also agreed to mutually lift entry visa requirements for visits of up to 30 days in an effort to boost tourism and business. About 3 million Russian tourists visit Turkey annually.
“It is a historical agreement that will before anything else ease the life of millions of people,” Medvedev said.
Global demand for oil is climbing as the economy gets back on track, however, upstream project cancellations and delays as a result of the recession last year may lead to a supply crunch in the near future. Many believe it is only a matter of time before the next oil price spike, and believe a future barrel price of $150 is not out of the question. If prices skyrocket once more, what industries will be affected most?
The following chart displays credit ratings agency Fitch’s picks for top winners and losers in a future era of expensive oil as seen in the FT blog “Energy Source”
NEW YORK — Commodities prices fell sharply Tuesday as new doubts about Europe’s ability to resolve the Greek debt crisis sparked a global flight from risky investments.
Crude oil and other energy contracts tumbled, a day after oil hit an 18-month high. Prices for copper and other industrial metals also fell sharply.
The declines in commodities were made worse by a spike in the dollar as investors sought safe places for their money. The rising dollar tends to sap demand from foreign investors for commodities, which are priced in dollars.
Oil fell 4 percent, as did heating oil.
Copper fell more than 3 percent, and silver prices were off nearly 5 percent.
The dollar rose sharply against other currencies, especially the euro, which has been battered by the Greek debt crisis.
The ICE Futures US dollar index, which measures the dollar against six other currencies, jumped 1.2 percent to 83.26.
The seemingly endless saga of finding a solution for Greece’s debt crunch has unnerved investors, sending stock prices down around the globe Tuesday. The Dow Jones industrial average was down as much as 283 points, its biggest drop since Feb. 4, before it closed down 225.
“There seems to be a wholesale run for the exit for risky assets,” said Evan Smith, co-manager of U.S. Global Investors’ $800 million Global Resources Fund. “It appears to be concerns about Greece and the impact on the euro zone. We thought that fire had been put out, but it keeps reigniting, it seems.”
European nations agreed to a bailout package for Greece over the weekend, but street protests broke out in Athens Tuesday as unionists opposed the sweeping budget cuts the country agreed to in order to qualify for the aid. Standard & Poor’s downgraded Greece’s debt to junk last week and also lowered its ratings on debt issued by Spain and Portugal, confirming fears that Europe’s sovereign debt woes were spreading.
Copper’s decline was made worse by another factor: China. Beijing imposed more restrictions on its banks, leading investors to worry that its hunger for copper, oil and other industrial commodities might wane as its economic growth moderates. July copper dropped 11.5 cents to $3.1785 a pound.
Other metals also tumbled.
Platinum fell $43.10 to settle at $1,685.80 an ounce, while palladium for June delivery fell $33 to $515.25 an ounce. Both are used in making catalytic converters for cars and therefore respond to shifts in sentiment about economic growth.
July silver fell 99.8 cents to $17.842 an ounce. Gold was the least hurt among metals in the selloff, falling $14.10 to settle at $1,169.20 an ounce.
In energy trading, crude oil prices dropped $3.45, or 4 percent, to settle at $82.74 on the New York Mercantile Exchange.
Crude had traded at its highest level in a year and a half on Monday. Oil prices are also taking a hit from growing crude inventories, which may have gained an additional 1.5 million barrels last week, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
In other Nymex trading in June contracts, heating oil fell 8.56 cents to settle at $2.2595 a gallon, and gasoline lost 11.29 cents to settle at $2.3222 a gallon. Natural gas added 1.3 cents at $4.013 per 1,000 cubic feet.
Agricultural commodities were mixed. Wheat for July delivery rose 9 cents to settle at $5.1075 a bushel. June soybeans rose half a cent to $9.87 a bushel, while corn fell 2.5 cents to $3.69 a bushel.
A veritable environmental catastrophe is developing in the Gulf waters around the Louisiana coastline following a fatal explosion on an offshore BP oil rig.
Last week’s incident left eleven workers missing and presumed dead, and broke open a deep-sea pipe, which is currently leaking an estimated 5,000 barrels a day into the ocean. Coordinated efforts from the U.S. Coast Guard and BP – which as leaser of the rig is responsible for all clean-up costs – have not succeeded in containing the oil slick. Today’s reports indicate that strong winds are pushing the oil towards the shoreline, which is home to a variety of sensitive ecosystems and species that would all be in danger if the oil were to reach land.
The consequences of this major spill could spell disaster for President Obama’s proposal to expand offshore drilling in the United States, which he was offering as a way to encourage bipartisan support for a more far-reaching climate bill. The President has ceased issuing new offshore drilling leases until a deeper investigation into this explosion is conducted.
The United States military is not taking the threat of Peak Oil lightly. A new report issued by the US Joint Forces command warns that based on present consumption rates, surplus oil supply could disappear within two years, leading to potential shortage of 10 million barrels per day by 2015.
A shortfall of this magnitude may have wide-ranging and detrimental economic effects. The Joint Forces Command warns this might “exacerbate other unresolved tensions, push fragile and failing states further down the path towards collapse, and perhaps have serious economic impact on both China and India.”
The conclusions of this report contrasts previous statements made by the Energy Information Administration (EIA), which has said Peak Oil is still “decades away.” In a recent interview with French newspaper Le Monde, Glen Sweetnam, main oil advisor to President Obama, admitted that “a chance exists that we may experience a decline” in world liquid fuels production between 2011 and 2015.
To satisfy its booming energy and resources needs, India is stepping up investments in foreign oil and resources assets. The International Petroleum Company of India (ONGC) has already acquired offshore oil and natural gas resources in Myanmar, Russia, and Vietnam. Just like fellow developing nation China, which has put billions of dollars into overseas resources, India is looking to acquire additional assets.
ONGC’s Chairman R.S. Sharma is reportedly petitioning the federal government to establish a sovereign wealth investment fund to continue making these investments, as India is heavily reliant on imported oil. In fact, the relationship between India and Saudi Arabia has developed so much recently that the Saudis have committed to doubling crude oil shipments to India.
Anticipating a growth in global oil demand, OPEC leaders agreed to keep production levels stable at 24.84 million barrels per day (bpd), even though many member nations such as Saudi Arabia have been consistently overreaching those targets.
“Good demand, reliable supply, beautiful prices – we are very happy,” remarked Saudi Arabian Oil Minister Ali al-Naimi, who expects global demand to pick up by “about a million barrels” per day in the latter half of the year, largely due to rapid growth from Asia.
Even though the International Monetary Fund (IMF) predicts China’s economy will expand by 10% this year, the nation’s rising inflation may prompt new actions to limit credit that may also negatively impact the oil market. OPEC President Germanico Pinto addressed this point in a speech delivered before the meeting, admitting “there is still a long way to go before we can feel at ease with the situation.”
Under the leadership of Chief Executive Khalid Al-Falih, Saudi Arabia’s gigantic national oil company Saudi Aramco is planning a $90 billion expansion in new oil and gas projects over the next five years.
Saudi Aramco is investing $10 billion into the Manifa field, which will involved the construction of 27 islands in a section of the Arabian Gulf. The increased output from this massive reserve will offset the declining production in the aging Ghawar field.
At one point Ghawar, which is the largest oilfield ever discovered, had a production capacity of over 5 million bpd, however in recent years Saudi Aramco has had to inject the field with millions of barrels of water to extract the oil. Al-Falih denies accusations that Ghawar has reached its peak, saying that the giant field “still has recoverable reserves equivalent to 55 billion barrels.”
China’s growing influence was a major point of discussion for the Al-Falih, who mentioned that over the past few months more Saudi oil was shipped to China than to the United States. ”The U.S. has plateaued or certainly will not be growing at the same rate. But the U.S. will remain the largest market for oil for decades to come,” he predicted.
The United States still leads in worldwide demand for oil, but at the rate China and the rest of Asia are growing, it may not hold that title for long.
The combination of economic stagnation and increased efficiency measures lead many analysts to believe any recovery in U.S. demand will happen slowly. Since reaching peak levels in 2005, U.S. oil imports have fallen over the past two years by 9%.
China’s oil imports, on the other hand, rose by 14% last year. This demand growth has impacted China’s relationship with Saudi Arabia, its main supplier.
Chinese purchases from the oil-rich Kingdom hit a record high of 1.2 million barrels per day (mbpd) in December of last year. Saudi oil minister Ali Al-Naimi predicts “Asia will be a huge market,” and says the Kingdom is leasing new storage facilities in Japan for easier shipments to Asian customers.
M&A activity in the global energy sector reached $150 billion in 2009 as corporate plays reached levels not seen since 2006, according to a new report from Wood Mackenzie.
“Unconventionals” and national oil companies were the major trends in the sector last year, the latter accounting for 17% of M&A spending during 2009. ExxonMobil’s $41 billion takeover of natural gas company XTO and Suncor’s buyout of PetroCanada for $18 billion were two of the most notable deals.
The chart below from Wood and Mackenzie depicts the growth rate after inclusion of foreign mergers and acquisitions by NOCs:
The official Saudi Press Agency (SPA) reported that King Abdullah has ordered a halt to new oil exploration to preserve the Kingdom’s vast hydrocarbon resources.
U.S. Senators John Kerry and Joseph Liberman have unveiled a much anticipated climate bill as a counteroffer to the version passed nearly a year ago by the House of Representatives, calling it the “American Power Act.”
The United States military is not taking the threat of Peak Oil lightly. A new report issued by the US Joint Forces command warns that based on present consumption rates, surplus oil supply could disappear within two years, leading to potential shortage of 10 million barrels per day by 2015.