${log.root}/lowem.log

${log.root}/lowem.log
Inflation, Investing and Everything

All | Musings | Tech | Java | Biz | Energy | Env

Main | Next page »

Wednesday July 23, 2008

Peak oil to hinder world development - UK lawmakers

peakoil.com -> in.reuters.com, appgopo.org.uk (pdf) :

The looming peak in world oil production will set back international development and threatens to hinder efforts to make poverty history, a report by a group of UK lawmakers said. "The deepening energy crisis has the potential to make poverty a permanent state for a growing number of people, undoing the development efforts of a generation," the report released on Monday [21 Jul 2008] said. "Communities across the globe are more vulnerable than ever, living in an unsustainable present and facing an uncertain future."

A rally in oil prices, which hit a record $147.27 a barrel earlier this month, is leading to more interest in peak oil. The 20-member parliamentary group, chaired by lawmaker John Hemming, was formed in 2007. Its report refers to warnings that peak oil is likely to occur "before 2015" and the current jump in oil prices is "a prelude to even more severe increases in the next decade." Its recommendations include the formation of an energy security working group and funding to boost local food production and energy security.

- Seeing how the UK's North Sea crude oil production has already peaked and has been in decline since 1999, and how the UK is turning out to be a permanent oil importer, and now has to resort to opening a giant gas pipeline from Norway, it is not surprising that the British have a rather keen interest in Peak Oil.

From a peakoiler's point of view, it is rather similar to the Australian case where they were not very much aware of the issues surrounding Peak Oil until Australia's own oil production peaked, and it was then announced by their government that they were running out of oil. To paraphrase early peakoiler Jay Hanson, people are unable to think about something until either they have experienced it first hand, or they have undergone extensive study to learn more about it *before* they experience it.

Peakoilers like myself fit into the latter group - people are always surprised when they hear that I am not from the oil & gas industry, and that I am just an "interested party" working in IT. There are basically two ways to spread awareness to people who do not live in countries with rapidly declining oil production - you could call it the carrot and stick approach. First, one could tell them it's a profitable hobby, which from my own experience can be quite true, and second, one could just wait for crude oil prices to start another record-breaking run, and say, "I told you so."

Myself, I have been doing both, going around telling people how I have hedged 100% of my petrol bills so I am no longer affected by the vagaries of rising or falling petrol prices. And, as far back as 2004, when oil prices were only in the $30's, I have been telling people, "I told you so."

(2008-07-23 09:21:45 SGT) [Energy] Permalink Comments [0]

Tuesday July 22, 2008

Singapore petrol prices drop 4 cents for third time in 2 weeks

This article belongs to the Singapore inflation watch story arc.

channelnewsasia.com, petrolwatch.com.sg :

Good news for motorists. Singapore petrol prices have fallen for the third time in two weeks. Shell cut prices on Monday [21 Jul 2008], and Caltex, Esso/Mobil and SPC also lowered their prices shortly after. They lowered prices for their petrol by 4 cents on average, and 2 cents for diesel. RON92 petrol is now selling at $2.133 per litre, RON95 at $2.166, and RON98 at $2.240. Diesel has slipped just below $2.00 and is now going for $1.993 per litre. Petrol pump prices have risen 14 times consecutively since July 2007, before falling on July 9 and again on July 17.

- Like I said earlier, enjoy the lower prices while they last. Chances are crude oil prices are at a local minimum, a short-term floor near $130 support, after the $10 fall that was triggered by all the demand destruction talk.

Even during the depths of the Great Depression, energy usage only went down about 8% overall. And the world's largest oilfields are depleting faster than that, with fields such as Mexico's Cantarell, formerly the world's second largest oilfield and now slipped to third place, seeing production decline by 18% in the past year. As I remarked to a colleague just now, it's a race to see if demand declines faster, or supply declines faster. I'm betting on the side of supply declining faster, and this being a short dip in demand which will turn out to be just a blip in the grand scheme on things. Crude oil support levels are $130, $120, $110 and $100, while resistance levels are $150, $180, $200, $300 and beyond.

So, enjoy the lower prices, while stocks last. Literally.

(2008-07-22 14:16:58 SGT) [Energy] Permalink Comments [0]

Friday July 18, 2008

China on brink of blackouts and power outages due to price controls on electricity

ft.com :

China faces its worst power shortage in at least four years as soaring coal prices and government-set electricity tariffs force dozens of small power plants to shut down rather than face mounting losses. Facing what may be the worst coal shortage ever, nearly half of China's provinces have started to ration electricity going into the peak summer season. Coal prices in China have doubled since the start of 2008, and power demand doubled in 5 years. China relies on coal for 80% of its power generation. This year's electricity shortfall could be more severe than in 2004. The emerging power shortages have important implications for both inflation and growth.

China's problems mirror those of other Asian countries, such as Indonesia and Malaysia, where the rising fuel prices have impacted governments that subsidise fuel. China has also been struggling with petrol and diesel shortages as record crude oil prices forced small domestic refineries out of business.

- If the situation seems familiar, that is because it is the exact same problem as the one that caused the diesel shortages. The government of China fixes the price of the outputs (diesel, electricity), while the price of the inputs (crude oil, coal) rises rapidly in the open market. Large government-run enterprises continue to run, absorbing increasingly larger losses, while smaller companies, refusing to operate at a loss, give up and close up shop. This phenomenon has been amply documented and titled "Revolt of the Teapots", where teapots refer to those small China refineries.

This also demonstrates another phenomenon, which is the principle that "all action occurs at the margins", especially in a tight supply situation. In this type of situation, it does not require a major supply disruption to move the market, but relatively small disruptions will cause prices to rapidly escalate and bring chaos to a formerly orderly market.

Subsidies do not work in the long run, and neither do price controls. The Chinese government is trying to do something about it but how that will turn out remains to be seen.

(2008-07-18 16:51:36 SGT) [Energy] Permalink Comments [0]

Singapore petrol prices down another 4 cents on lower crude oil prices

This article belongs to the Singapore inflation watch story arc.

Pump prices at service stations across Singapore have been adjusted downwards for both petrol and diesel. The prices for all grades of petrol are down another 4 cents per litre, with RON98 at S$2.28 per litre, RON95 at $2.206, and RON92 at S$2.173. The move by Shell, SPC, ExxonMobil and Caltex comes a week after the fuel companies made a similar 4-cent price cut, the first after 14 consecutive price rises earlier. This time the cuts included a 2-cent reduction for diesel. This brings the price down to S$2.013 a litre, which is still over $2.00 per litre, and much higher than in the past. The price of crude oil dropped to $130 after staging its biggest fall in 17 years.

- Somehow I held off pumping petrol until late yesterday evening and to my surprise found that the petrol price had gone down another 4 cents. If only I had this sense of timing for my most recent crude oil purchase where I am down $10 per barrel already. That's okay, since Peak Oil has not been cancelled. All motorists (including myself heh heh), do enjoy your fill-ups at these prices while stocks last, because we will eventually be back on track again to $200 oil.

Updated :

1. Singapore petrol prices drop 4 cents for third time in 2 weeks

(2008-07-18 13:52:31 SGT) [Energy] Permalink Comments [0]

Wednesday July 16, 2008

Caltex - Petrol Pricing Plain Facts : Australia follows Singapore petrol prices

This article belongs to the Singapore inflation watch story arc.

google.com -> caltex.com.au :

I found this rather informational page recently while looking for information on Singapore petrol prices, and ended up reading about Australia petrol prices as well. Some excerpts :

* About 40% of the cost of an average tank of petrol is tax (Excise is 38 cents per litre and GST is included in the total price).

* The landed price of crude oil does not determine the retail price of petrol in Australia - rather, the price of petrol in Singapore forms the basis of the price of petrol in Australia. Pump prices closely follow international prices with a lag of one to two weeks.

* Pump price responses to international prices are symmetrical ie they are not "quick to rise and slow to fall", instead they are "slow to rise" and "slow to fall".

* Retail prices do not respond exactly to international prices (MOPS95) on short time scales (up to several weeks).

* The supermarket alliances operate the largest number of service stations that are aggressive discounters. In most markets, non-major oil company brands play a minor role.

* Petrol prices don't all increase at the same time and Caltex is not aware of any collusion in pricing - only fierce competition that benefits consumers.

- The petrol pricing structure seems quite similar between Singapore and Australia, the only differences being currency (AUD/SGD=1.31 at the point of writing), and taxation (Singapore charges around SGD 40 cents per litre, Australia charges AUD 38 cents; Singapore has 7% GST, Australia has 10% GST).

Notable points include my empirical observation of a 1-2 week lag between crude oil price movements and petrol pump price adjustments. I had been working on the assumption that this is the length of time it takes to "flush" the supply chain, so to speak - which turns out to be correct. This is especially noticeable when some of we are watching NYMEX crude oil prices setting new records on livequotes and wondering why petrol prices have not changed yet.

Another notable point brought up is the reason for petrol prices of different brands often moving together, whether on the upside or on the downside, and it has more often been up than down in recent months. It has often been the point of contention and ill will toward the oil companies, with the oil companies denying that they are in a cartel, many members of the public insisting that they are, and the government standing to one side and taking the stance that government tax collection does not benefit from rising prices because the taxation is fixed in terms of cents per litre, instead of being a percentage of the price.

One last thing to note. From the graphic above, notice how primary product costs (upstream from crude oil to refined gasoline product) and taxation take up the major chunk of the petrol price - and how the margins at the downstream or retailing side can only be described as razor-thin.

For the benefit of new readers and the uninitiated, this is the reason why BP abandoned their petrol stations in Singapore and sold them all off to SPC some years back. And it is also the reason why Shell outsourced their petrol retail operations to 7-11 and ExxonMobil (of the Esso and formerly Mobil brand in Singapore) likewise handed over daily petrol station operations to the national supermarket chain, NTUC Fairprice. The profits are mostly at the upstream side, not the downstream side, hence supermarket operators were deemed to be more suitable as they are used to dealing with high volume, low margin product.

(2008-07-16 16:59:07 SGT) [Energy] Permalink

NYMEX crude oil falls $10 on deep recession fears amidst stock market meltdown

bloomberg.com, biz.yahoo.com :

NYMEX crude oil prices fell more than $10 a barrel to as low as $135.92 from session highs on concern that a slower US economy will curtail demand for oil and gasoline. Earlier, oil rose to $146.73 as the dollar fell to an all-time low of $1.6038 per euro. Crude oil futures reached a record $147.27 per barrel on 11 Jul 2008. Fed chairman Ben Bernanke said risks to US growth and inflation have increased, while US stocks tumbled, and the S&P 500 index reached its lowest since 2005. "We're getting to the point where the market's looking at an increasing likelihood of a deep recession," said James Ritterbusch, president of Ritterbusch & Associates.

- The complete meltdown of Fannie Mae and Freddie Mac could be the trigger event that sets everything off. The markets are going absolutely crazy right now as I write this, with multiple billions of shares changing hands frantically, and all 3 major US indexes exploring the depths of bear market territory. Just the day before, I sent off to friends via email and IM the "world is going to hell" edition of my blog posts on Indonesia's natural gas situation, their rolling blackouts, Matt Simmons going doomer, and our dear Fannie and Freddie. And I was going around telling people exactly that. Trillion-dollar meltdown. End of the world.

Now, with the stock meltdown going on, and oil down over $10, as peakoilers, here are some questions that we might want to ask :

- Have the supply and demand fundamentals really changed?
- Is US demand going to drop faster than rising demand in emerging economies?
- Are Export Land Model countries such as Indonesia going to suddenly begin exporting more again?
- Is demand destruction finally kicking in?
- Is demand falling faster than shrinking supply?

As far as I am concerned, the answer to all the above is NO. Barring a miracle, the discovery of another five Ghawars or North Seas, or aliens landing on the White House lawn, the supply situation certainly is not going to change. Peak oil is peak oil. The supply situation is worsening, not getting better. Not with giant oil fields such as Cantarell in Mexico depleting 18% per year, and after a few more years like this, there won't be very much left.

As for the demand situation, it has been said that for every 1 barrel of US or in fact Western demand reduction, the demand in the emerging economies in the rest of the world is going up 14 barrels. So, demand will continue to increase unless US demand also falls by the same 14 barrels, cancelling out the rest of the world. If so, that would make the Great Depression look like a picnic. Even then, in the depths of the 1920's Depression, energy usage only went down by around 8%.

For all we know, this could well be the start of the Second Great Depression, it could be worldwide in scope, *and* it could lead to drastically lower oil consumption globally. But, long before the panic really starts on that front, there is one last financial Weapon of Mass Destruction left to be deployed - global hyperinflation. If it is going to turn out that way, you will want to be in tangible assets such as commodities, physical goods, food, water and shelter. Paper assets will be valued for their energy content - as fuel for burning. And if it really does turn out this way, let it not be said that nobody saw this coming.

(2008-07-16 01:20:06 SGT) [Energy] Permalink

Main | Next page »

Most popular blog postings on lowem.log :

1. Singapore SIBOR interest rates fall to 1.5%, lowest since Dec 2004
2. 2009 Honda Global Small Hybrid details released : bigger than Jazz/Fit, smaller than Civic
3. Fuel prices seen stoking Malaysia inflation in 2008
4. Singapore SIBOR rate fell to 1.25% in Apr 2008, lowest since Aug 2004
5. Singapore SIBOR rate falls to 1.31%, lowest since Nov 2004
6. Singapore : Inflation rate could push past 6% in Q1 2008
7. Singapore : 3 more CNG stations to open by end of 2008
8. Singapore CPI inflation hits 6.6% in Jan 2008 - a new 25-year record high

Featured articles on lowem.log :

1. ABC Guide to Beating Inflation in Singapore and Elsewhere
2. Singapore inflation rate hits new 26-year high of 7.5% in Apr 2008
3. Hyper-inflation : early warning signs
4. Singapore hyperinflation warning signs #2 : Cooking oil price up 75%
5. Bread and inflation
6. Singapore M3 money supply growth vs STI stock index
7. Singapore SIBOR rate fell to 1.25% in Apr 2008, lowest since Aug 2004
8. Singapore : Inflation erodes away bank savings

| << ^ | 5< | << | + | Peak Oil Webring | ? | >> | >5 | ^ >> |