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Courtesy of CIBC World Markets
Heading for the Exit Lane
by Jeff Rubin
June 26, 2008
Recent announcements from OPEC and China won’t be sufficient to hold oil prices in check. The additional 200,000 barrels perday pledged from Saudi Arabia is a pittance compared to the four million barrels per day that depletion will hive off world production this year. What little increase in production Saudi is capable of will probably all be gobbled up by that country’s own voracious appetite for energy. Nor is the $145 per tonne cut (48 cents per gallon) in Chinese fuel subsidies likely to dent demand much.
Most North Americans would gladly line up at the pumps for China’s now $3.25 a gallon gas, particularly those of us who live north of the border. With half of the world’s population never having to pay world oil prices, it shouldn’t come as a great surprise that $130 per barrel crude prices have yet to quash world demand.
And the only supply response to date has been yet another round of cost overruns and lengthy project delays running the gamut from Canadian oil sands to deepwater Gulf of Mexico wells. With the basic laws of supply and demand no longer operative in crude oil markets, we are compelled to once again raise our target prices for oil. We are lifting our target for West Texas Intermediate by $20 per barrel to an average price of $150 next year and by $50 per barrel to an average price of $200 per barrel by 2010. Under prevailing refinery margins, that should translate into a near-$7 per gallon pump price within two years, a 70% increase from today’s already record levels.
Higher oil prices spell stagflation for the US economy next year, and we have marked down our GDP growth forecast to barely over 1% for 2009. The biggest impacts will be in transport and none greater than the adjustments on the road. After all, America is the quintessential land of the car.
As gasoline prices climb inexorably, American driving habits are going to have to undergo a massive change, mimicking the driving habits long adopted by Europeans who have faced much higher gas prices. Average miles driven will likely fall by as much as 15%, while the market share of light trucks, SUVs and vans will be literally halved, reversing the trend of the last fifteen years. But the most fundamental, and unprecedented change will be in the number of vehicles on the road.
Over the next four years, we are likely to witness the greatest mass exodus of vehicles off America’s highways in history. By 2012, there should be some 10 million fewer vehicles on American roadways than there are today—a decline that dwarfs all previous adjustments including those during the two OPEC oil shocks. Many of those in the exit lane will be low income Americans from households earning less than $25,000 per year. Incredibly, over 10 million of those American households own more than one car. Soon they won’t own any.
Courtesy of CIBC World Markets
Getting Off the Road:
Adjusting to $7 per Gallon Gas in America
Jeff Rubin and Benjamin Tal
We stand at a turning point for US transport. Real gasoline prices have already surpassed the peak levels that followed the second OPEC oil shocks, and even when adjusted for potential fuel efficiency improvements, have increased to the point where they will dramatically change driving behaviour in America.
The some 57 million Americans who own a car and have direct access to public transportation will start to act more and more like Europeans, who have long paid much higher gasoline prices.
By 2012, average miles driven will have shrunk by more than 15%. SUV and other light truck sales, which until 2006 accounted for almost 60% of total motor vehicles, will plummet to less than half that level, reversing the last fifteen years growth in market share.
More fundamentally, the freeways are about to get less congested. Not only will the number of vehicle registrations in the United States not grow over the next four years, but by 2012 there should be roughly 10 million fewer vehicles on the road in America than there are today.
For the past half century, America has spent the bulk of its infrastructure money on building highways—only to see that soon, $7 per gallon gasoline prices will lead to fewer and fewer people using them.
Gasoline prices in America have risen from around $1.80 in 2004 to the current $4 per gallon mark. The most recent surge in pump prices has, in inflation-adjusted dollars, already taken pump prices to a buck a gallon above the record prices seen in 1981 (Chart 1). And in percentage terms, the latest increase is almost twice the increase in oil prices that followed on the heels of supply disruptions after the Iranian Revolution.
Yet as daunting as these price increases have been, there is much more to come. Our updated oil price forecast of $200 per barrel oil by 2010 points to Americans paying as much as $7 per gallon for gasoline within the next two years.
Even the temporary 1979-1981 oil shock led to huge changes in driving behaviour. The prospect of a permanent price regime of $200 per barrel oil should trigger changes that will dwarf the adjustment we saw nearly thirty years ago.
That change is already starting to happen. As gasoline prices have risen steadily since 2004, car sales have just as steadily trailed off. After averaging close to 17 million units per year over the first half of the decade, sales have already declined to 14 million, and are expected to decline further as pump prices rise to as much as $7 per gallon. In fact, we expect vehicle sales to fall to as low as 11 million units by 2012, the lowest level since the early 1980s. While some of the current weakness in vehicle sales can be attributed to the economic slowdown, we estimate that higher gasoline prices have had almost twice the effect.
Tumbling car sales and more prudent driving habits are already starting to hit fuel demand. Overall gasoline demand in the United States has fallen sharply since the beginning of the year and is headed for the first annual drop in 17 years. Per capita consumption has fallen by close to 5% since 2004 (Chart 3), and, like vehicle sales, will continue to decline as long as gasoline pricescontinue to rise.
While Americans are buying less gasoline, unfortunately, the reduction in quantity is not keeping up with the increase in price. Hence, even with chastened driving habits, most Americans are spending more on filling their tanks and less on everything else. Over the last four years, gasoline sales have grown five times as much as the rest of retail sales in the United States. And at that rate, gasoline will take over grocery store spending as the largest item in households’ non-vehicle retail spending by late next year.
US versus Europe
At the soon-to-be $6 to $7 per gallon range for gasoline prices we can expect to see some quantum shifts in driving behaviour in America. And to see where those shifts will be going is relatively easy. All we have to do is look at Europe, where even at today’s world oil prices, drivers are already paying the equivalent of those gasoline prices or more. In fact, in many places in Europe, they are paying well above that and have been for some time.
Compare for example, driving behaviour in the United Kingdom with driving behaviour in the United States. Over 90% of American households use a car to get to work, while over 60% of US households own two cars or more (Table 1). By comparison, just 60% of British households use a car to get to work, while less than 25% own two or more cars. Moreover, Americans drive their cars more. They make four driving trips a day while Brits make half of that per day. And last, but by no means least, some 30% of Brits don’t even have a car. In the US less than 10% of households don’t own a car.
Gasoline consumption is ultimately about how many people drive, the distance they drive and the type of vehicles they drive. On all three counts American face a massive change.
Adding the first two factors we get an index of miles driven. And per capita, Americans drive twice as much as drivers in Sweden, UK, Germany, and France, where gasoline prices are now over $8 per gallon.
Of course the flip side of this equation is public transit. America’s obsession with the car is mirrored in its avoidance of public transit. When it comes to taking the train, bus, or subway, the US ranks the lowest among OECD countries, just as it ranks the highest among the same group when it comes to the use of the car.
Driving Less in Smaller Vehicles
Higher oil prices will make drivers use their cars less. While Americans are already driving 11 billion fewer miles than they did last year, a decline of 4.3%, they still drive today about 30% more than they did before the OPEC oil shocks. The elasticity of driving to gasoline prices is estimated to be around the 0.06. That means a 10% rise in gasoline prices will eventually lead to a 0.6% reduction in miles driven. Using that rule of thumb, the 280% cumulative rise in gasoline prices between 2004 and our target $7 per gallon target price should induce more than 15% reduction in miles driven on American roads. That will turn back the clock to the mid 1980s as far as average mileage driven is concerned.
Not only will Americans drive less but they will start to drive very different vehicles from the ones they are currently driving. Light trucks, which include vans and the ubiquitous SUV, accounted for as much as 60% of total vehicle sales in America back in 2006. That’s almost a doubling in its market share since the early 1990s. But even at $4 per gallon gasoline, SUV sales are plunging. At $7 per gallon pump prices, their share of total vehicle sales, along with other light trucks, will have even fallen below levels seen over fifteen years ago.
While there will still be households who will buy these vehicles, all of the gains in market share seen over the last decade will have been fully reversed.
Getting Off the Road
In part, Americans will respond to record high gasoline prices by driving less and by driving more fuel efficient vehicles. But the most dramatic result will be that roughly ten million vehicles will come right off the road.
As with oil, there is a depletion rate in autos. It’s called the scrappage rate, and it refers to the percentage of existing vehicles that every year are retired from service.
Last year the scrappage rate was 5.2%, resulting in some 12 million vehicles coming off the road. That means new vehicle sales had to rise by 12 million units just to keep the stock of passenger vehicles unchanged. We know from history that the scrappage rate rises with surges in oil prices, because older cars typically average much poorer fuel economy than newer cars and thus become increasingly expensive to run as pump prices rise. At $7 per gallon gasoline we have assumed that the scrap rate rises modestly to 6%.
A 6% scrappage rate would take roughly 14 million vehicles off the road every year. For the number of vehicle registrations to remain constant in the face of that decline, there would have to be an offsetting number of new vehicle sales that year. But given their link to fuel prices, new vehicle sales will be at least three million below that number by 2012. Our projected 11 million new vehicle sales in 2012 will be the lowest level since the early 1980s. Summing up the cumulative difference between new sales and scrappage over that period suggests that somewhere in the neighbourhood of ten million Americans will be coming off the road over the next 4½ years.
Is this a realistic estimate? While $7 per gallon gasoline prices certainly took people off the road in Europe,you cannot simply impose Europe on America. Most Europeans have access to public transport by virtue of the broad infrastructure policies European countries have pursued. In marked contrast, America built massive highways and freeways for a population that owned and used their own cars to get around.
Hence we must narrow our focus on those Americans where a European style shift in driving habits is currently feasible. People can’t simply abandon their cars if they have no other means of getting around, particularly in terms of getting work. There must be at least a public transport alternative.
As it turns out, roughly 57 million American households that own a vehicle have reasonable access to public transit, slightly more than half of the number of households who own a vehicle. And applying the 80% vehicle ownership rate seen in Europe to this target group suggests a 10 million reduction in the number of registered vehicles in the US.
Where will this decline come from? The focus is on those who can least afford to operate a car when gasoline costs $7 per gallon. No less than 80% of low income Americans (or roughly 24 million households) with less than $25,000 annual income own a car. With gasoline bills surging to record highs, they will be the first to come off the road.
One in five of those low income Americans, or roughly five million households, will probably stop driving or give up the second vehicle. And a good part of the previously noted increase in the scrappage rate is likely to come from this group, particularly the 30% of households under $25,000 annual income who own a second car, which is likely a gas-guzzling near-wreck. The vast majority of these individuals will live in the city as opposed to the suburbs, given their much greater access to public transit.
Our analysis suggests that about half of the number of cars coming off the road in the next four years will be from low income households who have access to public transit. At their current driving habits, filling up the tank will have risen from about 7% of their income to 20%, an increase that will see many start taking the bus.
June 25, 2008
Fuel Prices Shift Math for Life in Far Suburbs
By PETER S. GOODMAN
ELIZABETH, Colo. — Suddenly, the economics of American suburban life are under assault as skyrocketing energy prices inflate the costs of reaching, heating and cooling homes on the distant edges of metropolitan areas.
Just off Singing Hills Road, in one of hundreds of two-story homes dotting a former cattle ranch beyond the southern fringes of Denver, Phil Boyle and his family openly wonder if they will have to move close to town to get some relief.
They still revel in the space and quiet that has drawn a steady exodus from American cities toward places like this for more than half a century. Their living room ceiling soars two stories high. A swing-set sways in the breeze in their backyard. Their wrap-around porch looks out over the flat scrub of the high plains to the snow-capped peaks of the Rocky Mountains.
But life on the edges of suburbia is beginning to feel untenable. Mr. Boyle and his wife must drive nearly an hour to their jobs in the high-tech corridor of southern Denver. With gasoline at more than $4 a gallon, Mr. Boyle recently paid $121 to fill his pickup truck with diesel fuel. In March, the last time he filled his propane tank to heat his spacious house, he paid $566, more than twice the price of 5 years ago.
Though Mr. Boyle finds city life unappealing, it is now up for reconsideration.
“Living closer in, in a smaller space, where you don’t have that commute,” he said. “It’s definitely something we talk about. Before it was ‘we spend too much time driving.’ Now, it’s ‘we spend too much time and money driving.”
Across the nation, the realization is taking hold that rising energy prices are less a momentary blip than a change with lasting consequences. The shift to costlier fuel is threatening to slow the decades-old migration away from cities, while exacerbating the housing downturn by diminishing the appeal of larger homes set far from urban jobs.
In Atlanta, Philadelphia, San Francisco and Minneapolis, homes beyond the urban core have been falling in value faster than those within, according to an analysis by Moody’s Economy.com.
In Denver, housing prices in the urban core rose steadily from 2003 until late last year compared with previous years, before dipping nearly 5 percent in the last three months of last year, according to Economy.com. But house prices in the suburbs began falling earlier, in the middle of 2006, and then accelerated, dropping by 7 percent during the last three months of the year from a year earlier.
Many factors have propelled the unraveling of American real estate, from the mortgage crisis to a staggering excess of home construction, making it hard to pinpoint the impact of any single force. But economists and real estate agents are growing convinced that the rising cost of energy is now a primary factor pushing home prices down in the suburbs, particularly in the outer rings.
More than three-fourths of prospective home buyers are now more inclined to live in an urban area because of fuel prices, according to a recent survey of 903 real estate agents with Coldwell Banker, the national brokerage firm.
Some now proclaim the unfolding demise of suburbia.
“Many low-density suburbs and McMansion subdivisions, including some that are lovely and affluent today, may become what inner cities became in the 1960s and ’70s — slums characterized by poverty, crime and decay,” declared Christopher B. Leinberger, an urban land use expert, in a recent essay in The Atlantic Monthly.
Most experts do not share such apocalyptic visions, seeing instead a gradual reordering.
“It’s like an ebbing of this suburban tide,” said Joe Cortright, an economist at the consulting group Impresa Inc. in Portland, Ore. “There’s going to be this kind of reversal of desirability. Typically, Americans have felt the periphery was most desirable, and now there’s going to be a reversion to the center.”
In a recent study, Mr. Cortright found that house prices in the urban centers of Chicago, Los Angeles, Pittsburgh, Portland and Tampa have fared significantly better than those in the suburbs. So-called exurbs — communities sprouting on the distant edges of metropolitan areas — have suffered worst of all, Mr. Cortright found.
Basic household arithmetic appears to be furthering the trend: In 2003, the average suburban household spent $1,422 a year on gasoline, according to the Bureau of Labor Statistics. By April of this year — when gas prices were about $3.60 a gallon— the same household was spending $3,196 a year, more than doubling consumption in dollar terms in less than five years.
In March, Americans drove 11 billion fewer miles on public roads than in the same month the previous year, a 4.3 percent decrease — the sharpest one-month drop since the Federal Highway Administration began keeping records in 1942.
Long before the recent spike in the price of energy, environmentalists decried suburban sprawl a waste of land, energy and tax dollars. Governments from Virginia to California have in recent decades lavished resources on building roads and schools for new subdivisions in the outer rings of development while skimping on maintaining facilities closer in. Many governments now focus on reviving their downtowns.
In Denver — a classic Western city, with snarling freeway traffic across a vast acreage of strip malls, ranch houses and office parks — the city has had an urban renaissance over the last decade.
A $6.1 billion commuter rail system has been in the works over the last four years, drawing people downtown without cars, while stimulating swift sales of densely clustered condos near stations.
Coors Field, the intimate, brick-fronted baseball stadium for the Colorado Rockies, has transformed the surrounding area from a desolate skid row into fashionable Lower Downtown, a neighborhood of restaurants and microbreweries in restored warehouses. Along the Platte River, new condos set on a park strip offer an arresting tableau of glass, steel, and futuristic geometry, attracting throngs of buyers at rising prices.
“This is a city where it’s fun to be in the center,” said Tim Burleigh, 56, who sold his house in the suburbs and now walks to Rockies games from his downtown condo.
To Denver’s mayor, John W. Hickenlooper, $4 gasoline offers a useful incentive for such plans.
“It can be an accelerator,” he said during an interview inside the imposing column-fronted City Hall. “It’s not going to be the dagger in the heart of suburban sprawl, but there’s a certain inclination, a certain momentum back toward downtown.”
Dollars spent at the gas station leave fewer for mortgage payments. Mark Zandi, chief economist at Moody’s Economy.com, calculated that the jump in gas prices from $2 a gallon to $4 has taken $50 a month from the typical suburban commuter driving 25 miles a day.
“The fuel price change should be capitalized into the cost of houses,” Mr. Zandi said. “Prices in the outer suburbs will get clobbered.”
Elizabeth is the archetype of a once-rural community sucked into the orbit of the expanding metropolis, its ranch lands given over to porches, picket fences and two-car garages.
Megan Werner, 39, a mother of three, moved here five years ago from a dense suburb closer to Denver. She and her husband bought a home set on a 1.5-acre lot in the Deer Creek Farm subdivision. The space justified her husband’s 40-minute commute.
“We wanted more than a postage stamp,” she said, as her 5-year-old daughter walked barefoot across the driveway.
It used to cost her about $30 to fill her Honda minivan with gas. Now, it is more like $50, and she coordinates her trips — shopping in town, combined with dance lessons for her children. But she has no thoughts of leaving.
“I can open up my door and my kids can play,” Ms. Werner said.
For others, though, new math is altering the choice of where to live. Houses are sitting on the market longer than in years past. “The pool of buyers is diminishing,” said Jace Glick, an agent with Re/Max Alliance in Parker, Colo., next to Elizabeth.
Juanita Johnson and her husband, both retired Denver schoolteachers, moved here last August, after three decades in the city and a few years in the mountains. They bought a four-bedroom house for $415,000.
Last winter, they spent $3,000 on propane for heat, she said. Suddenly, this seemed like a place to flee. “We’d sell if we could, but we’d lose our shirt,” Ms. Johnson said.
Recently she counted 15 sale signs. One home nearby is listed below $400,000.
“I was so glad to get out of the city, the pollution the traffic, the crime,” she said. Now, the suburbs seem mean. “I wouldn’t do this again.”
Peak Oil Review
Vol. 3 No. 23
June 9, 2008
Association for the Study of Peak Oil and Gas - USA
Tom Whipple, Editor
Steve Andrews, Publisher
Registration is now open for the 2008 ASPO-USA Sacramento Conference, Sept 21-23
Visit ASPOUSA.ORG for agenda and registration details
1. A week to remember
By Wednesday of last week oil prices had fallen by 8 percent from their all time high based on major reductions in oil product subsidies in by Asian countries, the perception that US consumption was falling, and expectations that the Federal Reserve would stabilize the dollar. Analysts began talking about the end of the oil bubble and that prices would soon be down to $100 a barrel or perhaps even $80.
This attitude was reinforced by the week’s US stocks report which showed that US gasoline and distillate stocks had grown the previous week. In its enthusiasm for a price drop, the markets ignored a 4.8 million barrel drop in US crude stocks. Few seemed concerned that US crude imports for the last month were down by nearly 8 percent over last year.
Then the roof blew off. On Thursday and Friday, oil prices jumped by nearly $16 a barrel to a new high of $139 – a 13 percent increase. At least a half dozen developments coming in rapid succession were responsible for the surge. In Europe the Central Bank hinted that it was thinking of raising interest rates, which in turn sent the dollar down and started a flight to the safety of oil. Then an Israeli cabinet minster told a newspaper that it looked as if an attack on Iran’s nuclear facilities was “unavoidable.”
Morgan Stanley released a report saying that their study of tanker movements showed more Middle Eastern oil was being shipped to Asia rather than to Europe and the US so that prices would reach $150 a barrel by the 4th of July. This was followed by an unexpected jump in US unemployment and falling equity markets. Speculators rushing to buy back the short positions they had established earlier in the week were the icing on the cake.
Nearly lost in the midst of a 400-point drop in the Dow Jones and the $16 dollar jump in oil was the natural gas price jump which reached a high of $12.82 /mbtu on Friday -- the highest it has been since the 2005 hurricanes. Sympathy with oil prices and unusually hot weather, which will increase gas-fired power consumption, was cited as reasons for the increasing price.
As has become usual, opinions are mixed as to whether the latest price jump was caused by a mixture of speculation, a falling dollar, and fear of war, or plain old supply and demand. Some observers are noting that a rather minor drop in US consumption is more than offset by Chinese demand to prepare for the Olympics and cope with the consequences of the earthquake.
The increasing failure of national electric grids across much of the third world is leading to significant new demands for imported oil, especially diesel, to keep vital systems operating. These observers are suggesting that markets are becoming so tight that shortages could occur in developed countries before the year is out.
2. Speculation vs. fundamentals
Every increase gasoline price increase renews the debate of just what the “proper” price should be and just how much of the price of oil is caused by speculators. Nearly everyone in Congress would love to find that indeed someone is manipulating oil prices or that some large share of recent price increases can be attributed to speculators. There is little the Congress can do to increase oil supplies in the short run and they are loath to institute what would be highly unpopular measures to restrict consumption. Hence the continuing interest in exposing and restricting speculation as the only avenue to show their constituents they are doing something.
Last week the US Senate held yet another hearing on the role of speculation in raising energy prices. Carefully chosen witnesses for the most part told the hearing that indeed high prices arose from speculation. Only George Soros and a few others got off the reservation and opined that supply and demand had more to do with the problem. Much of the hearing was devoted to how the US’s Futures Trading Commission could regulate trading in London and Dubai.
Despite frequent and fervent assurances from the US Treasury and Energy Secretaries and the head of the futures trading commission (CFTC) that high prices are primarily caused by tight supply, Congress shows no indication that it will let go of the issue. The CFTC continues to investigate and Congress continues to threaten legislative restrictions on futures trading.
3. Growing shortages
Despite endless repetition of the mantra “the markets are well supplied” from OPEC and occasionally senior international oil company officials, reports of actual shortages of petroleum products continue to increase across the globe. Reasons for these shortages vary from country to country, but most seem to stem from the cost of petroleum on the world market or efforts by governments to keep retail prices affordable. In the last week we have reports of retail shortages from China, the Indian sub-continent, numerous countries in Africa, Latin and Central America, parts of East Asia, and even from the poorer countries in the Middle East.
In China, the world’s number three importer, retail shortages seem to have reappeared as the government keeps price caps in place at least until the Olympics. The government’s newest plan is to turn the small private oil companies that were shutting down because of the high cost of crude into “contract refiners” who simply refine oil for the state companies without any price risk. China, with $1.6 trillion in reserves, can afford oil at any cost. It is still not clear just how much their imports have increased in recent weeks.
In a few countries, the shortages may be temporary such as in Malaysia where a 40 percent price increase was accompanied by hoarding and a run on the pumps. In a few countries, national oil companies can no longer afford to sell products at government-mandated prices. In still others, the local importers simply do not have enough liquidity to pay for the products.
This situation is unlikely to improve. Except for countries producing enough oil to cover their own needs, and the very wealthy, all others are likely entering an era of permanent shortages.
4. Air Travel
Hardly a day goes by without reports of more problems for the airline industry. Last week the International Air Transport Association warned that its members will collectively lose $6.1 billion should oil continue to trade at over $135 a barrel for the rest of the year. During the last six months 24 airlines went bankrupt and more bankruptcies are expected soon.
Nearly all the major airlines have announced cutbacks in their flying schedules with many grounding their older less-efficient aircraft and dropping service to smaller cities. Fare increases, baggage charges and fuel surcharges are becoming the norm. Cheap fares and frequent flyer seats are becoming more difficult to obtain.
The problem is compounded by EC emissions regulation rules that the industry claims will cost $10 billion to comply with. Recent attempts at airline mergers in the US failed because labor contracts would hamper efficient integration of separate systems.
The pace at which the industry’s problems are compounding suggests that a day of reckoning is at hand. If oil prices continue to rise at a time of economic stagnation, mass discretionary air travel will soon be priced out of the market and the industry will shrink to a fraction of its current size. Re-regulation of the industry seems likely within in the next few years in order to insure a minimum of essential flights between major hubs remain available.
5. Briefs (clips from recent Peak Oil News dailies are indicated by date and item #)
Saudi Arabia's Shura council (parliament) will hold a series of meetings over the next two weeks to discuss a controversial proposal by a key member to curb oil production to save reserves for better prices. (6/5, #4)
An explosion in Western Australia at Apache Energy’s natural gas processing facility has cut the state’s gas supply by a third. It could take months to repair. The gas shortage is seriously impacting the resource industry, with companies having to cut back on production and having to buy more diesel for power generators. (6/7, #8)
GM announced drastic cuts in production of sport utility vehicles and pickups and stepped up plans for building smaller cars. CEO Wagoner said GM will close four North American assembly plants by 2010. And in a humbling admission that the SUV era is all but over, GM said it is considering selling the gas-guzzling Hummer brand. (6/4, #14)
Some 74 percent of Americans said $4 a gallon would be their threshold for driving less—from a survey of 1,000 adults nationwide conducted by Ipsos Public Affairs. American demand for gasoline dipped 1.4% over the last four weeks. (6/7, #10; 6/5, #1)
Demand for diesel in Chile is skyrocketing as the energy-poor country enters winter amid very large cuts in natural gas imports from its sole supplier Argentina. (6/5, #10)
Russia produced 0.8 percent less crude in May than in the same month last year, bringing the country closer to the first annual drop in oil output in a decade. Exports also fell. (6/2, #4)
Later this year, China will start operating a coal to liquids plant that is expected to convert 3.5 million tonnes of coal per year into 1 million tonnes of oil products —the equivalent of about 20,000 b/d. By 2020, Beijing hopes to up production to 286,000 b/d. The Oil & Gas Journal suggests it will cost around $70 to $80 a barrel to produce oil in this manner. The plants are very expensive and release prodigious quantities of greenhouse gases. (6/4, #9)
India announced an increase of roughly 11% in retail prices of gasoline, diesel and cooking gas to bail out its cash-strapped oil marketing companies. (6/6, #13)
Canada’s oil sands production averaged 1.32 million barrels a day during 2007. A group that includes major oil sands producers urged Alberta's government Thursday to cool development of the province's vast oil sands to protect the environment. (6/6, #18)
Tougher environmental rules governing production from Canada's oil-sands region will contribute to a global crude supply crunch, Total SA Chief Executive Officer Christophe de Margerie said last Wednesday. (6/5, #18)
Iraq exported an average 2.01 million barrels of oil a day in May, up 100,000 barrels from the previous month and the highest since before the invasion. Saudi Arabia raised production by 130,000 barrels to an average 9.25 million barrels a day in May. (6/5, #2)
Iraq expects to conclude negotiations soon for six oilfield service contracts with international companies that could boost output by 600,000 barrels/day later this year. (6/5, #5)
Brazil's oil discoveries, including the Western Hemisphere's largest in three decades, may cost $100 billion more to develop than the industry's most costly field. The Tupi deposit and nearby offshore prospects probably will cost $240 billion to exploit. (6/5, #11)
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