Crude Oil

[Krustytheclown]

Let us be happy that NZO/PPP and other Aussie-NZ oilers will be in full scale production for the years ahead when this oil crunch bites.
Shareholders in the likes of those will be rewarded and still able to fill their tanks!

Natural Gas in the USA is also the place to be .....cheap gas there is now a memory IMHO.

Thanks MICK for these links!
Neo are in for a good Dec' testing round I forsee.....

G.

[Mick100]

South Asia
Dec 1, 2005



The foundations for an Asian oil and gas grid
By Siddharth Srivastava

NEW DELHI - Stung by the rising international price of oil and domestic shortages coupled with high requirements of a growing economy, India has revived a plan for an oil and gas grid for the Asian continent.

The grid is part of a two-fold strategy by the two top Asian oil guzzlers, China and India, to ensure reliable delivery networks and energy security. The other element involves acquiring stakes in production and exploration projects for which New Delhi and Beijing continue to cooperate as well as compete.

The emphasis on the grid comes in wake of reports that India and China, the most aggressive shoppers for oil and gas assets in the world, are coming together to put in a joint bid. The China National



Petroleum Corporation (CNPC) and the Oil & Natural Gas Corporation (ONGC), two of the most high-profile emerging global oil companies in the past year, could jointly bid for Petro-Canada's $1-billion oil and gas fields in Syria. Both India and China feel the strategic need to diversify their energy sources from the current dependence on West Asia.

Asia is no longer marginal to the global oil and gas economy, said India's Petroleum Minister Mani Shankar Aiyar in his inaugural address at the ministerial round table on cooperation between North and Central Asian producers in New Delhi last week.

"The era when our production was controlled by others is now behind us, the era when the bulk of consumers lived in other continents is also over," he said. "Already, two-thirds of the oil extracted from the bowels of West Asia and Southeast Asia finds its way to the markets of Turkey, India, China, Korea, Japan and other consumption centers in Asia."

The round table, the second being hosted by India, has brought together oil-producing countries including Russia, Turkey, Uzbekistan, Kazakhstan and Azerbaijan in dialogue with the principal Asian consumer nations - China, Japan, Korea and India.
This is not the first time India has raised such a proposal. At an Asian gas-buyers meeting in New Delhi in February, Aiyar exhorted assembled nations, including China and Saudi Arabia, to build a pan-Asian gas grid and end "the wretched Western dominance".

Reiterating India's resolve, he said producers and consumers could jointly invest in infrastructure to gain energy security for the region. "We can together invest in exploration, production, transportation, shipbuilding and shipping, in ports and terminals. We can together build refineries and gas-processing plants and power-generation stations and petrochemical units; in short, we can together take on the world. That would be true energy security."

South Korea, Asia's fourth-largest oil consumer, has backed India's efforts to create an Asian oil and gas order by setting up an inter-state oil and gas-transportation system.

"Trade in oil within Asia remains marginal," Korean Minister of Commerce, Industry and Energy Hee Beem Lee said. "The work that is urgently needed is a master plan that links all the points in Asia through what can be called, the Inter-Asia Oil and Gas Transportation System.

"To solidify this effort, I propose that a working group be established with all the countries in Asia represented, and its first meeting be held in the first half of next year in Korea. North and Central Asia, which includes Russia and the Caspian Sea region, were increasingly important to global oil supply. Large oil fields with pipelines are being developed, and with it Central Asia is emerging as a major oil resource region. But the unresolved problem of transporting the oil is holding back the full potential of oil trade within Asia."

Meanwhile, Aiyar said a Japanese proposal to study the possibility of networking the countries of Central, South and East Asia and elsewhere as well as an initiative to promote a sustainable and flexible energy system (SAFE) were endorsed. It was agreed that practical steps be taken bilaterally and

[Packersoldkidney]

I found this post on another forum, and thought it would be pertinent to here:

http://www.princeton.edu/hubbert/current-events.html

Long. While some people might call into question the assertion that oil is a non-renewable resource, I have yet to hear from anybody that oil is NOT scarce and EXPENSIVE to produce.

a) So, the age old question: How long 'till we run out of the goey stuff? This might be as good an estimate as any:
http://www.rigzone.com/news/article.asp?a_id=15186

Let's say that they're dead wrong, and underestimated field capacity and the improvement of extraction technology in the next 10-20 years and so we can double the amount of oil reserves we can get our hands on from 1.3 trillion to 2.6 trillion barrels. Let's also assume that oil demand does not remain constant but, in fact, drops about 20% from current levels (unlikely but possible), so from 76 billion barrels a year down to 60 billion barrels a year, call it what you may, conservation, limits in price elasticity, recession, taxes, alternative energy technologies.
http://www.scaruffi.com/politics/oil.html

That's about 40 years worth of oil and yet, this is a very rosy scenario.

b) Canada. Probably on one of the few upsides in oil production this 2006, i believe the closest new production facilities are 12-18 months away. I don't think deriving oil from kerogen will cost $3.50 or even $7.00 USD per barrel, do you? 4 million additional barrels of oil every day, makes 1.44 billion barrels a year. Up from 60 billion a year does not make for even a 2.5% increase in production, estimating it at a 30% recovery rate. Maybe it will buy us 2 years in the long run.
http://www.rigzone.com/news/article.asp?a_id=29285
http://www.thebulletin.org/article.p...fn=mj05cavallo

c) Latin America. The largely ignored component of Bush's foreign policy, the region has -and will continue- to fall victim to caudillo politics.

Think Chavez is a pain in the ass? Wait until Andres Manuel Lopez Obrador's -AMLO for short- is elected to the Mexico presidency. Too close to Castro and Chavez for comfort, they're likely to become the 'terrible trio' of the region and a major sore for US foreign policy. It does not help that the US embassador to Mexico is often caught saying unpopular things in Mexico in an election year. A savvy politician, AMLO is the lead candidate telling the US to but out of Mexican internal affairs, appealing to a nationalistic resurgence similar to that of Venezuela.

Also deeply worrying is that Cantarell, Mexico's biggest and the world's second largest oil field declined 6% production in 2005 and probably will drop another 5-6% this year also. PEMEX, Mexico's state-owned oil enterprise, has 130k employees and a burdensome pension plan for retirees. The union weights in heavily and is politically connected so for any reform, is DOA. It also levies an astounding tax rate of and is the primary source of revenue for the country at an estimated $25 billion USD, larger than remittances from Mexicans abroad, foreign direct investment and tax revenues -in that order-. This adds to decades of nearly zero investment in oil infrastructure and general neglect and corruption in PEMEX.
http://www.rigzone.com/news/article.asp?a_id=29314

Hugo Chavez has little incentive to scale back oil production from Venezuela's state-owned oil giant PDVSA , but if you remember correctly, 2 years ago he was almost thrown out of power when he fired the company's senior management for not 'towing the line'. Think that expertise can be replaced overnight? Think that it does not impact oil production? Think again.
http://www.stratfor.com/products/pre....php?id=248553

Overexplotation, lack of renewed investment and maintenance,
corruption, and use of the oil monopoly as the union and politicos piggy bank are all too common in both Venezuela and Mexico.

d) Africa. Unrest in Nigeria, D.R. of Congo and Ecuatorial Guinea will exacerbate as more US and European oil companies begin drilling for new oil reserves. Widespread government corru

[Packersoldkidney]

"Saudi Arabia's oil minister confirmed that his country's massive crude-oil output has declined in recent months, but he attributed the trend to a drop in demand…. In an interview… Ali Naimi said other [OPEC] cartel members are having trouble finding buyers for all the crude they are producing, at a time when global stores are near full… 'It's not just heavy oil. Even light oil is having problems finding buyers,' Mr. Naimi said, referring to premium grades of crude known as light crude that are highly prized by refiners because they have high gasoline yields. Asked if the kingdom was easing up on supply because of concern about the buildup of inventories in the U.S. and other importing countries, Mr. Naimi rejected such a motive, replying: 'At $70 a barrel?'"

Apparently oil stocks are at 10 year highs in many places, including the United States. The question is, why is oil still at $70 a barrel?

[Packersoldkidney]

By the way, when I wrote "oil stocks" I did not mean companies that are oil focused, I meant inventories of oil. The storage of oil is at decade-long highs, that is what I meant.

I wonder what an economist like Skinny would make of this? Pity he doesn't post so much anymore.

[Mick100]

I'v also heard that oil inventories are at all time highs in a few countries including the US.
What you should be asking yourself is why are some counties carrying higher inventories than ever before. I can think of a few good reasons off the top of my head why they are doing this:
Nigeria
Venezuela
Iraq
Iran
Russia

If you need an economist to explain to you why oil is at $72 per bbl you really are missing the big picture here packers.
Oil may go down to $65 but I think it's much more likely to go over $80 in the near term
.

[Packersoldkidney]

Fair enough, Mick: supply and demand would certainly indicate as much.

[Mick100]

I don't know exactly how much of a fear premium there is in the price of a barrel of oil at the moment but it's probanly around 10-15 dollars/bbl
When, or if, this fear premium comes off the price of oil then you can, again, base the expected price on supply/demand

Are global tensions declining at the moment?
Not from what I'm reading/watching /hearing
.

[Packersoldkidney]

The problem is with what you are reading/watching/hearing, Mick is that the global mass media will give you the worst case scenario, because that is what sells their product.

I suspect that a fair premium is already built into the price of oil and gas: the same speculative forces have been at play with gold, silver and the base metals in recent months.

To be honest I do think demand is still very high in historical terms for O & G across the globe: the problem is that speculative forces have been at play in the O & G market. I can't see O & G going down to where it was in 1998, but then I can't see speculative forces driving it much higher, neither.

Obviously your opinion is different, and that's fine with me.

[skinny]

quote:Originally posted by Packersoldkidney

By the way, when I wrote "oil stocks" I did not mean companies that are oil focused, I meant inventories of oil. The storage of oil is at decade-long highs, that is what I meant.

I wonder what an economist like Skinny would make of this? Pity he doesn't post so much anymore.

Hi Packers, ok, my 2c...

Traditionally, when inventories built up oil prices would decline. In this sense current spot oil prices look overvalued. Another indicator of prices looking excessive is that the ratio of oil prices (NYMEX) to natural gas (Henry Hub) has blown out well beyond historical norms; and in the medium run there is a fair degree of substitution between these energy sources in the US for industrial users at least. There are several arguments you can run though to support current prices:

1) Present spot prices are more focused on the tight current and projected world demand/supply balance than inventories. Supporting this argument is the futures strip - at the start of the increase in oil prices in '02 it barely budged, and only reluctantly followed up spot prices for a couple of years. Roughly around a year ago we saw the strip rapidly increase as the market became increasingly convinced about the persistence of the tight world demand/supply situation. And relatedly, that the doom mongers saying that the increase in oil prices would collapse economic growth and cause inflation to take off were wrong. World economic growth in '05 was strongest in roughly 30 years and inflation so far has been pretty well contained.


2) From an economic point of view when there is not much spare capacity and there are reasonable concerns about supply disruptions (read Iran, Latin America, etc) it makes sense to build inventories (or buffer stocks). In addition, we know that China, the US and others have been building stocks for political reasons.

3) The increase in supply coming on stream over the next few years is mainly from production sources that have much higher marginal costs (e.g. deep offshore wells and oil sands). Again the futures strip supports this one.

4) The price of crude is not just how much it costs to get the stuff out of the ground or sea or whatever; it also reflects the cost of shipping to markets. Global capacity shortages in shipping (VLCCs) enabled companies like FRO (worlds largest publicly listed crude carrier) to absolutely cream it over the past few years. The chart makes you weep:
http://finance.yahoo.com/q/bc?s=FRO&t=5y

However, arguably this one will become less important over the next few years - FRO has been sold off this year given expectations that more ships will come on line and now sells on a historic P/E of a touch under 4!



On the other hand the number 1 rule of markets is that they always overshoot and we know speculative interest in oil has been steadily building over the past few years. My long run *guess* is that prices will come back to the marginal costs of extracting oil from tar sands (so around US $35 per barrel) as reserves here are thought to be (1) massive and (2) in a politically stable first world economy (Canada).

Could be a few years yet before we see it though - I am mainly cashed up but the few stocks I do hold are still largely resource based ones!
Should also say that the cash I hold is Canadian dollars - have has a fanastic run on that!!