World Watch [IEA Oil Release]

by Vincent Lauerman, New York, EI, Jun 23, 2011
International Energy Agency (IEA) Executive Director Nobuo Tanaka announced on Thursday [June 23] that the consumer organization's 28 member countries had agreed to release 60 million barrels of oil stocks – including 30 million bbl from the US Strategic Petroleum Reserve [SPR] – in the coming month. Tanaka was following up on his implicit threat in May to unlock the reserves if Opec did not agree to increase supplies at its failed Jun. 8 meeting. The IEA has released strategic stocks twice before [please see details below -- D.R.], but this release clearly breaks with historical precedent [also, according to Peter Kemp, the IEA's release of oil stocks marks a new turn in oil market intervention---please see "World Watch," EI, Jun 24, 2011 -- D.R.]. Although the IEA framed the release in terms of the ongoing supply disruption in Libya, market sources say there is no actual shortage of physical crude. The IEA is instead making a pre-emptive move, looking ahead to “the threat of a serious market tightening” in the second half of the year, at a time when “world economies are still recovering.” Economic growth has been weakening, especially in OECD countries such as the US [...]

(In its 37-year history the IEA has collectively agreed to release strategic petroleum stocks only twice before to fill lost supplies -- in 1991 at the outbreak of the first Gulf War following Iraq's invasion of Kuwait, and in 2005 after Hurricane Katrina damaged offshore oil rigs, pipelines and oil refineries in the Gulf of Mexico. Separately, please also see Petroleum Economist (PE) commentary -- The IEA's release of crude from strategic stocks is less about Libya than about the global economy - and it should send oil prices tumbling, says the editor of PE Derek Brower. Also, please see retweets by me on Twitter dated June 23, here. The IEA has been warning since the turn of the year of rising oil burden -- "Were $100/bbl oil to become entrenched in 2011, that would risk pushing the [oil burden] figure through 5%," IEA said---please see my post "IEA Warns of Rising Oil Burden." The price of crude, if sustained at $100 a barrel or more for the rest of 2011, would cause similar demand destruction as the world experienced in 2008 that led to the global economic crisis, Nobuo Tanaka, IEA executive director, said---please see The Telegraph, Apr 20, 2011. Please compare the above-mentioned analysis to the IEA's official position -- The use of IEA strategic stocks "is not about price but rather about ensuring an adequately supplied market to protect the world economy from unnecessary damage when it is in a fragile state." [?]---please see IEA: Key Questions answered on the release of oil stocks or more precisely "IEA collective action – June 23, 2011: FAQ." The SPR crude oil stocks are stored in underground salt caverns along the Gulf of Mexico Coast. Currently, there are a historically high 726.6 million barrels of crude oil in SPR, close to its 727.0 million barrel capacity. Historically, releases from the SPR have taken one of two forms, either an exchange, where oil provided in the release is then repaid within a specified time, or sales, where oil is auctioned off in a competitive bidding process. The United States has released crude oil from the SPR a number of times since 1985, according to the U.S. Department of Energy. The most recent release was the 5.4 million barrel exchange following Hurricanes Gustav and Ike in September 2008. To date, the largest release was a 30 million barrel exchange in the fall of 2000 in response to low heating oil supplies in the Northeast region of the United States---please see chart below and U.S. Energy Information Administration/EIA, Today in Energy, Jun 24, 2011, here. -- D.R.)
              [Click on chart to enlarge]

 

[...] US Ambassador [to Canada] Backs Increased Canadian Oil-Sands Imports

Petroleum Economist, June 9, 2011
The US government considers Canadian oil supplies an essential ingredient of energy security, even as competition for resources and assets ratchets up with rival China.

Speaking in Calgary, US ambassador to Canada David Jacobson described his country's need for greater imports from stable sources such as Canada to offset dependence on unstable regimes in the Middle East and North Africa. "The US sees Canada as a pillar of our energy security," he said.

It is already the largest energy-trading relationship in history, with Canada accounting for about 22% of US import demand [please see my post "U.S. Crude Oil Imports from Top 15 Countries, Dec 2010 and Full Year 2010," -- Canada supplied about 22% of total US crude oil imports in 2010, i.e., 1.97 million b/d of crude/please also see chart below, out of a total US imports of crude of 9.16 million b/d, as well as about 22% of total US crude oil and products imports in 2010, i.e., 2.532 million barrels per day---1.97 million b/d of crude oil plus 0.56 million b/d of petroleum products---out of a total US imports of crude and products of 11.753 million b/d -- D.R.). Alberta alone pumps about 1.4 million b/d to US refineries or 7% of overall US consumption [U.S. oil consumption increased by some 380,000 b/d or 2.0% to 19.148 million b/d in 2010, compared to the previous year---please see my post "Top 25 World Oil Consumers, 2009-2010." Separately, of the estimated 2.9 million b/d, sic, of crude oil produced in Canada in 2010, 1.5 million b/d of that was derived from the oil sands of Alberta---please see EIA. -- D.R.].

Canada long ago surpassed Saudi Arabia as the top supplier to the world's largest oil consumer and that relationship is poised to grow exponentially as Canadian producers increase production of oil-sands crude.

Canadian exports to the US have more than doubled since 1993 [US imports from Canada of crude oil increased from 900,000 b/d in 1993 to 1,972,000 b/d in 2010, and US imports from Canada of crude oil and petroleum products increased from 1,181,000 b/d in 1993 to 2,532,000 b/d in 2010 -- D.R.] and are set to double and quadruple over the next two decades.

According to IHS Cera, Canadian oil sands could supply 6.3 million b/d by 2035, not including any other conventional and unconventional production that would push the figure past 7 million b/d. Only Russia and Saudi Arabia would have larger output, IHC Cera added, vaulting Canada into the top tier of oil-producing nations. [...]

But that looming reality seems lost on US President Barack Obama, who has seemed to be reluctant to fully embrace the oil sands even as he has talked of the need to reduce imports from unstable and hostile regimes.

A series of nagging doubts have led some Canadian observers to question the president's energy priorities. For instance, the State Department has held up approvals for TransCanada's Keystone XL pipeline to the Gulf coast [where there are more refineries capable of handling the unusually thick crude, i.e. the heavy, high-sulphur bitumen, and please see map below -- D.R.] while it carries out environmental assessments of the carbon intensity of Canadian oil sands and heavy crude in a move seen as bowing to environmental groups. [...]
                  [Click on map to enlarge]

                                                                    Source: PE, here.
Fearing the worst from Obama's climate-change and clean-energy initiatives, the Canadian and Alberta governments have lobbied against the adoption of clean-fuel standards and other environmental policies they claim would discriminate against Canada. [...]

Feeling snubbed by this seeming US indifference, Canada has been courting Asia, and particularly the Chinese, as an alternate buyer of its growing output.

China consumes less than half as much oil as the US [please see my posts "Top 25 World Oil Consumers, 2009-2010 -- EIA." and "Top 21 World Oil Consumers, 2007-2010 -- BP," -- D.R.], but will overtake it in a matter of decades, said Wenran Jiang of the University of Alberta's China Institute [According to the BP Energy Outlook 2030, China is the largest source of oil consumption growth, with consumption forecast to grow by 8 million b/d a day to reach 17.5 million b/d by 2030, overtaking the US to become the world's largest oil consumer -- D.R.]. And like the US, China considers Canadian energy supplies to be vital to its security and economic growth.

About 80% of China's imports must pass through the Malacca Strait and its is keen to diversify supply chains away from vulnerable shipping lanes in Southeast Asia. [Also, please see my post "What is Beijing Willing to Do to Secure Oil and Gas Supplies?" and my post "China: Taking Oil Home," -- D.R.] [...]

While the US dithers over whether to embrace "dirty oil" [please see remarks below -- D.R.] from Canada, Chinese state-owned entities have been on a shopping spree, snapping up C$20 billion ($19.8 billion [sic]) worth of assets in less than two years and forming operating partnerships with Canadian firms for both oil sands and unconventional shale gas.

There is presently no way of shipping that oil to China, but there is a growing call in Canada to do just that.

Enbridge's proposed Northern Gateway pipeline to Canada's west coast is seen as a way of opening up overseas markets and gaining higher world oil prices. [Read more]

Source: U.S. Energy Information Administration (EIA), Today in Energy, Jun 14, 2011, here.

(Canadian oil producers have been clamoring for an outlet for their oil to reach the Gulf Coast, reliving a glut that's accumulated in Cushing, Oklahoma, where several pipeline routes terminate --- the delivery point for the West Texas Intermediate benchmark. The large amount of oil stranded in Cushing has led to a deep discount in crude-oil prices in the region and on the New York Mercantile Exchange. In March, the U.S. State Department delayed approval of the 1.1-million-barrel-a-day TransCanada Corp. Keystone XL pipeline expansion that would bring Canadian oil to the Gulf of Mexico. Environmental groups have raised objections about the possibility of oil spills. Alberta Energy Minister Ron Liepert called for the U.S. State Department to quickly approve the extension of a controversial oil pipeline to the U.S., adding that Canada has other potential customers for its oil. Canada is the biggest supplier of foreign oil to the U.S. but Minister Liepert said Canada is "actively cultivating" relationships with China and other emerging markets, where energy demand is growing rapidly---please see MarketWatch, May 16, 2011. In regard to environmental concerns surrounding oil sands production, Minister Liepert states, “We have been a leader in terms of initiatives around the environment. We have made significant advancement in tailings [Tailings are a mixture of fine clay, silt, sand, water and residual bitumen produced through oil sands extraction -- D.R.] management. Tailings are associated only with the mining operations, which is less than 50 per cent of the oil sands production now and continues to decline as a percentage of production.” He continues, “We have a 15 dollar per ton carbon tax, and most of the large operations in the oil sands fall under that. The tax goes into a clean energy fund. Alberta only has a population of 3.5 million people, but has invested $2 billion—probably the largest of any jurisdiction in the world—into carbon capture and storage.”---please see Energy Digital, Jun 14, 2011. -- D.R.)

North Dakota Oil Tax Revenue Breaks $100M Mark in March as Industry Booms

by Judson Berger, Fox News, May 9, 2011
North Dakota's booming oil industry has yielded record tax revenue for the state, breaking the $100 million mark in March at a time when other states are struggling to stay afloat.

The state in just the last few years has become an oil-producing powerhouse and is looking to overtake California in total production. [...]

Much of the recent increase is due to rising crude prices, which have shot up amid concerns over unrest in the Middle East. But North Dakota's oil production is also accelerating rapidly, and state officials expect the windfall to hold steady. [...]

The 350,000 barrels a day produced in March was actually about 2,000 barrels a day lower than in February. But [state Deputy Tax Commissioner Ryan] Rauschenberger attributed the dip to the weather, and said that even if crude prices return to prior levels the state expects to take in $2 billion in oil-related tax revenue over the next two years. [...]

Amid a debate on Capitol Hill over whether the U.S. needs to do more to encourage domestic oil production, North Dakota is charging ahead with expansion. The state industry was helped in no small part by efforts over the past several years to tap into a massive oil field known as the Bakken Shale deposit, where virtually all future expansion is happening [please see remarks below -- D.R.].

Production is expected to grow "substantially," Ron Ness, president of the North Dakota Petroleum Council, said. With 5,300 wells across the state and thousands more expected to come online, Ness projected that the state could reach up to 700,000 barrels a day by 2015.

North Dakota is the fourth-largest oil producing state in the U.S. behind California, Alaska and Texas [when output from the Federal Outer Continental Shelf/OCS is excluded from the total ranking -- D.R.], and Ness said California is in their "target zone." [Read more]

(Operators increased North Dakota's Bakken production from less than 3,000 bbl/d in 2005 to over 230,000 bbl/d in 2010. The Bakken's share of total North Dakota oil production rose from about 3 percent to about 75 percent over the same period---please see my post "United States: Oil Production From Shale Formations, 2005-2010," here. North Dakota produced an average of 307,000 barrels of crude oil per day in 2010 and comprised about 5.6 percent of the nation's total crude production---please see EIA data, here. For the U.S. crude oil production, please see also my post "U.S. Crude Oil Production, 1970-2010," here. North Dakota's crude oil production increased sharply in the late 1970s and peaked in 1984 at 144,000 barrels per day. Production declined through the late 1980s and early 1990s. After a small rise in 1995-97, production slowed again. Crude production dropped to 81,000 barrels per day in 2003. But since 2004, it has grown constantly to reach the above mentioned all-time peak of 307,000 barrels per day in 2010, surpassing the previous peak of 218,000 barrels per day in 2009. Also significantly, on a monthly basis, North Dakota's crude oil production rose from 138,000 barrels per day in January 2008, to 357,000 barrels per day in November 2010, before falling slightly to 344,000 barrels per day in December 2010. Update: North Dakota passed Alaska in March 2012 to become the second-leading state in crude oil production, trailing only Texas---please see my post "North Dakota Tops Alaska in Oil Production, Trailing Only Texas." -- D.R.)

Saudis Consider Need to Raise Output Capacity

PIW, Apr 25, 2011
Although Saudi Arabia’s desire to keep oil markets in balance saw it cut supply by 800,000 barrels per day in March [please see remarks below -- D.R.], the kingdom’s bigger and longer-term concern is over whether it needs to increase oil production capacity to meet likely future demand. The Saudi view on oil markets has altered sharply from where it was a year ago, when a battered global economy was still limping out of recession. Riyadh thinks medium- to long-term oil demand growth may be higher than it had previously anticipated, driven by China, India and also the Middle East itself, and PIW understands that discussions are now taking place on whether the kingdom should raise oil output capacity beyond its current 12.5 million b/d (PIW Apr.11,p1). The pickup in Asian demand in the second half of 2010 surprised Saudi officials, forcing them to start increasing output in November and December to try to cool rising oil prices. A tumultuous start to 2011, which has seen political upheaval across the Arab world and an earthquake and subsequent nuclear emergency in Japan, has further complicated the picture, and helped drive oil prices to levels last seen in 2008. While Saudi Aramco cut output in March in response to weak buying interest for its sour crude [please see my post here; and refiners also started to cut production on top of planned seasonal maintenance, thus reducing intake of crude oil -- D.R], demand is expected to surge again over the summer. A significant part of that surge will come from the Mideast's power plants, which have shown a recent preference for direct crude burning to power air conditioning systems to cool their cities; in a speech last week, Saudi Oil Minister Ali Naimi lumped "the [Mideast] region's oil and gas producers" together with China and India as "the main drivers of this increase in petroleum consumption.”

Riyadh has always said that it could move to capacity of 15 million b/d if required, but such statements have typically been made at times of uncertainty, as in 2008, with officials saying privately that such capacity was unnecessary. Now, while no decisions have yet been made and while work is unlikely to start this year, expansions at Shaybah, Manifa and Khurais are back on the table (PIW Jun.30'08,p3). With little help likely from other Opec producers apart from Iraq, discussions are underway on whether to reactivate plans for a 250,000 b/d expansion at the 18 billion bbl Shaybah field to bring capacity to 1 million b/d. Aramco has already decided to bring forward the 10 billion-14 billion bbl Manifa project, and could now expand its capacity from 900,000 b/d to 1.2 million b/d (PIW Apr.18,p7) [For Manifa, please see my post here -- D.R.]. Another new field, the 27 billion bbl Khurais, could add a further 300,000 b/d [sic] to its existing 1.2 million b/d capacity (PIW Mar.7,p3) [For Khurais, please see my post here -- D.R.].

Saudi sources expect the kingdom will need to keep oil output around 9 million b/d or higher over the next few years, which helps explain the decision to accelerate development of the 900,000 b/d Manifa heavy oil project. The new timetable for Manifa will help offset natural declines at fields now being asked to produce more, as well as provide strategic crude for two new deep-conversion refineries at Jubail and Yanbu. The kingdom's newer fields have annual decline rates of 2% or less, while its older fields average around 4%, so the higher overall Saudi output climbs, the sooner Manifa will be needed. The development has also been earmarked to feed Jubail and Yanbu, which will need 800,000 b/d of Arab Heavy by 2014. Taking that amount of Saudi crude off the market could be disruptive, however, particularly if the supply-demand balance has tightened by then, industry sources tell PIW. In the context of stronger demand and higher oil prices, of course, Aramco can more easily justify the $15 billion investment needed for full Manifa development, despite the $130 billion increase in social spending announced by Riyadh this year to head off potential political unrest at home (PIW Apr.4,p1). [Full story]

(Saudi Arabia's oil minister said on Sunday/Apr 17 the kingdom had slashed output by 800,000 barrels per day in March due to oversupply. "Our production in February was 9.125 million barrels per day, in March it was 8.292 million bpd. In April we don't know yet, probably a little higher than March. The reason I gave you these numbers is to show you that the market is oversupplied," Saudi Oil Minister Ali Naimi told reporters---please see Reuters, Apr 17, 2011, here. Saudi Arabia was the world's second largest crude oil producer in 2010, behind Russia---please see Aaron and David Rachovich, "World's Top 22 Oil Producers, Full Year 2010," here. It maintains the world's largest crude oil production capacity. The kingdom's Ghawar field alone accounts for more than 40% of Saudi Arabia's total oil production capacity, and is the world’s largest oil field. It produces more than 5 million bbl/d of Arabian Light crude. Ghawar also produces more than every other country except Russia and the United States---please see U.S. EIA, Saudi Arabia Country Analysis Brief, Jan 2011, here. Also, Saudi Arabia was the sixth largest oil consumer in the world in 2010, behind the United States, China, Japan, India and Russia, according to the latest estimates, and the eighth largest oil consumer in the world in 2009---please see my post "Top 25 World Oil Consumers, 2009-2010," here. Saudi Arabia is the world's biggest holder of proved oil reserves---please see our post "World's Top 22 Proven Oil Reserves Holders, Jan 1, 2011 -- OGJ," here. And the world's fourth largest holder of natural gas proven reserves as of Jan 1, 2011, behind Russia, Iran and Qatar---please see our post "World's Top 22 Natural Gas Proven Reserve Holders," here. -- D.R.)

US to Find 'More Oil at Home,' While Cutting Consumption: President Obama

Platts, Washington, Mar 30, 2011
US President Barack Obama on Wednesday called for the country to reduce oil imports by one-third within the next decade, warning that the US cannot "afford to bet our long-term prosperity and security on a resource that will eventually run out."

In a speech at Georgetown University in Washington, the president presented a "Blueprint for a Secure Energy Future" that would reduce US oil imports by increasing the use of domestic natural gas, promoting advanced biofuels, boosting vehicle fuel efficiency and increasing US oil output.

The president said that while gasoline price increases have historically been temporary, the long-term trend suggests "there will be more ups than downs. That's because countries like India and China are growing at a rapid clip. And as 2 billion more people start consuming more goods, driving more cars and using more energy, it's certain that demand will go up a lot faster than supply."

But Obama warned that "there are no quick fixes, and we will keep being a victim to shifts in the oil market until we get serious about a long-term policy for secure, affordable energy."

"Meeting this new goal of cutting our oil dependence depends largely on two things -- finding and producing more oil at home and reducing our dependence on oil with cleaner alternative fuels and greater efficiency," he said.

The US currently relies heavily on imported oil. In 2010, it imported 9.163 million b/d of crude and nearly 2.6 million b/d of refined products, according to data from the Energy Information Administration, the statistical arm of the Department of Energy. US crude production last year averaged 5.512 million b/d [please see my post "U.S. Crude Oil Production/Table," here -- D.R.].

Neighboring Canada and Mexico were top crude suppliers with 1.972 million b/d and 1.14 million b/d, respectively [please see my post "U.S. Crude Oil Imports from Top 15 Countries, Dec 2010 and Full Year 2010 -- EIA," here -- D.R.].

International crude prices climbed above $100/barrel early this year as unrest spread across North Africa and the Middle East, with North Sea Brent trading close to $120/b in the latter part of February as the unrest spread to Libya and reduced oil production there [please see my post/remarks here].

To spur an increase in US production, Obama said the White House is developing "incentives" for oil companies to speed up development in areas already open to drilling. Although Obama did not provide details, a White House fact sheet issued Wednesday said the US Department of Interior is already shortening some lease terms and requiring drilling to begin before granting lease extensions. DOI is also studying a graduated royalty rate structure to reward faster development.

Obama set a goal of building four commercial-scale biofuels refineries in the next two years and pledged that the US government would buy only low-emissions vehicles by 2015.

"The fleet of cars and trucks we use in the federal government is one of the largest in the country," Obama said. "That's why we've already doubled the number of alternative vehicles in the federal fleet, and that's why, today, I am directing agencies to purchase 100% alternative fuel, hybrid or electric vehicles by 2015."

"We've known about the dangers of our oil dependence for decades," the president said. "Presidents and politicians of every stripe have promised energy independence, but that promise has so far gone unmet.

 "I've pledged to reduce America's dependence on oil too, and I'm proud of the historic progress we've made over the last two years towards that goal. But we've also run into the same political gridlock and inertia that's held us back for decades.

"That has to change. We cannot keep going from shock, when gas prices go up, to trance on the issue of energy security, rushing to propose action when gas prices rise, then hitting the snooze button when they fall again."

Reaction to Obama's speech was mixed, with oil producers saying the president's criticism was misguided and some green groups taking issue with his proposed solutions.

The president of the Independent Petroleum Producers [/Association] of America [i.e., IPAA -- D.R.], Barry Russell, said slow permitting by the federal government is partially to blame for the slow development that Obama cited.

"Leases can't be developed if companies don't have the permits necessary to proceed with exploration and production activities, which take several years and billions of dollars to develop," Russell said. "There is also no guarantee that oil and natural gas will be found on all of the land that is leased."

Democrats and environmental groups had a largely positive reaction, to the speech, although Friends of the Earth criticized Obama for relying too heavily on nuclear and natural gas power.

Frances Beinecke, president of environmental group the Natural Resources Defense Council, said Obama's goal of cutting oil imports is achievable.

"We can get there by driving higher-gas-mileage vehicles, expanding mass transit systems, using more wind and solar, and building more efficiency into the products we use and the buildings we live and work in," Beinecke said. [Full story]

(In a speech at Georgetown University in Washington, March 30th, President Obama also said, "Last year, American oil production reached its highest level since 2003, and for the first time in more than a decade [last time 1997 - 49% -- D.R.], oil we imported [net imports] accounted for less than half the liquid fuel we consumed [i.e., 49% -- D.R.]."---please see my post, including remarks, here. Please watch President Obama's speech, here. In his State of the Union address in January, President Obama set a goal of generating 80% of US electricity from clean energy sources by 2035. -- D.R.)

Is There Any Alternative to Nuclear Power?

The Yomiuri Shimbun, Mar 27, 2011

The nuclear disaster at the Fukushima No. 1 power plant has shaken the foundation of Japan's energy policy.

No alternative source of energy to nuclear power generation appears to be on the horizon, and the power cuts that Tokyo Electric Power Co. is resorting to in the capital and other cities are likely to continue for sometime to come.

The power shortage is not only disrupting the daily lives of the people, it will probably seriously affect the entire economy as many businesses are struggling to cope with the situation.

The government must come up with plans to find the power needed to grease the wheels of the country.

It is now forced to choose between two courses of action: Restore public confidence in nuclear power generation or find alternative energy sources.

Japan depends on other countries for most of its fuel, such as oil and liquefied natural gas. Crude oil and LNG are used for thermal power generation.

However, Japan will be in a bind if countries exporting fuel to this country are destabilized politically.

To ensure energy security, this country has to increase, even gradually, its sources of energy without relying too much on other countries.

Before the earthquake and tsunami disaster, the government came up with a plan to double the ratio of energy sources by nuclear power stations and renewable energy, including solar power, from about 35 percent in fiscal 2007 to 70 percent in fiscal 2030.

The government placed its hopes on nuclear power as a "semi-domestic energy source" because of its efficiency and because the amount of fuel required is small.

However, the crisis at the Fukushima No. 1 plant, which stretches over the borders of Okumamachi and Futabamachi in Fukushima Prefecture, has forced the government to think twice about allowing construction of new nuclear power stations.

Already there are moves to suspend construction of nuclear power plants, such as Chugoku Electric Power Co.'s Kaminoseki plant in Kaminosekicho in Yamaguchi Prefecture and TEPCO's reactors at the Higashidori power plant in Higashidorimura in Aomori Prefecture.

The Higashidori plant is shared by [Sendai-based] Tohoku Electric Power Co. and TEPCO. Tohoku Electric has already started operating its No. 1 reactor and another is in the works, while TEPCO started construction of its No. 1 reactor in January and plans to build a second one.

Operations at TEPCO's Kashiwazaki-Kariwa nuclear power station in Kashiwazaki and Kariwamura in Niigata Prefecture stopped in 2007 following the Niigata Prefecture Chuetsu Offshore Earthquake.

The company has had great difficulty trying to win the understanding of local residents and governments toward fully restarting it. The plant is partially operating now.

As a stopgap measure, TEPCO plans to increase the operation rates of thermal power plants, but fuel costs for these power plants have increased sharply.

The political situations in Middle Eastern countries, which supply 90 percent of Japan's oil imports, are unstable and fuel imports therefore are unreliable.

Renewable energy sources, on which great expectations rest, still provide a relatively small amount of energy.

In addition, many technological problems must be solved before supplies can be increased in this field.

When Japan was adversely affected by two energy crises in the 1970s, the government and the private sector cooperated to make this country an "energy-saving society."

There is no other way to cope with the current situation than to conserve energy as much as possible.

However, a ranking Economy, Trade and Industry Ministry official issued a warning about summer shortages.

"Even if we engage in energy conservation, there'll be a shortage of electricity in the middle of summer. We need a plan to fundamentally solve the situation," the official said.

Economy, Trade and Industry Minister Banri Kaieda said Friday that his ministry would compile as early as the end of the month guidelines to restart operations at nuclear power stations after inspections are completed.

But will the government throw itself wholeheartedly behind the nuclear option? [Full story]

(Japan is the world's third biggest nuclear-electricity producer, after the United States and France--please see bar chart below, sorry for the blurriness. For information on Japan's nuclear crisis and its impact, please see my posts under the category/label "Japan." Clearer signals on incremental LNG demand are emerging from the two heaviest-hit Japanese power utilities: Together, Tokyo Electric Power Co. (Tepco) and Tohoku Electric will need roughly 485,000 tons per month of extra LNG to offset nuclear and thermal capacity lost as a result of the Mar. 11 earthquake and tsunami. Other Japaneses utilities may also need more LNG, as safety concerns have led them to delay restarting nuclear reactors closed for maintenance---please see: "Tepco, Tohoku Outline Summer LNG Needs," World Gas Intelligence, Mar 30, 2011, here. -- D.R.)
             [Click on bar chart to enlarge]

                                           Source: World Nuclear Association via The Economist, here

World Watch [Brazil as a Role Model]

by Jim Washer, London, EI
Petrobras Chief Executive José Sergio Gabrielli de Azevedo has been named by Energy Intelligence as its 2011 Petroleum Executive of the Year. The award reflects Gabrielli’s stewardship of the state-controlled Brazilian firm through a period of unprecedented growth, encompassing the discovery of huge [deep water] subsalt oil and gas reserves [in the South Atlantic]. Gabrielli’s triumph comes at an intriguing time. Political unrest in North Africa and the Middle East has left the world contemplating an oil price shock reminiscent of those of the 1970s. The price spikes of that decade prompted a radical energy policy response from some consuming countries, most notably Brazil. The government sought to protect the country from future price shocks by promoting the extensive use of sugar cane-derived ethanol in transport fuels and by making Petrobras a pioneer in deepwater exploration. If the disruption to Libyan oil and gas exports spreads to other producers in the region, the impact on energy prices may encourage other oil and gas importing nations to follow the Brazilian example.

(Under Gabrielli’s leadership, Petrobras made discoveries expected to more than double its oil reserves and production in the years to come. The company has established itself as a leader in deepwater exploration and production technology with among the highest safety and efficiency standards in the business. He also raised huge amounts of capital to fund these upstream developments and allow the state company to remain very much the dominant force in the development of Brazil’s oil industry. The Petroleum Executive of the Year selection process begins with Energy Intelligence eliciting nominations from the heads of the 100 largest oil companies determined by The Energy Intelligence Top 100: Ranking The World’s Oil Companies, an EI publication. These nominations are then voted on by a committee of previous award winners and former senior oil executives. Past winners of the Petroleum Executive of the Year Award include Andrew Gould of Schlumberger (2010), Christophe de Margerie of Total (2009), Paolo Scaroni of Eni (2008), Abdulla al-Attiyah of Qatar (2007), Dr. Shokri Ghanem of Libya (2006), Abdallah Jum'ah of Saudi Aramco (2005), David O'Reilly of Chevron (2004), Lee Raymond of ExxonMobil (2003), James J. Mulva of ConocoPhillips (2002), Sir Mark Moody-Stuart of Royal Dutch Shell (2001), Thierry Desmarest of Total (2000), Lucio A. Noto of ExxonMobil (1999), Luis Giusti of PDVSA (1998) and Lord John Browne of BP (1997)---please see EON: Enhanced Online News, here. Brazil has become a net oil exporter in the last decade. Petrobras has been ranked fourth in the Platts Top 250 Global Energy Companies Rankings 2010, behind ExxonMobil, BP and Gazprom Oao---please see my post, here. Petrobras with a market capitalization of $229 billion, ranked at No. 3 in the PFC Energy 50 Ranking of World's Top Energy Companies, Jan 2011 reflecting 2010 Rank, after ExxonMobil and PetroChina---please see my post here. Also, Petrobras retained its spot as the No. 15, in the 2011 Petroleum Intelligence Weekly's/PIW's ranking for 2009---please see my blog stand-alone page "Companies" > Petrobras. -- D.R.)

World Watch [Oil Markets]

by Matt Piotrowski, Washington, EI
Oil markets took a breather [sic] Wednesday [Mar 23], with little movement on either of the major benchmarks. It appears that Brent has settled down around the $115 per barrel level, while WTI looks comfortable in the $100-$105 range. The markets have already priced in an extended outage in Libya, but traders are having difficulty factoring in other pockets of instability in the Arab world. Unrest in Yemen, Syria and Bahrain this week is underpinning prices, and will likely do so for some time. There are some dangers on the downside, such as a fragile global economic recovery and a possible short-term decline in Japanese demand, but the risk to the upside appears greater. Societe Generale said this week that if another medium-sized oil producer similar to Libya were to lose output, Brent would rise to $125-$150. And if the turmoil spreads to Saudi Arabia, the world could be looking at $200 oil, the SocGen analysts said.

(U.S. crude ended at a 2-1/2 year high on Wednesday as Palestinian rocket strikes on Israel escalated Middle East geopolitical risks and U.S. gasoline inventories posted the biggest seasonal decline on record, amid ongoing unrest in MENA countries---Reuters. Light, sweet crude---benchmark WTI---for May delivery settled 78 cents higher at $105.75 a barrel on the New York Mercantile Exchange, the highest settlement since September 2008. In London, Brent May crude futures settled down 15 cents at $115.55 a barrel. -- D.R.)

World Watch -- Comment & Interpretation on Today's News [Oil Prices]

by Peter Kemp, London, EI
The ebb and flow of protests across North Africa and the Middle East is being mirrored in oil markets, with WTI following Brent north of $100 per barrel this past week. A mix of geopolitical risks and technical explanations is driving price forecasts even higher as predictions of a bumpy ride towards $200/bbl gain credibility. Financial analysts are driving these frothy predictions, while market fundamentalists fret that the oil balances still show sluggish demand outside of Asia, ample supply and enough spare capacity for almost any eventuality. But with Libya offline and jumpiness about potential disruptions elsewhere, a period of higher prices is inevitable. This makes Saudi Arabia’s effort to calm the market with extra barrels for which there was no obvious demand all the more understandable. A runaway rise in oil prices is an immediate threat to the fragile global recovery from recession, and an even bigger threat to long-term demand for oil.

(Please see also my recent blog posts under the categories/labels "Libya," "Saudi Arabia" and "Oil Fundamentals." -- D.R.)

Fitch: Long Production Cut Biggest MENA Threat

By OGJ editors, OGJ, Mar 3, 2011
Long interruption of production represents the largest threat from political turmoil to the financial stability of oil and gas companies with operations in the Middle East and North Africa (MENA) but remains unlikely, an international credit-reporting agency says.

A secondary risk, nationalization of assets by successor regimes in countries now experiencing unrest, is a “remote scenario,” although contract renegotiations by successor regimes remains possible, according to Fitch Ratings, New York and London.

A recent Fitch report covering North American companies with operations in the MENA region said credit pressures from unrest in Egypt, Libya, and other countries of concern are manageable.

Credit ratings are most sensitive to “widespread and long-lasting production” upsets, which Fitch doesn’t expect “due to the importance of oil revenues to the region’s economies.”

Most North American producers in the MENA region are large, integrated companies for which production in countries experiencing unrest is small in relation to total. Oil price increases mitigate the elevated risks of production losses and contract renegotiation.

Company exposures

Apache Corp. has the highest exposure among North American producers to any single country experiencing turmoil, Fitch said. Apache’s 163,300 boe/d of output in Egypt is 24% of Fitch’s assessment of the company’s recent total production.

Exposure levels in Libya include Marathon, 12% of total production; Suncor Energy Inc., 8%; Hess Corp., 5%; ConocoPhillips, 3%, and Occidental Petroleum Corp., 1%.

Fitch called Algeria “the other North African country that could present the largest concerns for North American-based upstream companies.” There, sizable exposure levels include Anadarko Petroleum Corp., 7% of total production, and Hess, 3%. ConocoPhillips produced 14,000 boe/d in Algeria in the third quarter last year, less than 1% of total production, according to Fitch estimates.

North American companies with production in restive Yemen include Nexen Inc., 11% of estimated total production, and Oxy, 6%.

Among European oil and gas companies tracked by Fitch, four have production in Libya or Egypt, the firm said in a separate report.

Eni, OMV, and Repsol have production exposure of 9-14% in Libya, “with Eni as the most exposed,” Fitch said. About one fourth of BG Energy Holdings Ltd.’s total oil and gas output is in Egypt.

“There could be a more pronounced impact on European oil and gas companies’ operations and financials if the political unrest spreads across Africa and/or the Middle East,” Fitch said, adding it “does not currently view this scenario as very likely.” [Full story]

Asian LNG Outlook: The Evolution of a New Asian LNG Market

By Hong Chou Hui, Platts, Singapore, Feb 23, 2011
Asia's LNG market is set to come of age in 2011 as the volatility of the last few years has shaken up the region and increased players' appetite for a more sophisticated approach.

Demand in Asia bounced back in 2010 on the back of extreme cold and hot temperatures coupled with economic recovery across the region, after the global financial crisis at the end of 2008 curtailed LNG cargoes purchased in 2009.

Requirements for 2011 are expected to remain robust among traditional buyers, while a series of new players are also entering the fray.

The region continues to be the dominant force in LNG. Growing shale gas production in the US has reduced the need for imports there to virtually nil.

Europe's gas demand remains largely focused on pipeline imports, while the growth in LNG imports into the northwest of the continent has been offset by a decline in imports into the southwest.

While the final figures for 2010 have yet to be collated, the previous year saw Asia take 62.8% [please see table below -- D.R.], or 1.09 billion barrels of oil equivalent of the world's total imported LNG, according to data from independent LNG consultant Andy Flower. And the initial data for last year give every indication of repeating that pattern.

Japan's LNG imports in 2010 were up 8.6% year on year at 70.01 million mt, reaching a new record for annual volumes and surpassing the pre-financial crisis level seen in 2008 of 69.26 million mt, customs data from the Ministry of Finance show.

The figure looks all the more impressive when compared with 2009's dramatic drop in imports to 64.49 million mt. [Please see table below -- D.R.]

Similarly, South Korea's 2010 LNG imports were up 26.26% year on year at 32.6 million mt, from 25.82 million mt in 2009, according to the country's customs data compiled by Platts over the year.

Across the board, all [sic, please see bar chart below -- D.R.] Asian buyers imported more LNG in 2010 compared to the previous year.
             [Click on bar chart to enlarge]

Meanwhile, though the traditional buyers in Japan and South Korea, which currently have almost 180 million mt/year and 40 million mt/year of LNG import capacity respectively, will likely continue to remain the dominant force in the market, Asia's largest countries are beginning to make their presence felt.

China and India are building a further 20 million mt/year and 10 million mt/year of regasification capacity respectively.

Two Chinese LNG terminals, both being built by state-owned PetroChina, will startup this year -- the 3.5 million mt/year Rudong facility in April and the 3 million mt/year Dalian terminal in June -- bringing China's total import capacity to 18.8 million mt/year.

And a further three terminals are due for completion in the following few years. (See related chart: Asian terminal capacities (million mt/year)).
             [Click on bar chart to enlarge]

Meanwhile India has two terminals under construction, building on its existing import capacity of 13.6 million mt/year. And, like China, there are plans for a host of further regasification facilities in India in the years ahead.

China and India's GDPs are projected to grow by around 10% this year and in 2012 [sic, please see chart below -- D.R.], outperforming both Japan and Korea at 2% and 5% respectively over the same period, according to the IMF World Economic Outlook. Coupled with state support for gas use, there is significant potential for increased LNG imports into the two countries.
             [Click on chart to enlarge]

But despite their muscular economies and large populations, China and India have both faced constraints on their LNG imports in the last year or so, with the former's ability to bring in shipments curtailed by a small number of import terminals and limited storage facilities, while India is limited by the capacity of its downstream gas pipelines.

And any forecasts are further clouded by the potential for domestic production of unconventional gas -- coalbed methane and shale gas -- in both countries, which could limit the need for LNG purchases in the future. [Full story]

(Japan is the world's largest importer of liquefied natural gas---LNG---followed by South Korea and Spain, according to the 2008, 2009 and 2010 data. For information on Japan's, South Korea's and China's LNG imports in 2010, please see also my post "East Asian LNG Imports in 2010," including remarks, here. For major LNG exporters to Japan in 2010, please see bar chart here. Sustained oil prices over $100 a barrel, as a result of instability in the Middle East & North Africa, could also have a negative effect on economy of Asia. -- D.R.)