A snapshot of last weeks global energy news:
President of the Organisation of Petroleum Exporting Countries
(Opec) Chakib Khelil warned that high oil prices would continue
to rise. He blamed the soaring price of oil on speculators,
geopolitical problems and the weakness of the dollar, all
factors beyond the control of Opec.
Russian Prime Minister Vladimir Putin approved a tax-cut
which is expected to stimulate Russias oil production
to 12 million barrels a day. Russian oil production fell
to 9.72 million barrels a day in April, the lowest in 18
months, due to rising costs to develop ageing fields and
pursue new projects in remote areas.
High fuel prices have affected motorists around the world
with few exceptions.
In the Caribbean, tourism-dominated and energy-dependent
islands have become reliant on PetroCaribe, a facility offered
by Venezuelan leader Hugo Chavez. Under PetroCaribe, Venezuela
supplies oil to the region at preferred prices, for which
part of the payment is deferred.
And in T&T:
A sum of $1.1billion went to the Energy Ministry to offset
the cost of fuel to motorists. It is estimated that total
subsidies on petroleum products will be $1 billion more
than the anticipated expenditure for the year submitted
during preparation of the 2007/2008 budget.
bpTT chief executive Robert Riley said that T&T must
follow the gas price, not the oil price. The price
of gas has not been moving as the rate of oil. We are a
gas economy with some oil production, said Riley.
T&T has buffered surging oil prices by subsidies which
Energy Minister Conrad Enill admitted are not properly targeted.
However, he said that the Government may have to make special
arrangements to ensure the benefits of the subsidies reach
the people they were intended to help.
unfortunate that we have placed ourselves in this position
as far as the fuel subsidy is concerned. We are between
a rock and a hard place. The cost continues to rise, but
so does the inflation rate so that we need to find even
now a way in which the cost of fuel to the average consumer
would more reflect market prices, said economist Ronald
Finance Minister Karen Nunez-Tesheira pointed out that oil
is retailed locally at US$32 despite high oil prices of
more that US$100 a barrel.
lot of the oil companies like Petrotrin are importers of
oil, so they have to pay the market prices for oil. The
Government has this arrangement that regardless of the price,
we must sell it using the US$32 a barrel rate.
the Finance Appropriation Bill, $1 billion of that appropriation
came from that fuel subsidy. What do you do? If you remove
that, you are looking at dealing with the inflation, which
is clearly our challenge, she said.
Ian Narine, centre director, wealth management at Scotiabank,
said, Given where oil prices are right now and where
oil prices will go in the future, that subsidy is set to
increase and even increase exponentially if you are talking
about US$200 (a barrel) oil.
The Government has been conservative.
Last years budget was pegged at an oil price of US$50
and $3.55 per million metric British thermal units (mmbtu)
for gas. And the Heritage and Stabilisation Fund will soon
reach $13 billion.
Current oil reserves amount to 621 million barrels (proven),
404 million barrels (probable) and 1,688 million barrels
Petrotrins reserves are estimated at 424.3 million
barrels: 254.5 million barrels in Trinmar, 162.3 million
barrels from land fields and 7.6 million barrels from joint
But while T&T benefits from the high prices, its
a small sum.
T&T distinguishes itself as a gas-based economy, says
Nunez-Tesheira, and consumes about four billion cubic feet
of natural gas a day.
Oil has now become the byproduct of future exploration.
The Government has subsequently initiated an oil audit.
Riley believes that the Government should reconsider its
programme of incentives where oil is concerned.
He said oil is a high-value product and T&T must take
the lead in enhanced capital recovery incentives.
He also noted that his company would continue to produce
500,000 barrels of oil equivalent a day, but does not expect
to discover any huge gas finds.
we scan this playing field of global and regional petropolitics
and energy security, the obvious question is, can it last?
current reality is that Russias flexing, Irans
command of the worlds attention, Chinas fascinating
outreach and President Chavezs frequent flyer mileage
are still about the energy security that only a barrel of
oil can provide, according to Professor Anthony Bryan,
senior associate at the Americas Program Center for Strategic
and International Studies.
Bronwen Brown of the Economic Intelligence Unit of the Economist
magazine said last week that the Economists forecast
for natural gas and oil growth was 16 per cent and 45 per
cent respectively, for 2008 which should augur well for
the energy economy.
Brown noted that T&Ts gas subsidy, which was about
$2 billion last year, was amazingly low in the Caribbean
and, by extension, the rest of the world.
some point, T&T will have to bite the bullet,
She said it was costing the Government a lot to subsidise
the price of gas, but that a decision to remove the subsidy
would not be popular. She forecast that the subsidy would
remain in the medium-term, but it needed to change.
Surging oil prices
Managing editor of Energy Industry and Management for the
Economist Intelligence Unit, Tony McAuley, pointed out that
surging demand, often cited to explain current
high oil prices, cannot explain price increases.
He said that global oil supply has also increased substantially
since last November and has been running in surplus to demand
globally since the start of the year.
some of the price rise can be attributed to the weak dollar;
last time I checked, oil prices had risen by about 30 to
40 per cent less in euro terms than US$ terms since the
start of 2007. Part can also be explained by the rush into
commodities after the financial crisis last summer, when
speculators were looking for new places to invest,
In his view, the most important factor for the rise in oil
prices since about 2003 was the unexpected rate of oil demand
growth from China coupled with the realisation that the
industry had massively underinvested during the 1990s and
into the early 2000s.
prices were, remember, US$10 a barrel just a decade ago.
There is still underinvestment because now there is also
rampant inflation in the oil services sector and related
costs (the price of leasing oil rigs, for example, is up
9-10 fold, the cost of skilled labour is up huge, if you
can get it).
IEA talks of potential demand and potential
supplyas opposed to actualas a way to explain
the irrational price reaction. People are worried that the
amount of spare capacity (probably less than three million
barrels a day and almost all in Saudi Arabia) is not sufficient
to meet potential demand if prices fall. Much, however,
depends on how key situations unfoldNigeria, Iraq,
a change in attitudes of some countries to allowing foreign
oil companies to enter and reverse declining production,
particularly Mexico and Russia, he said.
He said that oil companies are in a difficult position to
find places to invest their capital.
has been a strong move toward nationalism, if you like.
In Venezuela, for example, where international oil companies
are getting frozen out, they have been replaced to a large
degree by Indian, Chinese companies or government-to-government
deals, which is a lot of what Venezuela has been doing lately.
McAuley said the notion of energy security is difficult
the later part of the century, the world wars have been
about competition for oil resources.
Two other factors that affect energy security are climate
change and energy sector inflation.
youve seen in the long term is that demand has been
rising slowly and constantly for decades, but what has been
coming down is the spare capacity in the world.
is no direct link between spare capacity and prices because
its been coming down pretty constantly and prices
have been going up and down that period, but now weve
come to the point where there is virtually no spare capacity.
like 2.5 million barrels a day out of the total demand of
about 82 million. Its very small and it rests entirely
in the hands of Saudi Arabia. Sauda Arabia, it could be
said, essentially controls the oil price right now and they
have no intention to increase.
Two weeks ago, US President George Bush visited Saudi Arabia
to beg for an increase in production. The Saudis rejected
Last week, US Energy Secretary Sam Bodman told Congress
that crude oil prices have reached record-high levels of
US$135 a barrel because global oil production has failed
to keep pace with demand.
high-priced energy environment is being driven by the fact
that demand has outstripped supply, Bodman testified
earlier this week at a Congressional hearing looking into
the Bush administrations energy policy and the cause
of high oil prices.
Bodmans belief is that part of the long-term solution
to Americas energy problems is increasing domestic
oil production, and that Congress should allow drilling
in Alaskas Arctic National Wildlife Refuge that have
been off limits to oil companies for more than 25 years.
A report issued by the Federal Energy Information Administration
(EIA) said that if the refuge were opened to drilling this
year, oil from the area would not be available to the market
until 2018 and would do little to lower crude oil costs,
pushing down the price of oil by just 75 cents a barrel
The stockpile holds about 703 million barrels of crude at
four underground storage sites in Texas and Louisiana.
High oil prices
McAuley believes there is no reason for the oil price to
be as high as it is.
the short term, weve seen world oil demand decline
in this first quarter. Everybody talks about surging demand,
but actually there is no surging demand. In 2006, over the
last three years, world oil demand growth has been roughly
1.2 to 1.3 per cent, and over that time period, the price
of oil has tripled.
of supply slack is not the explanation. Last year, demand
was running ahead of schedule because Opec had restricted
supply, but they have put that supply on the market since
last November. Since then weve actually been running
McAuley added that in 2008, it has averaged about 1.2 per
cent a year up to the end of last year.
A comparison of the fourth quarter of 2007 with the first
quarter of 2008, found that global demand had actually fallen,
according to the IEA. During that latter quarterly period
alone, oil prices were up 60 per cent.
But the EIAs forecast is for oil to average out at
$93 a barrel.
As a result, McAuley predicted that pretty sharp declines
in oil prices are expected.
what Opec sees. Not everybody does. Goldman Sachs sees US$200
However, he gave the assurance that this is entirely speculative
as oil price forecasting is almost never correct.
was a bit better when they came out with an oil price of
US$93 give or take US$50. Thats very measly of them,
but is probably accurate in terms of what we can say is
going to happen in the world.
February, China went through a horrendous winter, which
disrupted power generation and industry. In adjusting to
the new situation, there was a surge in demand.
the earthquake at the Siuchin province and Olympics in Beijing
in August, one of the effects is that they are hoarding
diesel and other products.
growth in China is running about 11 per cent higher than
last year. But if they are hoarding it for the Olympics,
then we might well see a decline after the summer Olympics.
has seen growth and demand, but it has been erratic, therefore,
that makes it difficult to predict. Also, we have a lot
of new production capacity coming on in the Middle East.
Again, most in Saudi Arabia.