Dennis U. Atuanya

International Oil Companies: The Challenges Ahead

Petrobras does look good. Still evaluating others. You may want to stay tuned.


On Nov 11 10:18 AM NoGambler wrote:

> Dennis, this article was fascinating.
>
> I believe the oil crunch is coming in 2-3 years or sooner.... and
> there will be hell to pay in consuming nations like the US.
>
> What NOC stocks can I buy in America besides PBR (Brazilian Petrobras)?
> I would like to be aboard before crunch time arrives.... I wonder,
> is a list available anywhere?
>
> I'd be especially interested in participating in African growth.
> Dennis, anything you might offer in this regard would be most appreciated!
>
>
> Thanks for the thoroughly researched article. I would like to benefit
> from your experience and views.
>
> Brian

International Oil Companies: The Challenges Ahead

Recycle ratio refers to the ratio of the proceeds from sale of one unit of crude oil to the cost of discovering and producing a new unit. When this ratio is 100, it means the proceeds from sale of say one barrel of oil equals the cost of discovering and producing a new barrel. To stay in business a ratio of 100 is necessary. To grow reserves, meet tax, shareholders' and other obligations, a ratio of 200 would be more like it. At say 110 or 120, the company would be teethering on the edge.

Oil Price Rises to Highest Level in 2009

Traders (depending of course on type) may be jumping much higher out there than IOCs: A price rise may not always translate to higher earnings for the IOCs. Prices almost doubled between Q1 and Q2 09 but earnings for the majors declined between 30 and nearly 70%.

Oil Price Rises to Highest Level in 2009

There is hardly any market fundamental support for this price rise. Demand is still weak, stockpiles high, etc. As the author alluded, sentiment as well as strength of the US dollar may be the drivers.

Jeff Rubin: Expect Oil Prices to Rise Dramatically and Globalization to End

Proper language and decorum, please. Just what type of forum would this be if we all began to blurt out foul expressions.

We may not all agree on issues but that would not be the reason to abuse. We should state our various theses and let time prove (or disprove) them.

Site administrators should please check this.

Brazil: Policy Changes Signaling New Era of Oil Production Underway

Prior to the recent, massive pre-salt discoveries (mostly) in the Santos Basin, Brazil was essentially oil self-sufficient, to wit it was meeting just about all her liquid fuels consumption needs from domestic production. Her oil imports, which were comparatively small and of a different gravity, only served to enhance other by-products of petroleum refining.

The new order is a deliberate policy to make the most out of her natural resources. The Production Sharing Contract (PSC) scheme which she plans to introduce has proved very successful for countries in the West African petroleum provinces such as Angola and Nigeria. The only difference is that Nigeria over the years, has not made the most of her billions of dollars in proceeds. A recent audit by NEITI, a legal body charged with ensuring transparency in extractive industries, revealed the extent of corruption and opacity in the sector.

Crude Oil Demand and the Quick Recovery Hoax

The issue of oil evokes so much passion and some have even gone to war over it. Opinions about are often polarized and implacably so. But l have to correct someone who misquoted me and just leave it there:

An oil price spike does not necessarily entail a market fundamental support. As l have noted, during the 2008 oil price shock, prices were rising steeply while the market was well supplied. The recent price spikes were in spite of massive supply overhang. l did not say an oil price shock will never occur, l only said that if one does occur, it will most likely (save for extenuating circumstances) show no fundamental support:

Rebound from the current economic downturn is expected to be slow and drawn-out. The current efficiency program of President Obama is expected to lower oil demand by about 1.8 billion barrels (that's about the equivalent of the total US domestic production for 2008) within 7 years. Even half that is massive. Brazil and Saudi Arabia have made some of the largest oil discoveries in recent history. Even China's seemingly aggressive "energy grab" is actually a measure to address near-term needs while rapidly developing elaborate alternatives for longer-term requirements.

All said then, let time tell.

Crude Oil Demand and the Quick Recovery Hoax

This concept of a global future doomed to oil price shocks and oil demand crunches has been much-bandied:

In a previous post (Oil Price Shocks and Market Fundamentals) l clearly outlined why an oil price shock with fundamental support is most unlikely, save for extenuating circumstances (war or the equivalent, etc).
In another (Expect Slow Growth of Crude Oil Demand), l also explained why the projected reduction in developed economies' demand for oil will most likely not be counterbalanced by that of developing economies such as Brazil and China.
It is not worth reharshing these here but it must be said however that many mistake a projected increase in energy demand for a commensurate increase in demand for oil; that is certainly not the case.

As for the "losses", maybe we are just trying to put a sweetener on an otherwise unsavory corporate item. A 95% reduction in earnings is certainly a massive loss even if (technically) a profit is made.

Oil Price Shocks and Market Fundamentals

Just a note or two on the comments so far:

1. Production from the Brazilian fields were based on an oil price bench mark range of between US$35 and US$40 per barrel, which makes it very profitable at current prices. This however is not the same for many other prospective fields around the world where the economics are prohibitively higher.

2. Production has already commenced in some of the Brazilian fields, the Tupi for example.

3. The arguments about production capacities and reserve estimates are double-edged: many IOCs often underquote production purely for the benefit of their balance sheets (pulling the wool over the heads of their less-technical hosts), while some NOCs overquote capacities to bolster their quotas (in the case of cartels).

4. True, the transportation industry is oil intensive. But the bulk of developing nations may not necessarily pick up much slack in demand in the developed nations. China for example has one of the most intensive biofuels and renewable enegy development programs. Brazil has an ethanol penetration of 50% of all vehicles ranging from E24 to E100.

Oil: Up to $200 or Down to $25?

About the drivers of oil market, the author was quite right:speculation and fundamentals. But for the past year and half, it has been mainly speculation.

During the oil price shock of 2008, oil prices were spiralling higher while the market was well-supplied. More recently, despite the massive global supply overhang, weak demand and evidence of deepening recession in Europe especially in the OECD countries, oil prices were surging higher, challenging the US$70 per barrel mark.

As l held in my recent post there may well be an oil price shock when the global economy rebounds from the current recession, but save for extenuating circumstances (war or equivalent, outages etc), such shock is unlikely to hold any fundamental support.

Oil Refiners Grab a Stake in the Ethanol Business

Valero Energy has been on a refining consolidation run. In this case fossil fuels-bioethanol synergies would stand it in good stead.

Biofuel Production Will Continue to Grow

Just a few points of fact to put discussions in perspective:

1. Brazil has blend ratios E25 to E100 (0% gasoline) but actual ethanol penetration is about 50% of vehicles.

2. According to the Energy Information Administration, all power in the United States is subsidized not just biofuels and renewables.

3. According to the US Department of Agriculture, gasoline has a higher calorific value than bioethanol but bioethanol has a higher energy balance. The energy balance of bioethanol is about 1.34 though there are some reports of increasing values.

4. The estimates of oil reserves in places like the Arctic and the OCS are just those:estimates not proven. Even if those estimates for the Arctic for example are correct, they would only provide about 3 years' worth of supplies at today's consumption rates.

5. Some of the reasons for the failure of initial CORN-based ethanol programs in the United States have been discussed : 7xreferences.blogspot.....

Checking in on Oil's Fundamentals

True, there is a great global supply overhang and some OPEC members are still fiddling with their production cut quotas. These along with recent economic data showing worsening recession in Europe do not indicate an early price recovery.

That said, most analysts believe the current low level of capital investment in oil and gas may trigger a price shock greater than that of 2008 when the global economy rebounds. Oil speculators have since seemed to be on their marks ready to run on any such indication.
The recent report that China, with the world's largest increase in marginal consumption had increased its imports by 13.6% year-on-year in April as well as data showing the fewest US job losses since October may have been the shot for the rally that briefly breached the US$60 per barel mark.

A false start though it was, it may have flagged-off a series of fits and starts on the track to an inevitable recovery.
Meanwhile, back to the marks. Set?...

Oil and Gas Prices Should Fall, For Now

An alternative to oil in 2-3 years? Most unlikely!

True, major deep offshore fields are maturing and exploration has been moving to more challenging terrains where recoveries will be defined by technological and financial constraints which from current indications will be very tight.

There is however a window that could come in the medium-term from the recent report on bioelectricity and bioethanol by researchers at Stanford University and the University of California, Merced (See link below). The authors remarked that electricity-powered engines are inherently more efficient than internal combustion engines (whether the latter run on gasoline or ethanol).
Brazil, the most successful bioethanol nation uses sugarcane for its bioethanol program. After milling for ethanol, the milling residue called bagasse is used to generate power and the power so-produced is often in excess of total production requirements that the milling plants have to sell the excess to utilities for millions of US dollars just from the residue alone.

The same crop of lignocellulosic biomass such as switchgrass for example can be used first for ethanol milling (for blending with gasoline in traditional internal combustion engines) and the residue burnt to generate electricity just like was done in the afore-cited report (for battery-powered vehicles). The inherent synergies will deliver on two key tenets of current energy policy thrust, better fuel efficiency and greater emissions offsets.

Link to report: www.sciencemag.org/cgi...;1168885v1?maxtoshow=&...

Ethanol and Burning Corn

To SubsidyEye:
If there were no difference between "energy" and "fossil fuels" then the whole test by the USDA would be meaningless. Unless of course that is what you are saying. If not then the result stands that from production to utilization, ethanol is 81% more ENERGY efficient than gasoline. From production to utilization! Does that not sound like life cycle?

The electricity-powered engine is INHERENTLY more efficient than the internal combustion engine whether the latter runs on ethanol or gasoline. Even the authors of the original report concede this. About the intention to confuse, does that cap not fit you just well?

As l have just posted to my blog, it is worth considering the use of synergies inherent in lignocellulosic biomass-to-energy programs in current energy policy solutions. Brazil, the global model for bioethanol excellence for example uses sugarcane for feedstock. After milling for ethanol, the residue called bagasse is used for auxiliary power generation (just like the authors of the said report did). For most milling plants, the power so-generated is often in excess of production requirements. The excess is sold to utilities with proceeds in the millions of US dollars.

The same crop of say switchgrass can therefore be used to first mill for ethanol (for blending with gasoline in traditional internal combustion engines) and the residue burnt to generate electricity (for battery-powered engines). This delivers on the two key tenets of current energy policy thrust, cleaner burning and more efficient fuel especially in the transportation sector.

This is also a less traumatic transition to other-powered vehicles.
When other countries were improving on automotive fuel efficiency and emissions standards, the US was slow to latch on. Today's US automobile industry lessons may be hard ones.