ODAC News
Wednesday 05 Sept
The Oil Depletion Analysis Centre
Food Prices in the
1/ Rising price of wheat signals end of low-cost food, warns Premier chief (The Independent, Wed 05 Sep)
Economy – Subprime Fallout
2a/ Credit
woes hit bank lending rate (BBC News, Tue 04
Sep)
2b/ Liars’
loans (BBC News [Peston’s Picks], Mon 20 Aug)
2c/ Mervyn’s
muddle (BBC News [Peston’s
Picks], Mon 20 Aug)
2d/ Credit
crunch gallery of guilt (The independent, Wed 05 Sep)
3/ Gazprom May Buy
Sakhalin-1 Gas for Russian Far East (Update2)
(Bloomberg, Tue 04 Sep)
Resource Nationalism –
4a/ Algeria
Shuns Repsol And Gas Natural
(Forbes, Tue 04 Sep)
4b/ Caspian
lessons for oil giants [Kashagan update]
(onet.pl [Financial Times], Tue 04 Sep)
4c/ Kashagan
Consortium Talks of Demobilizing (Energy Intelligence [International
Oil Daily], Wed 05 Sep)
5/ Iran: An oil industry
that lost its head (Asia Times, Tue 04 Sep)
Natural Gas –
6/ Argentinean natural gas
cuts continue to curtail Chilean methanol production
(Petroleum World [Platts], Tue 04 Sep)
Natural Gas -
7/ Policy on natural gas
streamlined (China View [Shanghai Daily], Tue
04 Sep)
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1/ Rising price of wheat signals end of low-cost food, warns Premier chief
(The Independent, Wed 05 Sep)
http://news.independent.co.uk/business/news/article2927260.ece
Comment: Peak oil and the squeeze on
natural gas supplies have not really started to effect food prices, yet. It is
mainly weather-related events, corn-to-ethanol in the
Article: Premier Foods, whose products
range from Mr Kipling cakes and Quorn to Branston Pickle, warned yesterday that the days of
super-low-cost food are coming to an end as global demand for wheat rises.
The
Wheat prices have almost doubled in the past 12
months, and the buying of wheat futures contracts has been fuelled by dry
weather in
"It is not a blip," Mr Schofield said.
"We are seeing some forces out there that are not going to go away in
three months. The overall global demand for food products is up, fuelled by
demand coming out of
... The comments come a month after Deloitte
consultancy warned that the price of meat will have to rise to protect the
health of the livestock industry. The National Farmers'
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2a/ Credit woes hit bank lending rate
(BBC News, Tue 04 Sep)
http://news.bbc.co.uk/1/hi/business/6977798.stm
Article: Worries about credit problems
in
It suggests that banks are reluctant to lend money to
each other.
It also means Libor is above the Bank of England's
emergency lending rate to banks, which is 6.75%.
The last time Libor was this high was in the aftermath
of the collapse of
Under such circumstances, banks do not want to lend
out their spare liquidity because there is uncertainty - both about whether the
bank will need the cash itself in coming months, and about the financial health
of the borrowing bank.
At the moment, banks are worried about how much other
banks may be exposed to the
Sub-prime mortgages are offered to people with poor
credit histories, but default rates on these loans have been rising in the
It has gradually emerged that many European banks have
bought portfolios of debt that included large amounts of the
The Libor lending rates are calculated every day by
the British Bankers Association.
2b/ Liars’ loans (BBC News [Peston’s Picks], Mon 20 Aug)
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2007/08/liars_loans.html
Comment: This article is a couple of
weeks old but still well worth a read. Robert Preston, the BBC Business editor,
thinks the big Wall Street investment banks will get damaged by the subprime
scam: “Now if I worked for Goldman Sachs, Morgan Stanley, Merrill Lynch or the
other big
Article: The underlying cause of the
current global financial crisis is a system in which there’s little personal
responsibility for lending decisions.
Here’s how it all works (or, as we now see, how it
doesn’t work).
... Before we move on, it’s probably worth recapping
the phoney assumptions made by the investment banks as they create these bonds:
1) That historic data on default rates is useful even
though the market has exploded in size
2) That data of any sort is useful even though the
system for originating the loans, with mortgage brokers paid by the volume of
loans they make, actually encourages fraud.
So far, so disturbing. But it gets worse...
... Now if I worked for Goldman Sachs, Morgan Stanley,
Merrill Lynch or the other big
But
I am talking about banks’ use of “conduits” and
“structured investment vehicles” (SIVs).
... But that’s to treat the symptoms rather than the
disease itself. To avoid a repeat of this kind of crisis, there needs to be a
return to lenders taking some responsibility for the loans they make.
Most bankers now think it’s quaint and absurd that
once-upon-a time a bank manager actually managed a loan book and even talked to
the individuals to whom he or she lent.
Our brave new world – in which a Parisian or Frankfurt
bank doesn’t even know whether it’s exposed to the US housing market through
its Turkey Twizzler collateralised debt obligations –
is neither healthy or sustainable.
2c/ Mervyn’s muddle (BBC News [Peston’s Picks], Mon 20 Aug)
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2007/09/mervyns_muddle.html
Comment: Robert Preston, the BBC
Business editor, explains why bank lending/mortgage rates could go up by 1% or
so in the
Article: … But here’s the funny thing.
The current base rate, which is supposed to be the reference point for the
interest rates that affect all of us, is 5.75 per cent. But the benchmark
commercial rate for lending between banks, three-month sterling LIBOR, is 6.74
per cent.
... So there is quite a risk that mortgage rates will
rise and what businesses pay for finance will increase too.
But to state the bloomin’
obvious, the system is not supposed to work that way…
2d/ Credit crunch gallery of guilt
(The independent, Wed 05 Sep)
http://news.independent.co.uk/business/analysis_and_features/article2927120.ece
Comment: A useful summary of what
might be described as the rogues’ gallery of the subprime crisis. Lists names, who
they are and their involvement.
Article: The causes of the present
credit crisis are many and varied. From the Fed's policy of cheap money to the
bonus-driven fee structure of the City and Wall Street, there are plenty of
culprits in the debt market meltdown.Sean Farrell,
Sean O'Grady and Stephen Foley identify some of the major dramatis personae…
[List includes:
Central bank - Alan Greenspan, chairman of the US
Federal Reserve, 1987 to 2006
Politicians - George
Big
Hedge funds - Jim Simons, founder, Renaissance
Technologies
Regulators - Christopher Cox, chairman, Securities
& Exchange Commission
Debt investors - Herbert Suess,
former CEO of Saschen LB
Credit rating agencies - Kathleen Corbet,
president of Standard & Poor's
Private equity - Henry Kravis,
founder of Kohlberg, Kravis, Roberts
Wall Street - James Cayne,
chief executive, Bear Stearns
Mortgage lenders - Angelo Mozilo,
chief executive, Countrywide Financial]
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3/ Gazprom May Buy Sakhalin-1 Gas for Russian
http://www.bloomberg.com/apps/news?pid=20601207&sid=a5VfpWfqFJrw&refer=energy
Comment: It seems that when Gazprom
takes on foreign oil and gas companies in
Article: OAO
Russian government officials told Exxon Mobil Corp. in
August not to plan on exporting natural gas from the $17 billion Sakhalin-1
venture it operates and instead to work more closely with Gazprom to ensure
domestic demand for the fuel is met.
``Gazprom can be instrumental to help that these
priorities are met,'' Timoshilov said at the Sakhalin
Oil and Gas Conference in Yuzhno-Sakhalinsk. ``We can
purchase the fuel and then sell it throughout the Russian Far East.''
Sakhalin-1 has escaped much of the pressure that Royal
Dutch Shell's Sakhalin-2 oil and gas project faced from Russian environmental
inspectors last year. Shell and its partners sold Gazprom a 50 percent stake
plus one share for $7.45 billion in April.
Exxon is ``looking at all options'' for the sale of
its natural gas, said James Taylor, executive vice president for Exxon Neftegaz Ltd., the subsidiary that operates Sakhalin-1, at
the conference.
`Top Priority'
Sakhalin-1 will be the only source to supply gas to
The Sakhalin-2 venture, which plans to start producing
Irving, Texas-based Exxon owns 30 percent Sakhalin-1,
which began pumping oil in 2005 to reach production of 250,000 barrels a day in
February. SODECO of Japan also owns 30 percent and OAO Rosneft and
The development is comprised of the Chayvo, Odoptu and Arkutun Dagi fields, which lie
under seas choked with ice for half the year. The fields are estimated to hold
up to 2.3 billion barrels of oil and 485 billion cubic meters of natural gas.
Exxon signed a production sharing agreement with the
Russian government for Sakhalin-1 in 1996, which allows it to export natural
gas outside of Gazprom's monopoly.
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4a/
Comment: Whereas some oil companies
have had to put up with national governments demanding more control/ownership
of projects, or obtaining a larger percentage of the profits, Repsol of Spain
have lost their Algerian LNG project completely.
Article: The story of a state-owned
energy company throwing its Western partners out of a multi-billion dollar gas
field may have a familiar ring to it, but this time it's happening not in
The decision was not unexpected and follows months of
protracted negotiations between the Spanish and Algerian governments.
... Sonantrach has accused
its two Spanish partners of causing delays and cost overruns to the
construction of the gas terminal which was meant to start shipping liquefied
natural gas in 2009.
Repsol said it would be appealing
Financially, the loss of the contract, which began in
2004, isn't a major blow to the companies, as the project is in its early
stages. They have so far spent between 400 million euros ($543.7 million ) and
500 million euros ($679.6 million), a relatively small amount for Repsol and
Gas Natural, which have market capitalizations of 32.3 billion euros ($43.9
billion) and 17.3 billion euros ($23.5 billion) respectively.
The loss of the project is far more concerning
strategically. Both Repsol and Gas Natural have been hoping to top up their
reserves and had been counting on the Gassi Touil project for future earnings.
... The development is also seen as a sign of where
the Algerian energy sector is heading. The country boasts huge reserves that
have had many a foreign energy company salivating. However the government
recently passed a law requiring Sonatrach to have at
least a 50% stake in all new ventures in the sector.
4b/ Caspian lessons for oil giants [Kashagan update]
(onet.pl [Financial Times], Tue 04 Sep)
http://gielda.onet.pl/14,1435509,,3255,ft.html
Comment: An excellent summary of the
Kashagan oil field saga offshore
Not related to this article at all, and no connection
is implied, Leonardo Maugeri, senior vice president
of strategies and development at Eni SpA, just
happens to be one of the most outspoken Peak Oil critics. See Newsweek’s That
Falling Feeling (Oct 2006) for more info: “But a bit farther out, between
roughly 2010 and 2012, there is a good chance that supply trends will overtake
demand, raising spare production capacity to a range between 7 to 10 percent of
demand.” Maugeri quotes the IEA to support his claim,
but it is now the IEA that is leading the increasing number of forecasters who
think we will have an oil supply crunch 2010-2012…
Article: When a delegation of
executives from five of the world’s biggest oil companies led by Italy’s Eni
went to Kazakhstan last week to seek to resolve a dispute at the giant Kashagan
oilfield, they were met with news that the government had halted work on the
development on environmental grounds and had launched a criminal inquiry into
alleged tax evasion on equipment imports.
... The dispute erupted after Eni presented the
central Asian country with a revised development plan for the Caspian Sea field
– delaying the start of production by two years until late 2010 and doubling to
$19bn (L9.4bn, €14bn) the cost of the first, 300,000-barrel-a-day stage of the
project. Separately, Kazakhstan revealed that estimates for the full cost of
the 40-year project had climbed from an earlier $57bn to reach $136bn – which
could make Kashagan the most expensive industrial endeavour undertaken
anywhere.
The revised plan will deprive
... Analysts say Eni, which has staked its future
growth on Kashagan, carries the blame for promising more than it could deliver
when it won the coveted operatorship of the field in
2001. Richard Gordon, president of Gordon Energy Solutions, an oil extraction
consultancy, says: “Eni was excessively exuberant about costs and production
schedules early on and created expectations that are coming back to bite it
very hard.”
Other consortium members including ExxonMobil, Conoco-Phillips, Royal Dutch Shell, Total and
Kashagan, described by one geologist as “mad, bad and
dangerous to know”, is one of the most difficult oil projects ever tackled. Its
oil, laced with poisonous hydrogen sulphide, lies deep beneath the seabed under
huge pressure, presenting the risk of explosion. The waters are shallow and
difficult to navigate, particularly during winter ice.
... Terms at the field will almost certainly change.
Kazakhstan, like Russia, is disenchanted with production-sharing contracts that
allow investors to defer royalty payments until after the groups involved
recover their costs – a model that is fiscally unattractive for host
governments at a time when cost inflation is high.
... Karim Massimov, prime minister, who earlier pledged that
Kazakhstan would respect all existing oil deals, interpreted the delay at
Kashagan as a change to the contract itself, entitling Kazakhstan to
renegotiate terms.
The perception that western groups squeezed the
government too hard during negotiations in the 1990s, when the former Soviet
republic was desperate for investment, underlies the dispute and may threaten
other projects. Oraz Jandosov,
co-leader of the opposition All National Social Democratic party, says
contracts at the huge Tengiz and Karachaganak fields
are more biased in favour of foreign investors than Kashagan, which “should not
be the first to be singled out for contract change”.
4c/ Kashagan Consortium Talks of Demobilizing
(Energy Intelligence [International Oil Daily], Wed 05 Sep)
No link, newsletter.
Article: Agip
KCO, the beleaguered Eni-led consortium developing the troubled Kashagan oil
field in
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5/
http://www.atimes.com/atimes/Middle_East/II05Ak03.html
Comment: The article describes the
background to the recent sacking of the Iranian oil minister Seyed Kazem Vaziri Hamaneh. It also gives the
impression that the Iranian President, Mahmud Ahmadinejad, wants his appointees controlling the oil
ministry (Hamaneh apparently refused to do this, one
of the reasons he was sacked). Given Ahmadinejad’s
previous candidates for posts, the impression is given that they are / will be
rather inappropriate, lacking skills, qualifications and experience, and thus
hardly likely to help speed up all the international oil and gas deals
(imports/exports/field developments/LNG projects/pipelines) currently on the
table. There are quite a few.
Article:
... Hamaneh and Alireza Tahmasbi, minister of
industries and mines, were dismissed on August 12. The two ministers were
followed on their way out of the cabinet by Mohammad Sheibani,
governor of the Central Bank of Iran (CBI). The CBI governor had several times
warned about careless expenditures of oil revenues and expressed his opposition
to reductions in interest rates.
... "President Ahmadinejad's
inability to solve economic problems had been predicted by experts early on ...
the effects of his failure are now apparent in spite of the Parliament's
relatively high coordination with him after two years of carrying out his
visions in the economy," the Kargozaran
reformist daily, which is close to former president Akbar
Hashemi Rafsanjani, said in an editorial that
followed the sackings.
By sacking the ministers in question, "the
president can relate certain economic failures of the government to the
inefficiency of the sacked ministers ... The two ministers had never taken any
steps against the policies of the government and the president. Altering
policies may be a more resourceful step [by the president] than replacing
individuals," the editorial said.
The Majlis (parliament) gave
Hamaneh its vote of confidence as oil minister in
December 2005 after the generally sympathetic and supportive hardline legislative body refused to vote for the other two
candidates proposed for the post by Ahmadinejad, and
another candidate, a close associate and adviser of the president, withdrew
just a day prior to the Majlis vote, fearing
rejection.
... "Ahmadinejad needs
someone from outside the ministry who has no reservations towards realizing the
president's wish to purge the ministry of an allegedly corrupt group of
executives connected with his political opponents," he said. "The
group the president wants out consists mainly of technocrats with affiliations
or sympathetic to Kargozaran Party and
Rafsanjani."
... Majlis member Hasan Moradi, who is a member of
its Energy Committee, told Aftab News Agency that the
dismissal of the oil minister had nothing to do with a controversial deal
signed recently to sell gas to
The deputy chairman of the Energy Committee, Hossein Afarideh, told Aftab that the minister had refused to appoint two people
from outside the Oil Ministry whom the president wanted as a ministry deputy
and as managing director of one of the ministry's affiliated companies. The
minister had insisted that the individuals lacked the required qualifications
for the positions.
... He added that there was speculation Hamaneh was also sacked because he refused to sell oil and
oil products at reduced prices to countries Ahmadinejad
is trying to court as allies...
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6/ Argentinean natural gas cuts continue to curtail Chilean methanol
production
(Petroleum World [Platts], Tue 04 Sep)
http://www.petroleumworld.com/story07090408.htm
Comment: A detailed discussion of the
effects of natural gas shortages in
Article: ... Argentine gas has been in
short supply since 2004 as demand has risen faster than production and the
replacement of reserves. During the winter months (late May to mid-August), the
country ran a deficit of 2,000 MW, or 10% of peak demand, and 40 million cu
m/d, or 30% of average demand, on cold days.
The effect that the shortage has had on petrochemical
production in
In late April, Methanex was
forced to shut one of its four plants in southern
... By the second week of June, the gas crunch
worsened. Methanex was operating only one of its four
plants at Cabo Negro. At the time, the company
anticipated improved natural gas supplies within a week and sought to have a
total of three plants online. However the plan did not come to fruition.
Production from the Chilean operations from April 1,
2007 to June 10, 2007 was 520,000 tons compared to production capacity of
740,000 tons, or roughly 70% of the total capacity.
As of August 22, Methanex
was heard to be producing at only 30% capacity, sources said. By time of press,
the three units at Cabo Negro remained down.
... As expected, the gas shortages have had an effect
on [Argentinean] domestic production as well. According to the Argentinean
government statistics office Indec, overall chemical
production fell 20.2% from June to July of this year.
... The country's total chemical production for the
month of July dropped by 38.5% when compared to the same period in 2006.
... Indec said that the
production of polymers and synthetic rubber dropped 38.3% in July from a year earlier.
Compared with June, production was down 26.1% in July. Output of urea and other
chemicals for fertilizers also plummeted 25.2% in July compared to a year
earlier.
... As the crisis wore on into August,
Although the gas crisis was reportedly easing with
warmer temperatures, the future outlook was tight gas supply/winter shortages
for the next few years as production has not increasing and reserves were
falling. In response,
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7/ Policy on natural gas streamlined
(China View [Shanghai Daily], Tue 04 Sep)
http://news.xinhuanet.com/english/2007-09/04/content_6661083.htm
Comment:
Article:
The guideline says residential gas use is a top
priority, while usage in petrochemical plants is discouraged, the National
Development and Reform Commission said on its Website.
The policy, described by the NDRC as of
"strategic importance," became effective on Aug. 30 after approval by
the State Council.
New methanol projects that use gas as a base will be
barred. Methanol, which can also be derived from coal or crude oil, is an
industrial chemical and a fuel that can be mixed with gasoline and diesel to
cut pollution.
The use of natural gas in other petrochemical projects
and power-generation plants will also be limited or outlawed. For example,
gas-fired power plants will be banned in certain coal-rich regions.
The guideline said urban residential gas use is the
most favored option.
... Existing gas-based petrochemical projects, especially
fertilizers, will remain in operation. Those approved and under-construction
projects, which have signed long-term gas-purchase contracts, also won't be
affected, the NDRC said.
Several major gas-transport projects have lately been
announced or launched. Sinopec Corp on Friday started
building a 1,702-kilometer pipeline to transmit gas from the Puguang field in
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