2012-05-18
The Master Resource Report 2012-05-18
Mexico production & exports
The charts below update the situation of Mexico’s production and exports. (Source: Pemex)
Mexico’s 2012 first quarter production is down 23,000 b/d from 2011 levels of 2.57 mb/d.
Production so far is down 0.9% from last year’s average for the first quarter while exports are down 9.6% or 132,000 b/d for the quarter. This difference is the consequence of the declining production but more importantly the increasing domestic consumption as Pemex adds to its own refining capacity.
Mexico has slowed its production decline rate in the last few years but it is beginning to run ahead of the forecast export decline based on historic trends. This fits with the “Export Land Model” that Jeff Brown has developed.
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In 2011 Mexico exported a daily average of 1.13 mb/d to the America region according Pemex’s data. In the first quarter of 2012 that volume had fallen by 13.4% to 981,000 b/d. Declines in Mexico’s exports almost exclusively come out of exports to the U.S. It is a good thing the U.S. is on verge of “Energy Independence”.
2012-05-11
The Master Resource Report 2012-05-11
Saudi Arabia: More on net exports and revenue
The April 27th posting on this web page addressed the issue of net exports and their significance to oil importers like the U.S. and China. That same week my friend Tom Konrad took me to task on my comments in his article for Forbes. I suggest you read both and look at this graph based on BP and EIA data concerning the impact of falling net exports from Saudi Arabia on their export oil revenue.
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Based on the EIA data for the first 4 months Saudi Arabia’s revenue for 2012 could reach $297 billion dollars if both net exports and oil prices remain stable thru year end. That revenue would be nearly triple the $107 billion seen in 2004 on 1.7 million barrels per day lower exports.
I agree with Tom that in the end it will be price but at least for now Saudi Arabia appears to be coming out pretty well while the oil importers compete for a smaller net export supply.
2012-05-04
The Master Resource Report 2012-05-04
So should I buy a refinery too?
If it is a good idea for Delta would it be a good idea for me?
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Consider the possibility of hedging my gasoline fuel costs by owning an oil refinery. The EIA graphic on the left illustrates the components that make up the price of the average gallon of gasoline in the U.S. Notice that in 2011 the most significant cost was crude oil at 68%. This is up substantially from the 54% average since 2000 also illustrated in the graphic.
During the last decade costs other than crude oil went from an average of $1.04/g to $1.13/g up $0.09/g or 8%. Crude on the other hand went from being $1.23/g of the cost to $2.39/g up $1.16/g or 85%. So of the total gasoline price increase shown by this data 93% of the $1.25/g increase was crude oil.
So if I had owned my own refinery in 2011 I could have protected myself from less than 7% of the price increase. Of course this assumes I was successful at running my refinery profitably and given the industry’s history that would have been a major accomplishment itself.
The Jet Fuel and Crude Oil Price graph is from the IATA web page which further illustrates the tight relationship between jet fuel prices and crude oil prices. Owning a refinery won’t change that graph. Therefore it appears that owning a refinery would not protect me or Delta Airlines from the biggest driver of fuel prices, crude oil.
Delta indicated that they would optimize the refinery for jet fuel production. If optimizing that refinery to make the maximum jet fuel stream was such a great idea why wouldn’t an experienced operator like ConocoPhillips have already made those changes?
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An airlines biggest expense is fuel and that means oil. To think there is a simple way to eliminate the realities surrounding future price increases is fundamentally flawed. This leads to an alternative conclusion why Delta may have done the deal for the refinery. It is actually the supply risks they are looking at, not just price.
“Production at the refinery combined with multi-year agreements to exchange gasoline, diesel, and other refined products from the refinery for jet fuel will provide 80 percent of Delta’s jet fuel needs in the United States.” Securing 80% of its fuel needs may have been the true priority. While everyone was looking at price Delta was taking an even more fundamental view that reflects their concerns over supply and not just price.
Now consider another tactic being used in the airline industry. The trick is to raise the amount the passenger pays without raising the price. What??
That is right passengers spent more than $100 extra on their trip so they could get a cheaper ticket.
So in Spirit Airlines case the ticket price went down by $5.68 while the non-ticket revenue went up over $11 for each flight segment. The unwitting passenger is paying more for the flight while thinking the ticket was cheap. Marketing over reality, a common theme American consumers never seems to quite grasp.
So the secret to Spirit Airlines success was being able raise the total revenue collected to balance fuel price increases without letting the passenger know it.
On your next flight look around and consider what services you aren’t being charged for yet and prepare to pay for them soon. Toilets???
Note: Clients and Advisors of Ravenna Capital Management do not hold positions in Delta or Spirit Airlines at this time.
2012-04-27
The Master Resource Report 2012-04-27
Net exports are all that matter…!
For oil importing countries like the United States, China, India and all of Europe except for Norway the available supply of importable oil on the global market is all that matters. It doesn’t matter to these countries how much global production has risen if that production does not translate into an increase in the global net export supply. An increase in gross Saudi Arabian production is meaningless if it is destined solely for domestic consumption (see this week’s report for more).
The graph below is from Jeff Brown’s outstanding ASPO-USA webinar yesterday titled “Global Oil Exports: Smooth Sailing or Midnight on the Titanic?” This is the graph that everyone should be paying attention to, not the gross production number.
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Many energy experts seem able to overlook the flat lining of global crude oil and to take some comfort in the minor uptick in all liquids production since 2005. However explaining away the nearly 3 million barrel per day decline in global net exports is tougher, requiring some serious mental gymnastics. This one graph should make it very clear why crude oil is priced over $100 per barrel today. The oil importers are bidding for a share of a global supply that has shrunk 6.5% since 2005 and likely will continue to shrink.
Every time you purchase a gallon of gasoline for a higher price than before you are playing a tiny role in bidding up the price of the globally available net export supply. Multiply that times billions of consumers worldwide competing for that limited and at least for now shrinking supply and the impact on price is clear.
So that brings up an interesting set of questions. If oil importing economies are going to continue growing where is the increase in global net exports going to come from to meet that demand? What price will it take to secure a share of that limited net export supply? Can the oil importing economies function at that price?
One of Jeff Brown’s closing comments speaks directly to these questions. “Our forecast is that the US, and many other developed oil importing countries, are well on their way to becoming “free” of their dependence on foreign sources of oil — just not in the way that many people anticipated.” Finally “Energy Independence….!”
2012-04-20
The Master Resource Report 2012-04-20
Marcellus water-use permits suspended….!
The Master Resource report has stated over and over that it takes energy to get clean water and it takes water to get energy. So news that “Authorities in Pennsylvania have temporarily suspended water-withdrawal permits for natural gas operators in the Marcellus Shale as unusually low levels of rain and snow in the region have limited the availability of the important drilling resource.”
Yep, shale gas as is a game changer alright.
A cool trillion dollars
These two graphs provided by the EIA show that Opec members are experiencing a major windfall in revenue with oil trading above $100/b. The problem will come as the Opec member experience declines in net export volumes. The only way they will be able to maintain their revenues will be through higher and higher prices.
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2012-04-13
The Master Resource Report 2012-04-13
Oil & Gas Rig Count
Each week Baker Hughes releases data on the number of rigs drilling for oil and natural gas in the U.S. It is a good time to take a look at that data and develop some historical perspective on the current situation.
The graph below tracks the weekly number of rig drilling for oil and natural gas in North America since January 1999. Oil had hit a low of $10 per barrel, less than one tenth the current price. That first week in January only 133 rigs were searching for new oil and 466 were looking for more natural gas. By the end of February that year oil rigs had dropped to 108 and those searching for gas were soon to drop under 400.
Now fast forward to June 2008 when oil nearly hit $150 per barrel and gas was selling at more than six times its current price. By the end of June there were 375 rigs searching for oil and 1,530 perforating North America in search of more natural gas. A few weeks later the natural gas rig count would peak at 1,606 and the number of rigs drilling for oil would bottom out and begin a climb that continues today.
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This graph shows dramatic shift in the percentage of rigs drilling for oil or natural gas in North America since 1999. The relationship has changed entirely from the summer of 2005 when 90% of rigs were searching for natural gas and only10% were searching for oil. Today 67% are searching for oil while only 32% are drilling for natural gas. The number of rigs drilling for natural gas in North America has fallen by over 60% (624) from the high reached in 2008.
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The natural gas frenzy that began in the mid 2000’s has clearly cooled while the newest one in oil is still heating up. For investors in and buyers of both oil and natural gas the question now is what will this all look like in 2020. Opportunity?
2012-04-06
The Master Resource Report 2012-04-06
They were right
I remember people telling me when I was growing up that in the future companies would be mining our garbage dumps for valuable material. It appears that at least for now we may start intercepting it before it gets to the dump. Extracting the value from the collection waste stream of course make much more sense than burying it and then digging it back up again.
Based on this excerpt from Bloomberg it looks like the predictions from my youth may come true.
Note: Clients and Advisers of Ravenna Capital Management currently hold positions in Waste Management.
2012-03-30
The Master Resource Report 2012-03-30
In its inaugural year, the symposium will explore baseline forecasts for global oil production, taking a hard look at production forecasts for Saudi Arabia, Iraq, and Russia. We will also look at the emerging areas of production: deepwater, the Arctic and shale/tight oils, and will discuss natural gas liquids, which have become the largest incremental source of petroleum liquids. Finally, the conference will discuss key demand factors in the coming year, including China and Europe, with a luncheon talk on the impact of oil prices on the global economy.
For further information visit Oil Supply & Demand: Studying the Wildcards.
First it was Apple. Now it is PetroChina
Apple recently replaced ExxonMobil as the world’s most valuable company and now it has been knocked off another perch. “Exxon Mobil is no longer the world’s biggest publicly traded producer of oil. For the first time, that distinction belongs to a 13-year-old Chinese company called PetroChina. The Beijing company was created by the Chinese government to secure more oil for that nation’s booming economy.”
PetroChina reported it pumped 2.4 million barrels of oil in 2011 surpassing ExxonMobil by 100,000 per day. The Chinese oil giant increased its production by 3% while ExxonMobil’s declined 5%.
But as this week’s report points out that didn’t translate it the same positive news for China’s own domestic oil production last year.
Try explaining this to the guy who just filled his tank.
Now of course implicit in that statement is that everyone’s income has at least matched inflation since 1980. However depending on your place in place in the employment world that relationship may not be true. More important to the consumer though is how much of their spendable income goes in the tank and as prices climb that amount increases. For most people the world the EIA economists live in is not the one they live in everyday. Nice try guys.
There is more on gasoline consumption and price in this week’s report.
Which will it be water or natural gas?
Bloomberg reported Thursday that “Tests by the Environmental Protection Agency of water in Dimock, Pennsylvania, found elevated levels of methane consistent with leakage from gas drilling nearby, according to scientists who reviewed the data.”
So is hydraulic fracturing for natural gas and oil extraction safe or not? The answer to that question is taking painfully long to work out. The nation’s clean water and energy policy both depend on a reliable and honest answer. But like so many issues today it is contaminated and infected by politics and private interests to the exclusion of a thorough and rational investigation.
It is interesting to observe the struggle between the two property rights sides. Those after the short-term reward of the natural gas extraction and those vested in the long-term dependence on having access to clean water. The winner of this struggle will tell us a lot about our future and that of our children.
Surplus oil production capacity and recessions
In his monthly piece for Logistics Management Derik Andreoli takes a look at recessionary risks as global surplus oil production capacity shrinks. Surplus global oil production capacity doesn’t come up in the political discussion. It is far to nuanced for a 30 second news bite but it is about all that matters.
2012-03-23
The Master Resource Report 2012-03-23
Saudi capacity
This interview on Bloomberg with John Hofmeister, former head of Shell North America is an interesting follow-up to the Saudi oil minister’s announcement this week.
Is Saudi Arabia Losing Control of Oil
Robert McNally gives lots of reasons why a skeptical view of the Saudi story line is appropriate.
Webinar on Shale Gas
Check out the first of the ASPO-USA Webinar Series featuring Art Berman. Art will be giving an update on Shale Gas Thursday, April 5th from 2:00 – 3:30 PM Eastern Time.
Space is limited. Reserve your webinar seat now at:
https://www4.gotomeeting.com/register/762020855
ASPO-USA Members, FREE. Non-members, $40 donation.
Consider joining ASPO-USA now.
This could be the bargain of the year for information on oil & gas.
2012-03-16
The Master Resource Report 2012-03-16
2008 compared to 2012
As everyone knows the price of oil spiked in 2008 to nearly $150 per barrel in June. So how does the current price environment for Brent compare to what happened in 2008?
The graph below compares the period from January 2010 thru this week (blue) with the period from January 2006 thru the same week in 2008 (red line). The current price of Brent crude oil is 25% higher than it was the second week in March 2008 when it was at $100/barrel. In fact it did not reach the current $125/barrel price in 2008 until late in May. (EIA data)
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The Wall Street Journal reported that British Prime Minister David Cameron and President Obama discussed using the strategic petroleum reserve to dampen oil prices. The graph clearly illustrates why they are so scared about the trend they see and the memory of 2008.
If you are an elected official that has no control over oil prices trying to win an election with a public that thinks he or she does have control this is the kind of useless and even dangerous thing that gets considered, or even done. A little honesty about the markets supply and demand would be better but then you can’t talk up “Energy Independence”.
So what about the supply and demand situation? The Financial Times commodities editor Javier Blas gave some good reasons why price is up on the demand side.
In addition to the demand being up supply is down for a number of reasons in areas like the UK North Sea, South Sudan and of course Libya.
This reports “Prime Directive” is to never predict price. So it won’t start now but clearly the trend does not look good going into the peak gasoline demand season in the U.S. How much is driving your car worth to you? We may all soon get a chance to find out.