2011 January 28

The Master Resource Report  2011-01-28

Non-Opec spare capacity? (page 1 )

Interview with a “Coal Guru”. (page 2 )

Inflation adjusted cost of diesel fuel. (page 2 )

Light trucks & cars consume 58% of U.S. oil. (page 3 )

Video, no autograph requests please. (page 3 )

Wait a minute, isn’t that our oil?

I am afraid that many Americans have grown to think of Canada’s oil and natural gas as ours. Since Canada is the U.S. largest supplier of the petroleum drug it is easy to understand. Especially since all of the pipelines run south from the Canadian oil fields and not to the potential export markets on the two coasts. For now selling to the U.S. is the only option.

However that may change if other buyers are willing to pay a premium to the U.S. buyer and move it for export. So the news this week that Chinese buyers are exploring the movement of oil by rail to the west coast should be no surprise. And neither should this remark in the Dow Jones news item reporting the discussions with Canadian National Railway. “It makes good business sense to have more than one customer,” both in terms of sales volumes and the possibility of having stronger prices…” That is right, shipping oil to the coast could raise the price we Americans pay for “our” oil that happens to be in the ground or tar sands in Canada.

Recent news from China illustrates why this is not something to be dismissed. “In December, China’s implied oil demand surged 19 percent to a record 9.6 million bpd, averaging 8.65 million bpd for the whole year, according to Reuters calculations based on preliminary official data.” With import growth climbing year-over-year at roughly 18% China clearly will be looking for more source of supply.

China and the U.S. now import a combined total of around 2 million barrels per day from Saudi Arabia absorbing roughly 27% of the Kingdom’s 2009 net exports.

You still ship by truck…?

Just over 200 years ago some forward thinking business men proposed the Erie Canal. It was completed in 1825 but within 25 years began to face the railroads who themselves would face the highway trucking network and ultimately air transport in the future. Each of these new networks increased speed in the supply chain but required more and more abundant cheap fuel to function.

Today as the price of fuel again climbs well above the average inflation adjust price over the last 40 years some companies are looking to the past in an attempt to mitigate the risk. During my presentation in Port Townsend a couple of weeks ago I highlighted Pacific Terminals work with the paper mills on the peninsula to barge their products to the port in Seattle eliminating thousands of truck trips per year. (see page three of this week’s report for video link)

So it was not much of a surprise to find an article in the Financial Times (FT) special section this week on the use of water transport in Europe to avoid the use of trucks. This excerpt is from “The Connected Business – Supply Chain” in the January 26th Financial Times.

“In France, Pernod Ricard has turned to a centuries-old technology, to make its supply chain greener. The drinks group uses river barges, rather than trucks, to transport its Mumm and Perrier-Jouet Champagne to Le Havre, where it joins ships bound for Asia and the Americas.

Nor is Champagne the only drink to enjoy a more sedate journey. According to John Corrigan, Pernod Ricard’s global supply chain and procurement director, the company tries to use air freight only as a last resort, and aims to reduce the number of miles its products travel by road. Even the choice of sea routes affects the company’s environmental footprint…     Check the FT for More….

Carbon emission reduction means an energy reduction which in most cases also means money saved. For sure there is much more to consider than just fuel and carbon emissions. But actions like this clearly illustrate that forward thinking companies are beginning to face the realities that traditional supply chain strategies and assumptions may not work in the very near future or even today.