2011 May 12

The Master Resource Report  2011-05-13

ASPO 9 presentations.    (page 1 )

Saudi oil exports.    (page 1 )

FedEx CEO – Electrify Transportation.    (page 2 )

China & Russia cut fuel exports.   (page 3 )

Mexico – Cheap prescription drugs & cheap gasoline.   (page 4 )

Natural gas – Game Changer…?

“Natural gas has increasingly been touted as a “bridge fuel” from high-carbon sources of energy like coal and oil to a renewable energy future. This is based on renewed optimism on the ability of horizontal drilling and hydraulic fracturing to access natural gas from previously inaccessible shale gas deposits. A review of the latest outlook (2011) of the U.S. Energy Information Administration (EIA) reveals that all eggs have been placed in the shale gas basket in terms of future growth in U.S. gas production. Without shale gas, U.S. domestic gas production is projected to fall by 20% through 2035.” [from the just released PCI report by David Hughes]

So the U.S. is betting the farm on shale gas, it had better work.

This why I am strongly encouraging attendance at Art Berman’s public lecture Monday, May 16th at the University of Washington starting a 7:00 pm. This will be a great opportunity to get the details from a true expert in shale gas. Further information is available here.

Some simple math.

The IEA released its Oil Market Report yesterday with two interesting numbers. The first concerned global demand.

“Forecast global oil product demand growth for 2011 is trimmed on persistent high prices and weaker IMF GDP projections for advanced economies. Global demand, which averaged 87.9 mb/d in 2010 (+3.3% or +2.8 mb/d year-on-year), is projected to reach 89.2 mb/d in 2011 (+1.5% or 1.3 mb/d versus the previous year).”

The second dealt with the global supply.

“Global oil supply dipped by 50 kb/d to 87.5 mb/d in April, with combined OPEC crude and NGL supply lower by 0.26 mb/d, while non-OPEC production rose by 0.2 mb/d. Baseline data changes to non-OPEC raised average 2010 supply by 0.1 mb/d to 52.9 mb/d, while 2011 estimates are adjusted down 0.1 mb/d to 53.7 mb/d, implying annual growth of +0.8 mb/d.”

Now for that simple math.

87.5 mb/d (supply) – 89.2 mb/d (demand) = -1.7 mb/d (shortfall)

0.8 mb/d (supply growth in 2011) – 1.3 mb/d (demand growth in 2011) = -0.5 mb/d (shortfall)

It seems clear that these trends in global oil supply and demand are not the paths to lower prices. For more on this shortfall see the JPMorgan comments in this week’s report.

Oil below $100/barrel

“Five years ago, those prices would have been all time highs. Last week, they generated headlines of plunging oil prices.” Suddenly $100 is a bargain price. Oh how times have changed.

The graph below gives some further perspective on where oil prices are today in comparison to 2008. The price swings seen the last two weeks are not that unusual and should not have been a surprise in the short run to anyone. More significant is the comparison to the two average price lines also on the graph.

The yellow line is the year-to-date average for 2011 which at the end of last week was $105.86 based on data from the EIA. This 2011 year-to-date average is slightly higher than the average of $105.47 for the first six months of 2008. The most significant comparison however is with the average price of $67.29/b for the period from 2005 to 2010 shown in orange.

It is very important not to read too much into short-term price signals in the energy markets. Keep focused on the long-term implications of finite petroleum supplies meeting future global demand.