2011 October 28

The Master Resource Report  2011-10-28

Gasoline (page 1 )

Rental rates of just $500,000 per day! (page 2 )

Geothermal power in California (page 3 )

Oil prices, Resources & Economic Growth (page 3 )

CO2 and the supply chain. (page 4 )

Next week’s report.

Since I will be at the ASPO-USA Energy Conference in Washington D.C. November 2-5 the report for next week will be posted on the web only. The following week I will be on a brief vacation so there will be no report on November 11th.

Also next week on the web page there will be a link to a brief online survey to collect some insight into how the report is distributed and used. This is simply for my personal use in trying to improve what started as a thinking tool for my work and has grown dramatically into much more over the last six years (over 250 issues).

The survey is very simple and will take no more than 2 minutes. Since this is my first use of a survey tool it is limited to 100 respondents. I have no idea about how many readers will take the survey so 100 sounded like a reasonable limit.

Washington Ocean Energy Conference

So you have looked at biofuels, solar and traditional onshore wind but have you considered the potential of tapping the power of the ocean?  On November 8th & 9th a conference is being held in Bremerton, Washington to examine the opportunities and issues associated with development of ocean power in Washington State.

“Washington has great ocean energy resources. Tidal power is already being developed in Puget Sound. Vast wave and offshore wind potential lie off our spectacular Pacific coast.”

The first Washington Ocean Energy Conference will examine these critical questions: (1) Why focus on ocean energy — opportunities, barriers and strategic outlook? (2) What are the leaders doing? (3) What do we need to do to create an ocean energy future for Washington?

For further info: http://ctwsound.com/event/

Just 10 years to breakeven

So the Dreamliner is finally in service and Boeing made public how long it will take to breakeven on this really amazing airplane. It will take 10 years and require the delivery of 1,100 planes.

The Seattle Times had these comments on that 10 year breakeven for the 787 project.

“This calculation does not take into account the 787 research-and-development costs nor the costs of acquiring the 787 plants in South Carolina from struggling partners.” Those costs, estimated by The Seattle Times at around $16 billion, will have to paid back for Boeing to see a return on its total investment.

That will likely take at least an additional 700 deliveries beyond the initial 1,100 jets. Even then, Boeing still won’t be in the clear. Long before 2021, it will have spent billions more to develop at least two further variants of the jet, the 787-9 and 787-10.”

But amid all the discussions about how great the first flight was and whether it would take 10 years or substantially more than 1,100 planes to breakeven there was absolutely no mention of the expected price of jet fuel over that decade.

The International Air Transport Association (IATA) Jet Fuel Price Monitor is indexed to 100 based on fuel prices in 2000 ($0.87 per gal). Today the IATA Jet Fuel Price Monitor is at 350.9 ($3.05 per gal) up an average of 12% per year since 2000. If over the next decade fuel price climb at the same rate the IATA index will hit an eye watering 1,220 or $10.60 per gallon. Even if the fuel price increase averaged only 6% instead of the last decade’s 12% jet fuel would still be $5.46 per gallon.

From the airlines perspective it is also important to keep in mind that during the last decade fuel has climbed from being approximately 10-12% of expenses to between 30-40%. Ten years ago labor was the expense that was running around 30% and airline employees know how that cost has been handled.

Clearly the aviation industry and its customers cannot support a large price increase again so it is unlikely we will see jet fuel prices get anywhere near that level. Not because jet fuel suddenly is in abundant supply but rather because the air travel industry like the general economy will have hit the wall well below that price level.

So the real question that no one seems willing or even aware of asking is will Boeing even deliver 1,100 airplanes let alone breakeven on them. Boeing’s customer the airlines just won’t be able to afford them because their customer, the mass market air passenger won’t be flying.

Big Oil

Friday many papers in the U.S. carried an Associated Press article on the earnings announcements from major international oil companies. I wonder how many of the people who read the article and in particular the excerpt below understood the implications of what it said. My best guess, very few had a clue. 5 to 7 percent doesn’t sound too bad. Or is it??

“A decade ago, tapping a new well used to cost about $10 to $20 for every barrel of oil produced. Now it’s estimated at about $50 or $60 for wells in the Gulf of Mexico and $70 or $80 in the Canadian oil sands.

To boost production, oil companies not only must find new sources of oil, they need to make up for production losses at aging fields. Exxon’s fields, for example, are declining by 5 to 7 percent each year, Oppenheimer & Co. analyst Fadel Gheit said.