Gainers Editorial from Energy

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: Kevin Gainer <kgainer () columbus rr com>
Date: Wed, 22 Jan 2003 21:39:11 -0500
To: Dave Farber <dave () farber net>
Subject: **SPAM** Re: **SPAM** Re: [IP] when the Wall Street Journal starts
asking why are we invading Iraq, Bush is really in trouble.

editorial attached. when I say "fade from radar screen" before 12/02 (see
editorial) I guess we need to revise that to six months from NOW. Anyway,
point was not to time the "pull-back" exactly, point was to declare in a
soft way (every U.S. energy think tank is on our board - see our author
req'ts doc. - so I absolutely can NOT say what is totally truthful and needs
to be said) that the Iraq issue is a smokescreen. The bluster and bravado
and cacophony (phony, indeed) of inconceivable pretexts SINCE the editorial
have indeed cinched my claim. The war is over.
 
regs,
 
K.

Stable Energy Prices Ahead

 

 

You wouldn¹t think in the wake of 9/11 last year that anything could be
³stable² but, indeed, we are probably on the verge of a period of reasonable
stability in energy prices. I make that claim a fortiori because a U.S.
military invasion of Iraq is looking increasingly unlikely. Of course any
such invasion would have the potential to turn World energy markets upside
down, at least for a while. Indeed, I am intrigued at the level of attention
given to Iraq these days by U.S. policymakers when one looks at the chorus
of pronouncements Worldwide opposing U.S. Middle East policy. So, really, at
this point I would look for the Iraq issue, and the concomitant significant
risks to energy price forecasts, to rapidly drop off the radar screen (no
pun intended!) before the end of this year. Another factor strongly at work
at present is the faltering U.S. economic recovery: slow or no growth puts
downward pressure on all prices.

 

With regard to oil markets and prices, recent OPEC (the ten majors)
production has been about 1.5 million barrels per day above quota levels.
Overproduction would be even higher if not for problems at export terminals
and flowstations in Nigeria that recently resulted in shut-in production.
OPEC 10 overproduction during the second quarter had already reached 1.4
million barrels per day above quota levels, an increase of 350,000 barrels
per day from first quarter levels.

 

A ³Nominal² Quota Increase For OPEC Soon?


The current OPEC quotas are far out of alignment with current production
levels. OPEC could adjust the total OPEC quota upward to allow Algeria and
Nigeria to produce more, and to bring the total OPEC quota more in line with
likely fourth quarter production levels (projected by DOE to be almost 2
million barrels per day above the January 1 quota). While this would have
the immediate effect of reducing overproduction above quotas by defining
away the problem, it would not solve all of OPEC's difficulties. Even if
OPEC were to roll back the January 2002 quota cuts (effectively increasing
quotas by 1.5 million barrels per day), Algeria and Nigeria would only be
allowed to produce an additional 48,000 barrels per day and 124,000 barrels
per day more, respectively - far less than the capacity increases that they
plan. Furthermore, increasing quotas may prove to be no more than a
temporary solution to the quota/production alignment problem. OPEC has
overproduced virtually every one of its quotas, and OPEC faces the danger
that increasing quotas will just lead to more production - this time above a
higher quota level.

 

So, we¹re awash in oil but maybe not so in natural gas. Indeed, one of the
more troubling areas related to energy price forecasts involves natural gas,
which is the fastest growing source of energy consumption. Over the next
twenty years or so, gas use could easily double and reach 162 trillion cubic
feet. The natural gas share of total energy consumption is projected to
increase from 23 percent in 1999 to 28 percent in 2020, and natural gas is
expected to account for the largest increment in electricity generation
(increasing by 33 quadrillion Btu and accounting for 43 percent of the total
increment in energy use for electricity generation). In 1999, natural gas
use surpassed coal use (on a Btu basis), and by 2020 it is expected to
exceed coal use by 38 percent.

 

These strong new requirements for gas don¹t bode well for gas prices. Much
of the projected growth in natural gas consumption throughout the world is
in response to rising demand for natural gas to fuel efficient new gas
turbine power plants. Gas use is increasing for a number of additional
reasons, including price, environmental concerns, fuel diversification
and/or energy security issues, market deregulation (for both gas and
electricity), and overall economic growth. In the industrialized world,
natural gas is expected to make a greater contribution to incremental energy
consumption among the major fuels, increasingly becoming the choice for new
power generation because of its environmental and economic advantages. In
the developing countries, increments in gas use are expected to supply both
power generation and industrial uses.

 

So, while we do anticipate ³renewed² stability in energy pricing overall
during the upcoming period, there are still going to be a few hot spots like
gas. 

 

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