Energy Wire

Energy Wire



June 3, 2008 1:46 PM

Climate Bill's Dress Rehearsal

The climate change legislation on the floor of the Senate this week would be the most important piece of energy legislation ever – if it had a chance of becoming law. Instead the debate is, as Sen. Byron Dorgan (D-N.D.) put it, a “dress rehearsal.”

If it had a chance of passing, it would steer tens of billions of dollars of energy investment toward efficiency projects, renewable resources such as solar and wind, and nuclear power. More money could also end up in demonstration plants designed to capture and store carbon dioxide emissions from coal-fired power plants. The legislation would do all this in a roundabout, but theoretically politically palatable way: it would establish caps on emissions with a set of rules for companies to trade permits and offset credits needed to meet those caps. While commonly known as cap-and-trade, which sounds pithy and free-market oriented, a more accurate but less sexy-sounding name would be a system of tradable rationing coupons. In plain English, that would mean putting a price on greenhouse gas emissions, which would raise costs for anyone burning fossil fuels, whether in a gasoline tank, a coal-fired power plant, or a natural gas stove. (Columnist Robert J. Samuelson gives his views of the whole mess.)

But if all this is a dress rehearsal, why care?

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June 10, 2008 2:25 PM

Qatar's Gusher

From the United States, the prospect of endlessly high prices for oil and gas looks unrelentingly grim. Just this morning, the Commerce Department announced a bigger than expected trade gap for April and it’s clear who the villain is – crude oil imports accounted for just under half of the nation’s net trade deficit.

From the other end of the international oil pipeline, however, things look pretty good. No giant sucking sound there, just the happy gurgle of oil revenues flowing into the government cup that is running over.

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June 13, 2008 4:39 PM

A Taxing Situation in Europe

The Qatari oil minister Abdullah Bin Hamad Al Attiyah was visiting the United States this week and at a dinner reception he told a story about oil prices. About two years ago, he said, a British official met him and urged him and OPEC to increase output to lower oil prices. The Qatari minister responded with an offer: If Britain would share its tax revenue on oil products 50/50 with Qatar, Qatar would give Britain the oil for free.

His point was this: Taxes on petroleum products in Europe are greater than the price of the petroleum itself. Put it another way: European governments make more money on oil product sales than the oil producing countries.

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June 26, 2008 12:55 PM

Saudi's Oil Promises

*Correction Appended*

What sort of commitment did Saudi Arabia really make to ultimately expand oil output to 15 million barrels a day – and is that even possible?

That’s been a major subject of debate since last Sunday’s big oil consumer-producer pow-wow in Jeddah , Saudi Arabia. And thus the Saudi pronouncement has had hardly any discernable calming effect on oil markets, especially since it would take several years to reach that 15 million barrel a day level in any case. Meanwhile, the kingdom has talked of nudging production up by 200,000 barrels a day from current levels next month -- and current prices remain as high as they’ve ever been.

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June 27, 2008 1:45 PM

Oil Giants Still Eye Iraq

A week ago newspapers reported that a handful of the big Western oil companies were close to unveiling contracts for work in Iraq, whose underexploited oil reserves are probably second only to Saudi Arabia’s. One well-read paper said the contracts would be announced next Monday.

It’s the kind of story that whips up attention because of the persistent suspicion that access to Iraqi oil for Western companies was wrapped up in the Bush administration’s decision to invade Iraq in 2003.

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July 3, 2008 5:09 PM

Supply? Demand? Who Needs 'Em?

Energy quote of the day:

"How many times do I have to tell you, prices have nothing to do with supply and demand."
--Saudi oil minister Ali al-Naimi according to story by Bloomberg News.

The comment was made as Naimi was reiterating his view that "speculators", not the fundamentals of supply and demand, were driving up oil prices, and that OPEC did not need to raise output to bring prices down.




July 4, 2008 8:25 AM

Nuclear Help Wanted

The Energy Department earlier this week outlined plans to solicit proposals for $18.5 billion of loan guarantees for the construction of new nuclear plants. Nuclear foes say it's way too much, but the nuclear industry says it's not enough.

Both of them can claim to be right with some reason. The loan guarantees could certainly lead to the construction of the first completely new nuclear plants in nearly three decades since the scare at the Three Mile Island plant in Pennsylvania. That would be a setback for nuclear power's foes. But new nuclear plants are so expensive that the $18.5 billion in loan guarantees are only big enough to finance the construction of three new nuclear plants.

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July 7, 2008 9:23 AM

A Nuclear Primer on the Hill

On Friday, we were talking about why the nuclear industry isn’t satisfied with the $18.5 billion in loan guarantees that the Energy Department is opening up for proposals. And that reminded me of a meeting I slipped into on Capitol Hill in mid-May that was organized by the Heritage Foundation, whose nuclear energy expert, Jack Spencer, used to work for Babcock and Wilcox, a maker of nuclear plant equipment. He had invited Michael Metzner, senior vice president and treasurer for Exelon Corporation, and Caren Byrd, executive director of Morgan Stanley's investment banking division, to speak. There were two or three dozen congressional staff members there.

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July 8, 2008 9:07 AM

The French Nuclear Recipe

We've been talking recently about nuclear power and recent U.S. government plans to fund new power plant construction. France, which gets 78 percent of its electricity from nuclear power, is often cited as a model by nuclear power advocates. But is it?

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July 10, 2008 8:08 AM

Fun Facts About Nuclear Finance

Wrapping up our discussions in the last few posts about the nuclear industry, here are some other fun facts about nuclear finance and loan guarantees:

1. The Energy Department is also handing out about $8 billion for renewable energy and energy efficiency projects.

2. France relies on nuclear power for 78 percent of its electricity while the United States relies on nuclear power for 19 percent of its electricity. But the United States, a much bigger economy, produces nearly twice as much energy from nuclear plants as France does.

3. "Loan guarantees from the Department will enable project developers to bridge the financing gap between pilot and demonstration projects to full commercially viable projects that employ new or significantly improved energy technologies," Jeffrey F. Kupfer, the Acting Deputy Secretary of Energy, said. But many critics wonder what is so new about the design of new nuclear plants.

4. Last October, Moody's delivered a downbeat assessment of the U.S. nuclear industry's prospects. In a report, it said:

"Moody's does not believe the sector will bring more than one or two new nuclear plants on line by 2015, a date cited by a majority of the companies currently highlighting their nuclear ambitions. The complexity associated with the permitting process as well as the execution risks associated with construction projects of this nature should not be underestimated.... Moody's believes that many of the current expectations regarding new nuclear generation are overly ambitious. In fact, the timing associated with commencing construction and making the next nuclear unit commercially available could be well beyond 2015 and the costs associated with the next generation of nuclear build could be significantly higher than the approximately $3,500/kW estimates cited by many industry participants."




July 11, 2008 10:53 AM

Two Nuclear Setbacks For France

Don’t look now, but the model nation for peaceful nuclear power just had a spot of trouble.

Nearly 8,000 gallons of radioactive waste spilled from the Tricastin nuclear site on Wednesday, forcing the closure of two French rivers for fishing and bathing, and threatening people and the environment. The timing, right after the Energy Department said it would seek proposals for new nuclear plants worthy of federal loan guarantees, could have been better.

“This spill should knock down the myth that France ’s dependence on nuclear power is a role model for the U.S. to follow,” said Erich Pica of Friends of the Earth.

Speaking of timing, the Government Accountability Office issued a report on the $38.5 billion in federal loan guarantees lawmakers approved early this year. The GAO recommended that Congress limit the size of the program (PDF) because the Energy Department isn't ready to assess risk of defaults and protect taxpayer interests. The GAO said that “Risks inherent to the [loan guarantee program] will make it difficult for DOE to estimate subsidy costs with a reasonable degree of accuracy…” It criticized the Energy Department for considering non-cash assets, such as land, as equity if contributed to the project by developers. It also said that the Energy Department’s decision to lend as much as 100 percent of the project costs diminished the incentives project owners might have if they were on the hook for part of the project cost.




July 11, 2008 11:55 AM

Oil's Weird Week

For two days this week, oil was looking like a typical bubble market. The price slid more than $10 a barrel in two days. Had supply and demand changed that much? Was this the beginning of the end of high oil prices?

Then on Thursday, the oil price bounced up at the end of the trading session. It’s hard to see what news might have triggered that. The day’s major developments – the firing of missiles by Iran and an e-mail from Nigerian insurgents calling off their self-declared ceasefire – were known at the beginning of the day. Brazilian oil workers were planning a strike, but the International Energy Agency lowered consumption forecasts. Go figure.

That led some analysts to say that the oil market is indeed a bubble.

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July 16, 2008 1:57 PM

Speculating About an Oil "Bubble"

The price of crude oil has tumbled almost $11 a barrel in less than two days and a lot of people are (again) asking: Has it all been a bubble? Is it about to burst? Have prices fallen short of the predictions of the financial analysts who were talking up the idea of $150 or $200 a barrel?

I don't think it's quite that simple. I think that a combination of things are happening to oil prices: an influx of financial players into the market has helped drive up prices, but they wouldn’t have been able to do that in a sustained way if the gap between global production capacity and global oil consumption were not so narrow.

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July 21, 2008 8:08 AM

$4 Gallon Gas: Burden or Emergency?

If $4-plus for a gallon gasoline feels like a burden to American households, it feels like an emergency to members of Congress.

With elections looming, how Americans will factor the high price of gasoline into their voting makes both parties anxious. Democrats think it's such an emergency that they want to tap the Strategic Petroleum Reserve to lower prices. President Bush, by contrast, wants to keep the emergency reserve aside for what he might call a real emergency -- one with war and a really big disruption in world supplies.

There's a lot of rhetoric flying around on this at the moment, but neither side gives the other its due.

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July 24, 2008 3:09 PM

Arctic Dreams

You could look at yesterday’s announcement by the US Geological Survey that there may be 90 billion barrels of oil and 44 billion barrels of natural gas liquids in 25 geological areas underneath the Arctic Sea as evidence that there isn’t any oil supply crisis. Or you could look at it as evidence that we need to go to the ends of the earth to get enough oil to feed our oil addiction.

Finding all that Arctic oil will require huge expensive drilling rigs and ways of dealing with dangerous melting ice. One line in the USGS release: “For the purposes of this study, the USGS did not consider economic factors such as the effects of permanent sea ice or oceanic water depth in its assessment of undiscovered oil and gas resources.”

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July 28, 2008 12:16 PM

Oil Shock in the Philippines

Those of us who live in the United States have a tough time with high oil prices. But the Philippines doesn’t produce any of its own oil, and it’s having an even tougher time.

And that means tough times for the Philippines’ President Gloria Macapagal-Arroyo. Her popularity has fallen to a low point, lower than any president there since 1986, the year long-time leader Ferdinand Marcos was toppled from power. Moreover, while the nation’s growth rate is still good, inflation has climbed to 11.4 percent. Growth has slowed from 7 percent to 5.2 percent. Many members of Congress are demanding that Arroyo trim the 12 percent value-added tax on oil products, but she has refused. Tomorrow she is scheduled to deliver a nationwide address, and oil prices will be at the center of her talk.

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July 31, 2008 5:18 PM

The Poor Rich Guys

It's not every company that can register $11.68 billion in quarterly profits -- and still disappoint the analysts. Yet Exxon Mobil Corp. is a special company in many ways, and analysts have their own view on the world.

Poor Exxon. Its profit margin is a meager 8.5 percent of sales. It doesn't have enough places to drill. Costs are going up. Skilled manpower is scarce. Despite all that, it is still under attack from members of Congress, consumer groups and environmental groups. And now the analysts are disappointed too!

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August 1, 2008 11:00 AM

Who's to Blame for Oil Profits?

I'm often asked this question: How did Big Oil conspire to get its big profits? The idea that a company like Exxon Mobil could earn $11.7 billion in a single quarter boggles the mind, even if you know what a far-flung empire it is.

Two years ago the online magazine Slate (a sister Washington Post publication) published a Michael Kinsley piece about taxing oil companies that touched on the subject. Kinsley noted that oil wells that could be profitably operated at $46 a barrel (the price a year before his column) could be even more profitably operated at $70 a barrel. Kinsley wrote:

To get this windfall, the oil companies didn't have to conspire with the Bush administration to start a war in Iraq. They didn't have to conspire among themselves to raise prices at the pump. If you own oil anywhere in the world, you didn't have to do a damned thing. Just close your eyes, make a wish, open them, and - surprise - you're getting an extra $25 a barrel.

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August 6, 2008 11:57 AM

Bush's Drilling Ban: It's Not So Easy

There are some people who would claim that President Bush's announcement about lifting a presidential ban on drilling in offshore areas currently off limits has had something to do with the recent drop in oil prices. The other night, a friend asked me if this was true.

The short answer is: no.

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August 11, 2008 11:58 AM

Energy Subsidy Dreams

It seems every candidate has his favorite energy subsidy. Or two.

Sen. Barack Obama (D-Ill.) has favored setting a minimum goal of 60 billion gallons for ethanol of all kinds, derived from corn and cellulosic materials such as grasses or wood chips. That's twice the current target for an industry which has thrived largely because of federal mandates and subsidies for refiners that blend ethanol into motor fuel.

Sen. John McCain (R-Ariz.) has opposed subsidies for ethanol. And last Tuesday he attacked Obama for voting for the 2005 energy bill (widely supported by Republicans) because, McCain said, it had subsidies for big oil and gas companies.

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August 12, 2008 3:12 PM

Got a Sweet Ride? Get Over It

Steven Mufson is on vacation this week, but Post colleague Juliet Eilperin asked us to link to her article on cars, which she wrote as a rebuttal to this Outlook piece by Terry Box last weekend.

Steve will return to blogging next week.




August 19, 2008 6:27 PM

Plenty of Pipeline Options. All Bad

Commentators have been quick to point out that Russia's defeat of Georgia has pretty much killed the chances that new oil and gas pipelines will be built to increase the security of supplies to Europe. It's clear that there is little to stop Russia from rolling its forces up to the existing pipeline or knocking it out of commission if it wanted to. The Washington Post's Steve Pearlstein even suggested that demonstrating the pipeline's vulnerability may have been one of the underlying motives for the Russian incursion.

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August 22, 2008 5:24 PM

Vague on Oil Prices

Hoping for some insight about oil prices, I attended a meeting on Thursday at the New America Foundation where Richard Vague, who was the founder and former chief executive of credit card firm First USA, was talking about oil prices. He is also co-founder and chief executive of Energy Plus, a firm supplies electricity to homes in New York. I trust he was more astute about credit cards than he was about oil prices.

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August 25, 2008 6:16 PM

Energy Policy, Convention Style

One of the people who will parade across the platform Tuesday night for a four-minute speech will be Nancy Floyd, founder and managing director of Nth Power, a San Francisco venture capital firm specializing in energy technology and materials. The firm has $420 million under management with investments in companies involved in light-emitting diode bulbs, hydrogen-based generators, photovoltaic panels, microturbines, biodiesel, and the sale of voluntary carbon offsets, among others. She said that nationwide about $3 billion a year of venture capital, about 14 percent of total U.S. venture capital, is going into energy.

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August 30, 2008 11:18 AM

Sarah Palin and Big Oil

Energy Wire talked to Gov. Sarah Palin in May about her views on Big Oil, offshore drilling and a long-awaited, expensive and controversial natural gas pipeline for which she has been pushing hard. With McCain's announcement Friday, suddenly her comments seem a lot more interesting.

Many environmental and Democratic activists attacked her yesterday for being too close to Big Oil. They dislike her support for drilling in environmentally sensitive areas, her skepticism about alternative energy sources, and her opposition to listing polar bears as an endangered species. "Sarah Palin reinforces John McCain's plan to continue the Bush-Cheney big oil energy policies," said Daniel J. Weiss, senior fellow at the Center for American Progress. "Palin may be new, but her big oil energy agenda is very old-fashioned."

However, back in May Palin portrayed herself as standing up to the biggest oil companies in discussions over a new $30 billion natural gas pipeline, talks that have drawn out over many years. (When I talked to her then, she already knew that McCain was considering her for the vice presidential spot on the Republican ticket.)

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September 8, 2008 10:29 AM

OPEC Faces "Demand Destruction"

OPEC meets tomorrow and the betting is that it will do little to alter the cartel's output. With prices falling, the group, which provides about 40 percent of the world's petroleum, sees little need to boost production. Yet prices are still so high that it would be politically difficult for OPEC's mightiest member, Saudi Arabia, to heed the calls of the group's price hawks to cut production much to keep prices comfortably over $100 a barrel.

There is a surreal aspect to the entire debate. Less than two years ago, OPEC cut production by 1.5 million barrels a day to keep prices from slipping below $55 a barrel. Now Venezuela and Iran want the group to keep prices from dropping below $100 a barrel. They have tasted what $145-a-barrel oil tastes like just in July, and they thought it was good.

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September 10, 2008 5:36 PM

OPEC's September Surprise

Last night, the Organization of the Petroleum Exporting Countries reaffirmed its self-imposed production quotas. And it said that this time it really, really, really means it.

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September 18, 2008 11:01 AM

Energy Giant Weighs In on Latest Developments

Paolo Scaroni, the chief executive of the Italian oil giant ENI, stopped by the Post this week and chatted about the state of the oil world. ENI's revenues place it among the world's biggest 25 companies of any kind. The company operates in 70 countries, with exploration and production operations from the Gulf of Mexico to Nigeria to Kazakhstan. Much of Europe's natural gas imports flow through its pipelines, and it retails gasoline under the AGIP brand.

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September 22, 2008 12:42 PM

Nigerian Oil Threat

While the fur has been flying on financial markets, the bullets have been flying in the Niger Delta. The Niger Delta news didn't make many headlines last week, but the conflict there continues to be a major drag on oil supplies -- and with the Nigerian government in disarray, there's no end in sight.

The usually accurate spokesperson for the Movement for the Emancipation of the Niger Delta (MEND) reported in an e-mail that there had been several new attacks on oil facilities last week. On Friday, Royal Dutch Shell acknowledged that an "upsurge" of attacks had taken place and that earnings would take a hit as a result.

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September 26, 2008 5:32 PM

Buffett's Nuclear Bargain

Warren Buffett has gotten a lot of ink for his $5 billion investment in Goldman Sachs, but his other deal - the $4.7 billion takeover of Constellation Energy Group - might have been an even better one.

How good a deal? Think about it this way. To build a brand new nuclear plant - assuming you can get the permits and the loans - would cost about $6 billion (at least), take about 10 years, and in the end would produce about 1,000 megawatts. Buffett has bought himself a company with 9,000 megawatts of electric power production, including four nuclear plants, for less than the price of a single new nuclear unit. Oh, and he also got the Baltimore utility, an energy trading operation and a few other odds and ends, too.

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October 2, 2008 10:21 AM

The 'Clean Coal' Myth

The phrase "clean coal" is polluting the energy debate. The phrase is an oxymoron. We can come up with ways to clean up after coal - many of them very expensive and, in the case of coal's greenhouse gas emissions, untried. And we can use coal more efficiently than in the past. But coal itself is not clean and never will be. That is a matter of chemistry and geology.

That hasn't stopped the phrase "clean coal" from seeping into politics like coal dust on a Beijing morning. Indeed it's likely viewers will hear the phrase at least a couple of times in Thursday's vice presidential debate.

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October 3, 2008 2:24 PM

"Clean Coal" Alive and Well in VP Debate

The results are in. The phrase "clean coal" did make several appearances in the vice presidential debate: Joe Biden used it four times. Sarah Palin used it twice. Gwen Ifill used it four times.

Biden said:

We believe -- Barack Obama believes by investing in clean coal and safe nuclear, we can not only create jobs in wind and solar here in the United States, we can export it. China is building one to three new coal-fired plants burning dirty coal per week. It's polluting not only the atmosphere but the West Coast of the United States. We should export the technology by investing in clean coal technology.

Later he said:

Oh, on clean coal. My record, just take a look at the record. My record for 25 years has supported clean coal technology. A comment made in a rope line was taken out of context. I was talking about exporting that technology to China so when they burn their dirty coal, it won't be as dirty, it will be clean.

Palin said:

But also in that "all of the above" approach that Senator McCain supports, the alternative fuels will be tapped into: the nuclear, the clean coal. I was surprised to hear you mention that because you had said that there isn't anything -- such a thing as clean coal. And I think you said it in a rope line, too, at one of your rallies.

Ifill said:

Let me clear something up, Senator McCain has said he supports caps on carbon emissions. Senator Obama has said he supports clean coal technology, which I don't believe you've always supported.




October 6, 2008 11:45 AM

China's Faltering Oil Appetite

A lot of people who forecast the future tend to draw a straight line forward from existing trends. That's why people forecast a continuation of the breakneck increases in Chinese oil consumption.

There are at least two reasons to question that. One is that the current financial crisis could hammer the U.S. economy, and cut deeply into our purchases of all kinds of stuff, including stuff that comes from China. If that happened, it's doubtful that China would keep up its double-digit economic growth in the coming months.

The other reason is more benign: China has drastically raised fuel prices, effectively slashing its subsidies for motor fuel. And we all know that when retail petroleum product prices rise sharply, we tend to use less of them. Will the Chinese be any different?

It's a question that matters to every one of us, whether a car owner or simply a consumer who buys goods that travel in trucks. That's because the challenge of meeting rising Chinese demand is expected to keep oil markets tight and prices high even if Americans buy more efficient cars.

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October 16, 2008 3:42 PM

The Energy Debate From Abroad

Listening to the presidential debate last night, I couldn't help wondering what it must sound like to foreign ears.

First, here is the world's biggest energy hog struggling to get its oil and coal appetite under control. It talks about the energy problem. It IS the energy problem.

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October 22, 2008 2:34 PM

A New OPEC for Gas?

Russia, Iran and Qatar held talks in Tehran yesterday about forming a cartel for natural gas that would resemble the OPEC cartel for oil. But the structure of the natural gas business makes it unlikely that a gas OPEC would get off the ground anytime soon.

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October 24, 2008 2:54 PM

OPEC'S New Challenge

Oil prices move faster than consumers can adapt to them. But once consuming nations change gears, it's hard for oil producers to stop the crumbling of the oil market.

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October 30, 2008 9:59 AM

A Turn of Fortune in Russia

Wall Street's troubles have rippled through to Moscow's Arbat Street as well as Main Street.

The Wall Street Journal has reported that the Russian government let the Alpha Group, controlled by tycoon Mikhail Fridman, tap a Russian government fund to help pay back a $2 billion loan to a group of banks led by Deutsche Bank.

That would have repercussions at the Arbat Street headquarters of Moscow-based oil company TNK-BP, where Fridman and his allies earlier won concessions from BP about the management of their Russian joint venture, including the ouster of the BP-chosen chief executive. Not even two months after that victory, Alpha's financial constraints have everyone recalculating.

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November 3, 2008 5:52 PM

The Last Minute Obama-McCain Coal Debate

The U.S. coal industry was up in arms today over a comment Sen.
Barack Obama (D-Ill.) made about the future of coal, and it became one of the last-minute issues in an effort to swing votes in coal-producing regions of the Midwest.

The Western Business Roundtable, the National Mining Association and various other groups criticized Obama for a comment he made in an interview with the San Francisco Chronicle. They quoted the interview at some length, in which Obama discusses his support for a cap-and-trade bill that would force all emitters of greenhouse gases to buy allowances in a public auction. This is a plan that has very widespread support among Democrats, some Republicans (including Sen. John McCain, who co-sponsored two cap-and-trade bills) and many utilities (especially those with more nuclear than greenhouse gas-emitting coal plants).

Here's the key line from Obama: "So if somebody wants to build a coal-powered plant, they can; it's just that it will bankrupt them because they're going to be charged a huge sum for all that greenhouse gas that's being emitted."

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November 6, 2008 12:11 PM

Obama's Energy Department

Let the speculating begin. Not oil speculation, but job speculation for the new Obama administration.

Here's what I'm hearing, and thinking.

First, the Energy Department is an odd beast. Thirty six percent of its $25 billion budget is related to national security, dealing with nuclear materials from things like decommissioned nuclear weapons and naval reactors. Another 25 percent of its budget goes to environmental management and civilian nuclear waste management. Another sizable chunk goes to the national laboratories, over which the secretary exerts modest control at best. So it hasn't been the most sought-after cabinet post.

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December 16, 2008 2:59 PM

OPEC in a Fog

We call OPEC a cartel, but if it really had control over prices, how could it let them swing so wildly?

The answer is that even a cartel has to deal with market forces. With prices down about two-thirds from their July peak, OPEC has called an emergency meeting tomorrow to hash out a plan to stop the slide.

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December 29, 2008 3:24 PM

Forecasting (or Guessing) the Price of Oil

What will the price of oil be at the end of next year? Or next month?

It's hard to say and I generally try not to. That's why we're asking you, dear reader. But first, some background.

A comment on my last posting made a disparaging reference to a sentence in an article I wrote over the summer about oil prices. At the time, prices were just a bit off from record $147-a-barrel oil and I wrote that prices were unlikely to fall as low as they were for the previous generation.

And now...

There are good reasons why I try to avoid projecting oil prices. In the short to medium term, a geopolitical crisis, a bold OPEC production cut, a bigger than expected drop in U.S. consumption due to, say, a financial crisis (on top of price-induced conservation measures) and a decision by several big developing countries to lift gasoline price controls can all substantially change the price picture. Relatively modest changes in either supply or demand can produce big price changes; back in 1973-74, modest declines in supplies drove prices up sharply. On top of all that, huge flows of money in and out of commodities can magnify these moves.

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January 6, 2009 12:36 PM

Ukraine, the Real Crisis on Russia's Doorstep

Last month NATO allies met in Bucharest and talked about the membership applications from Ukraine and Georgia. It was the latest episode in an 11-year-old courtship between the Western military alliance and the two former Soviet republics that Russia still sees as part of its orbit.

But NATO would have done more for Ukraine's - and Europe's - security if it had insisted that Ukraine reform its energy sector. Just one month after the Bucharest meeting, Ukraine is mired in its third annual natural gas contract dispute with Russia's state gas company, Gazprom, and the dispute is threatening supplies for much of western Europe because Russia's main pipeline to Europe transits Ukraine.

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January 9, 2009 10:08 AM

Exxon Chief Embraces Carbon Tax

It says a lot about the changing climate in business circles and in Washington that Exxon Mobil chief executive Rex Tillerson yesterday came out in favor of a carbon tax in a speech at the Woodrow Wilson Center. When I asked him afterward how high a price he thought would be needed, he said the tax should probably start out "somewhere north of" $20 a ton.

That's enough to qualify as a serious suggestion. It's about what carbon has cost in the European Union for much of the time the continent has been using a cap-and-trade approach to pricing carbon emissions. And it's almost half as much as the price many people suggest would be needed to help spur carbon capture and storage at coal plants. It's also about the level that Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Energy and Natural Resources Committee, once suggested as an initial upper limit on a price for carbon.

Yes, this Tillerson is from the same Exxon Mobil that for years gave funds to groups that denied the existence of climate change or mankind's role in speeding it along. It's the same Exxon Mobil that puts the carbon-breathing tiger in your tank.

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January 17, 2009 1:04 PM

Obama's (Gas) Taxing Problem

Goodness knows, President-elect Obama has his legislative hands full. Maybe that explains why he has taken the idea of increasing gasoline taxes off the table, saying that Americans had enough economic burdens at the moment. Nominees like Steven Chu, the Nobel Prize winning physicist who will become Energy Secretary, dutifully echoed Obama's view even though in Chu's case he has long supported higher fuel taxes.

But by failing to raise the gasoline tax, the president-elect risks complicating another problem: Fixing the U.S. automobile industry.

Here's the problem. Obama and leading members of Congress keep saying they want ailing automakers to make more fuel-efficient vehicles. But the automakers in the past made more money on the guzzlers; in the future, they will have trouble charging enough to make money on new cars using costly new technologies for plug-in or hybrid cars. So the car company of the future may be a money-losing operation, just like the car company of the present.

Raising the gasoline tax would increase consumer demand for more fuel-efficient vehicles. That could help automakers charge more for them and make more money on sales of plug-ins, hybrids or more efficient conventional engines. Not surprisingly, Ford and General Motors both belong to the U.S. Climate Action Partnership, which this week proposed a detailed blueprint for a cap-and-trade system for carbon dioxide emissions. Such a system would put a price on carbon and would effectively tax gasoline and all other fossil fuels.

After being burned last summer by sky-high gasoline prices, do Americans really need higher gasoline taxes to get them to buy fuel-efficient cars? Yes, actually. Americans have an astonishingly short memory about gasoline prices. Sales of the Toyota Prius have hit the skids now that gasoline prices are back below $2 a gallon. And sales of SUVs are relatively strong compared to many other models.

If Obama did want to raise gasoline taxes without imposing a hardship on Americans at a time of economic duress, there are (at least) two ways of going about it other than throwing it out the car window. First, he could cut other taxes to compensate people for the fuel tax. Second, he could delay the effective date of the tax, or increase it in small steps over time. A phased-in tax increase would still have a big impact on the choices people make when purchasing cars, which tend to stay on the road for 10 years or so.

A gasoline tax has a variety of other benefits. Harvard economics professor and former chairman of the Council of Economic Advisers under President George W. Bush, Greg Mankiw, listed them in an October 2006 Wall Street Journal article. (Full disclosure: I have known Mankiw since grade school.) The other benefits include: helping the environment by reducing fuel use; reducing road congestion by encouraging mass transit or car pooling; boosting government revenues and shrinking the deficit (unless other taxes are cut by equal amounts); reducing crude oil prices by reducing demand (as a result, the increase in retail pump prices would be less than the increase in the tax); and bolstering national security. If the United States cut consumption, it would also help the trade deficit; oil imports make up a huge share of the imbalance.

The list is more timely than ever. But the gasoline tax, while popular among economists and some columnists, remains one of Washington's most feared issues. Ever since President Clinton was burned for trying to raise it, the gasoline tax has been frozen in time, becoming smaller and smaller in inflation-adjusted terms. For Republicans who claim to rely on market mechanisms rather than regulation, the tax should be attractive because it might be more effective than the complicated CAFÉ regulations for fuel efficiency. For Democrats, it should be attractive for environmental reasons. Members of both parties should be worried about the deficit.

But for the moment, this is one good idea that seems destined to die yet again.




January 21, 2009 2:28 PM

will.i.am and Energy Efficiency

There was no red carpet at the Green Inaugural Ball at the Donald W. Reynolds Center for American Art and Portraiture on Monday night. Only a green - well, somewhat olive - colored swath near the entrance for celebrities to give interviews about their views on energy and environmental issues. My favorite was the singer will.i.am, dressed in his trademark fedora. I listened in as another reporter in the scrum elicited his views on energy.

"The technology is there," he said, arguing that the U.S. economy could be much more energy efficient. He said that after he puts solar panels on his house later this year, "I'll be completely off the grid. There's a lot we can do."

One technology he cited was the electric car. When asked whether they were still too expensive for most people, will.i.am said "90 G's? That's a lot of money but not that much money." The only electric car that costs "90 G's" is the Tesla sports car and he confirmed that he owned one. It goes from zero to 60 miles an hour in 3.9 seconds. "Crazy torque," will.i.am said.

I asked him whether he owned any other cars. After all, the Tesla is a two-seater with a trunk big enough for a set of golf clubs. Yes, he said. He owns a Bentley.

Here's what the Web site NewCars.org says about the 2008 Bentley Azure. The manufacturer's suggested retail price is $329,990. And it gets only 9 miles a gallon in the city, and 15 miles a gallon on the highway. So much for fuel efficiency.

Continue »




January 27, 2009 10:53 AM

China's Oil Demand Tanks

More evidence is emerging that oil demand in China is fizzling - and that China's economy is fizzling too.

The oil analyst Paul Ting emails that China's December oil demand declined by 4 percent. This is the sharpest monthly demand decline in the past decade and the second consecutive monthly demand decline, Ting says. Ting notes that Chinese petroleum inventories have been increasing and that actual demand might have dropped by even more than 4 percent.

This is startling news because China was supposed to be the engine of growth for worldwide oil demand. Less than two years ago, in July 2007, the International Energy Agency was forecasting an increase of half a million barrels a day of oil demand in China every year through 2012. Earlier this month, the IEA predicted that China's oil demand would grow 1.1 percent this year, or about 80,000 barrels a day.

This has important implications for the oil market. OPEC and other oil exporters have long assumed stagnant oil demand in the United States and Europe, but they have been counting on fast growth in emerging markets to fuel demand growth - and high prices.

Now one reason for a slowdown in Chinese oil demand is the elimination of subsidies in June last year. But greater fuel efficiency isn't the only thing happening here.

Sagging Chinese oil demand provides further evidence that China's economy has not just slowed down, but may actually be in reverse. China announced 6.8 percent growth from December 2007 to December 2008. But given how much faster the annual growth rate was early in 2008, simple math would indicate that the economy actually contracted late in the year. New York University economics professor Nouriel Roubini commented on this over the weekend: "Indeed if one were to convert the 6.8 percent y-o-y [year over year] figure in the more standard quarter over quarter annualized figure Chinese growth in Q4 [the fourth quarter] would be close to zero if not negative," he wrote. "Other data confirm that China was in a borderline recession in Q4 and that it may be in an outright recession in Q1: production of electricity plunged 7.9 percent in y-o-y basis."

Paul Ting said much the same thing when he responded to an email I sent him last week. "The GDP growth rate shows an 'accelerating slippery slope,'" he said. "4Q was lower than 3Q, 3Q lower than 2Q, and so on.

Indeed, although China does not release numbers on monthly GDP growth, the industrial value added monthly data would suggest that throughout the fourth quarter, economic activity level fell, with December being the lowest. Thus, the oil demand data showing the sharpest decline in December is consistent with the fact that GDP growth was also the slowest in that month."

Treasury Secretary-to-be Timothy Geithner testified the other day that China has been manipulating its currency to make its exports more attractive. Getting it to do otherwise seems like a tougher task than ever now that the economy is in trouble.



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