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October 09, 2006

Comments

mcr

Good discussion of geopolitics, supply and demand and consumption issues.

Some claims here I don’t subscribe to – particularly oil futures at $45 and below next year? Despite new streams online – political instability and over optimistic supply claims are going to keep prices around $55-$60 at least). The phrase “what happens if?” keeps re-occurring … regarding oil coming down – I think some recent relief on prices has gone to certain people’s heads.

The triumvirate (and seeming co-operative actions to evade US-led international action), of Iran, North Korea and Venezuela mean that political conflict is inevitable – therefore keeping prices above $60 and possibly making them go higher – the new supply will only negate the very worst rises above $75pb

My view: Oil prices don’t generally come down – they increase, hover or slide a small amount before the suppliers (OPEC) take action to correct anything that cuts into their margins. Example – OPECs now considering cutting daily supply in response to recent slide to $59-$60 per barrel prices sweet crude.

The recent figure that the US spent the equivalent of $300 billion USD this year on oil imports is very alarming – and is unsustainable considering the US trade deficit.

Even new technologies mean that for the next three years oil will be in the $60 range. After this the range becomes more uncertain… due to the increasing number of variables and their uncertainty. Chief among these – Chinese economic growth (in my opinion) and their utilization of technology-types… to minimise CO2 emissions?

Also they (FORBES.COM) have a good break down of figures … which I will let you look at – with relevant sources – some of the boxes are slideshows indicating country by country their energy markets…

Paul Dietz

Oil prices don’t generally come down

This is not consistent with the historical record. There have been periods in which the price of oil has undergone declines, both abrupt and prolonged. You'd expect occasional abrupt short-term declines in an industry with substantial sunk costs and limited short-term demand elasticity, and this appears to be what Lynch is predicting.

mcr

Yes but if memory serves - every "decline" was in response to large rises...

and each decline - never quiet takes it back to the level it once was...


Check this if you don't believe me!!!

http://inflationdata.com/inflation/images/charts/Oil/Historical_Oil_Prices_Chart.htm

Paul Dietz

every "decline" was in response to large rises...

Of course the decline starts after the price has gone up. By definition. So what you are saying is that when the price of oil goes up, it tends to do so rapidly. This doesn't have an implication for long term trends.

I'll add that current oil prices are unsustainable, since extremely large supplies of alternatives are available at prices equivalent to oil at less than $40/bbl.

mcr

The value for the alternatives (speaking as someone working in biomass/fuels/chemicals related research) - I have is $55 per barrel ...

In future this value will come down however.

The point I make about the value of oil - is that OPEC have stated they wish to keep the value around $50 by limiting supply.

So I would claim that OPEC have introduced an artificial floor for the value in any event.
This is sustainable - the world economy has continued to grow this year (despite it reaching above the $60 value).

The large supplies you talk of - are still in early stages of devolopment - and at these economies of scale, e.g. GTL, BTL and CTL - are highly expensive to construct ($ billions) and take anything around 18 months to build - the infrastructure takes time and money to put in place.

Ok ... at the end of this ... (and is what "Oil Futures" actually are! - Betting on the future oil comodities price) - I'll bet that the value of oil by mid-2007 will remain around $60-$70 DEPENDING on war in Korea, Iran or problems with Venezuela adding another potential variable into this?

Paul Dietz

This presentation puts the cost of Wyoming CTL diesel considerably below the $55/bbl point, even assuming a healthy return on investment.

mcr

I'm quoting a figure ($55) for this given by the American Chemical Society.


Chem. Rev., 106 (9), 4044 -4098, 2006. 10.1021/cr068360d S0009-2665(06)08360-9
Web Release Date: June 27, 2006

Copyright © 2006 American Chemical Society
Synthesis of Transportation Fuels from Biomass: Chemistry, Catalysts, and Engineering

George W. Huber, Sara Iborra, and Avelino Corma*
Received February 3, 2006

"The current cost of delivered biomass is significantly cheaper than crude oil in many nations. However, the cost of biomass varies according to type and region. According to EUBIA, the cost of biomass per boe in the European Union (EU) ranges from $11 for solid industrial residues to $39 for energy crops such as rapeseed.10 In the U.S. it has been estimated that the cost of lignocellulosic biomass is $5 to 15/boe,2,13 which is significantly below the current cost of crude oil of $56/bbl (average cost in 2005).14 The U.S. Energy Information Association has predicted that the world oil price will continue to rise through 2006, then decline to $47/bbl as new suppliers enter the market, and slowly rise to around $54/bbl in 2025.9 Furthermore, the price difference between biomass and petroleum will be even greater if negative geostrategical considerations are added into the cost of crude oil."

... "The laws of economics dictate that as petroleum reserves dwindle, the price of petroleum products will increase, and biofuels eventually will be cost-competitive and even cheaper than petroleum-derived fuels."


**Note - I don't agree with the "$47/bbl" decline in late-2006 ... statement from The U.S. Energy Information Association ... AS PREVIOUSLY DISCUSSED.

It'll stay above $55/bbl world price I predict by the end of 2006 and well into 2007.

Mark C R (Chemist), UK

Paul Dietz

Ah, there's the problem. You're looking at biomass. The report I was quoting involved Powder River Basin coal at the mine mouth, which is much cheaper.

mcr

Yeah but that also depends on the implementations of "carbon taxes and credits"...

(The point that coal isn't renewable can't be escaped from).

California's wording on this has been very strong recently (leading the word in certain respects in its rhetoric).

The EU has some interesting (if not inspiring policies on this).

I feel so called "clean coal technologies" are still immature though.

Its been interesting debating this with you Paul


Mark, in UK

mcr

What I also forgot to say at the start also - is that Chinese and Indian thirst for oil will further increase ...

Above that predicted - by the Forbes.com analysis... The demand will inevitably meet any slack in supply .... (due to newer suppliers coming online).

This is why the value will stay around $60 next year ... or will be yet another contributing factor

Paul Dietz

Yeah but that also depends on the implementations of "carbon taxes and credits"...

Your argument depends on carbon taxes being applied everywhere. If they are not applied to major coal-producing areas, those areas can do CTL at a cost point lower than you posited. This will depress global demand for oil if oil remains expensive.

The US, Australia, and China all have lots of coal. But perhaps everyone in these countries will leave hundreds of billions of dollars of potential profits on the table and do nothing as oil remains expensive.

Jim Bean

>What I also forgot to say at the start also - is that Chinese and Indian thirst for oil will further increase ...

Might as well be the truth, there is no research to support enhancing their energy. Energy enhancing research

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