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Japan Oil Use Likely to Remain High through Summer

Japan – a resource constrained, island economy that has long been challenged by its lack of natural resources.  Japan is a major importer of food supplies, basic commodities, and especially energy resources including coal, oil and liquefied natural gas (LNG).

Following the Fukushima crisis, which essentially eliminated Japan’s nuclear power production abilities, Japan’s use of oil has dramatically increased.  According to data from J.P. Morgan Global Commodity Research, February saw Japan’s oil use (for power generation) spike by 520 kbd yoy; an amount roughly the equivalent to China’s projected 2012 oil demand growth (500 kbd).

Looking ahead to the summer months, Japan is making a concerted effort to prevent power shortages and blackouts.  Will oil consumption rise as a result? Many analysts agree that oil use in power is the single largest demand-side uncertainty during the summer peak demand period of July and August.

Even though selected nuclear reactors are scheduled to go back into operation come summer, it is unlikely that the additional power generation will make a dent in Japan’s summertime oil consumption levels.  It is estimated that only 6 of Japan’s 54 closed reactors will be opened by the summer.  Japanese utilities could still burn up to 800kbd of oil for power generation during July and August, despite the inclusion of these reactors.

Furthermore, the Fukushima crisis has altered the way Japan structures its power production, particularly as related to oil.  Prior to the accident, oil supplies were largely allocated for peak demand periods, when power plants had to ramp up to satisfy the highest levels of consumer electricity use.  Now, oil is often utilized for peak and mid-range use, resulting in a larger, more consistent demand profile.

Oil’s involvement in this earlier process stage has kept demand levels up.  Summer heat will result in heavy demand for air-conditioning, thus amplifying the daily demand peaks.  Oil will be relied upon to meet demand and avoid power outages.

Many uncertainties remain.  Weather patterns (such as major heat waves) could complicate matters or ease the burden.  Implementation (or lack thereof) of power conservation measures may also have an impact on usage.

As part of our macro investment strategy, we keep a close eye on energy resource consumption patterns around the globe and take note of changing trends.  Learn more about our sector focus by clicking here.

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Data Suggests Global Economy “More Vulnerable than Ever” to Price of Oil

Rising oil prices have had significant negative impact on the global economy, according to new economic research.  As oil prices approach historical highs, the global economy may suffer from another “price shock,” warns Dr. Minqi Li, associate professor of economics at the University of Utah.

Dr. Li’s regression analyses of world economic growth rate versus change in world oil consumption suggest that the global economy has not, in fact, become less dependent on oil in recent years, contrary to much previous research.

Furthermore, Dr. Li’s models show that world oil supply has become much less responsive to oil price increases.  As seen in the graph above, from January 1994 to May 2004, an oil price increase of $0.97 on average brought about an additional influx of one million barrels of oil to the world’s daily supply.  From June 2004 to November 2011, however, it took an increase of $11.80 dollars to bring about the same increase in daily oil supply.  The observed “world oil supply curve” has dramatically steepened by nearly 12 times.  This may have serious ramifications for future global economic growth.

“If world oil production does peak and start to decline in the near future, it may impose a serious and possibly an insurmountable speed limit on the pace of global economic expansion,” says Dr. Li.

To ensure sustained global economic progress despite the challenges of rising oil prices, we must seek out opportunities in the “Bridge Period” as emerging energy technologies become more cost effective, and traditional energy production becomes cleaner and more energy efficient.

Learn more about Investing in the “Bridge Period” by clicking here

 
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Posted by on March 27, 2012 in Commodities, Oil

 

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State of the Union Address – Renewed Focus on Energy

Investing in clean energy, expanding energy efficiency programs and harnessing America’s vast natural gas resources received considerable emphasis in President Obama’s State of the Union Address.  Below are key excerpts from his speech:

Natural Gas

“…nowhere is the promise of innovation greater than in American-made energy. Over the last three years, we’ve opened millions of new acres for oil and gas exploration, and tonight, I’m directing my administration to open more than 75 percent of our potential offshore oil and gas resources.”

“This country needs an all-out, all-of-the-above strategy that develops every available source of American energy. A strategy that’s cleaner, cheaper, and full of new jobs. We have a supply of natural gas that can last America nearly 100 years.”

“The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don’t have to choose between our environment and our economy.”

Clean Energy

“Our partnership with the private sector has already positioned America to be the world’s leading manufacturer of high-tech batteries. Because of federal investments, renewable energy use has nearly doubled, and thousands of Americans have jobs because of it.”

“I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here. We’ve subsidized oil companies for a century. That’s long enough”

“The Department of Defense…the world’s largest consumer of energy, will make one of the largest commitments to clean energy in history -– with the Navy purchasing enough capacity to power a quarter of a million homes a year.”

Energy Efficiency

“The easiest way to save money is to waste less energy. So here’s a proposal: Help manufacturers eliminate energy waste in their factories and give businesses incentives to upgrade their buildings. Their energy bills will be $100 billion lower over the next decade, and America will have less pollution, more manufacturing, more jobs for construction workers who need them.”

Read the full transcript of the speech here

 

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Canadian Oil Sands Output May Triple by 2035

Did you know that the largest source of oil imports to the United States comes not from Saudi Arabia, Venezuela or Russia, but from Canadian oil sands?

Following Saudi Arabia and Venezuela, the oil sands of northern Alberta, Canada are the world’s third largest crude reserves.  Over the next 25 years, Canada’s national energy regulator forecasts production from these oil sands will triple.

Currently, oil sands production contributes 1.5 million barrels out of Canada’s 2 million barrels per day (mbpd) total oil exports.  By 2035, Canada’s exports are predicted to rise to 5mbpd, with the majority of the increase coming from oil sands output.  Oil shale reserves such as the Bakken region in Saskatchewan will boost total output as well.

Major energy companies such as Suncor Energy, Royal Dutch Shell and Canadian Natural Resources have already embarked on mining projects in the oil sands region. Although the projects are capital intensive, the region’s promise is likely to draw much more private investment.

This positive outlook for Canadian oil sands comes despite the United State’s recent decision to delay approval for TransCanada Corporation’s Keystone XL pipeline, which would pump oil produced in the Alberta region to refineries in Texas.  Concerns over possible environmental and water contamination, particularly related to the crucial Ogallala Aquifer, have prompted the administration to push back the decision by as much as 18 months.

Read the full article here…

 
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Posted by on November 29, 2011 in Commodities, Oil, Policy

 

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U.S. Renewable Energy Production Now Greater than Nuclear: EIA

The production of renewable energy in the United States has now surpassed nuclear , reports the Energy Information Administration (EIA) in its latest Monthly Energy Review.

During Q1 2011, renewable energy sources such as solar, wind, hydropower and biomass/biofuels contributed 11.73% of total U.S. energy production.  Notably, this production level was 5.65% higher than the contribution of nuclear energy.

U.S. production of renewable energy across the electricity, transport and thermal sectors has risen consistently over the past few years.  Q1 2011 figures, for example, are 15% higher than Q1 2010, and 25% higher than they were in Q1 2009.

The EIA report notes significant increases in actual electricity production from clean energy technologies.  Since Q1 2010, solar-generated electricity has dramatically increased by 104%, wind-generated electricity by 40%, hydropower by 29% and geothermal by nearly 6%.

The total contribution of renewables is  still 77% that of domestic crude oil resources.  However, based on current growth trends, the EIA expects renewable energy will continue gaining ground and increasing its role in the U.S. energy dynamic.

Read more here…

 

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Defying OPEC Veto, Saudi Arabia will Raise Oil Production Unilaterally

The Organization of Petroleum Exporting Countries (OPEC) met earlier this month and for the first time in two decades, failed to reach an agreement on oil production targets.  The June meeting in Vienna collapsed in disarray, with long-time Saudi Oil Minister Ali Al-Naimi calling it “one of the worst meetings we’ve ever had.”

OPEC member nations, led by Iran, which this year holds the revolving presidency post, vetoed Saudi Arabia’s proposal to raise oil output levels.  In a move of defiance, Saudi Arabia announced it will unilaterally raise its production rates to 10 million barrels a day in July, up from 9.3 million barrels.

Saudi Arabia’s move comes at a time when the world market is under strain.  The fighting in Libya has eliminated 1.3 million barrels from the world market, and turmoil in Yemen and Syria has removed another 300,000.  The fragile global economy may suffer if left to deal with sustained high oil prices, and Saudi Arabia has been under international pressure to take action to stem the rising tide.

However,  Saudi Arabia’s “cushion” of 2.5 to 3 million barrels a day of spare capacity might wear thin if unrest continues across the Middle East/North Africa region.  In short, despite Saudi action, many analysts say high oil prices are likely here to stay.

Read more here…

 
 

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Rising Domestic Oil Consumption Poses New Challenges to Middle East

In Saudi Arabia, a liter of petroleum is cheaper than a liter of bottled water.

Generous government subsidies have kept energy and water prices in Saudi Arabia artificially low, which has lead to runaway consumption for entertainment, cooling and water desalination processes.

The Saudi government spends $20 billion a year to keep prices of drinking water low, and nearly $13 billion to subsidize the price of electricity.

However, domestic oil consumption is creeping upwards in Saudi Arabia, as well as other nations in the Middle East which have similar subsidy programs, leaving many to wonder about the future sustainability of such policy arrangements.

Hashim Yamani, president of the King Abdullah Atomic and Renewable Energy City, predicts Saudi Arabia will soon use most of the 8.8 million barrels of oil it produces daily for its own domestic needs, leaving less oil for export.  Currently, Saudi Arabia uses 3.2mbpd domestically, but based on current trends, that number could rise to 8mbpd by 2028, roughly equal to current oil production.

“They need to be watching for future trends, they are using a huge amount of oil at home,” according to a Riyadh-based analyst.  “They are aware of the problem and are trying to accelerate plans for nuclear and solar energy.”

 

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