FROM GAS STATION TO CHARGING STATION

Coming soon to a station near you.

More plug-in stations coming soon

State Grid Corp of China (SGCC), China’s biggest electricity distributor, plans to construct 75 electric car recharging stations across 27 cities this year, as part of its plan to support fuel-efficient transportation, a company executive said yesterday.

The plan includes the construction of 6,209 recharging towers, according to the executive who requested anonymity.

"The plan, which is a pilot project, is part of our strategy to build a smart grid," he added, without elaborating.

A smart grid delivers electricity from suppliers to consumers using two-way digital technology to save energy, reduce costs, increase reliability and transparency.

SGCC, which manages power transmission and distribution in 26 provinces, autonomous regions and municipalities, completed its first electric car charging station in November. The station, covering 400 sq m, cost 5.08 million yuan, the company said on its website.

"It is certainly good news for us," said Wang Bin, president of Beijing Lithium Energy Investment Co, an electric-car producer. "The improvement in infrastructure will certainly boost the development of the whole industry."

Cars made by Beijing Lithium have already been put into use in the public transportation system in Tangshan, Hebei province, he said. The company has also worked with the local government to build several pilot recharging stations, he added.

The main challenge for industry planners is selecting a standard. "In my opinion we need to develop a national standard for recharging vehicles."

Thomas Weber, a board member with German carmaker Daimler and responsible for Mercedes-Benz car development, said the company would enter China’s electric car market as soon as charging stations become available.

"We have advanced technologies and reliable products in the electric car segment. Once China has settled the charging issue we will consider introducing our electric cars to the China market," he said. He also told China Daily that Daimler is seeking to cooperate with domestic industry players in the development of electric car parts.

Over the next decade, between 5 and 10 percent of the German carmaker’s new offerings will be alternative-energy vehicles.

Full China Daily article

 

CHINA’S DEPENDENCE ON OIL IMPORTS KEEPS GROWING

Dependence on oil imports is a growing problem in China. Its oil consumption will continue to rise very rapidly but domestic production has peaked. By comparison, the US currently imports 58% of its oil needs but this is expected to decline to 40% by 2030 according to the EIA.

China’s oil imports will continue to see solid growth this year, with more than half of the country’s total oil consumption coming from abroad, industry insiders said.(…)

China depending more on imported oilThe country’s oil imports in 2010 are expected to grow five percent from a year earlier, and the proportion of imported oil consumed may further rise to 54 percent this year, said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.(…)

According to a report by the Chinese Academy of Social Sciences (CASS), 64.5 percent of China’s oil consumption is likely to be met by imports in 2020, with the gap between domestic consumption and production as the main reason.

Statistics from CASS showed that China’s oil production is expected to stand at 177 to 198 million tons in 2010, and the figure would reach 182 to 200 million tons in 2015.

Full China Daily article

 

Tanker Glut Signals 25% Drop on 26-Mile Line of Ships

A 26-mile-long line of idled oil tankers, enough to blockade the English Channel, may signal a 25 percent slump in freight rates next year.

The ships will unload 26 percent of the crude and oil products they are storing in six months, adding to vessel supply and pushing rates for supertankers down to an average of $30,000 a day next year, compared with $40,212 now, according to the median estimate in a Bloomberg News survey of 15 analysts, traders and shipbrokers. That’s below what Frontline Ltd., the biggest operator of the ships, says it needs to break even.

Traders booked a record number of ships for storage this year, seeking to profit from longer-dated energy futures trading at a premium to contracts for immediate delivery, according to SSY Consultancy & Research Ltd., a unit of the world’s second- largest shipbroker. Ships taken out of that trade would return to compete for cargoes just as deliveries from shipyards’ largest-ever order book swell the global fleet.(…)

By the end of November, 168 tankers were storing crude or refined products, according to data from Simpson, Spence & Young Ltd., the world’s second-largest shipbroker. Their combined carrying capacity of 23.8 million deadweight tons is equal to 5.9 percent of the tanker fleet. That exceeds the previous record, set in 1981, when Japanese refiners used tankers with a combined 19.5 million deadweight tons.

The storage helped prop up tanker rates this year as the Organization of Petroleum Exporting Countries, accounting for 40 percent of global oil supply, made the deepest-ever output cuts in response to the worst global recession since World War II.

The storage trade is profitable so long as the spread between energy contracts exceeds ship rental, insurance and financing costs. A year ago, the spread between the first and sixth Brent crude-oil contracts traded on the London-based ICE Futures Europe exchange was 23 percent. Now, it’s 4 percent.

Daily returns from leasing supertankers on the industry’s benchmark route from Saudi Arabia to Japan advanced to $40,212 on Dec. 24, compared with $1,246 on Sept. 11, data from the London-based Baltic Exchange show.

“If tanker rates go up, everybody will get rid of ships,” said Andreas Vergottis, Hong Kong-based research director at Tufton Oceanic Ltd., which manages the world’s largest shipping hedge fund. “It’s going to be a market that’s worse than 2009.”

Vergottis expects the global tanker fleet to expand about 12 percent next year, of which 5 percentage points will come from ships returning from storage. That compares with the Paris- based International Energy Agency’s forecast for a 1.6 percent gain in global oil demand.

Crude-oil storage will slump to 40 million barrels in six months and 19 million barrels in a year, from about 50 million barrels now, according to the Bloomberg News survey. Oil-product storage will shrink to 69 million barrels in six months and 29 million in a year, from 98 million now, the survey showed.(…)

Ships unloading their cargoes will rejoin a fleet set to expand 3.5 percent next year, according to London-based Drewry Shipping Consultants Ltd. The order book for tankers stands at 121 million deadweight tons, or 32 percent of the existing fleet, it estimates. Deadweight tons are a measure of a ship’s capacity for carrying cargo, fuel and supplies.(…)

The 2010 average tanker rate of $30,000 in the Bloomberg survey would still be 30 percent higher than this year’s average of $23,130, according to data from the Baltic Exchange. In May, July, August and September, charter rates fell so low that ship owners were contributing toward fuel as well as paying the crew, insurance, repairs and other running costs.(…)

Full Bloomberg article

 

OIL INVENTORIES WORKING THEIR WAY BACK TO AVERAGE LEVELS

While they are likely to remain above their long-term average for the rest of the year, oil inventories have been dropping like a stone in recent weeks.  This week, stockpiles fell 4.8 million barrels, marking the third straight week where inventories declined by more than 3.5 million barrels.  While inventories were running more than 20 million barrels above normal at the start of the quarter, current levels are now less than 6 million barrels above average.

Crude Oil Inventories 122309

Bespoke Investment

Here is what Raymond James & Associates had to say on the DOE release:


DOE Petroleum Inventories Update

This was a very bullish petroleum inventories update driven by larger than expected draws in crude and distillate inventories and an unexpected draw in gasoline. This was partly offset by an unexpected build in residual fuel. Overall, total petroleum inventories fell by 8.2 MMBbls, which compares to the consensus forecast of a draw of 2.6 MMBbls.

Looks like Christmas came early for oil bulls, as the biggest draw since August hit inventories this week, and crude, gasoline, and distillates were all considerably more bullish than the Street was expecting. All-in, this week’s 8.7 MMBbls draw continued the trend from last week’s 5.5 MMBbls draw. Falling imports were one contributor, as they declined (to 10.1 MMBbls) for the fourth straight week. Notably, while overall crude inventories continue to moderate, Cushing inventories continue to build, up 0.6 MMBbls this week and remaining near all-time highs. The refinery utilization rate was stable this week, up just 0.1% to 80.0%.

Looking at demand, gasoline demand rose 0.9% week/week while total petroleum demand fell 1.0%. On a four week moving average basis, gasoline demand is now down 0.1% y/y, while total petroleum demand is down 4.4%. Finally, netting the supply and demand changes, days of supply was flat week/week at 38.3 days, now 3.8 above this time last year.

After more than a year of weakness in oil demand in the U.S. and other developed economies, signs point to demand stabilization. In addition, emerging markets provide more visible growth in demand. That said, the predominant driver behind the recent day-to-day volatility in oil prices has been related to global economic developments, including fluctuations in the U.S. dollar. On the supply side, OPEC’s production discipline has been well above historical averages though is slipping somewhat as oil prices rebound. With producers worldwide having cut back on investments in more marginal projects, non-OPEC supply – already flat to down – is set to fall even faster. This should be seen against the backdrop of limited excess production capacity in OPEC countries. The risk of a limited buffer of excess capacity is further heightened by the risk of potential geopolitical supply disruptions. And as the global economy recovers over time, ultimately boosting demand, we project higher highs and higher lows for oil prices over the long run, though of course with continued volatility. Our current 2010 forecast is $80/Bbl.

 

CANUCK OIL

Finally, we’ve taken two graphs that we found inordinately interesting from the IEA website of the imports of crude oil from Canada and from Saudi Arabia into the US. They tell a very, very clear story of steadily increased “dependence” by the US upon Canada for its crude oil needs and the very rapid non dependence on the part of the US upon Saudi Arabian crude oil.

image Simply put since 1993 when the US was “taking” something close to 25,000,000 barrels of crude a month from Canada the trend has been steadily and almost perfectly upward from the lower left to the upper
right on the chart, to the point in recent month where the US has been importing something closer to 60,000,000 barrels of crude each month from Canada.

image The story on the part of the Saudis is decidedly different. Back in ’93, the US was taking on the order of 40,000,000 barrels of crude from Saudi Arabia each month. That grew… much more quietly that had the US
“dependence” upon Canada for the imports of crude, but nonetheless steadily… to the point in ’08 where we were taking approximately 45,000,000 bpm from the Saudis.

Then the chart changed materially, for in the last several months our imports from the Saudis have fallen from the proverbial cliff, to the point where we are now taking an average of “only” 29,600,000 barrels of oil per month from them. Why this sharp and very evident decline in the imports from Saudi Arabia has happened is open to debate, and we are open to possible explanation from our friends in the oil business; however, the trends are clear as the US becomes very steadily more and more “dependent” upon Canada and less and less dependent upon the
Saudi Arabians for its lifeline of crude oil.

Dennis Gartman

 

Risks, Hedges and Opportunities

Divided opinions in the global oil complex between commercial and financial participants have kept crude prices, for most part, in a range of $60 to $80 a barrel since June of 2009. Light sweet oil futures were down $6.14 during the past week or about 8.0% to close at $69.59 a barrel. The New York contract has fallen all month under pressure from a sudden strengthening of the US dollar as better-than-expected economic reports in the US stirred concerns that the Fed may raise interest rates sooner than expected and as worries mounted over foreign sovereign debt.

While the dollar has a lot to do with this change in sentiment, there is a narrative that supports lower crude oil prices in the short term.

1) OPEC compliance with its latest 4.0 million b/d quota cuts has been spotty among Angola, Iran, and Venezuela. Nigeria has completely ignored all quotas.

2) The global economic recession has created huge amounts of unused oil surpluses and of spare capacity around the world. A good indication of this situation is that one in twelve of the world largest oil tankers, 129 ships, are being used to store oil. Gibson shipbrokers reported last week that more ships are being used as floating storage unit than at any time in the last ten years. A LRI oil tanker holds around 690,000 barrels of oil products.

3) Geopolitical scares are not packing as much punch as before for they are better contained than they were several ago because inventories and spare capacity are high.

4) Saudi Arabia has developed the ability to ramp up output by more than 6.5 million barrels a day. Meanwhile, Iraq is opening up its biggest and largely undeveloped oil and gas fields, that are technically easy and cheap to exploit, to the large multi-national oil producers. A situation that may become problematic to OPEC as it will face a major conundrum in the future. Geologists believe that in less than ten years, Iraq will be able to boost its current oil production of little more than 2 million to possibly 10 million b/d. That would represent more than 10% of today’s global oil production and, in turn, catapult Iraq into the same league as Russia and Saudi Arabia.

5) Mexico has taken out a $ 1 billion "guarantee insurance policy" on all of its 2010 net oil export of 230 million barrels that will earn a minimum of $57.00 a barrel. It does suggest a pessimistic outlook for both oil price and demand in 2010.

Consequently, there is a likelihood that crude oil prices may trade at the lower end of its recent trading range below its equilibrium price of $70 a barrel for a while. However, it is not very likely that oil prices would trade much lower than the marginal cost of $60.00 a barrel. Saudi Arabia is of the opinion that oil prices at $70.00 a barrel is relatively in sync with global supply and demand fundamentals. The following points should be kept in mind:

1) While petroleum demand remains week and tepid in the US, consumption is rapidly increasing in Asia’ emerging markets. The US has 465 passenger cars for every 1000 people compared to just 15 in China.

2) The one and two year futures are pricing crude oil at $79.63 and $83.19 a barrel respectively suggesting that as the recovery takes hold next year, the spot price could exceed its marginal cost rather than fall short of it. Due to accelerating economic activity in China and firm signals that OECD economies are clearly on the mend, the IEA, the Paris-based oil agency, expects consumers to burn on average 86.3 million barrel a day in 2010 representing a growth of 1.5 million barrels a day from the low of 2008.

3) Contrary to popular belief, there is not excessive speculation on the Nymex oil futures market. Based on traditional metrics, the balance of outright speculators does not appear excessive to commercial hedging needs (US Commodity Futures Trading Commission).

4) The Mexican oil deal is more of an hedge against very bad luck. Mexico relies heavily on oil for it makes up to 40% of government revenues. The Mexican 2010 fiscal budget is based on a price of oil of $59.00 a barrel. Mexico bought protection more than calling a market for it does not want to destroy its current credit standing at a time when it has a sovereign risk and the economy has hit the skids.

5) Combined global oil and fuel inventories are presently and clearly in near-record glut position. However, stockpiles have recently dropped. They are still covering 59.4 days of demand. But, it is somewhat less than it was a few months ago. Next year, after the global economy really starts to roll-out in the early 2010, a lot of the existing reserves will burn off.

6) The concept of "peak oil" is still out there. It’s not that we are running out of oil for there are huge reserves out there, but easy to access and refined oil is declining very fast. That is why very long term futures contracts are pricing crude oil near $100 a barrel.

Hubert Marleau, Chief Investment Officer, Palos Management Inc.

Related post: Iraq Is Wild Card in World Oil Supply

 

Iraq Is Wild Card in World Oil Supply

(…) The BRIC nations accounted for 61% of demand growth over the past decade, according to the International Energy Agency.

As important, however, was a squeeze on supply. The Energy Policy Research Foundation has estimated disruption caused by factors like war and resource nationalism lowered potential global output by between 2.5 million and 4.5 million barrels per day in the second half of this decade. That is a lot when you consider OPEC’s buffer of spare capacity fell below two million barrels per day by mid-2008, when oil prices peaked.(…)

Meanwhile, in a nod to the BRIC countries that helped define the last decade, consultants PFC Energy has coined its own acronym for the next: BRINK, or Brazil, Russia, Iraq, Nigeria and Kazakhstan.

Brazil has hosted a string of big discoveries, while Russia has defied expectations by overtaking Saudi Arabia’s output. Kazakhstan is expanding three major projects, while a tentative peace is allowing Nigeria to start raising output.

The wild card is Iraq, where more licenses for foreign oil companies were awarded Friday. Contract terms encourage firms to maximize output quickly. Winners to date aim to boost output from five fields 12-fold to 8.5 million barrels per day.(…)

But even if production increased by a more conservative 1.5 million barrels per day by 2015, it could pressure oil prices through unsettling the organization Iraq helped found 39 years ago: the Organization of Petroleum Exporting Countries.

OPEC projects the world will require an extra 3.2 million barrels per day from OPEC by 2015 to meet demand. Leaving aside the fact that effective spare capacity is already 5.4 million barrels per day, Iraq’s increased production would take up more than half of the extra amount required.

[OILHERD]

OPEC will have to reintegrate Iraq into its quota system eventually. Other members, which have benefited from Iraq’s weakened output for years, will be expected to limit their own to make way.

The cartel is struggling to maintain discipline as it is. Compliance with quotas hit 58% in November, down from 83% in March, the IEA says. Many members have large development needs. (…)

Full WSJ article

Related post: Risks, Hedges and Opportunities

 

GLOBAL ECONOMIC MOMENTUM CONTINUES

The International Energy Agency (IEA) upgraded its oil demand forecast for next year to 86.3 millions of barrels per day, i.e. near its prerecession
peak level. The improved outlook stems mostly from higher demand estimates from emerging economies led by India and China.

Although economic momentum remains strong in that region of the world, it is worth noting that the main industrialized countries show promising signs. Just-released data by the OECD revealed that the leading indicator for the advanced economies posted another strong increase for the 8th consecutive month in October. The six-month rate of change in the index (our preferred gauge of future momentum) is now rising at its fastest pace since 1975.

As today’s Hot Chart shows, our global index (which combines OECD and the BRIC economies) remains consistent with a sharp rebound in economic activity in 2010. Given the strength of this signal, we remain very comfortable with our call that the global economy will expand at 4% next year.

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