ODAC Newsletter - 13 June 2008
Welcome to the ODAC Newsletter, a weekly roundup from the Oil Depletion Analysis Centre, the UK registered charity dedicated to raising awareness of peak oil.
In an interview with Reuters last week Shokri Ghanem, Head of Libya’s National Oil Corporation declared that “peak oil is looming”, but Tony Hayward of BP insisted that the problems of production are above ground rather than geological. No wonder! With BP TNK in the process of being dismantled by its Russian shareholders & the Russian state, and a market where much of the big oil is controlled by national governments, his immediate problems really are above ground. Meanwhile the assertion by ‘a former industry insider’ that global reserves are twice as big as stated is dismantled in our Guest Commentary this week from Richard Miller, Independent Consultant, and former geochemist for the BP Exploration Department.
Last week saw continued high oil prices. On Friday the price of a barrel surged $11 in one day, (that is more than the price of an entire barrel a decade ago). Some of the factors driving the price were: the jump in US joblessness figures; Israel’s warning to Iran over its nuclear policy; BP’s 2008 Statistical Review of World Energy titled 'Energy consumption rises as supplies lag, but free energy markets do work', reporting that global oil output fell 0.2% in 2007; and the IEA’s downward revision of both its oil demand and supply forecasts for 2008 while also stating that the world faces an ‘oil crisis’.
The price pressure, and significantly the rise in the cost of diesel saw political repercussions this week. In Spain and Portugal road hauliers came out on strike, resulting in dry petrol stations, the beginnings of food shortages and cancelled flights. In Buenos Aires a diesel supply shortage resulted in bus services being withdrawn. In the UK meanwhile the government is trying to head off possible industrial action by Shell tanker drivers which threatens disruption here. As John Hutton, Britain’s secretary of state for business and enterprise, and the G8 leaders appear devoid of new ideas - either hoping for help to come from the market or increased supply from OPEC rather than any real action to reduce consumption - further protest is likely from those who find their spending power increasingly eroded.
In the face of a predicted oil demand crunch and soaring fuel costs it is however heartening to see that Richard Branson is rolling out his plans for Virgin Galactic. You have to wonder how many coconuts will be needed to fuel this project!
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Global oil production fell for the first time in five years in 2007 and reserves also declined as prices rose to records, BP Plc said in its annual Statistical Review of World Energy.
Crude oil production dropped 0.2 percent to 81.533 million barrels a day last year, from 81.659 million barrels a day in 2006, the London-based company said today. Proved reserves were 1,237.9 billion barrels at the end of last year, compared with a revised total of 1,239.5 billion barrels for 2006.
Crude oil prices have doubled in the last year as demand from China and India jumped and global production stagnated. That's fanning inflation and slowing global economic growth as manufacturers pass on higher costs and consumers are forced to spend more on fuel.
"The defining feature of global energy markets remains high and volatile prices, reflecting a tight balance of supply and demand," Chief Executive Officer Tony Hayward, said in a statement given to reporters today. "These have put issues such as energy security and alternative energies at the forefront of the political agenda worldwide."
Oil reached a record $139.12 on June 6 in New York and prices have been rising for more than six years, the longest period on record, according to BP data, which goes back to 1861.
Flagging supply from regions including the North Sea and Mexico has lent support to the theory that world oil output has "peaked," a view held by analysts including Matthew Simmons, chairman of investment bank Simmons & Co. International and investor Boone Pickens of Dallas-based BP Capital LLC. Others, including BP's Hayward, have said production will keep rising.
Global oil consumption rose 1.1 percent to 85.22 million barrels a day last year, BP's review said. In China, the world's second-largest consumer, demand rose 4.1 percent to 7.855 million barrels a day. U.S. consumption fell 0.1 percent to 20.698 million barrels a day.
The 3.69 million barrel-a-day difference between BP estimates for production and consumption is accounted for by global stockpile changes, use of non-petroleum additives and substitute fuels, the company said.
Natural gas production gained 2.4 percent to 2,940 billion cubic meters last year. Growth was led by the U.S., where output jumped 4.3 percent to 545.9 billion cubic meters.
The global trade in liquefied natural gas increased 7.3 percent last year, according to BP, Europe's second-largest oil company. Total LNG imports increased to 226 billion cubic meters in 2007 from 211 billion cubic meters in 2006.
LONDON (Reuters) - World oil demand will rise at its slowest pace in six years during 2008 as a raft of fuel subsidy cuts in Asia erodes consumption, the International Energy Agency said on Tuesday.
But the adviser to 27 industrialized economies also sharply lowered its projection for supply outside the Organization of the Petroleum Exporting Countries, increasing consumers' reliance on the exporter group.
In its monthly Oil Market Report, the IEA said global oil demand will rise by 800,000 barrels per day (bpd) this year, 230,000 bpd less than its previous forecast.
The head of the IEA's oil industry and markets division, Lawrence Eagles, told Reuters this year's demand growth will be the slowest since 2002, when consumption grew by 735,000 bpd and crude averaged just over $26 a barrel.
"It's two things. The easing of subsidies is one of the main factors and historical growth in Asia is stronger than we previously estimated," Eagles said.
The report adds to evidence that high oil prices, which hit a record $139.12 on Friday, are slowing oil use. The IEA has more than halved its estimate for demand growth this year from 2.2 million bpd in July 2007.
Rising prices have forced several Asian economies to trim subsidies on domestic fuel in recent weeks.
India, Indonesia, Malaysia, Sri Lanka and Taiwan have all revised their administered prices of fuel, which the IEA said would tame oil demand growth in the region slightly.
Analysts said concern about supply growth overshadowed the cut in demand and oil pared an earlier loss after the report.
U.S. crude was up 40 cents at $134.75 a barrel by 6:22 a.m. EDT.
"I think the report is more on the bullish side," said Merrill Lynch's head of global commodity research, Francisco Blanch.
The IEA cut its forecast for non-OPEC supply growth to 460,000 bpd, against 680,000 bpd in its previous report. As a result, it raised its expected demand for OPEC oil for the year by 300,000 bpd to 31.6 million bpd.
The IEA said oil stocks in OECD countries fell 8.1 million barrels in April, in contrast to a typical build at that time of year, and voiced concern about lean inventories.
"Although the numbers look relatively balanced, we're now into the last month of the second quarter when typically you see a crude stockbuild and there is still no sign of a significant increase," Eagles said. "That is a concern."
The IEA report said high oil prices were forcing airlines to cut flights and consumers to drive less and buy more efficient vehicles.
"The lull in oil demand growth, however, may only be temporary as strong economic growth remains the key driving force," the IEA said.
It added that prospects of a substantial cut in subsidies in China and the Middle East were remote.
The world faces an "oil crisis," and the International Energy Agency stands ready to release emergency stockpiles even as the biggest consumers discuss measures to contain spiraling demand, the agency's chief said.
"Any major oil-plant accident can cause a supply disruption," Executive Director Nobuo Tanaka said in an interview in Tokyo. "We at the IEA are monitoring the oil market and preparing ourselves to call for the release of strategic petroleum reserves at any time in the event of a major disruption."
Consumption in China and India, the world's fastest-growing major economies, has helped drive crude oil prices to "abnormally high" levels above $130 a barrel, Tanaka said. The U.S., Japan, and 25 other rich countries advised by the IEA have discussed stop-gap measures to reduce consumption, including lowering speed limits and restricting cars in cities, he said.
"We can call it an `oil crisis' given the current price, and that it continues to climb even after global efforts to cut consumption," Tanaka said. "We see a critical, structural issue in the global oil market, where supply growth isn't catching up with demand."
Unlike the oil crisis in the 1970s, which was driven by supply restraints from the Middle East, the current situation is fueled by soaring demand, the IEA chief said. Speculative investment in commodities is also a driving force behind record prices, he said.
Crude oil futures have doubled in the past 12 months, and investors looking to hedge against the dollar's drop helped push oil, gold, corn and gasoline to records this year. Oil for July delivery was at $132.62 a barrel, up $1.31, at 2:56 p.m. Singapore time in electronic trading on the New York Mercantile Exchange.
The U.S. Commodity Futures Trading Commission set up an interagency task force to evaluate developments in commodity markets, including the role of speculators, the commission said yesterday. The CFTC held talks with the U.K. Financial Services Authority about the possibility of introducing limits on the positions traders can take in London's oil markets, the Financial Times reported today.
"I want the CFTC to set new rules and regulations that will help increase the transparency of the oil market," Tanaka said. "It's necessary to some extent to find out who invests what kind of money in which markets."
Tanaka will take part in the Group of Eight industrialized nations' finance ministers meeting this weekend in Osaka, Japan.
IEA member-states are required to hold oil stockpiles equivalent to no fewer than 90 days of the prior year's net imports. The agency calls on countries to release emergency reserves of oil if supply is threatened.
In September 2005, all IEA member-countries, in cooperation with the E.U., agreed to offer a total of 60 million barrels of oil and oil products to the market within 30 days as a response to disruptions caused by Hurricane Katrina, which hit the U.S. Gulf.
U.S. Congress introduced a national speed limit of 55 miles (88 kilometers) an hour, in effect from 1974 to 1984, to conserve fuel in the face of the 1973 oil crisis.
There is more than twice as much oil in the ground as major producers say, according to a former industry adviser who claims there is widespread misunderstanding of the way proven reserves are calculated.
Although it is widely assumed that the world has reached a point where oil production has peaked and proven reserves have sunk to roughly half of original amounts, this idea is based on flawed thinking, said Richard Pike, a former oil industry man who is now chief executive of the Royal Society of Chemistry.
Current estimates suggest there are 1,200 billion barrels of proven global reserves, but the industry's internal figures suggest this amounts to less than half of what actually exists.
The misconception has helped boost oil prices to an all-time high, sending jitters through the market and prompting calls for oil-producing nations to increase supply to push down costs.
Flying into Japan for a summit two days after prices reached a record $139 a barrel, energy ministers from the G8 countries yesterday discussed an action plan to ease the crisis.
Explaining why the published estimates of proven global reserves are less than half the true amount, Dr Pike said there was anecdotal evidence that big oil producers were glad to go along with under-reporting of proven reserves to help maintain oil's high price. "Part of the oil industry is perfectly familiar with the way oil reserves are underestimated, but the decision makers in both the companies and the countries are not exposed to the reasons why proven oil reserves are bigger than they are said to be," he said.
Dr Pike's assessment does not include unexplored oilfields, those yet to be discovered or those deemed too uneconomic to exploit.
The environmental implications of his analysis, based on more than 30 years inside the industry, will alarm environmentalists who have exploited the concept of peak oil to press the urgency of the need to find greener alternatives.
"The bad news is that by underestimating proven oil reserves we have been lulled into a false sense of security in terms of environmental issues, because it suggests we will have to find alternatives to fossil fuels in a few decades," said Dr Pike. "We should not be surprised if oil dominates well into the twenty-second century. It highlights a major error in energy and environmental planning – we are dramatically underestimating the challenge facing us," he said.
Proven oil reserves are likely to be far larger than reported because of the way the capacity of oilfields is estimated and how those estimates are added to form the proven reserves of a company or a country. Companies add the estimated capacity of oil fields in a simple arithmetic manner to get proven oil reserves. This gives a deliberately conservative total deemed suitable for shareholders who do not want proven reserves hyped, Dr Pike said.
However, mathematically it is more accurate to add the proven oil capacity of individual fields in a probabilistic manner based on the bell-shaped statistical curve used to estimate the proven, probable and possible reserves of each field. This way, the final capacity is typically more than twice that of simple, arithmetic addition, Dr Pike said. "The same also goes for natural gas because these fields are being estimated in much the same way. The world is understating the environmental challenge and appears unprepared for the difficult compromises that will have to be made."
Jeremy Leggett, author of Half Gone, a book on peak oil, is not convinced that Dr Pike is right. "The flow rates from the existing projects are the key. Capacity coming on stream falls fast beyond 2011," Dr Leggett said. "On top of that, if the big old fields begin collapsing, the descent in supply will hit the world very hard."
Richard Pike is an old BP hand, whose maths is sound. The proved reserve is often defined as that low amount which is 90% likely to be recovered, i.e. almost certain, and is called P90. Proved and probable reserve, or P50, is the amount which is 50% likely to be recovered. P10 also includes the possible, and is only 10% likely to be recovered.
Pike’s point is that while you can simply add P50 values arithmetically, to get national or global P50 values, you can’t just add the P90 values together to get aggregate P90 proven reserves. The true aggregate P90 is higher than their arithmetic sum, but less than P50.
P90 means that there is only a 10% chance of recovering less than the proven reserves. But if you consider two fields, how likely is it that both will only yield this low amount? As Pike notes, the probability of throwing a 1 with a die is 17%, but the probability of throwing two 1s with two dice is only 3%. By analogy, the probability of getting only the P90 proven reserves from each of a number of fields quickly shrinks – in aggregate, they will almost certainly exceed this.
Why have we not recognised this effect in the past hundred years of the oil industry? Well, perhaps we have, in one way. The phenomenon of reserves growth might stem in part from this statistical effect. But the following reasons suggest that the effect on global peak oil is marginal.
1. As a field is produced, its reserves become constrained by its behaviour. The difference between P90 and P50 rapidly shrinks, which would reduce the error of adding P90 values.
2. Industry’s estimates of a field’s reserves before it enters production are unfortunately often inaccurate anyway. The bulk rock volume, net-to-gross reservoir, oil saturation, mean porosity and oil recovery factor are all initially poorly constrained, yet each has to be assigned a mathematical probability. The effect of possible problems such as compartmentalisation or lateral variability may be little more than guesswork at first. This can result in very precise estimates of P50 and P90for a field which are, however, quite inaccurate. Put bluntly, you can’t apply rigorous statistics to educated guesswork.
3. 75% of global conventional oil reserves are held in OPEC countries, and they are subject to much greater uncertainties than this. For political reasons, or for lack of any particular need to do so, few OPEC states have made any meaningful re-calculations of reserves since the mid-1980s. The published reserves data may bear no resemblance to either P90 or P50.
4. Models of peak oil would not use P90 values where P50 values are available, simply because P50 is the most probable outcome. As Pike notes, companies use P50 reserves to plan developments and write reports to host governments, and (outside OPEC and certain other states) these numbers then get published in the press and company reports. He’s wrong in suggesting that they are seldom available to public, although you do have to hunt for them.
To use UK data as a guide to this possible effect, BERR reported proven (i.e. P90) UK reserves to be 479 million tonnes, or 700 million tonnes of proven + possible (i.e. P50) in December 2006. The BP Statistical Review reported 532 million tonnes, or somewhere between the two. I see the effect as real but not globally significant for peak oil modelling.
The world is not running out of oil and can continue to produce hydrocarbons for the next 40 years provided restrictions on where companies can operate are lifted, the head of BP said yesterday.
The Arctic and closed areas off the coast of America should be considered for exploration if rising global energy demand is to be met in future, said chief executive Tony Hayward at the launch of his company's annual statistical review of world energy in London.
He insisted that all other forms of energy, whether clean-tech or otherwise, also need to be developed simultaneously, while rising carbon emissions could still be controlled to curb global warming.
"Declining oil production in the OECD highlights the fact that, while resources are not constrained globally, the resources within reach of private investment by companies like BP are limited," said Hayward. "Political factors, barriers to entry and high taxes all play a role here. In other words, when it comes to producing more oil, the problems are above ground, not below it. They are not geological, but political."
Some of the difficulties of access were in nations such as Venezuela, Russia and in the Middle East that have adopted clear policies of resource nationalism where the state has grabbed assets from independent oil companies. However, Hayward also noted that 92% of the US is off limits - for environmental reasons - and he said the Arctic needed opening up.
Production volumes had been falling in Russia due to a tax system that means the vast bulk of the revenues has gone to the Kremlin since the price of oil rose above $30 a barrel.
The BP boss was scornful of subsidies given to oil consumers in some developing countries, saying this distorted markets, but appeared to support the idea of tax breaks to encourage more drilling in the North Sea and to help speed up trials of carbon capture and storage.
The review said that world oil consumption grew by 1.1% in 2007, or 1m barrels a day, slightly below the 10-year average, while production fell by 0.2%, or 130,000 barrels a day, the first decline in five years.
An increasing number of oil industry commentators believe that "peak oil" - the point where production begins to decline - has been reached and is responsible for the huge rise in crude prices this year to record highs of nearly $140 a barrel. But BP said proven oil reserves at 1.24tn barrels were enough to meet current production for 41 years.
Hayward batted aside Opec arguments that the extremely high price of oil could be attributed to financial speculators playing the commodity markets and the slump in the dollar's relative value to other currencies.
"The defining feature of global energy markets remains high and volatile prices, reflecting a tight balance of supply and demand," he said.
"I am certainly not a subscriber to peak oil [theories]."
Hayward defied predictions from some of his peers that current oil production of around 81.5m barrels a day may never be exceeded. He suggested 100m barrels may still be possible. The era of cheap energy was over, with oil prices moving steadily upwards over the past six years, but this was definitely not because the world is running out of oil, he said.
The markets in 2007 had been hit by Opec production having fallen by 350,000 barrels a day as a result of the cumulative impact of production cuts implemented in November 2006 and February 2007, while non-Opec output rose 200,000 barrels a day.
Hayward declined to comment on where oil prices would go from here but his chairman, Peter Sutherland, dismissed as "apocalyptic" Tuesday's warning by Alexei Miller, Gazprom's chief executive, that the price could virtually double to $250 a barrel by the end of 2009.
"I don't believe in some of the more apocalyptic predictions," he told a separate meeting of the European Policy Centre. "I don't believe we are in for a spike to $250 and I am hopeful that we will not have further dramatic escalations in the price. Personally, I would like to see prices fall." Hayward said high prices could be helpful in encouraging energy efficiency, which was happening already. "High prices drive efficiency," he said, and encouraged investment in alternative power schemes.
The BP head said a drive to produce more oil, gas and renewable energy was not contradictory with fossil fuels being used more carefully so as to reduce the carbon footprint. "I don't think there is a conflict, but it does need joined-up policies," he added. "You need to start with energy security and build into it how to tackle the issue of climate change."
Environmentalists said BP had got the two issues back to front and should be using its windfall profits to pioneer cleaner fuels rather than continue to champion tar sands and other carbon schemes.
"They should be viewing everything through the lense of climate change rather than oil supply and demand," said Benet Northcote, a campaigner at Greenpeace.
Hayward shrugged off his company having spent $50bn on share buybacks over recent years, saying a balance had to be found that rewarded investors while spending on new capital projects.
The BP statistical review also showed that world natural gas consumption grew by an above-average 3.1% in 2007, with half of this increase coming in the US. Chinese consumption rose 20% while European Union demand fell 1.6% in the face of warm winter weather.
Global demand for coal grew by 4.5% last year. Ethanol output rose by 27.8% while wind and solar electricity generation continued their rapid growth - by 28.5% and 37% respectively.
Oil prices have not performed as strongly since the data was first collected in 1861 - the year the American civil war broke out.
OPEC wants a "solution" to end record oil prices and an examination of the role of speculators when governments of consuming and producing countries meet later this month in Saudi Arabia, OPEC's secretary general said.
Heads of state from the Organization of Petroleum Exporting Countries, their counterparts from importing nations and bank executives have been invited to attend the June 22 meeting in Jeddah to discuss record energy costs that Saudi Arabia, the world's largest oil exporter, says are "unjustified." A previous gathering of world energy ministers in Rome two months ago didn't solve the issue, OPEC Secretary General Abdalla el-Badri said.
"This one is different. This one is specifically to tackle the high oil prices, why they are high, who is to blame," el-Badri said today in an interview in London. "Is this a real shortage in the market, or speculation, or the dollar? What is wrong?"
Morgan Stanley and Goldman Sachs Group Inc., which this month issued forecasts for oil rising to $150 a barrel, have been asked to the meeting, which was called two days ago by Saudi Arabia. Oil futures in New York touched a record $139.12 a barrel on June 6 and traded as high as $138.30 today.
High prices have forced consumers such as UAL Corp.'s United Airlines and Continental Airlines Inc. to cut jobs and Asian importing nations to slash domestic fuel subsidies. The invitation should be extended to hedge funds, who are more influential in the doubling of oil prices in the past year than any shortage of supply, el-Badri said.
"We have a lot of oil in the market," el-Badri said in a Bloomberg Television interview. "I prefer that hedge funds be there. I hope that the Saudis will invite them. Let's hear them."
The Commodity Futures Trading Commission, the U.S. regulator that compiles market data, said May 29 it had been investigating since December whether price surges were a result of manipulation by hedge funds or other speculators.
"I'm not advocating eliminating speculation from the market but I am against excess use of this instrument to inflate the price," el-Badri said.
The U.S., the world's largest energy user, will be represented at the Saudi conference by Energy Secretary Samuel Bodman rather than President George W. Bush.
Bush said yesterday that Saudi Arabia's idea for a producer- consumer dialogue was a "positive sign," adding that the U.S. would "expect to participate." Bodman said today he would attend and will make the case that supply and demand, not speculation, is driving up prices.
OPEC left oil output quotas unchanged at its last three meetings in December, February and March, saying the market was well supplied. Its next formal policy-setting meeting will be on Sept. 9 in Vienna. Production from 12 OPEC members is collectively close to the group's formal output limit as some nations such as Saudi Arabia and the United Arab Emirates pump more than their targets, making up for shortfalls from Nigeria and Venezuela, according to Bloomberg estimates.
The quota is "irrelevant" under today's market circumstances, el-Badri said today. A meeting of energy ministers from producing and consuming nations at the International Energy Forum in Rome in April achieved "nothing" to solve high oil prices, he said.
OPEC's 13 members are expected to earn about $1.06 trillion this year in net oil export revenue, 57 percent more than last year, according to an estimate last month from the U.S. Energy Department.
El-Badri said high prices are "not a bonanza" for OPEC because they have the potential to "destroy everything" by curbing demand for the oil, the main revenue earner for most of the group's members.
The June summit is "a fig leaf, a publicity stunt, a symbolic gesture," Johannes Benigni, managing director at consultants JBC Energy GmbH in Vienna, said in a television interview. "Producers are currently trying to smooth things over and portray themselves as conciliatory."
China's crude oil imports jumped 25 percent last month from a year earlier as state refiners boosted fuel production to meet higher demand in southwestern regions rattled by the nation's strongest earthquake in 58 years.
Crude imports rose to 16.2 million metric tons in May, or about 3.8 million barrels a day, the Beijing-based Customs General Administration of China said on its Web site today. Last month's shipments were second only to the record 17.3 million tons imported in March.
The 7.9-maginitude temblor on May 12 killed about 70,000 people, damaged power lines and hampered transportation of coal. China Petrochemical Corp. and China National Petroleum Corp. were running their plants at full throttle to cover supply shortfalls in quake-hit Sichuan province and meet additional demand from a government-led disaster-recovery effort.
"The quake-rescue campaign has boosted demand for diesel and jet fuel," said Gong Jinshuang, an oil analyst at China National Petroleum, the nation's largest oil company.
Sinopec Group, as China Petrochemical is known, diverted gasoline and diesel supplies from the south and coastal regions to Sichuan and lifted rationing on fuel sales, the company said on May 20. The country dispatched 33,000 kilowatts of diesel generators to boost electricity supplies in the quake zone.
Crude imports rose 13 percent to 75.97 million tons in the first five months, with the cost of shipments up 85 percent to $52.4 billion. The oil import bill in May reached $12 billion as international crude prices climbed. China exported 150,000 tons of crude in May and 950,000 tons in the five-month period.
Oil-product imports rose 17 percent to 17.34 million tons in the five months and reached 4.66 million tons last month. Exports of oil products climbed 0.2 percent to 6.48 million tons in the five months and stood at 1.64 million tons in May.
China was a net coal importer in the first five months, customs figures showed today.
Exports of the fuel, used to generate about 80 percent of the nation's electricity, fell 4.1 percent to 18.5 million tons in the period and stood at 3.91 million tons last month. Imports dropped 18 percent to 18.8 million tons in the five-month period, the customs said in another statement on its Web site today.
Energy ministers of advanced nations expressed “serious concerns” about soaring oil prices and urged producers to lift production through greater investment and provide more transparency on oil supply data.
A joint communiqué by the Group of Eight ministers, also signed by China, India and South Korea, stopped short of the tough language demanded by Kevin Rudd, Australia’s prime minister. He urged G8 leaders to “apply the blowtorch to Opec”, which he blamed for the rise in crude oil prices to a record $138.54, after a $10.75 jump on the New York Mercantile Exchange on Friday.
Ministers meeting in Aomori, northern Japan, said: “Current high oil prices are unprecedented and against the interest of either consuming or producing nations.”
The producers among the G8 said they would seek to raise production and called on “other producing countries to increase investment to keep markets well supplied”.
Akira Amari, Japan’s trade and industry minister, went further, calling oil prices “abnormal” and blaming lack of investment for the fact that “production levels have hardly increased over several years”.
The meeting placed more emphasis on raising efficiency in consumer countries, with nations promising to form an international partnership for energy co-operation. The idea, said participants, was to promote best practice by sharing technologies and by monitoring progress. Ministers also strongly backed the increased use of nuclear power, with only Germany dissenting.
John Hutton, Britain’s secretary of state for business and enterprise, said in an interview with the Financial Times: “The most effective intervention is to ensure that markets are working as efficiently as possible. Clearly, they are not doing so at the moment.” He stressed the need for accurate data, both from producers and consumers.
Mr Hutton said making unrealistic demands of oil producers was not helpful. “We are not in the camp of pointing fingers or apportioning blame.” Instead, there should be dialogue between producers and consumers – an arrangement that, he said, could be formalised when G8 heads of state meet in Hokkaido in July.
On the consumer side, Mr Hutton said China and India should “not be demonised” for using fossil fuels; it was inevitable that growing economies such as theirs would do so. There should be more transfer of technology including carbon capture storage, he said, echoing the G8 ministers’ call for 20 such projects to be established by 2010.
The meeting’s consensus that markets should be allowed to send appropriate “price signals” to consumers was partially undermined by signs that some countries remained leery of forgoing subsidies. Zhang Guobao, China’s delegate, said: “We are taking very precise and delicate measures so we will not destabilise the government.” A public backlash against high prices in China could have an “adverse impact throughout the world”.
· Biggest rise for 22 years in unemployment
· Shares and hopes of dodging recession tumble
Oil prices leaped to another record high yesterday as Israel warned Iran about its nuclear sites and the dollar slumped on news of the biggest jump in US unemployment for 22 years.
Global crude ended a run of lower prices as it jumped by more than $11 a barrel to more than $139 - it has risen more than $17 in two days. The price eventually settled at $138.54. On Wednesday the price had fallen to as low as $122.
Already jittery oil markets were sent into spasm by remarks from Israel's transport minister that an attack on Iranian nuclear sites looked "unavoidable". Any attack on the country would threaten supplies from the whole region.
Prices were also boosted by a prediction from investment bank Morgan Stanley that crude may reach $150 by July 4.
Earlier in the day the dollar had fallen against the euro partly on speculation that the European Central Bank may consider raising interest rates to curb inflation. Then markets were rocked by a report showing US unemployment suffered its biggest monthly rise for 22 years.
Shares dived after the US unemployment rate unexpectedly jumped to 5.5%, intensifying fears that the world's biggest economy is sliding into recession. The Dow Jones industrial average lost nearly 400 points, more than 3%, to close at 12,209. In London, the FTSE 100 closed the week down 1.5%, or 88 points, at 5,906.
The US Labor Department said non-farm payrolls fell by 49,000 in May from the month before. That was broadly in line with expectations but the department revised its April figure to show a drop of 28,000 rather than the 20,000 estimate it made last month.
The unemployment rate jumped from 5% in April to 5.5%, the biggest rise since February 1986 and the highest rate since October 2004. As stocks tumbled, so did the dollar, which shed nearly a cent against the euro.
Bond prices moved sharply higher as expectations of any near-term increase in interest rates subsided. Gold futures jumped 2%, to $891 an ounce as investors, taking fright, sought a safe haven.
There were substantial job losses last month in construction industries, where 34,000 cuts were made, in manufacturing, where 26,000 jobs were lost, and among providers of professional services, where 39,000 jobs went.
"The overall trend is clearly weakening, with the unemployment rate having increased by a full percentage point over the past 12 months," said James Knightley, an economist at ING Financial Markets. "This will continue to depress consumer spending - the fiscal package is being fully swallowed by higher gasoline prices - and will, in our view, help to keep activity depressed for longer than financial markets are currently discounting."
Nigel Gault, chief economist at Global Insight, said: "The rise in unemployment throws some cold water on the idea that the Fed will soon raise interest rates to prop up the dollar and rein in inflation. The Fed is in a difficult spot with first-half growth not far above zero, but inflation climbing. We believe that the economy is too fragile for a rate hike before 2009."
Governments around the world must spend $45 trillion (£23trn) if they are to halve carbon emissions by 2050, according to a leading energy watchdog, as it called for an "energy revolution". If current policies are maintained, CO2 emissions will more than double, The International Energy Agency (IEA) warned.
It also warned that oil demand will rise by 70 per cent over the same period if governments fail to act, on the day that oil prices leapt once more – up more than $11 a barrel to a record above $139 – as a Morgan Stanley analyst predicted they could reach $150 a barrel in a month's time.
The IEA called yesterday for "unprecedented" action to completely transform the way energy is produced, adding: "Our current path is not sustainable."
The total $45 trillion needed for investment in technology and deployment to overhaul the energy markets before 2050 equates to 1.1 per cent of average annual global gross domestic product over that period.
This emerged yesterday as the IEA launched a report entitled "Energy Technology Perspectives". The report was commissioned by the Group of Eight (G8) countries three years ago, asking for guidance on how to achieve a clean, clever and competitive energy future.
Nobuo Tanaka, executive director of the IEA, said: "There should be no doubt – meeting the target of a 50 per cent cut in emissions represents a formidable challenge. We would require immediate policy action and technological transition on an unprecedented scale."
It has laid out steps to reverse the trends, although it admits the challenge is daunting as "no single form of technology can provide the full solution".
The IEA called for carbon capture technology, nuclear energy and energy efficiency to play a much bigger role in government policy. Recommended proposals would include fitting 35 coal-fired and 20 gas-fired power plants with C02 capture and storage technology, at a cost of $11.5bn each. The IEA has also called for 32 new nuclear plants and 17,500 turbines each year.
Other energy efficient practices the report suggests included C02-free electricity, the further development of solar energy and second generation bio-diesel.
Mr Tanaka said: "The world faces the daunting combination of surging energy demand, rising greenhouse gas emissions and tightening resources. A global energy technology revolution is both necessary and achievable; but it will be a tough challenge."
The agency said there were huge issues to overcome before meeting the targets, including the need to boost the numbers of engineering and technical graduates, identifying sites for carbon capture and nuclear waste storage, and overcoming the "not in my back yard" attitude.
The agency found that if governments continue with their policies in place to date, C02 emissions and oil demand will soar. Mr Tanaka said: "Such growth of oil demand raises major concerns regarding energy supply areas and investment needs."
The report predicted the power generation industry will account for 44 per cent of global emissions by 2050, followed by industry and transport. Despite the growth in awareness of global warming and companies worldwide pledging to become greener, carbon emissions have accelerated in recent years.
Mr Tanaka said: "We are very far from sustainable development, despite the widespread recognition of the long-term problem." This has been driven by a higher use of coal in the wake of oil and gas prices rising, as well as the rapid development of India and China, both coal-based economies.
This comes as countries are drawing up a new protocol to succeed the Kyoto agreement next year.
The IEA, which advises 27 countries on energy policies including the UK and the US, was founded during the oil crisis in the early 1970s to co-ordinate measures during oil supply emergencies. The agency, which has a 190-strong workforce, has seen its remit widen to advise on energy security, economic development and environmental protection.
Ole Slorer, an analyst at Morgan Stanley, predicted a short-term spike in oil prices. "Middle East oil exports are stable but Asia is taking an unprecedented share," he said.
Gordon Brown claimed today a deal was within reach to avert a pay strike by fuel tanker drivers, amid reports of panic buying at the pumps.
Leaders of the Unite union are in discussion with managers from two companies working on Shell delivery contracts in a bid to resolve the pay dispute, but were struggling to find a resolution.
The prime minister appealed for both sides to focus "all efforts" on making sure the talks were successful.
But he refused to rule out calling in the army to keep fuel flowing - warning that the government was willing to do "everything we can" to stop petrol pumps running dry.
At his regular press conference in Downing Street, Brown said: "I believe that there is a way forward on this and I believe that all people's efforts should be over the next 24 hours to making sure that an agreement is possible."
Car drivers in some parts of the country have already started to panic buy despite pleas to fill up cars as normal. Queues have been reported in a number of places including, Liverpool, North Wales and Cambridgeshire.
Some people admitted they were topping up half-full petrol tanks even though this could lead to fuel shortages.
Ten hours of talks between Unite and the Shell companies under the chairmanship of the conciliation service Acas, ended in deadlock last night. The two sides resumed direct talks at 8.30am without the involvement of Acas.
Drivers employed by Hoyer UK and Suckling Transport are due to walk out for four days from 6am tomorrow. Sources said there was a determination to reach a deal today.
A spokesman for the companies said: "No one wants a strike. All parties have got responsibility to find a resolution as quickly as possible."
One in 10 of Britain's 9,500 filling stations could be hit if the strike goes ahead. The government has drawn up contingency plans, allowing suppliers to share information about stocks without falling foul of competition laws.
The union claims workers are paid the same now as in 1992 - just under £32,000 a year. But the company claims that average pay is more than £36,000 and would have increased to around £39,000 under an offer rejected by the union.
About this articleClose This article was first published on guardian.co.uk on Thursday June 12 2008. It was last updated at 14:32 on June 12 2008.
Strike action by thousands of Spanish and Portuguese truckers produced ominous knock-on effects on food supplies, aviation and industry yesterday, as Lisbon airport ran out of fuel, car factories shut down and petrol stations and supermarkets reported shortages.
In a worrying sign for other European countries that face rising discontent at the spiralling cost of diesel, a third day of strikes generated widespread mayhem and the mood turned ugly after the first casualties of the standoff: two strikers died in clashes on picket lines.
Tourists flying to Lisbon faced delays after the airport ran out of fuel. Some flights were diverted to Porto. Only emergency, military or state flights were allowed out of Portela airport, a spokesman said. Only emergency fuel stocks saved Spanish airlines from similar disruption.
Supermarkets, meanwhile, reported dwindling supplies. Authorities at Spain's two biggest wholesale markets, Mercamadrid, in Madrid, and Mercabarna in Barcelona, reported deliveries of meat, fish and fruit were almost at a standstill.
In Barcelona, at a branch of Caprabo supermarket, there was no fresh fish or meat on the shelves. Shopper María Luz Martínez, 38, said: "The lorry drivers are looking after themselves while we are all suffering. But the government doesn't appear to be that interested."
As panic buying among motorists continued, petrol stations were running dry. Drivers in Lisbon trying to fill up their cars were turned away. In Spain, "empty" signs hung from pumps at hundreds of stations across the country. Three car firms, Seat, Nissan and Mercedes, suspended production because of parts shortages.
Some ferries from the Balearic islands to mainland Spain were cancelled due to lack of fuel. José María Pozancos, director of Spain's fruit and vegetable export federation, said the strike was costing the industry €25m (£20m) a day.
The action is being closely watched in France, Italy, Britain and other countries where the threat of a similar strike looms. Diesel prices have shot up on average around 40% over the past year amid record jumps in oil prices, and truckers say profits have been all but wiped out. Italian hauliers are planning a five-day strike at the end of the month, while their British counterparts are targeting central London again on July 2.
With unions talking of coordinated action in several countries at a time and policymakers in Brussels refusing to countenance tax breaks, the fear is that the action in Spain and Portugal could spread. Yesterday truckers in Thailand used a half-day strike to demand financial help.
As the Spanish government yesterday deployed 25,000 police to clear major routes, the mood among strikers was increasingly turning bitter. Scores of pickets were arrested in clashes with police and two drivers were killed at blockades.
Lorry driver Julio Cervilla Sojo, 47, a father of two, died after being run over by a lorry which was trying to pass picket lines near Granada on Tuesday. A man was arrested and appeared in court.
In Portugal, a 52-year-old man was killed on a picket line north of Lisbon, as he tried to stop a lorry passing a blockade.
Picketers in Spain have thrown stones at lorries trying to pass blockades. One driver suffered serious burns near Alicante when four trucks were set on fire.
Hooded strikers in Valencia were photographed brandishing knives. Riot police cleared pickets blocking routes into major cities and the La Junquera junction between Catalonia and France.
Alfredo Pérez Rubalcaba, the Spanish interior minister, said 51 people were arrested after violence on picket lines. He said: "There is a constitutional right to strike. There is no constitutional right to disrupt people's lives. Therefore, we are going to continue acting with maximum force and maximum firmness."
For Spain's prime minister, José Luis Rodríguez Zapatero, who is already facing a downturn in the economy since the end of the building boom, the strike is the most serious bout of industrial unrest since he took power in 2004.
About 70,000 mostly self-employed drivers from two unions, which make up about 20% of the industry, are demanding guaranteed haulage rates so they can offset rising fuel prices. But the government, which has offered tax concessions to the lorry drivers, opposes fixing guaranteed rates, saying it would be against EU free-market principles.
Mikhail Fridman, the baby-faced Russian tycoon, is on the warpath. Inside his loft-like office in the Moscow headquarters of Alfa Bank, Mr Fridman is planning to take on BP, the UK energy group, over the TNK-BP joint venture, in which he and three other Russian shareholders own 50 per cent.
“They thought we would be sleeping partners ... They consider us to be no more than Russian oligarchs who will sell out,” he says as papers lay strewn across his boardroom table tabling data which he says shows TNK-BP’s poor performance under BP-led management compared to its peers.
BP, which since 2003 has shared ownership of TNK-BP 50:50 with Mr Fridman and his partners in the Alfa-Access-Renova consortium, suspects his campaign is nothing more than an attempt to seize control.
TNK-BP is vital to BP’s growth in reserves and production, and losing its position in Russia would be a grievous blow.
BP has long maintained that it would be happy with a deal that gave it a minority stake in a Russian joint venture with Gazprom or Rosneft, the state-controlled companies. It has been talking to both of them: Tony Hayward, BP’s chief executive, met their respective chief executives in Russia at the weekend.
The value of such a deal is up for grabs, however. The state-controlled companies could buy the AAR stake, but they are unlikely to be willing to pay the market price of about $25bn. The latest bout of turbulence looks like a sign of competing interests battling for advantage as an unstable position heads towards a resolution.
After months of simmering standoff which burst out into the open two weeks ago, AAR says it wants to take BP to court in Stockholm and in Russia over the way the company is run.
Oligarch’s legal tussles
If BP ends up in court to settle a dispute with Mikhail Fridman over its TNK-BP joint venture, it will not be the first of the oligarch’s joint venture partners to endure this fate, writes Stephen Fidler.
As Mr Fridman’s domestic and international interests have grown with his Alfa Group empire, so have the numbers of lawsuits and legal contests that have ended up in court or in the hands of international arbitrators.
Mr Fridman’s survival as one of the richest oligarchs suggests continued support from the Kremlin, and he is sometimes depicted by rivals as an instrument of Kremlin policy in industries which are regarded as strategic, such as telecommunications, although that is a characterisation he rejects.
But he has not been afraid to play hardball with people who have close connections to Vladimir Putin, the former president, once accusing a Russian minister, in the face of the minister’s denials, of corruption.
This dispute over the true owner of a stake in Megafon, Russia’s third ranking mobile phone company, spawned legal proceedings in Switzerland, the UK, the British Virgin Islands, New York and farther afield.
As Alfa group has sought to spread its operations into Europe, Asia and the Middle East, it has been in fights with partners or rivals in Turkey, Indonesia and Scandinavia.
Last year, Norway’s Telenor filed a lawsuit in a US court against companies controlled by Alfa Group, over claims of insider trading in Alfa Group’s purchase of a stake in VimpelCom, Russia’s second-largest phone company.
Telenor and Alfa have also been in dispute over Kyivstar, the Ukrainian cellphone operator.
“Of course we are going to defend our legal rights,” Mr Fridman says. “We are fighting for our rights, for the fact that we are shareholders in an independent Russian company.”
Since March, TNK-BP’s foreign executives and managers have faced spiralling pressure in what people close to the company have said is part of an attempt by AAR to take control of the company.
Security service agents raided the company in March in connection with an inquiry into industrial espionage, and its BP-hired specialists have been barred from working at the company, first due to visa problems and then due to a court order.
The foreign staff have also been the target of inspections into whether they are employed in violation of labour laws. This week, the company’s BP-backed chief executive, Robert Dudley, was called in for questioning by the interior ministry as part of a probe into tax evasion. Mr Fridman says he has nothing to do with the pressure, and says AAR has no intention of trying to take control from BP.
“Do you think I control the FSB?” he asks, referring to the successor agency to the KGB.
He wants Mr Dudley out and the number of foreign employees reduced, he says, because he says they cost too much and their wages are paid in unfair related-party transactions to BP.
TNK-BP is being targeted by labour inspections because his man inside the company, German Khan, TNK-BP’s executive director and the “fixer” who normally keeps relations with the authorities smooth, is busy with other things due to the conflict between the shareholders.
AAR proposed a series of resolutions to BP, calling for parity representation on the boards of TNK-BP’s subsidiaries, renewing the powers of attorney for the key AAR shareholders who are also senior executives at TNK-BP – German Khan and Viktor Vekselberg – and for the number of foreign employees at the company to be reduced.
Mr Fridman says he has also proposed changes to the main parent company’s board to increase the number of members to include “one or two” independent directors that could make decisions in the interests of the company in case of deadlock by the shareholders.
In addition, he says, AAR was also calling for Mr Dudley to be dismissed as chief executive and replaced by an independent chief executive, nominated by BP, but not from BP, who knew Russia and the former Soviet Union well. “We don’t trust the independence of Mr Dudley,” he says.
Mr Fridman also raised the temperature of the standoff by disclosing details of negotiations this week in which BP had discussed options for buying out AAR’s share in the venture.
An exchange of e-mails seen by the Financial Times shows that AAR proposed to BP that it would take an option to convert all its TNK-BP shares into BP shares.
BP responded with two possibilities for such a conversion: an immediate move, which apparently did not seem likely to be agreed, and a framework for “a longer-term progressive sale”, for which it said there seemed to be “sufficient common ground to enable more detailed negotiations to be entered into”.
BP insists it would buy out AAR only with the blessing of the Russian government.
Mr Fridman says he and his partners never had any intention of selling their stake. “We never in our lives discussed selling our shares,” he says.
But he acknowledges that the two sides had discussed a share-swap plan.
“The only thing that we discussed was that, theoretically, if a conflict of interests exists between BP and AAR then in a long-term perspective, but far from now, there could be a conversion of our shares into shares of BP,” he says. “But the sale of shares was never discussed.”
Mr Fridman says it was not in his or his partners’ interests to sell because of the rapid increase in oil prices and because the Russian government has recently embarked on moves to cut the tax burden on the oil sector which has been prohibitive for investment.
He brushes aside concerns that he and his partners could be pressured into selling their stake. “I am absolutely convinced that the authorities absolutely don’t support the idea that the Russian shareholders should sell their shares to Gazprom,” he says. “As I understand it, the authorities consider the [state’s] presence in the economy, in the oil and gas sphere, to be quite sufficient.”
“I never had any pressure from the state with the aim of [forcing us] to sell our shares,” he said.
Virgin Galactic is planning to launch flights to space from the UAE, the company's president has revealed.
The company hopes to start flights into space from a spaceport it plans to build in the UAE within two years of the service taking off from its worldwide operating base in New Mexico, Will Whitehorn, president of Virgin Galactic said in an exclusive interview.
He said the company, the first to launch commercial flights to space, had received “a number of approaches” from authorities in the UAE regarding the opening of a spaceport and it planned to start talks with government and civil aviation authorities regarding the scheme.
“We have had a number of approaches and we’re following up on those at the moment. We’ll be talking to both government authorities and aviation authorities.
“It would be after we’ve started flying for at least a couple of years and subject to regulatory approval,” he said.
Whitehorn said the landscape and weather conditions in the UAE would make it an ideal base for space flights.
“There’s good weather to operate all the year round, you get a spectacular view of both land, sea, sand, desert and mountains - which is quite a nice combination.”
He added there would be high demand for the intergalactic flights from customers in the Middle East, revealing that 254 Virgin Galactic tickets had been sold worldwide so far with another $36 million worth of deposits having been paid to reserve tickets.
“You’ve obviously got a lot of people in that part of the world (the Middle East) who’d love to go to space.”
Whitehorn said other locations where Virgin Galactic is planning to build spaceports include the UK, Spain, and a location in the Asia Pacific region.
The company is also in “advanced talks” about building a spaceport in Sweden, the next location where it hopes to launch its flights after New Mexico, Whitehorn revealed.
Virgin Galactic will be the world’s first commercial space travel operator and tickets for the flights currently start from $200,000 each.
It has not set a deadline for the launch of the space flights, but plans to start commercial flights around a year after the unveiling of prototypes and test flights has been completed.
Participants will be given just three days of pre-flight preparation and training onsite and 12 to 18 months of test flights will take place before commercial services are launched.
Virgin founder Richard Branson will be the first passenger to be flown to space in the first commercial flight, along with the designer of the Virgin Galactic spacecraft SpaceShipTwo, Burt Rutan, who is designing the spaceship at his base in Mojave, California.
Buenos Aires - The shortage of fuel forced several bus lines in Buenos Aires to suspend or reduce their service on Wednesday, while the lack of diesel hampered industrial and agricultural activity elsewhere in Argentina.
Hundreds of buses were affected by the move, and there was chaos at bus-stops, as commuters tried to squeeze into full vehicles.
Daniel Millaci, president of the bus transport organization CEAP, said bus lines were affected by supply problems from Shell, 'which started to deliver 50 per cent less fuel until they receive a diesel lot from abroad, which could happen next week.'
One bus company suspended its service for several hours and another withdrew half its vehicles from circulation. A similar thing happened in other Argentine towns.
Millaci explained that bus companies could not change supplier, since 'no oil company has diesel to spare.'
In some petrol stations away from the capital, diesel was being sold at three times the usual price.
Shell admitted that it is not supplying the market normally.
'The supply will become normal when we can produce at our refinery, that is, when they sell us the crude oil to refine. And we do not know when that will happen,' the company director in Argentina, Reginaldo Thompson, told Argentine daily La Nacion.
The government has placed price caps on fuel sold in Argentina below the international price. Oil companies are only allowed to export the oil they extract and refine in Argentina when the domestic market is saturated.
However, reduced earnings have led to insufficient investment, while internal demand has risen as the sale of cars boomed.
The cost of renting ships that transport key raw materials such as iron ore and coal have risen to all-time highs and put further pressures on inflation and the global economy.
With oil at record levels, food prices at highs and warnings from central bankers over inflation risks, it is another danger signal for companies and consumers as price pressures force up overheads and jeopardise growth.
The cost of renting a Capesize ship, used to transport iron ore and coal, rose to $233,988 a day at the end of last week – a near 200 per cent jump since the start of the year when the cost stood at $80,000.
Rising demand from China for iron ore for rebuilding after last month’s earthquake and increasing congestion at ports in Brazil and Australia have added to the already tight balance of supply and demand for ships.
The price pressures are unlikely to abate in the coming months as freight derivative contracts, which allow shipowners to set prices in advance and are the best gauge of future shipping rates, are also at all-time highs.
Monthly forward freight contracts have risen to $229,854 a day for Capesize ships – a 62 per cent increase since April 1, when monthly forward contracts were $141,395. Rates for Capesize ships, the biggest ocean-going vessels used to transport the heaviest raw materials, are the main drivers of the market.
Michael Gaylard, strategic director at Freight Investor Services, shipping brokers, said: “The earthquake in China has put further pressures on a very tight market.”
The cost of renting ships has risen dramatically from $30,000 a day in 2004 to today’s records. Demand has been driven higher by emerging economies such as China and India, which need to import raw materials to drive their expanding economies.
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