Lost amongst a flurry of important global headlines was the potential for a world oil crisis given the recent unrest in Iraq, Libya, and Iran, all of whom are major oil producers. This article, in the Financial Times, illustrates how the boom in North American shale oil has completely offset those worries and assuaged any fears about an oil crisis. Were it not for domestic production, the US’ thirst for oil, which was formerly sated through imports, would have driven oil prices sky-high as a dearth of supply would have struck the market. However, with the US producing so much of its own oil, the rest of the world’s output has been able to keep up with demand. For instance, Eagle Ford, one of the US’ major shale oil plays, was producing just 15,000 b/d of oil in 2010, but is now producing 838,000 b/d because of innovations in hydraulic fracturing. Global oil prices peaked at $115/barrel, but have since fallen below their three-month average to $104/barrel.
FINSUM: This is a great article for conceptualising just how paradigm-shifting the US shale boom has been. If the same pre-conditions as now were in place five years ago, the world would have had a major supply crisis on its hands.
This article, which is ostensibly about Exxon Mobil’s shift into more diesel refining, is really a study of the changing nature of the European automobile and fuel markets. The piece shows that due to great technological advances, diesel cars are now far outpacing gasoline-powered autos across Europe. More than half the new cars registered every year are diesels, with the figure at two-thirds in Spain, France, and Belgium, and astonishingly, Europe now burns 2.5x the amount of diesel as gasoline. The transition has been fairly quick—as short as a decade ago, the mix was even, and ten years before that, gasoline was dominant. Buyers now like that diesels get better fuel mileage and feel faster than gasoline cars. However, all of this means that European refiners have drastically mismatched infrastructure compared to market demand and have far too much gasoline, which is hurting their business. Formerly, suppliers could export surplus gasoline to the US, but with prices so cheap there due to the North American oil boom, the suppliers have nowhere to sell the fuel.
FINSUM: This story is important for investors in both autos and refiners. The changes taking shape in car sales, fuel refining, and distribution are sure to lead to some big winners and losers.
According to this article, the dissolution of Australia’s short-lived carbon tax is a lesson in political mismanagement of an important policy. The new Senate is likely to vote on a measure to eliminate the two-year old tax because of a high degree of business and popular pressure to abolish it. This piece analyses what went wrong. Evidently, Australian politicians failed to clarify the situation when voters became angered by soaring electricity prices and high gasoline bills, both of which the electorate thought was due to the carbon tax, when in reality they were due to business’ infrastructure spending. Gasoline was not even part of the carbon tax. As such, popular demand and approval for the tax, which stood at a peak of 68% in 2012, plummeted and political parties split over the issue. The final straw was when Rupert Murdoch’s media empire in Australia wanted the tax abolished, which meant the popular journalistic outlets presented the tax as “toxic”. In reality, only 250 of Australia’s largest businesses were ever touched by the tax.
FINSUM: This is an important lesson for the Obama administration to heed on the heels of the White House’s new executive order to reduce carbon emissions. The tide of opinion can change very quickly.
In a move that is already drawing the ire of the rest of the G20, Australian PM Tony Abbott is planning to follow through on his campaign promise and eliminate the country’s hefty carbon tax, which he describes as a “toxic tax”. Abbott, and many of Australia’s people, feel that the tax is a huge burden on the country’s coal industry and is representative of their frustration of the government’s plans to put the environment before the economy. However, Abbott is facing fierce opposition from the rest of the world, who is looking to tighten greenhouse gas emissions and feel Australia, who is the current president of the G20, should be driving the issue ahead instead of ignoring it. President Obama just two weeks ago announced ambitious new greenhouse gas emission cuts and several other countries are considering the same. Australia is currently trying to finalise a free trade deal with China which would see the country supply Beijing with natural resources.
FINSUM: Just at a time when the world seems to have finally found the courage to readdress climate change, Australia is going the opposite direction.
Canada’s federal government has approved a major oil pipeline which will help the country benefit from exporting its newfound oil. The “Northern Gateway” pipeline, which will run directly from Alberta’s tar sands to the west coast of Canada, will be a major force for Canada’s economy. By piping the oil several hundred miles to British Columbia, the country will for the first time be able to export its resource, with a particular focus on Asia. At present, the US is the sole buyer of Canadian oil, but this has meant that Canada receives lower prices than if they were to sell to the international market, something the new pipeline will allow them to do. However, the government followed the recommendation of a review panel and imposed 209 conditions on the construction of the pipeline, all of which are in the interest of protecting the environment or local residents. The project still faces some hurdles, particularly a strong push by Native Canadian groups who have rights over some of the land to be used.
FINSUM: In principle, this seems like a very good pipeline for Canada as it solves their decades-long “single buyer” problem, which has long left them unhedged to US oil demand.
The Groningen field, in northeast Holland, is the largest active natural gas supply in Europe, providing 35% of the EU’s total output. The field has been active since 1959, but recently it has grown unstable, as its geology has changed, its pressure has dropped, and it is experiencing multiple earthquakes. Residents in the area have grown angry over the small, but damaging earthquakes and now the government has order Shell and Exxon Mobil, who run the field, to cut production by 20% for the time being. According to analysts, these problems and the supply cuts are very important because it will lower Europe’s domestic gas supply considerably, causing a very tight market which could lead to wide-scale disruptions next winter. Europe is currently undergoing a large political and social push for more energy independence from Russia, so a cut to domestic energy supplies will likely have strong political and legislative ramifications.
FINSUM: So just at the time when Europe is wanting more domestic energy production, a major source of gas is proving faulty. This development will likely give the continent the pressure needed to follow Germany’s lead and allow fracking.