BNP Paribas Fortis North American energy monthly - Virtual Metals

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BNP Paribas Fortis/VM Group October 2009 | BNP Paribas Fortis North American energy monthly | 9 Crude oil Nymex light crude ($/b) 74 72 70 68 66 64 62 60 01-Sep 10-Sep 21-Sep 30-Sep Oct-09 Nov-09 Source: Reuters Ecowin IPE Futures Brent crude ($/b) 74 72 70 68 66 64 01-Sep 10-Sep 21-Sep 30-Sep Oct-09 Nov-09 Source: Reuters Ecowin US crude oil stocks (ex strategic reserve), (million barrels) 390,000 370,000 350,000 330,000 310,000 290,000 270,000 250,000 Oct-08 Jan-09 Mar-09 Jun-09 Sep-09 2008/2009 2007/2008 2006/2007 Source: Reuters Ecowin News • Sept 30 th : The US Senate introduced a draft climate change bill that seeks to cut carbon emissions by 20% by 2020 through a cap-and-trade system. • Sept 29 th : US imports of crude oil from Canada rose 5.4% in July to hit a record 2.11m b/d, according to the Energy Information Administration • Sept 25 th : The number of oil and gas rigs active in the US in September rose by 18 to 1,017, compared with 1,995 a year ago, according to Baker Hughes. • Sept 21 st : The Libyan Investment Authority agreed a C$316m (US$291m) takeover of Calgary-based Verenex Energy. Analysis • Unwelcome message from Obama It is the sort of language no oilman wants to hear and when Barack Obama made several references to “phasing out fossil fuel subsidies” in the run-up to the G-20 economic summit in Pittsburgh, the reaction was understandable. The American Petroleum Institute described the proposition as a “giant tax hike on American consumers”. What irked many in the industry was the release by the Environmental Law Institute (ELI) of a study that claimed US fossil fuel subsidies during 2002-08 amounted to a staggering $79bn, dwarfing the $29bn given to renewable fuels, principally corn-based ethanol. The subsidies fall broadly into two categories of tax breaks and direct expenditure on research and development. ELI Senior Attorney John Pendergrass observed: “With climate change and energy legislation pending on Capitol Hill, our research suggests that more attention needs to be given to the existing perverse incentives for ‘dirty’ fuels in the US Tax Code.” Rebounding stock markets and stronger oil prices have resulted in a noticeable recovery in the value of the Alaska Permanent Fund which at the end of September was valued at $33.1bn compared with a trough of $29bn in January and a peak of $40bn last year. The good news has not translated into much joy for ordinary Alaskans who were told on 23 rd September that this year’s dividend to people living for more than 12 months in the state will be $1,305. This compares with a payout of $2,069 for 2008, which was topped up with a further $1,200 to cover higher energy bills. Mexican President Felipe Calderón took the sensible step of replacing Jesus Reyes Heroles as head of Pemex with former banker Juan Jose Suarez in early September before the release of Pemex’s eight-month production figures. And what a sad story those production figures have turned out to be. Production fell during the period to 2.61m b/d from the year-ago figure of 2.82m b/d, with output in August dropping to 2.54m b/d. Suarez has been given a mandate, and the capital, to put the situation right but this is easier said than done. The forecast so far: In January we projected that the price of West Texas Intermediate would rise steadily through the year with prices expected to trade near $70/barrel by the start of the final quarter of 2009. So far we have been impressively accurate with WTI closing on 1 st October at $70.82. Our forecast for an end-year price of $82.50 also looks achievable. Outlook Political uncertainty in the Middle East returned as a factor in supporting higher oil prices and until the Iranian nuclear standoff is resolved this will account for $3-$5 in the spot price. Although a stronger dollar briefly pulled prices back under $70/barrel, an economic recovery remains the main driving force in higher prices and as fresh data confirm an upturn, prices will be heading towards $80/barrel before the end of the year.
10 | BNP Paribas Fortis North American energy monthly | October 2009 BNP Paribas Fortis/VM Group Middle distillates Gulf coast diesel ($/gallon) 1.82 1.80 1.78 1.76 1.74 1.72 1.70 1.68 1.66 01-Sep 10-Sep 21-Sep 30-Sep Source: Reuters Ecowin US pump diesel price ($/gallon) 2.68 2.67 2.66 2.65 2.64 2.63 2.62 2.61 04-Sep 11-Sep 18-Sep 25-Sep Source: Reuters Ecowin Nymex Heating Oil No.2 ($/gallon) 1.90 1.85 1.80 1.75 1.70 1.65 01-Sep 10-Sep 21-Sep 30-Sep Oct-09 Nov-09 Source: Reuters Ecowin News • Sept 24 th : Pennsylvania received a $1.5m grant to overhaul the diesel engines on the Champion Coal towboat in the Port of Pittsburgh. • Sept 21 st : The Californian Air Resources Board fined waste hauler Athens Disposal $270,000 for failing to inspect vehicles during 2005-06. • Sept 18 th : US refiner Valero said it would delay a $250m expansion of its refinery in St Charles, Louisiana until 2012. • Sept 15 th : Construction work began on a 3.8m litre/year pilot jatropha biodiesel plant in the Mexican state of Chiapas. • Sept 14 th : Funding was approved to replace a further 483 diesel trucks in the Ports of Long Beach and Los Angeles. • Aug 28 th : US refining capacity increased by 100,000 b/d to 17.7m b/d during the past 18 months, according to the Energy Information Administration. Analysis • Taste for biodiesel Valero has got the taste of biofuel and wants more of it. Having successfully turned the calamitous wreckage of the failed VeraSun ethanol plants into profit centers, leading refiner Valero announced in mid-September it plans to set up a joint venture with Darling International, a Texas food by-products recycler. The venture will convert waste grease – mainly animal fats and used cooking oil – into renewable diesel at a rate of 10,000 barrels a day or 135m gallons a year. At a time the broader refining industry is suffering pinched profit margins, Valero is pushing into new areas that might offer brighter prospects in a more buoyant economy. Even though Darling and Valero have applied for a government loan guarantee for the venture, the two companies are optimistic about the synergy of the scheme that gives Darling an outlet for its animal by-product waste and allows Valero to bring its refining expertise to another part of the renewable fuels market. The US Navy took a further step forward in diversifying its jet fuel supply in early September by awarding a contract to Montana renewable fuel company Sustainable Oils to supply it with 40,000 gallons of camelina-based jet fuel. The fuel will be studied as part of the Navy’s certification program of alternative fuels and if successful it will herald a breakthrough for camelina producers in the US. A distant relative of canola, camelina is the latest hot thing in biodiesel research. Planted in March and harvested in late July, camelina produces small seed pods about the size of a pea but which contain about 35% oil. With its origins in northern Europe where it is known variously as gold-of-pleasure, false flax, or German sesame, camelina has transferred well to the US Midwest where low rainfall does not impact much on its growth. Sustainable Oils, which is a joint venture between Seattle-based Targeted Growth and Green Earth Fuels, started its camelina seed breeding program in 2005 and has conducted more than 140 trials over the past four years, making it the largest camelina research organizer in the US. Scott Johnson, president of Sustainable Oils, said: “Our camelina-based bio-jet fuel has already performed as well as its petroleum counterparts in aviation tests involving a Boeing 747-300. We’re expecting similar performance with different, and even more demanding aircraft.” The Navy contract includes an option to supply a further 150,000 gallons of camelina fuel for testing. Outlook The recent run-up in retail diesel prices hit a brick wall in September as demand eased and inventories remained high. No surprise then that the average national price of the fuel slipped 7 cents to $2.60/gallon. But by early October, New York Harbor ultra-low sulfur diesel for November delivery was quoted in Nymex spot trading rebounded at $1.86/gallon, a 6-cent rise in four weeks.
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