Fuel Freedom Staff

New Yorker: Low oil prices put Venezuela in a bind

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The New Yorker quotes Harvard economist and former Venezuelan government official Ricardo Hausmann’s cautionary words about Venezuela’s budget situation in the face of plummeting oil prices.

As Girish Gupta writes:

Serious concern remains that Venezuela will eventually default on some of the more than seventeen billion dollars it is due to pay in the next three years, or that its economic problems will lead to political crisis. Many industries, from airlines to pharmaceuticals to small retailers, are fighting for a limited supply of hard currency in Venezuela, which means that, so long as the current climate prevails, the country will be presented with decisions about whom to pay. “The problem in Venezuela is that they’re playing a game of musical chairs, and there aren’t enough chairs for all the players,” Hausmann told me. “My piece clarified to Wall Street the magnitude of the musical chairs.”

Some 96 percent of the nation’s foreign currency pours in from oil revenues, and falling crude prices mean the government, led by Hugo Chavez’s successor, President Nicolás Maduro, might not be able to provide as many services to the public as it did when oil exceeded $100 a barrel. For instance, the government subsidizes gasoline purchases for citizens — it costs only a few pennies for them to fill up their tanks — and this benefit costs the treasury some $12 billion a year.

Further cuts to services could mean more unrest in Venezuela. As Gupta writes:

Earlier this year, Maduro faced the biggest anti-government unrest the country has seen for a decade, but, even so, he denies that Venezuela is yoked to global oil prices. “The price of oil can go down to forty dollars a barrel and I guarantee to the people all of their rights: for food, education and life,” he said on state television in mid-October, adding that he expected oil prices to rise again. OPEC, however, does not seem keen to cut output.

 

Fuel Freedom Staff

Auto-makers put on notice over inflated mileage

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Will U.S. auto-makers pay more attention to the claims they make about the mileage drivers can get from their cars?

Greater scrutiny is expected now that South Korean manufacturers Hyundai and Kia have been ordered to pay a total of $100 million in fines, and $250 million in other penalties, for overstating the miles-per-gallon claims on 1.2 million vehicles.

The settlement, announced Monday by the EPA, was praised by environmental groups.

“Consumers deserve accurate information on emissions and fuel economy when they go to the showroom,” Luke Tonachel, a senior vehicles analyst at the Natural Resources Defense Council, told The Los Angeles Times.

EPA Administrator Gina McCarthy declined to comment on whether other auto companies, like Ford, BMW and Mercedes-Benz — all of which have restated their own fuel-economy claims — would face any punishment.

According to The Detroit News:

“This is by far the most egregious case,” McCarthy told reporters, referring to Hyundai and Kia. She said the “discrepancies” by other automakers were “not as systemic.” She called testing by the Korean automakers “systemically flawed” and not in line with “normal engineering practices and inconsistent with how any other automaker has been doing this.”

As Bloomberg notes, vehicle owners curious about whether they can collect money can visit hyundaimpginfo.com and kiampginfo.com.

The L.A. Times says EPA investigators learned that Hyundai and Kia, corporate siblings who are South Korea’s two largest auto-makers, “chose favorable results rather than average results from a large number of tests that go into the certification of the fuel economy ratings.” The companies blamed the inflated results on “procedural errors.”

Christopher Grundler, director of the EPA’s Office of Transportation and Air Quality, said: “I am quite certain that automakers will be paying attention to this announcement. They don’t want to find themselves in this same situation.”

Arctic Leaf

The decline of oil and gas prices, replacement fuels and Nostradamus

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“It’s a puzzlement,” said the King to Anna in “The King and I,” one of my favorite musicals, particularly when Yul Brynner was the King. It is reasonable to assume, in light of the lack of agreement among experts, that the Chief Economic Adviser to President Obama and the head of the Federal Reserve Bank could well copy the King’s frustrated words when asked by the president to interpret the impact that the fall in oil and gasoline prices has on “weaning the nation from oil” and on the U.S. economy. It certainly is a puzzlement!

What we believe now may not be what we know or think we know in even the near future. In this context, experts are sometimes those who opine about economic measurements the day after they happen. When they make predictions or guesses about the behavior and likely cause and effect relationships about the future economy, past experience suggests they risk significant errors and the loss or downgrading of their reputations. As Walter Cronkite used to say, “And that’s the way it is” and will be (my addition).

So here is the way it is and might be:

1. The GDP grew at a healthy rate of 3.5 percent in the third quarter, related in part to increased government spending (mostly military), the reduction of imports (including oil) and the growth of net exports and a modest increase in consumer spending.

2. Gasoline prices per gallon at the pump and per barrel oil prices have trended downward significantly. Gasoline now hovers just below $3 a gallon, the lowest price in four years. Oil prices average around $80 a barrel, decreasing by near 25 percent since June. The decline in prices of both gasoline and oil reflects the glut of oil worldwide, increased U.S. oil production, falling demand for gasoline and oil, and the likely desire of exporting nations (particularly in the Middle East) to protect global market share.

Okay, what do these numbers add up to? I don’t know precisely and neither do many so-called experts. Some have indicated that oil and gas prices at the pump will continue to fall to well under $80 per barrel, generating a decline in the production of new wells because of an increasingly unfavorable balance between costs of drilling and price of gasoline. They don’t see pressure on the demand side coming soon as EU nations and China’s economies either stagnate or slow down considerably and U.S. economic growth stays below 3 percent annually.

Other experts (do you get a diploma for being an expert?), indicate that gas and oil prices will increase soon. They assume increased tension in the Middle East, the continued friction between the West and Russia, the change of heart of the Saudis as well as OPEC concerning support of policies to limit production (from no support at the present time, to support) and a more robust U.S. economy combined with a relaxation of exports as well as improved consumer demand for gasoline,

Nothing, as the old adage suggests, is certain but death and taxes. Knowledge of economic trends and correlations combined with assumptions concerning cause and effect relationships rarely add up to much beyond clairvoyance with respect to predictions. Even Nostradamus had his problems.

If I had to place a bet I would tilt toward gas and oil prices rising again relatively soon, but it is only a tilt and I wouldn’t put a lot of money on the table. I do believe the Saudis and OPEC will move to put a cap on production and try to increase prices in the relatively near future. They plainly need the revenue. They will risk losing market share. Russia’s oil production will move downward because of lack of drilling materials and capital generated by western sanctions. The U.S. economy has shown resilience and growth…perhaps not as robust as we would like, but growth just the same. While current low gas prices may temporarily impede sales of electric cars and replacement fuels, the future for replacement fuels, such as ethanol, in general looks reasonable, if the gap between gas prices and E85 remains over 20 percent — a percentage that will lead to increased use of E85. Estimates of larger cost differentials between electric cars, natural gas and cellulosic-based ethanol based on technological innovations and gasoline suggest an extremely competitive fuel market with larger market shares allocated to gasoline alternatives. This outcome depends on the weakening or end of monopolistic oil company franchise agreements limiting the sale of replacement fuels, capital investment in blenders and infrastructure and cheaper production and distribution costs for replacement fuels. Competition, if my tilt is correct, will offer lower fuel prices to consumers, and probably lend a degree of stability to fuel markets as well as provide a cleaner environment with less greenhouse gas emissions. It will buy time until renewables provide a significant percentage of in-use automobiles and overall demand.

Fuel Freedom Staff

Here’s where nearly half the oil from Gulf of Mexico spill went

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About 2 million of the estimated 4.9 million barrels of oil that escaped from the undersea Macondo well following the April 2010 explosion and fire aboard the Deepwater Horizon rig apparently came to rest on the floor of the Gulf of Mexico, according to new research. It now covers an area of about 1,235 square miles, possibly migrating near deep-sea coral.

Here’s an excerpt from a story in the Houston Chronicle:

“Our findings suggest that these deposits come from Macondo oil that was first suspended in the deep ocean and then settled to the seafloor without ever reaching the ocean surface,” [UC Santa Barbara microbial geochemist David] Valentine said.

Light, freshly released oil normally is generally not expected to sink, and even dispersed oil is more likely to remain suspended in water.

Valentine described the footprint as a “shadow of the tiny oil droplets that were initially trapped” higher up, in the water above. “Some combination of chemistry, biology and physics ultimately caused those droplets to rain down another 1,000 feet to rest on the seafloor,” he added.

Fuel Freedom Staff

U.N. climate report: Our carbon budget will be used up in 30 years

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It doesn’t get much more dire than this: A major new report by the United Nations’ Intergovernmental Panel on Climate Change forecasts irreversible damage if the world doesn’t begin to reduce greenhouse-gas emissions now.

According to The New York Times:

If governments are to meet their own stated goal of limiting the warming of the planet to no more than 3.6 degrees Fahrenheit, or 2 degrees Celsius, above the preindustrial level, they must restrict emissions from additional fossil-fuel burning to about 1 trillion tons of carbon dioxide, the panel said. At current growth rates, that budget is likely to be exhausted in something like 30 years, possibly less.

Fuel Freedom Staff

Energy Quote of the Day: ‘Natural Gas is Often Described as a Bridge Fuel…How Long Should that Bridge Be?’

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A new report released by the Canadian Pembina Institute and the Pacific Institute for Climate Solutions looks at British Columbia’s (B.C.) liquefied natural gas (LNG) strategy to serve the lucrative Asian gas market through the prism of global climate change in a carbon-constrained world. “Natural gas is often described as a bridge fuel. The question is, how long should that bridge be?” says Josha MacNab, B.C. Regional Director for the Pembina Institute.

Read more at: Breaking Energy

Fuel Freedom Staff

Falling oil prices may strengthen U.S. hand in talks with Iran

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The United States has been in protracted negotiations with Iran over a settlement that would reduce or eliminate economic sanctions against Iran, in exchange for that country delaying its nuclear program.

With oil prices falling — one expert notes that Iran needs a price of $140 per barrel to balance its national budget — the U.S. position could be strengthened. But as this excellent story by Thomas Erdbrink of The New York Times shows, Iran isn’t likely to give away everything, even if it halts the nationwide economic pain.

“They will remain focused on getting a deal, but not any deal,” said Ali Khorram, a former Iranian ambassador to China who is close to the negotiating team.