Archive for 'February 2011'

    Raymond James adds touch of common sense to the debate over Libya

    February 28, 2011 4:15 PM by Eric Watkins
    The violence now overtaking Libya has had repercussions throughout the world, not least on the oil and gas industry, as wonder grows over the possible outcomes in the North African country. At the same time, a certain degree of panic seems to be taking hold here and there, as mere possibilities begin to take on more weight than they deserve.

    In the midst of a growing panic, though, there are some sane voices resounding through the tumult, and Raymond James & Associates has emerged as one of them. Indeed, a research note produced on Feb. 28 is a model that other analysts might want to replicate as they ponder the implications of the present turmoil in Libya -- and beyond.

    Perhaps the best point about the Raymond James analysis is the clarity of vision presented by the analyst. That’s especially evident in the way he has viewed the Libyan crisis which “currently presents the most serious geopolitical risk to global oil supply in recent memory.”

    Yet the analyst is no less clear about what’s really worrying people. “With WTI crude prices at the $100/bbl mark for the first time since 2008, the oil market is fearful not just of continued Libyan production disruptions but the risk of them spreading to Algeria and, in an ‘Armageddon scenario,’ the Arabian Peninsula.”

    Armageddon? Well, congratulations to the Raymond James analysts for stating clearly what the fears are, while also putting them into perspective. And that perspective is down to earth: “All in all, we wouldn't lose sleep over this extreme-case scenario, but it would seem that $100+ WTI (add ten bucks for Brent) is here to stay, courtesy of the Middle East.”

    A good night’s sleep. Isn’t that what Saudi Arabia’s oil minister urged traders to enjoy last week after saying that OPEC is in a position to cover any losses stemming from problems in Libya? Well, it seems that Raymond James analysts have taken that advice to heart.

    More to the point, members of the Raymond James team have put their thinking caps on to make some very crucial distinctions between countries in North Africa that have experienced the outbreak of violence and those in the Arabian Peninsula that have not. Indeed, it is precisely this analysis which puts Raymond James analysts head and shoulders above many others these days.

    Here’s a taste: “While North African countries and those on the Arabian Peninsula share a common language and some other similarities, they are extremely different societies. An obvious difference is the level of economic development...”

    The analyst then compares Egypt’s capita GDP of $2,800 with Saudi Arabia’s per capita GDP of $16,600, and makes the crucial observation that in Saudi Arabia there is “nowhere near” the same sense of economic desperation as in North Africa, “since the government funds a generous social safety net out of its oil proceeds.”

    There’s a lot to be said for common sense, and in this analysis Raymond James & Associates have shown an uncommon amount of common sense for a day and age that is more characterized by thoughtless panic.

    Contact Eric Watkins at

    Castro's blowing smoke over Libya, isn't he?

    February 25, 2011 2:37 PM by Eric Watkins
    Libya’s woes are the concern of many individuals around the world, among them Fidel Castro, who expressed concern this week that that Washington and its allies are fomenting unrest in Libya to justify an invasion to seize the oil reserves of the North African nation.

    "The government of the United States is not concerned at all about peace in Libya and it will not hesitate to give NATO the order to invade that rich country," wrote Castro, who urged protests against an allegedly planned US-led invasion aimed at controlling the country’s oil.

    You may think that’s the kind of nonsense we have heard before from Castro, as well as from his regional neighbor, Venezuela’s President Hugo Chavez, who has long insisted that Washington is trying to topple his regime in order to control his country’s vast oil resources, too.

    This time around, Chavez is not doing the talking. To be sure, the Venezuelan leader is making good use of social media, Twittering support to the Libyan leader: "Viva Libya and its independence! Gadhafi is facing a civil war."

    While Chavez did not pick up Castro’s remarks, he did allow that privilege to fall to his Foreign Minister Nicolas Maduro, who wasted no time in chiming in with the Cuban leader that the US and its allies “are creating conditions to justify an invasion of Libya.”

    US officials have long scoffed at suggestions that Washington is plotting anything against Venezuela's government, and they will say exactly the same thing about Castro’s accusations over Libya.

    Still, one can’t deny that some people actually are thinking along the lines suggested by Castro. In fact, an oil trader in Switzerland – who need not be named – this week proposed the very scenario earlier denounced by Castro.

    “One of the options that could be considered by the UN or the North Atlantic Treaty Organization is an imposition of a no-fly zone” in Libya, the trader said.

    He then added that, “It would not take great efforts for multinational troops to move in for humanitarian reasons and then set up an interim administration that would then also make sure that the oil flows (a mini-Iraq scenario).”

    A mini-Iraq scenario? If followed, such advice would open up a conflagration throughout the region, giving unscrupulous leaders and would-be leaders every excuse to rally ordinary citizens to the banner of resource nationalism, if not the extremism of the al-Qaeda terrorist network.

    Washington and its allies are wise to keep an eye on events in Libya, but only an eye at the moment. Anything that looks like putting planes in the air or troops on the ground will only play into the hands of Castro, Chavez or worse, al-Qaeda.

    Then imagine where oil prices will be.

    Contact Eric Watkins at

    New taxes = bad moos

    February 23, 2011 3:11 PM by Eric Watkins
    The idea behind a cash cow is to milk it for all it’s worth, isn’t it? That’s something the oil and gas industry knows well enough, being identified the world over as everyone’s favorite cash cow. Now, Rand Corporation has come up with new ideas to milk it.

    According to a new study by the California-based think-tank, the US government could fully fund its surface transportation infrastructure needs by levying a percentage tax on crude oil and imported refined petroleum products.

    Rand’s researchers, who very clearly want a just system, found that by replacing taxes at the gas pump with a percentage tax on oil, the tax burden would be spread across all users of petroleum products, not just motorists and truckers.

    Those same researchers also want a tax that’s easy to implement and compute, so they say that their proposed new oil tax would also replace several taxes on fuels with one tax, and could be adjusted automatically to fund transportation expenditures.

    “It would account for inflation, something that has eroded the value of existing fuel taxes,” Rand said, adding that the proposed oil tax could also help fund “national security needs to safeguard oil sources and sea-lanes used to import oil.”

    Rand is proposing this idea, it says, because the federal gasoline and diesel taxes that American drivers pay each year “fall short” of generating enough revenue to cover the costs of building new roads and maintaining the transportation system they are intended to fund.

    “Gas and diesel taxes have not been raised since 1993,” it said, as though the longevity of a tax is reason enough to raise it.

    “There is strong opposition in Congress to raising any taxes right now,” said Keith Crane, the report’s lead author and director of Rand’s Environment, Energy and Economic Development program.

    That’s a good point, and Rand researchers need to understand why there is such resistance. Taxation is hardly a popular subject, but it goes without saying that added taxes will be especially ill-received during an economic downturn such as the one now being experienced across the nation.

    But Crane is undaunted by such thoughts. “The federal gas tax has not been raised in more than 18 years. There is a clear shortfall in meeting the nation’s surface transportation needs, and our research indicates a crude oil tax can close that gap.”

    In Rand’s view, the tax rate on crude oil and imported refined petroleum products would depend on the price of oil. For example: the rate would change from 10% at $120/bbl, to 17% at $72/bbl, and 34% at $40/bbl to generate the same amount of revenue.

    Do you think that sounds ok? Well, read on and find out who the tax hurts.

    The tax would be collected at refineries, and the rate could be adjusted quarterly to account for changes in the price of oil. Motorists and truckers would pay modest increases in total taxes.

    Homeowners who heat their homes with fuel oil would pay federal taxes on fuel oil where they had paid none before. Low-income earners and those in the north and northeast would likely be more affected than higher-income earners or those living in moderate climates, researchers said.

    Motorists and truckers pay more. Homeowners who need to heat their homes pay more. Low-income earners would pay more. People in the north and northeast would pay more. And – magically – those who earn more would pay less, as would people living in moderate climates.

    This is a fair tax? A just tax? Consider the worst-impacted group. Just imagine the feelings of a low-income earner in the midst of a Minnesota winter as he or she contemplates stoking up the oil-fed heater. Most people won;t warm to that idea at all. Nor should they.

    Somehow, this tax proposal ends up sounding a lot less just than it started out. The best ideas don’t usually work that way, though, and this new idea of the Rand Corp doesn’t sound like one its best. Cash cow or not, Rand’s proposed new taxes are not the way forward for the oil and gas industry or its customers.

    Rand's idea is just bad moos.

    Contact Eric Watkins at

    Exclusive Analysis: 'Arab resource nationalism on the horizon'

    February 21, 2011 5:22 PM by Eric Watkins
    London-based Exclusive Analysis has published some tantalizing remarks following changes now taking place in the Middle East and North Africa. About energy in general and oil in particular, it has some very interesting remarks.

    Consider EA’s observation that, “the most likely commercial consequence is more expensive oil.” That says little. Nor does the reasoning behind it: “New and old regimes alike will want better terms and a better price.”

    Everybody may want a better terms and a better price. They always do, and why not? But they won’t necessarily get one. Price depends on many factors beyond the wishes of sellers. One of them is demand.

    When demand is up, the price is up. When demand is down, the price is down. These are the fluctuations that OPEC likes to even out, and with good reason since its members need price stability as much as anyone else does.

    There’s no reason to think that outlook would change under any new regimes. Under OPEC, a change in regime makes no difference to the quota system. And the quota system is not going to fall apart any time soon.

    “China, which has the money and an urgent demand, will need will do better in this contest than disparate indebted Western powers.” This is not telling us much. China has been in this position for much of the past decade, as have the Western powers.

    “Industrial consumer countries need alternative energy faster than the means to produce them can be built. They also need them on a scale that green alternatives cannot supply.” EA is on the right track here, as all the numbers show these days.

    “Thus, it is likely that governments will try to fast track nuclear energy programs (as they did in Italy) and that they will be resisted (as they were in Italy),” EA says. This looks to be a reasonable thought, too (though possibly apart from those comments about Italy).

    A good many governments – in the West, the Middle East and East Asia – all express a need for nuclear power. But that is no reason to believe that Middle Eastern oil producers will be abandoning their central commodity any time soon.

    It’ll be a long time before those plug-in electric cars become widespread. In China, the Jaguar Car Co. has found its third largest market – and it’s growing. Jaguar does have a plug-in concept car, the C-X75. But it's a long way from production.

    Changes now taking place in the Middle East and North Africa will not alter the fact that demand for oil is rising in the Far East, with much of the anticipated growth coming from increased consumer demand for automobiles. Muscle cars, actually.

    That's a market (and an income stream) that no oil producer would wish to miss out on nor, for that matter, would any resource nationalist.

    Contact Eric Watkins at

    The Dutch tilt at windmills

    February 14, 2011 5:42 PM by Eric Watkins
    Regardless of the form of energy, there’s bound to be someone standing in opposition to it. Take the latest news from Holland, where a dispute over windmills threatens to go the nation’s highest court.

    The problem is set in the town of Urk, where a new development of windmills is due to take place. The 86 turbines are to be erected in three rows, 38 on land and 48 off shore.

    According to recent press reports, though, these mills are giants, standing some 200 meters tall. And that’s just where the opposition comes in.

    "They are the highest buildings in Holland," says Leen van Loosen, Urk's undertaker who is campaigning to stop the project. "It's just crazy."

    With 430 megawatts of capacity, the wind park near Urk, population 18,000, would provide enough electricity for 400,000 homes and rank among Europe's largest.

    The Urk Park would help the Netherlands as it races to catch up with the stiff target set by the European Union to generate 20% of its energy from renewable sources by 2020.

    The Dutch now have a capacity of 2,237 megawatts from wind. But that’s a far cry from the 12,000 megawatt national target set for 2020.

    But local residents are not happy at the prospect and they cite a long litany of dangers from the wind park. Fishing and tourism will suffer, they say.

    And they cite more problems, too.

    The tranquil panorama of the local lake will be disrupted, the town will tremble with the constant rumbling noise of blades, birds will be traumatized, and the whole project could undermine a dike slated to host turbines.

    "We are all for green energy," says Van Loosen, "but this is out of proportion."

    Strangely enough, doesn’t that sound a little like Not In My Backyard?

    Contact Eric Watkins at
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