Venezuela: Refining its Allegiances

Venezuela's state-owned oil company, Petróleos de Venezuela (PDVSA), after already having sold its assets in German oil company Ruhr Oel, is now going to back out of US oil company Citgo, which has long been owned by PDVSA. In addition to selling its assets in Germany and the United States, Venezuela is also planning to shift its sales to Belarus and Syria. The president of the state-owned oil company, Rafael Ramirez, made clear, "We are aiming at reducing the spot market... We are signing long-term supply agreements." Both Ramirez and Hugo Chavez (who appointed Rafael Ramirez to be the president of PDVSA), not surprisingly agree and have called their stake in the American market "bad business." This process of selling their stake in Citgo is made complicate further by contracts with the company that will not allow them to outright sell Citgo, which will prove to make the process of leaving the American marketplace all the more drawn out.

I believe Venezuela is choosing to leave the American marketplace, not because it is purely "bad business," but rather because it is looking to further distance itself from American politics and Western interests. Venezuela reported that it was leaving Germany because of profitability reasons; but, this is hard to entirely believe, given the fact that , overall, Germany's economy is strong and is doing very well in spite of the current state of the global economy. In lieu of the economic powerhouses of Germany and the United State, Venezuela is focusing business further in Syria and Belarus; not exactly the nations that come to mind when considering profitability. But the most compelling reason of all to believe that this company, that is no doubt under Hugo Chavez's thumb, is acting on politics rather than economics is its shipments of oil to Iran that were intended to circumvent the effects of US and EU sanctions against it. These shipments were enough to sustain any shortages that Iran had and were recently discontinued because Iran no longer needed Venezuela's assistance. 


Sources: Reuters, WSJ, Photo

Potential Investment Losses Ahead For Cali

With California facing additional threats of investment leakage, the anxiously awaited decision on Proposition 23 will be levied on Tuesday. Prop. 23 aims to suspend the state’s greenhouse gas law that was in 2006. The law mandated substantial cuts in California’s greenhouse gas emissions by 2020.

The Silicon Valley venture capitalists are in clear objection to the potential ratification of Prop. 23. These venture capitalists have a major stake in the clean technology firms that have sprung up, and thus their investments are at risk if such a proposal were to pass. Jim Watson, managing general partner at the venture-capital firm CMEA Capital is ready to play hardball. “If lawmakers nationwide block legislation that benefits these clean-tech firms,” he says, “we have to start thinking about moving a lot of our investment dollars to China.”

Venture capital investment in California, specifically in clean-tech companies has been on the decline, but has been increasing rapidly in Asia. Prop. 23 is the latest factor to perhaps speed up that investment leak. What I am especially interested in covering this story is the struggle within the private sector that is taking place over Prop 23. While the venture capitalists may lose money on their investment as a result of this, existing firms that emit greenhouse gasses will benefit immensely. A thorough analysis of the economic implications of this proposition on both sides of the debate is required before any sort of affirmation of one position can be made.

It’s an interesting struggle between the established business heavyweights who serve to benefit from Prop. 23 and the risk taking innovators who oppose it. Personally, I feel the proposition is going to pass, and the entrepreneurs may once again be left out of the rain.


Sources: The Wall Street Journal, California Voter's Guide

Leviathan the future of Natural Gas?

According to a Wall Street Journal article published October 18, 2010 drilling began last week in Israel on a recently discovered natural gas well known as Leviathan. Leviathan is the second large natural gas well found of the coast of Israel in the Mediterranean Sea in the past year, the first being the natural gas well Tamar. Leviathan is currently projected to have upwards of 16 trillion cubic feet of natural gas, which would be enough to supply Israel’s energy needs for the next 100 years. This is the largest Natural Gas find in Israel’s history and one of the largest in the world in recent years. Noble Energy Incorporated and Delek Energy Limited are currently leading the initiative on the Leviathan project and together own approximately 86% of Leviathan and are expected to report the findings of their 150 million dollar exploratory drilling in March of 2011.

I think that it will be interesting to see what happens with Leviathan in the long run especially with the Israeli Finance Minister recently announcing that he has ordered a review of how the Israeli government taxes oil and gas exploration. The Israeli Knesset has been advised to not change royalty rates because it could lead Noble Energy to sue the Government of Israel at The International Court of Justice in The Hague. Also it will be intriguing to see how the Leviathan find will impact natural gas sales in both the Middle East and on the international level. It remains to be seen whether investment in the Leviathan natural gas well will expand or whether companies will choose not to invest because of the current uncertainty due to the possibility of making less profit. From a macroeconomic and political perspective it will shift the way that Israel currently conducts business with energy since they will no longer have to rely on receiving some of their oil from hostile countries.

Segmenting the Oil and Gas industry

In order to be successful at managing a business in the oil and gas industry, it is necessary to market the business and its services to the right target audience and with enough impact and coverage. This is why the oil and gas industry can segment the market.

It is very important to understand customers; if you are selling directly to a consumer, you must know as much as possible about your customer's geographic, demographic, psychographic and behavioral profiles. From the geographic point of view, it helps to know where the majority of the consumers are located for example, in rural or urban areas, to see where to put gas stations. Another important aspect is demographics. By knowing the age, you know about how many people from the population are in need of production from the oil and gas industry. Income, under the demographics category, also shows how about how much money is able to be used for oil and gas products. For example, a high income leaves money to be used for other resources such a gas. In the psychographic segmentation, the consumption of gas can depend on whether people like to have their calls full of gas (personality traits) or not. If a gas company for example, offers special services such as discount coupons or a has a person who pour the gasoline into the customer’s car without making the customer come out of the car, most probably the customer will have preference for this gas station and therefore will develop brand loyalty. This would also apply for the demographic segment because old people prefer to have the gas poured by an employee rather than come out of their car. Thus, behavioral segmentation also applies to the oil and gas industry.

By having segmentation, there is a better way of targeting the market. The four segmentations, geographic, demographic, and behavioral, can be used in the oil and gas industry in different ways.

Sources:

Guide to Marketing Your Business in the Oil and Gas Industry EZ Article

Moratoridone.

Almost six months after the Obama administration’s controversial moratorium on deepwater drilling was initially imposed, the gulf drilling ban was finally lifted today. As I blogged about in early September, the moratorium has resulted in an unemployment increase in the gulf region, and in productivity stagnation in an already fragile economy.

The news of its repeal is good news, but there are strings attached. The moratorium is gone, yes, but drilling likely won’t resume before the end of 2010 due to companies needing to re-apply for drilling rights by demonstrating their compliance with the new regulations the Obama administration has begun to levy. It’s important to consider the timing of the announcement, too. The administration has repealed the ban six weeks previous to its originally planned date in an effort to show their focus remains on the economy.

But there are question marks surrounding the future of the gulf energy industry. For starters, how long will the permit process take to resume drilling? The White House’s projections of 2010 are just that: projections; and it’s a real possibility that the process will be subject to delay. Yet much of the concern is about small businesses or midsize companies that cannot afford the idle waiting time or the new safety regulation costs. Complimentary manufacturers are also feeling the pressure. Gulf Island Fabrications Inc., a builder of massive steel platforms used by the oil and gas industry, laid off a third of its workforce, or about 500 employees this year.

It’s unclear to what extent the new regulations will affect gulf coast companies and the industry as a whole, but there is no doubt that the cost of production is going up – a lot.


Sources: The Wall Street Journal, Foreign Policy

Breakthrough Energy Legislation Blows In

After eight years of vying, final approvals to the Cape Wind Project have finally gone through, and a 28 year lease marks the first of its kind in the US. The Cape Wind Project will be the first of many offshore wind project in the US, and other offshore wind projects in the US include: the Offshore Wind Economic Development Act in New Jersey, a project in Rhode Island, several projects in New York, and in Maine, Delaware and even Ohio (in Lake Erie). While the US is a major competitor in many renewable energy technologies, the United States lags behind many European countries in the development of offshore renewable energy. The United Kingdom, Germany and Denmark are two countries which are far ahead of the game, as they already produce the great majority of offshore wind energy in the world.

The implications of such major projects are not as large as should be expected from the amount of hype around these recent US projects. While the scale of projects in the US is not small, compared to European nations, especially Germany, which will likely soon become the second in the world for offshore wind power generation despite its limited coastline, and the UK, which has a project in the works for 2020 that is valued at $150 billion. Despite being dwarfed by many European projects, the fact that the United States overcame eight years of legislative gridlock is a major breakthrough, and it is a great step in securing American independence from foreign oil by both curbing the need at the level of utilities and for the production of greener electricity that will go on to provide energy to electric vehicles, thus helping to substitute the great thirst that the transportation sector has for oil.

Sources: Reuters , Picture

Technology, Manufacturing, and Costs in the Oil and Gas industry

Technology has influenced the growth and development of the oil and gas industry in many ways. Some manufacturing is done domestically and also internationally. In some cases, companies lowered their production costs.

The capabilities, cost, risk, and legality of new technologies must be determined before are moved into commerce. Argonne's Environmental Science Division conducts independent feasibility studies of the technical, regulatory, economic, and risk aspects of promising oil field technologies to foster technology evaluation and implementation. Some technology that Argonne's Environmental Science has incorporated are synthetic based drilling fluids that offer both good drilling performance and low environmental impacts, the use of underground salt caverns for disposing of oil field waste below water supplies, and downhole oil and water separators that produce cost savings through lower produced water management costs and a safer environment.

Many small producers exist in Europe, Canada, Russia, Asia, and Australia. The U.K. has the largest number of firms, which are concentrated in Scotland. The U.S. oil and gas equipment industry is very strong both domestically and internationally, particularly in areas involving advanced technology. The domestic industry is so competitive in the U.S. market that imports make up only a very small portion of the U.S. market. Perhaps, a very large portion of the oil and gas equipment manufactured in the U.S. is exported.

U.S. oil and gas equipment manufacturers are strong in every market around the world; however, they have extensive competition from manufacturers in Western Europe, Canada, Japan, Korea, Russia, China, Brazil, Argentina, and Australia. These producers tend to have favorable market shares in their regions. For example, European manufacturers have an advantage in the North Sea region, while the U.S. leads in the Western Hemisphere. The world market for upstream oil and gas equipment rises and falls with the price of oil. This happens as oil and gas companies increase and decrease their exploration and production activities. When the price of oil falls drastically the equipment market declines and the oil and gas equipment industry experiences bankruptcies and layoffs.

Technology manufacturing and companies costs play an important role in the energy industry. Technology helps in advancing drillings and many explorations in the oil and gas industry. The United States accounts for many of the production of gas and oil domestically and internationally.

http://www.evs.anl.gov/project/dsp_topicdetail.cfm?topicid=18

Atlantic Wind Connection the future of commercial wind development?

On October 11, 2010 Google officially announced its investment in the Atlantic Wind Connection for tens of millions of dollars. The Atlantic Wind Connection is a project funded by Google, Good Energies, and the Marubeni Corporation who according to The Wall Street Journal have teamed up to provide funding for the building of a transmission line for wind generated energy. The Atlantic Wind Connection is expected to begin construction in 2013 and is projected to be completed by 2020.

The project itself is broken up into five sections with Google, Good Energies, and the Marubeni Corporation pledging to invest in the first section of the project with the possibility of funding the rest as well. When completed it is expected to provide power for approximately 1.9 million households spanning 350 miles from Virginia to New Jersey. The Atlantic Wind Connection would eliminate the need for offshore wind developers to build their own transmission lines and according to The Wall Street Journal lowering costs by 17-20% for offshore wind developers. The Atlantic Wind Connection, according to Google and The Wall Street Journal, has chosen the mid-Atlantic region of the United States to build this project because it has shallower water off the coast and would be easier to build a transmission line going out 10 to 15 miles to sea.

I think that the Atlantic Wind Connection is a risky investment because of the possible financial and regulatory drawbacks. One such hindrance being that the project is projected to cost over 5 billion dollars when completed. In addition acquiring government permission to build the transmission line will be an obstacle as the United States last week approved, for the first time ever, the construction of a commercial wind development. Also the permission process will require going through various different sectors of government including Federal Energy Regulatory Commission among others. This brings up the question of whether the Atlantic Wind Connection with these impediments will be able to be completed by 2020 and if Google and the other firms will still be willing to invest at that juncture in time. Overall, the project while promising does not appear to be worth the approximately five billion dollars that it may be worth upon completion with so many chances to falter along the way.

Sources: http://online.wsj.com/article/SB10001424052748703440004575547381873787098.html?mod=WSJ_Energy_leftHeadlines
http://googleblog.blogspot.com/2010/10/wind-cries-transmission.html

Fresh Pickens

Founder of BP Capital Management, Mesa Petroleum, Clean Energy, philanthropist and more, T. Boone Pickens is one of the most innovative leaders of the move to make America energy independent. For the past few years Pickens has invested in alternative energy, as well as his mainstay natural gas, in order to help America lift its dependence on foreign oil. In recent weeks he spoke to an energy conference in Virginia, and next he will be headed to Texas, about energy alternatives to oil and the impact that that may have to benefit our nation.

A quotation of Pickens from the conference in Virginia that summarizes well  his platform for energy reform:

"If we are going to address the environmental and economic crisis associated with our escalating dependence on OPEC oil, we have to get serious about using North American resources in transportation to back out foreign oil/ diesel/ gasoline.  Gov. McDonnell understands that we have to get serious about our energy challenges, problems and opportunities in this country.  It’s going to take leadership, new thinking, big ideas and serious innovation to achieve greater energy independence and help transition to a more sustainable and economical energy model. Conferences like this one are an important part of that effort, and I’m pleased to be a part of it."

After having seen and having been intrigued by T. Boone Pickens on the Tonight Show in 2007, I am confident that his plans are now on their way to being implemented. A quotation from Barack Obama atop the web page for the Pickens Plan reiterates Pickens plan to make America independent of Middle Eastern oil in 10 years, even though Pickens himself voted for McCain. This type of radical action using existing technologies is just what our nation needs to truly make a dent in our energy usage and in our impact on the environment.

Sources:
Forbes
PickensPlan

World Oil Tax

According to The Economist the United States has the world’s second lowest petrol tax at $.039, with the exception being Mexico which subsidizes petroleum. Most countries especially now with “green” energy becoming more mainstream have a tax of at least $3 as is the case in Germany, Britain, Finland, France, Norway and Turkey. These countries having high taxes on gasoline and oil is significant because it shows that governments throughout the world are making a concerted effort to give incentives to the consumer to stop using oil and gas as frequently. To the contrary the fact that the United States has such a low tax helps to explain the trend of American consumers driving more frequently and people buying more vehicles defined as “gas guzzlers.”

The notion of having such a low petrol tax raises the question of whether the United States should raise it in order to provide further incentives for the United States consumer to become less reliant on oil and gas. In addition if the United States Government were to implement this it would lead to more money available for the Federal Government to have to spend instead of continuing to borrow from China and Japan, thus raising the national debt. Raising petrol taxes could also show that the United States Government is worried about climate change and would be a step in the right direction by imposing higher taxes. In addition, higher taxes would show that President Obama is backing his pledge to make the United States a more energy efficient country.
Sources:http://www.economist.com/node/17101124?story_id=17101124

Cali Goes Solar: Cool, right?

Following Tuesday’s announcement of the approved construction of two solar power facilities in California, the string of skepticism has already begun to sink in. The Wall Street Journal reported that the two projects will be built on federal publically owned land and will be contracted by Chevron Corp. and Irish Developer NTR PLC.

The buzz in California is currently over the estimated $1 billion dollars that the projects will generate for the economy, including 950 jobs and the resulting capacity to power 500,000 homes. The projects are being partially subsidized by federal tax incentives for renewable energy that expire at the end of the year.

Everyone is excited, but how great will the projects really be? It’s important to consider a few of the unknowns before we give the project our blessing. First, what are the construction costs going to be? Likely astronomical. The cost of building these plants is enormous and in order to generate and store power past dark, the plants will require special batteries that are also extremely expensive.  The price per kilowatt is still unknown, but the plants will have to churn out massive amounts of power to recoup the initial investment price and prove it to be beneficial.

There’s no doubt it’s a step in the right direction for California who aims cut greenhouse gas emissions to 1990 levels by 2020, but the question marks surrounding the plant’s productivity and construction costs remain important. Until then, it sounds good, and it’s election season. With only 22 days to go, I’d say timing is everything. 

Sources: The Wall Street Journal, Chevron

US EXPORTS GAS

Many years ago the supply in domestic US gas was fairly low. The demand was much higher. Thus, the United States was forced to import gas. However, times have changed.

The US wants to make investment in drilling gas. The US currently has a lot of shale gas attained domestically. The price of gas in the US has gone down to $3.80 I addition to having a surplus. The demand has risen. However, if the United States doesn’t invest in other drilling technologies to attain more gas, in the future, it will eventually lack gas. Besides just consuming the gas in the US, it should be exported to other countries as well.

As many debates have been held, many companies have come to ask the Federal Energy Regulatory Commission for permission to export gas instead of importing gas. The US would highly benefit since it would be able to rank higher in the oil and gas industry just like for example, Qatar.

This is a new opportunity for the US economy. Having abundance of gas is helpful for exporting more than importing and therefore bringing up the GDP of the country, since there will be less imports in gas.

http://blogs.forbes.com/christopherhelman/2010/09/27/its-time-for-the-u-s-to-export-natural-gas/