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Jan. 13 (Bloomberg) -- Japan, which imports about 90 percent of its
oil from the Middle East, will study the feasibility of importing oil
sands, or heavy oil, from Canada to diversify its sources of energy
supplies, a minister said.
Officials from Japan's trade ministry, refineries and trading
companies will begin a visit to Canada tomorrow, Trade Minister
Toshihiro Nikai told reporters in Tokyo today.
Japan, the world's third-biggest oil user, wants to reduce its
dependence on a single region for its energy supplies after growing
demand from China and India pushed oil prices to record last year.
Importing oil sands ``can contribute to raising Japan's energy
security,'' Nikai said. ``Japan hasn't imported the fuel, but we will
strongly promote it.''
Canada's oil sands hold the second-biggest oil reserves after Saudi
Arabia. It can produce a heavy oil called bitumen, which can be
processed into refinery-ready crude and made into gasoline, diesel and
other fuels.
In May, China Petrochemical Corp. took stakes in a Canadian oil
sands project by C$105 million. Cnooc Ltd., China's
third-largest oil producer, also holds stakes in a Calgary-based
company, which has interests in oil-sand properties.
Japan imported 20.1 million kiloliters (126.4 million barrels) of
oil in November, according to the latest statistics from the trade
ministry. Of the amount, the nation bought 92 percent, or 18.4 million
kiloliters, from the Middle East, and imported 3.3 percent from
Southeast Asian countries.
Officials from Nippon Oil Corp., the nation's biggest oil refiner,
and Cosmo Oil Co. will be in the delegation visiting Canada, the
companies said.
To contact the reporter on this story:
Megumi Yamanaka in Tokyo at myamanaka@bloomberg.net.
Last Updated: January 13, 2006 00:26 EST
(Japan Economic Newswire Via Thomson Dialog NewsEdge)TOKYO, Jan.
13_(Kyodo) _ Japan will dispatch its first public-private weeklong
mission to Canada's Alberta from Saturday to study the feasibility of
exploiting oil sands, or deposits of bitumen trapped in a mixture of
sand, water and clay, the Ministry of Economy, Trade and Industry said
Friday.
The nine-member mission will include an official from METI's Natural
Resources and Energy Agency and representatives of four oil
wholesalers -- Cosmo Oil Co., Idemitsu Kosan Co., Nippon Oil Corp. and
Japan Energy Corp. -- as well as of Mitsubishi Corp. and Mitsui &
Co. trading houses.
The team will visit Edmonton and Calgary to inspect oil sands
development facilities there and hold talks with Alberta government
officials and local oil producers, METI officials said.
Global reserves of oil sands, also called tar sands, are estimated to
total 2 trillion barrels, with 44 percent deposited in Canada and 50
percent in Venezuela. To produce one barrel of crude oil, 1 to 2 tons
of oil sands are considered necessary.
Production costs are relatively high because tar sands yield mostly
heavy oil, which will not flow unless heated or diluted with lighter
hydrocarbons.
Canada exports its oil sands through pipelines to the United States,
but it has not developed shipping routes to the Pacific Coast beyond
the Rocky Mountains, the officials said.
Japan currently does not have the capacity to process oil sands but
industries view the resource as a potential future energy source, they
said. Referring to the mission, Economy, Trade and Industry Minister
Toshihiro Nikai emphasized the importance of diversifying the energy
supply at a press conference Friday
http://www.tmcnet.com/usubmit/2006/jan/1283074.htm
Japan's new energy strategy
http://www.atimes.com/atimes/Japan/HA13Dh01.html
Asia Times Online, Hong Kong - Jan 12, 2006 Japan's new energy
strategy By Hisane Masaki
TOKYO - Resource-poor Japan is barreling ahead to rev up its energy
security, driven by the specter of another oil crisis, the global rush
for energy resources and a simmering gas dispute with China.
Japan's Ministry of Economy, Trade and Industry (METI) plans to
release publicly the outline of the nation's new energy strategy as
early as next month and will ask an advisory panel to Minister
Toshihiro Nikai to flesh out the details before formalizing it by
June.
The New National Energy Strategy, the draft outline of which was
made known recently, is expected to call for, among other things,
reduction in the oil-dependency rate to 40% or less by 2030 from
the current 50%, promotion of nuclear energy, and securing of energy
resources abroad through the fostering of more powerful energy
companies.
Apparently in tandem with the new government energy-security policy
being drawn up, the nation's controversial nuclear-fuel-cycle policy
has entered a new phase. Recently, the government unveiled a plan to
construct a new 1 trillion yen (US$8.7 billion) fast-breeder reactor,
and domestic power firms also announced their plutonium utilization
plans ahead of the start of a key test operation next month to extract
plutonium at a spent-nuclear-fuel reprocessing facility. In another
important development, Inpex Corp and Teikoku Oil Co, Japan's No 1 and
No 3 oil developers, will integrate their operations under a joint
holding company in April in a bid to survive cutthroat competition on
the global scene.
These Japanese moves toward greater energy security come amid
growing concerns about whether the nation will be able to ensure
stable oil and other energy supplies to fuel its economy, the world's
second-largest. Crude-oil prices are stuck at about $60 per barrel in
world markets, although they remain well below the historic peak of
$70 reached in late August.
Amid the stubbornly high oil prices, the global competition for oil
reserves is intensifying. This rush for oil reserves is being driven
by China and India, which both desperately need stable oil and energy
supplies to power their booming economies. New sources of energy have
turned into new sources of potential tension and conflict, as being
exemplified in East Asia by the gas dispute between Tokyo and Beijing
in disputed waters in the East China Sea.
Japan relies on imports for almost all of its oil, of which nearly
90% now comes from the politically volatile Middle East. Inevitably,
last year's spike in oil prices posed a threat to the country's
economy. Another oil crisis similar to the two of the 1970s - in 1973
and 1979 - would be a nightmare scenario for the energy-strapped
country. After the first oil crisis, panicked Japanese consumers
rushed to stock up on toilet tissue and detergent, among other goods.
As a result of that crisis, the Japanese economy experienced its first
negative growth since the end of World War II in 1974 after years of
high-flying growth from the early 1960s. Japan survived the two oil
crises through strenuous energy-saving efforts and technological
innovations. The oil crises are commonly remembered as "oil
shocks" by Japanese people.
Today, Japan's economy is among the world's most energy-efficient.
According to one estimate, the nation now needs 55 kiloliters of crude
oil - nearly half the 106 kiloliters it did in 1980 - to generate 100
million yen in gross domestic product (GDP). Japan now has sufficient
oil reserves, worth 170 days of supply. A stronger yen, which makes
imports cheaper, also plays a significant role in fending off the
negative impact of a sharp surge in oil prices. In 1980, when oil
prices broke through $40 per barrel, the yen traded in the 202-264 yen
range against the US dollar. But the yen is now quoted at about 106
against the greenback.
To be sure, Japan's economy is much more resilient to high oil
prices than it was during the two oil crises of the 1970s. But Japan
cannot feel safe and secure in the medium and long term. In addition
to speculative trading and weather conditions, world oil prices have
stayed high - and are expected to do so throughout the year and beyond
- because of structural factors that will not change overnight. Among
those structural factors are sharply rising demand in Asia, led by
China and India, the world's two most populous countries, as well as
limited spare production capacity of the Organization of Petroleum
Exporting Countries (OPEC). The International Energy Agency (IEA)
estimates that global demand for energy will rise by 60% in 2030 from
this year. World petroleum production is predicted to peak in 2010 at
the earliest and in 2040 in a more optimistic forecast.
The New National Energy Strategy calls for stepped-up energy-saving
efforts and the development of energy-saving technologies to cut the
ratio of energy consumption to GDP by 30% by 2030 to ensure the nation
will have a stable energy supply amid intensifying competition for
energy resources. This goal is far from a cakewalk, however. Japan's
ratio of primary energy consumption to GDP is already the world's
lowest after improving 30% over the past three decades because of
conservation measures spurred by the oil crises of the 1970s. The new
strategy is also expected to call for lowering Japan's dependence on
oil as a primary energy source from the current 50% to 40% or less by
2030 through promotion of alternative energy sources such as solar and
wind power.
Going more nuclear
The strategy is expected to call for raising the percentage of nuclear
power in the total national electricity supply from the current 30% to
between 30% and 40% or more in 2030 and also establishing a nuclear
fuel cycle. In late October, the Atomic Energy Commission of Japan,
the highest nuclear decision-making body affiliated with the cabinet,
also adopted a long-term nuclear plan maintaining the nation's nuclear
fuel cycle program, which reprocesses all the spent nuclear fuel to
extract plutonium for future use as nuclear fuel. A fast-breeder
reactor (FBR), which produces more fissile material than it consumes,
is central to the nuclear-fuel cycle.
The prototype Monju FBR in Tsuruga, in the central prefecture of
Fukui, has remained shut down since a sodium leak and subsequent fire
in December 1995. The operator, the Power Reactor and Nuclear Fuel
Development Corp (Donen), had tried to cover up the extent of the
accident.
The semi-governmental Japan Atomic Energy Agency, which was created
in October through the merger of Donen's successor body, the Japan
Nuclear Cycle Development Institute (JNC), and the Japan Atomic Energy
Research Institute, has recently started preparing Monju with an eye
toward resuming full operations, although local residents remain
concerned about safety. Fukui Governor Issei Nishikawa has said local
citizens must be convinced of the safety at Monju before he gives the
go-ahead.
Furthermore, the METI-affiliated Agency for Natural Resources and
Energy unveiled a plan late last month to build a new, far more
technologically advanced and efficient FBR by about 2030 at a cost of
1 trillion yen to replace Monju. The new FBR would also be used as a
model reactor for about a decade and then commercialized to replace
light-water reactors from about 2050.
At the same time the agency also disclosed a plan to work toward
the development and construction of a second spent-nuclear-fuel
reprocessing facility by about 2045 to produce uranium-plutonium mixed
oxide fuel (MOX) for use at the new FBR. The current one in the
village of Rokkasho, in the northeastern prefecture of Aomori, is
slated to end operations by about 2045.
Also, the so-called pluthermal (using plutonium in commercial, or
thermal, nuclear power plants) power-generation project will next
month enter a new phase toward its realization when Japan Nuclear Fuel
Ltd, which runs the Rokkasho facility, will start a test operation to
extract plutonium so that element can be produced as early as this
spring. The project will burn MOX fuel at light-water reactors. The
Rokkasho plant is scheduled to come into commercial operation next
year.
According to plans released this month by 11 Japanese power
companies, as much as 6.5 tons of plutonium will be consumed annually
at nuclear plants after the pluthermal power-generation project gets
under way. The Federation of Electric Power Companies of Japan plans
to get pluthermal power generation under way at 16 or 18 power plants
by the end of fiscal 2010. The companies said they plan first to use
plutonium produced overseas, such as in Britain and France, at the
pluthermal plants and start using domestically produced plutonium in
2012 or later.
The companies' plans fall short of providing concrete figures to
convince critics that the nation will consume all the plutonium it
keeps and produces for peaceful purposes. Moreover, none of the
companies have received final consent yet from local communities
expected to host the pluthermal plants about their plans because of
lingering uncertainties over details. The companies plan to obtain a
combined 1.6 tons of plutonium to be reprocessed from spent nuclear
fuel at the Rokkasho plant by the end of fiscal 2006. Japan Nuclear
Fuel envisages the plant producing more than 4 tons of plutonium at
full operation annually in the future. The Japanese power companies
currently keep a total of about 30 tons of plutonium reprocessed in
Britain and France, an amount they say can be burned at the pluthermal
plants within about 15 years.
Pluthermal burning was devised to consume surplus plutonium that
resulted from the reprocessing of spent nuclear fuel. Because of the
stoppage of the Monju fast-breeder reactor and the slow progress in
pluthermal project, Japan's stockpile of plutonium has been
increasing. With nuclear non-proliferation emerging as a grave global
issue, Japan could be viewed by other countries with suspicion. While
being the only country to have suffered the scourge of atomic bombs -
during World War II at the hands of the US - and also being a
non-nuclear-weapon state, Japan is the only member of the nuclear
Non-Proliferation Treaty (NPT) to be permitted both to enrich uranium
and reprocess spent nuclear fuel for peaceful civilian purposes.
International Atomic Energy Agency (IAEA) director general Mohamed
ElBaradei has proposed that new reprocessing facilities be placed
under international control to ease proliferation concerns. But the
Japanese government's position is that even though the Rokkasho
facility has yet to go into operation, it is an existing facility and
therefore outside the scope of ElBaradei's proposals.
US President George W Bush has advocated a similar international
nuclear-management initiative of his own, and Japan is leaning toward
joining it.
Japan also sees promotion of nuclear energy as crucial if it is to
slash carbon dioxide and other greenhouse gases widely blamed for
global warming. Japan is obliged by the 1997 Kyoto protocol to reduce
such gases by 6% from 1990 levels by 2012. Many of the nation's 54
nuclear power plants are now 20-30 years old but won't be replaced by
new ones until about 2030. Increasing the share of electricity
produced by nuclear reactors to 40%, for example, will place great
strain on older reactors. To increase the operation rate of such
reactors while ensuring their safe operation will be a great
challenge.
It also remains to be seen whether Japanese power companies, facing
tougher competition as well as damaged public confidence in
nuclear-plant safety in the wake of a spate of accidents and other
problems - and their cover-ups - will be able to build new plants to
replace the aging ones in the future.
When crude-oil prices remained low in the 1990s, the government
went ahead with deregulation, such as liberalization of the
electricity market, which resulted in lower electricity prices. But
this deregulation weakened the financial strength of power companies,
raising concerns about whether they have sufficient funds to invest in
nuclear-power development. It may even be possible that the government
will be forced to reverse its deregulation policy.
More 'Hinomaru oil'
The New National Energy Strategy is expected to call for increasing
the ratio of "Hinomaru oil", or oil developed and imported
through domestic producers, from the current 15% to 40% by 2030. To
achieve that goal, the new strategy emphasizes the need to foster
Japanese oil majors that can compete with foreign rivals.
The planned operational integration of Inpex and Teikoku Oil under
a joint holding company in April is in line with the new national
strategy. There is no doubt that METI, which owns 36% of Inpex, has
played a key role in the marriage of the two oil developers in the
hope of fostering a more powerful entity to compete better with
foreign rivals. Inpex had merged with another government-affiliated
firm, Japan Oil Development Co, in 2004. Teikoku Oil was also
originally established by the government.
As the global resource boom continues, the increasingly tough
competition among oil and gas developers worldwide shows no sign of
abating. Energy-hungry China and India are fueling the rush for the
world's oil and other energy reserves. China became a net importer of
crude oil in 1993 and superseded Japan as the world's second-largest
oil consumer after the United States in 2003. China now depends on
imports for more than 40% of its oil. Meanwhile, India imports about
70% of its oil. The ratio of the two countries' dependence on imported
oil is expected to keep rising. This prospect has prompted Japan to
begin to help other Asian countries build oil reserves through
technical assistance.
China's aggressiveness in the global oil market drew particularly
widespread attention last summer when China National Offshore Oil Corp
(CNOOC) launched a takeover bid for US oil and gas firm Unocal. CNOOC
eventually gave up the bid in the face of strong opposition from
American politicians, and another US firm, Chevron, took over the
smaller rival.
Still, China has got its hands on many foreign oil deposits in the
past year or two.
Chinese oil firms took over Canada-based companies PetroKazakhstan,
whose operations are based in Kazakhstan, and Encana Corp's oil and
pipeline interests in Ecuador. China also won oil interests off the
coast of Angola after wooing the African country with an extension of
a $2 billion credit line. China outbid India in all three cases. China
and Kazakhstan also inaugurated a 1,000-kilometer oil pipeline last
month to supply Kazakh oil to western China.
CNOOC announced this week the $2.27 billion purchase of a 45% stake
in the Akpo offshore oil-and-gas field in Nigeria. India's largest oil
and gas company, Oil & Natural Gas Corp (ONGC), suffered
misfortune. Its international-exploration subsidiary, ONGC Videsh Ltd,
won the bidding for the field in December, but the purchase was
blocked by the Indian government, which contended that the bid of more
than $2 billion wasn't commercially viable (see Curses, oiled again!,
January 11).
Late last month, a joint venture between ONGC and China National
Petroleum Corp (CNPC) emerged as the winning bidder for Alberta-based
Petro-Canada's oil-producing assets in Syria, acquiring a 38% stake in
the Al Furat oilfield, in what is seen by analysts as heralding the
beginning of cooperation between Beijing and New Delhi in securing
energy supplies to fuel their booming economies.
China does not seem to be fussy about where its oil comes from. It
gets oil in Sudan despite the international uproar over the Darfur
crisis. In moves that have raised eyebrows in Washington, China has
strengthened ties in the past few years with staunchly anti-US
countries such as Cuba, Venezuela, Iran and Myanmar. Cuba agreed to
let China explore its coastal oilfields. Venezuelan President Hugo
Chavez offered Chinese firms operating rights to mature oilfields.
China signed an agreement to buy oil and gas from Iran and to develop
that country's Yadavaran oilfield. India also plans to receive gas
from Iran under a proposed $6 billion pipeline project via Pakistan.
China has also strengthened political and military as well as
economic relations with Myanmar in defiance of US and European
sanctions against the military-ruled Southeast Asian country. China
wants to secure stable oil and other energy supplies by land, as well
as by sea, many experts agree. Speculation is rife about the idea of
building an oil pipeline running across Myanmar to Kunming, the
capital of the Yunnan province, western China, at an estimated cost of
$2 billion. In late December, China also signed an agreement with
North Korea jointly to develop offshore oil reserves, although no
other details have been announced.
Meanwhile, competition for energy sources has also increased
tensions between China and Japan. Tokyo and Beijing are locked in a
simmering fracas over Chinese gas projects in the disputed waters in
the East China Sea near the so-called median line, which was drawn by
Japan but has not been recognized by China. The line is meant to
separate the two countries' 200-nautical-mile exclusive economic zones
(EEZs). The disputed Senkaku Islands, or the Diaoyu Islands in
Chinese, are on the Japanese side of the median.
Last year, the Japanese government decided to build the country's
first ship designed to survey offshore oil deposits. The government
also earmarked 8.2 billion yen in its fiscal 2006 defense budget to
increase the nation's ability to cope with submarines and armed spy
ships in seas close to Japan.
Also, the Liberal Democratic Party-led coalition plans to introduce
a bill this month in the diet, or parliament, to create off-limits
zones near structures set up for resource exploration and development
in the Japanese EEZ. Trespassers would be punished with prison terms
of up to one year and fines worth 500,000 yen. The bill, already
drafted, is aimed at supporting Teikoku Oil, which was granted
concessions last summer to start experimental drilling in the East
China Sea, in an apparent bid to counter natural-gas exploration
conducted nearby by China.
Japan and China have also lobbied hard for alternative routes for a
pipeline from eastern Siberia's oilfields to Pacific Rim nations. When
Russian President Vladimir Putin visited Tokyo in November, Japan
failed to gain a guarantee that Russia will give priority to building
a "Pacific route" from Taishet near Lake Baikal to Nakhodka
on the Sea of Japan coast via the halfway point at Skovorodino, near
the Russia-China border, rather than to building a "China
route" heading to Daqing, northeastern China, from Skovorodino.
Putin and Japanese Prime Minister Junichiro Koizumi signed an
agreement only to accelerate talks on the Pacific route. Russian state
pipeline monopoly Transneft is building the pipeline in two stages. It
expects to finish the first stage in 2008 at Skovorodino, far from the
coast but close to China. No date has been set for the second stage.
Japan's oil diplomacy suffered a serious setback when Arabian Oil
Co, which has strong backing of the government, lost its right to
operate in the Khafji oilfield in the Persian Gulf - in the
Saudi-controlled portion of the field in early 2000 and the
Kuwaiti-controlled portion in early 2003. But Japan has since regained
lost ground, securing oilfields elsewhere in the Middle East.
In early 2004, Japan and Iran signed a $3 billion deal to develop
Iran's massive Azadegan oilfield. The project is expected to pump
700,000 barrels of oil per day by 2010.
In October, Japan scored another coup in its oil diplomacy. Five
Japanese enterprises won international tenders to acquire the rights
to develop a combined six oilfields in Libya. The deals mark the first
oil-exploration concession ever given to Japanese firms in Libya.
Through their marriage, Inpex and Teikoku Oil hope to become bigger
players on the global stage. The two oil developers have combined
annual sales of more than $4.7 billion. But as things stand now, the
new entity is nowhere close to becoming a powerful oil major that can
match huge US - and even Chinese - rivals. The new entity produces
370,000 barrels of oil per day. The new entity's production volume is
smaller than the 380,000 barrels per day pumped by China's CNOOC.
Japan still has a long way to go before making "Hinomaru
oil" rise and shine on the horizon.
Hisane Masaki is a Tokyo-based journalist, commentator and scholar
on international politics and economy. Masaki's e-mail address is
yiu45535@nifty.com.
Natural Gas Prices Affect Bitumen
Extraction Costs
January 11, 2006 - 10:59pm
By: JAMES STEVENSON
CALGARY (CP) - With natural gas prices remaining far above
historical highs, the race is on to find other less energy intensive
ways to turn the gluey oilsands of northern Alberta into synthetic
crude.
Expending gas to make oil is the way it has worked in the oilsands
for nearly 40 years. And few thought much of it through the years when
gas prices were a tiny fraction of overall expenses. But along with
soaring costs for gas, oilsands production is changing.
Vast open-pit mining operations owned by Suncor Energy (TSX:SU),
the Syncrude Canada joint venture and Shell Canada's (TSX:SHC)
Athabasca oilsands project are not the only way to get at the
oil-laden bitumen anymore.
In fact, it's estimated that about 70 per cent of the 174 billion
recoverable barrels lying in the oilsands are too deep for
conventional mining and must be accessed using wells that suck up the
bitumen.
Since the oilsands has a tar-like consistency, solutions are needed
to thin the bitumen to enable it to flow up the wells and through
pipes to the upgrader. So far, these technologies have focused on
so-called 'thermal' recoveries or heating up the reservoir for months
until it melts.
The most popular thermal method is steam assisted gravity drainage,
or SAGD, which involves pumping vast quantities of steam down one well
to melt the bitumen. A second horizontal well collects the melted oil
and brings it to the surface.
But with natural gas averaging more than $9 US per million British
thermal units on the New York Mercantile Exchange last year, an
increase of almost 50 per cent over 2004, the process becomes a costly
proposition.
"For the oilsands, natural gas price has become the single
largest operating cost that the companies have," says Greg
Stringham, vice-president of markets for the Canadian Association of
Petroleum Producers.
"And from that perspective, reducing that dependency becomes
very important."
Leading the charge in this department is Nexen Inc. (TSX:NXY) and
partner Opti Canada (TSX:OPC), who are in the middle of constructing
their $3.5-billion Long Lake oilsands project and upgrader.
By taking the so-called "bottom of the barrel" of bitumen
and converting it into a synthetic gas, the partners expect Long Lake
to produce oil that is upwards of $9 cheaper per barrel than other
oilsands producers.
The companies are completely confident in the technology, which has
been used in a two-year pilot project as well as other applications
around the world, says, Kevin Finn, Nexen's vice-president of investor
relations.
"I think every other oilsands producer in town is looking at
gassification in order to generate their own fuel," says Finn.
"With the cost of natural gas today where it is, you can't
ignore it."
Long Lake is expected to begin producing bitumen next year.
Industry heavyweights like Suncor and Canadian Natural Resources (TSX:CNQ)
have already announced plans to include gassification units in future
expansions.
Other technologies are also being touted as potential breakthroughs
that will allow for easier and cheaper harvesting of the oilsands.
Smaller Petrobank Energy (TSX:PBG) is building a pilot project to
test its technology that involves pumping air underground to fuel a
fire that burns the heavier oilsands particles. Lighter, melted oil is
accumulated by a second horizontal well and brought to the surface.
If it works, the company expects this so-called toe-to-heel air
injection technology to boost recovery rates to upwards of 80 per cent
of the oil in place, significantly higher than the current
steam-assisted methods.
Other companies are testing ways lowering the heat and steam needed
to melt the oilsands by injecting solvents down the wells instead.
Lower temperature extraction methods are also being investigated
for use in the oilsands mines as well, which would also reduce gas
usage.
Larry Boisvert, an instructor in the petroleum engineering
technology program at the Northern Alberta Institute of Technology in
Edmonton, says huge technological strides have been made in the
oilsands over the past few years.
"The big push for unconventional resources like oilsands is
just the fact that we're running low on conventional supplies,"
he says.
"Unconventional resources are becoming very low risk, and
that's the big advantage they have over conventional plays."
http://www.cfrb.com/node/71955
CIBC sees oil supplies still tight
By CAROLYN LEITCH
Tuesday, January 10, 2006 Posted
at 5:46 PM EST
Globe and Mail Update
Energy markets should brace for another year of tight oil
supplies, warned Jeffrey Rubin, chief economist and chief strategist
at CIBC World Markets Inc., who argues that the rebound in
production growth many forecasters are anticipating will not
materialize.
Mr. Rubin, who has already predicted the price of crude will
climb higher than $70 (U.S.) a barrel this year and as high as $100
a barrel by the end of next year, said Canada's oil sands are going
to become an increasingly valuable asset in the search for energy
investments.
Most of the massive output of the Organization of Petroleum
Exporting Countries remains in the hands of state-run oil companies,
he said in a note to clients, and he sees Russia in the process of a
de facto renationalizing of its oil and gas industry.
The economist said that the combination of depleting reserves and
sweeping state ownership has left each of the world's six largest
publicly traded oil firms looking at declining production over the
next two years.
“That sets the stage for a mad scramble for whatever proven
reserves the market still has access too.”
He said Canada's oil sands will not only become one of the
world's most valuable sources of energy, but also one of the few
remaining open to investors.
But at BMO Nesbitt Burns Inc., senior economist Bart Melek
believes the price of crude, which rose to $63.37 in New York, is
already lofty considering current macroeconomic conditions and the
balance of supply and demand.
Mr. Melek says rising interest rates in the United States will
dampen economic growth and keep a lid on the price of oil, which he
expects to pull back to about $55 by the end of this year.
“With slower growth, usually you will get a bit of a slowdown
on the demand side.”
Pressure on the oil price following hurricanes Katrina and Rita
have abated, he added.
He also pointed to oil inventories, which are considerably above
their five-year average right now.
Mr. Melek said there is still a “risk premium” assigned to
oil right now as traders worry about geopolitical machinations.
The current flashpoint appears to be Iran, he said, as tension
rises between the Western world and that country.
The United States and Britain have engaged in testy exchanges
with Tehran after Iranians removed seals placed on a nuclear
enrichment facility.
The supply of oil is insufficient to mitigate any disruption in
supply, he cautioned, and a severe shock would throw off his
forecast.
But Mr. Melek added that the fundamentals are pointing to a
“somewhat less robust oil price.”
Daniel Flynn, a trader at Alaron Trading Corp. in Chicago, also
said energy traders are closely watching the developments in Iran.
Looking further out, he sees oil rising to $70, if not higher.
“It's really demand — worldwide demand
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