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0 May 6 2010 @ 10:57am by Matt Smith in Crude Oil, Global Energy, Natural Gas, UK natural gas

10 simple points about energy markets

I am a huge proponent of keeping things simple (hence the use of cartoons, films, the Hoff, etc), so in these times when information whizzes past our eyes every minute of every hour of every day, I thought it useful to get back to basics and outline 10 simple points about energy markets which add some background to the news at the fore – it’s easy to forget ’em:

Opec was a different animal back in 1986....


1) So what exactly is the big deal about Opec again? It is this: in 2009, the twelve-country cartel produced 39% of world’s oil (42% in the prior year, before they curtailed production in 2009 to support prices). Their influence has grown in recent times, and is likely to continue, given lackluster production growth in OECD countries. Opec has come a long way; back in 1986, Opec only made up 22% of the world’s oil production. 

2) Is the US increasing or reducing greenhouse gas emissions? Data just released by the EIA show US carbon dioxide emissions fell by 7% in 2009. But was this due to lower economic growth? In a word, yep. The ‘exceptional’ drop was more to do with lower energy demand from lower output (aka ‘the great recession’), added to a cleaner mix of fuels in the economy, with a sprinkling of improving energy efficiency.   

3) Why does storage inspire such concern in the UK natural gas market? – simply because there is so little. Due to a maximum daily withdrawal rate (like at an ATM), there are 80-ish days of supply in storage. But if there were no technical constraints on withdrawals, there are only approximately 21 days of supply (or as little as 9 days at the height of demand). This compares to the US which has approximately 44 days (without constraint on withdrawals) – hence, there is a corresponding rise in blood pressure in the UK to a falling level of storage, especially at the start of the winter months. 

4) Just who is the largest exporter of oil to the US? This may come as a surprise, but it is Canada. The US imports more from our friends in the Great White North than from the entire Persian Gulf (= Saudi Arabia, UAE, Bahrain, Qatar, Kuwait and Oman). And also interestingly, Venezuela is ever-present in the top four eager exporters to the US, despite their rhetoric to the contrary

The shale revolution has left LNG rather deflated.


5) Shale, schmale. How much of US natural gas production comes from LNG?  In 2009 this level was approximately 1.6%. This is expected to grow this year, as more global production comes to market. Part of LNG‘s charm comes from the fact that it can be stored and transported at a size 600 times smaller than its gaseous form. 

6) Is coal still relevant in the US? In these greener-than-thou times that we live in, the fact that half the power generation in the US comes from coal is swept under the rug somewhat. And it doesn’t look like this percentage is going to radically change anytime soon, despite the possible implementation of a cap-and-trade-and-tax-and-shimmy scheme, or otherwise. Although technological advancement such as CCS (carbon capture and sequestration) may mitigate some of the emissions from coal, coal consumption in 2008 accounted for 37% of energy-related carbon emissions in the US.     

7) WTF is the SPR? (What Type of Facility is the Strategic Petroleum Reserve?) It is the emergency fuel store of oil for the US. There are four storage facilities, two in Louisiana, and two in Texas. Current capacity is 727 million barrels (over a trillion gallons). How full is the SPR? Pretty much to the brim

8) Is China really taking over the world through consuming more and more oil?  The answer is a resounding yes. In 1990, Chinese oil demand represented 3.4% of global demand. The estimate for 2010 is 10%. More importantly, since 2000, China alone has represented half of all growth in global oil demand. At the current rate, China will represent 20% of global oil demand by 2020, potentially a larger share than the US. 

9) Aw, c’mon then. How much of current US production comes from gas shale? While gas shale accounted for 2 Bcf/d five years ago (approximately 4% of total US production), this has now dramatically increased to approximately 8 Bcf/d due to seven key shale plays, including Barnett (5 Bcf/d), Fayetteville (1.3 Bcf/d) and Haynesville (1.1 Bcf/d).  This is approximately 14% of total US production; a rather significant amount.         

10) How much gasoline does the US consume in a year? The amount of gasoline consumed in the US annually would fill approximately 250,000 Olympic-size swimming pools.

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