Brent Pricing: LIBOR Scandal For Oil?

Via Jay Ackroyd, an article from The Economist:

IT IS a lesson of the past five years that benchmarks in unregulated markets can fall victim to the incentives they create. Subprime mortgages bundled into securities often won high scores from ratings agencies that stood to profit in a busy market. The London Interbank Offered Rate, LIBOR, was sometimes underestimated by banks which were cast in a healthier light by lower interest rates. Has something similar been going on in energy?

That is the suspicion after a series of raids on May 14th by the European Commission’s competition authorities. The commission declared that it feared oil companies had “colluded” to distort benchmark prices for crude, oil products and biofuels. Royal Dutch Shell, BP, Norway’s Statoil and Italy’s ENI (which was not raided) all said that they were co-operating with the commission.
…
. At least 200 billion barrels a year, worth in the order of $20 trillion, are priced off the Brent benchmark, the world’s biggest, according to Liz Bossley, chief executive of Consilience, an energy-markets consultancy. The commission has said that even small price distortions could have a “huge impact” on energy prices. Statoil has said that the commission’s interest goes all the way back to 2002. If it is right, then the sums involved could be huge, too.

The Koch’s coke

A belated tip of the hat to Quentin Compson at Eschaton.

What is wrong with this picture? A major American city is becoming a dumping ground for toxic waste. Ian Austen, NYT:

WINDSOR, Ontario — Assumption Park gives residents of this city lovely views of the Ambassador Bridge and the Detroit skyline. Lately they’ve been treated to another sight: a three-story pile of petroleum coke covering an entire city block on the other side of the Detroit River.

Detroit’s ever-growing black mountain is the unloved, unwanted and long overlooked byproduct of Canada’s oil sands boom.

And no one knows quite what to do about it, except Koch Carbon, which owns it.
…
Coke, which is mainly carbon, is an essential ingredient in steelmaking as well as producing the electrical anodes used to make aluminum.

While there is high demand from both those industries, the small grains and high sulfur content of this petroleum coke make it largely unusable for those purposes, said Kerry Satterthwaite, a petroleum coke analyst at Roskill Information Services, a commodities analysis company based in London.

“It is worse than a byproduct,” Ms. Satterthwaite said.“It’s a waste byproduct that is costly and inconvenient to store, but effectively costs nothing to produce.”

and coincidentally, Detroit has been deprived of its municipal government by the emergency manager.

Act against the Keystone XL pipeline

350.org is trying to get 1 million signatures against Keystone XL. It’s easy. Just click here and customize your own letter to the State Department. They’re going for 1 million signatures by April 22nd.

You can also co-sign a letter to President Obama here.

The future of Venezuela

DemocracyNow had an excellent debate between Michael Shifter and Pomona college professor (and Venezuelan emigre) Miguel Tinker Salas.

The essential points are that:
* when Chavez took over, things were in terrible shape
* the price of oil is much higher now than before Chavez took office
* things are not great now

One interpretation (Shifter) is that Chavez got lucky over the price of oil but otherwise squandered his time in office. The other interpretation is that Chavez was lucky in the price of oil, but unlucky in having the opposition he had, that his first few years in office were a loss due to factors outside his control, but that lately he’s done much better. This view is supported by Weisbrot and Johnston (see Fig. 1).

The one interesting issue raised by Shifter is the decline in Venezuelan production of oil (and natural gas). These are issues important to social stability, since natural gas is used for electrical generation (insufficient production = blackouts), and Venezuelans expect cheap gasoline. Euan Mearns at The Oil Drum says

OPEC stalwart and heavy weight Venezuela has had flat production over the decade of between 2 and 2.5 mmbpd. The impact of the 2002/ 03 general strike upon production is clear to see. Production has been hitting near term highs over 2.5 mmbpd and spare capacity is essentially zero.

What seems to be limiting oil production is a shortage of natural gas, as well as a decline in readily-accessible reserves in favor of the Orinoco Basin heavy crude similar to the Canadian tar sands. So, it’s not clear to me that Shifter’s criticism is valid, except insofar as it rests on the endemic corruption in Venezuelan society that makes it harder to do anything. The story of why they are producing more nat gas sounds like an example of that.

Another interesting issue raised in the debate is what the factions within chavismo are. Basically it seems that there are two principal factions, a civil society movement led by Nicolas Maduro, and a military faction led by Diosdado Cabello.

Getting gaslighted on gas

The American people are being propagandized that high gas prices are due to Obama Administration drilling policies. If we had a functioning press, people would know that the price of gasoline is determined by (a) the current cost of oil production, (b) the cost of refining, (c) expectations about future supply, and (d) miscellaneous factors such as distribution costs and taxes (regulations can be thought of as a cost of production, refining, or distribution).

So now Javier Bias of Financial Times reports that in January, refineries were shut down to remove 1.6 million barrels per day of gasoline from production. Not so coincidentally, RBOB gasoline futures leapt from $2.70 to $3.40. Now refineries are being put back on line to add 1.3 million barrels per day. Industry analysts say that over the longer term refineries will be closed to “rebalance supply and demand.”

In other words, to gouge consumers.

If people don’t want to vote for Obama, that’s their business. But they shouldn’t do so because of a lie. Neither the Keystone pipeline nor regulations nor taxes are driving gas prices. What’s driving them is speculation, market manipulation, and the rising cost of recovering oil from deep wells and unconventional sources.

Long-rumored, now at hand

“A bravado performance.” –Eliot Spitzer talking about the State of the Union, accidentally speaking truth on Countdown

Robert Fisk, London Independent:

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

I think this is less important a development than Fisk does. But it’s a sign that Obama’s statement that America is not in decline is pure bravado.

Macondo continues to blow out

Via Ritholtz, an extensive report by Geri Miller at Forbes says that the remnants of the Deepwater Horizon rig at the Macondo Prospect in the Gulf continue to leak large amounts of oil:

“Lives are devastated by this environmental crime for which no one has been indicted,” said attorney Stuart Smith, who represents more than 1,000 individuals and businesses in the Gulf and appears in the film. Citing the thousands of dolphins, turtles, shellfish and other marine creatures that have died, “The impact is bad enough, but what’s even more frightening is the oil is still leaking and bubbling up at the site where the rig once stood,” he said.

Actually, what’s even more frightening are the chemical vesication and other reactions reported by the Tim Robbins documentary this article talks about.

FrackQuake-Wracked Oklahoma In Keystone XL’s Path

Life’s little ironies:

The Keystone XL pipeline, the one that TransCanada really, really wants and climate experts like NASA’s James Hansen really, really fear would trigger runaway, irreversible warming and a “game over” scenario for humanity, runs through the part of Oklahoma most heavily visited by earthquakes of late.

And (drum roll, please) the USGS has linked these quakes to the use of a mining and oil and natural gas extraction technique known as hydraulic fracturing, or “fracking”. (In fact, Cuadrilla Resources, the company doing shale fracking in Blackpool, England, has admitted that its fracking caused the earthquakes that rocked that part of England.)

Oh, and did I mention that the pipeline sits right on top of the Ogallala Aquifer, which sits under the soil in places like Oklahoma and Nebraska?

Of course, there will those oil-company execs that will claim that we really don’t what’s causing the fracking. But that makes it even worse: If fracking’s to blame, we stop the the fracking and thus the quakes. But if fracking’s not to blame, and we don’t know what really is to blame, then how can we risk a pipeline running over the water supply of the nation’s farmers when there are earthquakes we can’t predict, much less prevent, in the area?

If Big Energy actually consistently admits that fracking’s triggering the quakes, it’s going to set up one hell of a Hobson’s Choice for them: stop fracking, or stop the pipeline. Take yer pick.
_______________________________
Added by Charles as a technical visualization aid for our Transcanada spokesman:

(Image from NYT of Silvertip pipeline rupture in the Yellowstone River). Recent news:

Exxon crews spent three months cleaning thousands of acres of land along the river. The rupture happened while the Yellowstone was in flood stage and deposited globs of oil in fields hundreds of feet from the riverbank and left a bathtub ring of oily grime around buildings caught in the flooding.

China and India jockey for power in South China sea

China and Vietnam are regional rivals, and Vietnamese take considerable pride in having resisted Chinese invasion attempts. Vietnam is, of course, by far the weaker of the two.

The South China Sea, with its oil and gas, is a point of regional tensions. China wants to claim it all. Vietnam is having none of that. The Chinese are taking the better part of valor, and offering to cooperate with Vietnam in developing the oil fields. Vietnam, smart enough not to rely on China completely, has brought China’s primary rival India into the equation.

Oil is not all that is at stake. As Prokhor Tebin says in ATimes:

Sea-trade is foundation of global economy: 90% of world’s commerce travels by sea. It [the South China Sea] is the second most used sea lane in the world – over 50% of the annual merchant fleet tonnage passes through the Strait of Malacca, the Sunda Strait, and the Lombok Strait. The Strait of Malacca accounts for nearly 10 millions barrels of crude oil every day. There are enormous mineral and fishing resources, and the South China Sea is estimated to hold about 7 billion barrels of oil and 900 trillion cubic feet of natural gas.

This area, contested by “China, Vietnam, Philippines, Taiwan, Malaysia and Brunei” is a flashpoint on par with the Middle East.

Annals of cynicism, Hillary Rodham Clinton October edition

If you have something to tell the State Department, better hurry. The cutoff is October 9th.

State Department, 10/7/11:

MR. HAMMER: Good afternoon, everyone. Thank you for coming. We have today Dr. Kerri-Ann Jones, who is the Assistant Secretary of State for the Bureau of Oceans and International Environmental and Scientific Affairs, to talk to you and brief you on the proposed Keystone XL Pipeline.

…
ASSISTANT SECRETARY JONES:…

First of all, I want to let you know that the Department of State is committed to an impartial, rigorous, transparent, and thorough process for the National Interest Determination to determine whether or not this pipeline proposed by Keystone XL is in the national interest.
…
QUESTION: Madam Assistant Secretary, I’m with Al Jazeera English. We wanted to know what your opinion is on the fact that there’s been much criticism about these e-mails that were released by an NGO that suggest that not only one of the lobbyists worked for Secretary Clinton, but that there’s also a relationship or a favoritism towards TransCanada, and that was stated in the e-mails. We wanted to know your response to that.

ASSISTANT SECRETARY JONES: Well, we are running an objective process, and we have met with interested parties from all the different perspectives, including the applicant, environmental groups, yesterday I personally met with a number of faith-based groups, representatives of Native American groups as well as Native American tribes themselves, people from the First Nations in Canada. I also met with a number of student activists. So in the course of this, we have been dealing with many different perspectives, and this is what we are doing. We want to hear from every perspective, and we are on listening mode, and there has been impartiality.

QUESTION: Do you think there’s a conflict of interest that the lobbyist worked for Secretary Clinton, (inaudible)?

ASSISTANT SECRETARY JONES: Past relationships are not of importance.
…
QUESTION: It’s (inaudible) with Dow Jones. To kind of follow up on Gary’s question a little bit, the environmental impact statement found that there were no significant impacts from the pipeline. So can you tell us what other qualities it is about the pipeline that might convince the Department not to approve it?

ASSISTANT SECRETARY JONES: Well, what the environmental impact statement said was that there were no significant impacts – suggested there were no significant impacts, but it did list some areas where there may be impacts. It did mention issues related to cultural issues. It did mention a particular species of beetle which is a threatened species where there had to be a mitigation plan. It did touch on the issue that – regarding spills. That is still out there. You can’t really address that specifically because that has to do with the nature of the spill.

For “nature of the spill,” how about “catastrophic,” Madame Functionary?

Meanwhile, it’s notable that only Al Jazeera asked a challenging question. Even The Guardian and MoJo didn’t really get much of a nip out of Jones’ hide, although Goldenberger did identify Cardno Entrix as the firm to whom State has outsourced the management of meetings to discuss the pipeline. Media Matters notes: “The State Department’s Environmental Impact Statement was prepared with the help of Cardno ENTRIX, a consulting firm that works for TransCanada.”

No conflict of interest?