You are currently browsing the monthly archive for September 2008.
If Matt Simmons is right, the recent drop in crude prices is an illusion – and oil could be headed for the stratosphere. He’s just hoping we can prevent civilization from imploding.
By Brian O’Keefe, senior editor
Last Updated: September 22, 2008: 4:43 PM EDT
(Fortune Magazine) — Matt Simmons is as perplexed as anyone that it has fallen to him to take on OPEC, Exxon, the Saudis, and all the other misguided defenders of conventional wisdom in the oil patch. Why should one investment banker with a penchant for research be required to point out what he regards as the obvious – that from here on out, oil supplies can’t meet demand, and if we don’t act soon to solve this crisis, World War III could be looming?
Why should a man who scorns most environmentalists have to argue that locally grown produce and wind power are the way of the future? Why should a lifelong Republican need to be the one to point out that his party’s new mantra – “Drill, baby, drill!” – won’t really fix anything and that his party’s presidential candidate is clueless about energy? That the spike in oil prices earlier this year wasn’t a temporary market anomaly and the recent retreat in prices is just a misleading calm before a calamitous storm? That we’re headed toward $500-a-barrel oil?
“I find it ironic that here we have the biggest industry on earth, and I’m one of the few people to figure out that we have a major problem,” he says, in his confident if not quite brash way. “And I did it all in my spare time. How stupid and tragic is that? I shouldn’t be one of the only folks that actually has a handful of ideas of how we can keep from blowing each other up and get through this.”
Indeed, Simmons isn’t the obvious candidate to be the bearer of bad news about oil. He’s spent his career working in the business, has lived in Houston for decades, and is such an industry insider that he helped edit the Bush campaign’s comprehensive energy plan in the 2000 election – the document that was ultimately more or less rubber-stamped by Vice President Dick Cheney’s infamous secret Energy Task Force. Over the past 35 years, his boutique investment bank, Simmons & Co., has helped finance and shape much of the country’s existing oil-services business. With profits gushing, you might expect him to be celebrating.
Not to mention that the 65-year-old banker doesn’t have the personality of a prophet of doom. He has a puckish wit, a relentlessly cheerful and enthusiastic demeanor, and the appearance of a rosy-cheeked cherub in a navy blazer. He routinely refers – in earnest – to his daily experiences as “tremendous fun.” His closest business associates have a hard time recalling him ever showing anger. But when it comes to oil and gas, his message is downright scary.
An unlikely maverick
Simmons was transformed overnight from an influential industry expert to an A-list pundit by the publication in 2005 of his book “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy,” a fairly technical read which argues that Saudi Arabia’s oil supplies are much more limited than everyone thinks.
Since then he has moved to the forefront of the peak-oil movement – a once fringe but now growing contingent of oil industry veterans, independent consultants, investors, and academics who believe that world oil production is at or near an inflection point, after which it will fall inexorably and fail to meet projected future demands. According to Simmons, we have already passed that peak. And while we’re not going to run out of it anytime soon, the era of easy oil is over, and the world is about to enter a period of convulsive change. (Hint: Learn to garden, and buy some comfortable walking shoes.)
The soaring price of crude – it has risen from below $20 a barrel in 2002 to as high as $147 earlier this year – has helped thrust Simmons further into the spotlight. He was one of the main voices, for instance, in the recent oil-shock documentary “Crude Awakening,” and his book has now sold more than 100,000 copies. His willingness to make bold predictions about how high crude may go has made him an A-list guest for cable TV news programs and a go-to source for newspaper reporters covering oil and gas. In 2005, when oil was $58 a barrel, he predicted it would be at or above $100 within a few years. Now he sees it climbing to $200, $300, or higher. “There really is no roof on oil prices at this point,” he says.
Being so outspoken, of course, invites criticism, and Simmons has endured plenty. But he has also won a lot of high-profile admirers. “Like most people who ignore conventional wisdom, he was scoffed at, ridiculed, and denied,” says commodities guru Jim Rogers. “And now, of course, people are starting to say, ‘Oh, well, I thought of that.’” Billionaire oil and gas investors Richard Rainwater and Boone Pickens both heap praise on Simmons’s analytical abilities. Maine’s Senator Susan Collins, a Republican who recently began consulting with Simmons on energy issues, says, “I think he’s issuing a clarion call that policymakers need to listen to.”
In his own upbeat way, he despairs about what is to come. As the price of oil has fallen this summer (to $101 at press time), Simmons has watched in dismay as complacency has returned and the champions of do-nothingism have popped out of the woodwork to say I told you so. Not that it’s lessened his conviction about the road ahead. “I do think there are a growing number of people who are getting it,” he says. “But I guess it just reminds me that as a society, we don’t have the ability to actually come to grips with a crisis until it’s hit us in the face. I am discouraged enough now to think that we’re going to have to have a really nasty shock before we wake people up.”
Has peak oil peaked?
On a Thursday morning at the end of July, Simmons is sitting in a wicker chair on the back porch of his six-bedroom summer home on the coast of Maine, waiting to do a live television spot on CNBC. Sun glints off Penobscot Bay below him. In the distance, sailboats glide in and out of Camden Harbor. It’s the kind of scene that has captivated him since his Harvard days in the 1960s, when he started coming up here on weekends. Wearing a blue-and-white-checked shirt, cream-colored pants, and tasseled loafers, Simmons chats with Ellen, his wife, and Emma, one of their five daughters. His earpiece is chattering as CNBC anchor Melissa Francis teases his upcoming segment.
At the moment, the price of oil is hovering around $124 a barrel, and CNBC wants him to interpret why crude is suddenly tumbling. “Has peak oil peaked? I guess that’s our topic,” he reports to everyone within earshot, before the shot goes live.
It was on this same porch five years ago that Simmons had the insight that convinced him that the oil age had passed its zenith. During a trip to Saudi Arabia in February 2003 with his friend Herbert Hunt (yes, the son of H.L. Hunt who, with his brother Bunker, almost cornered the silver market in 1980), Simmons had become suspicious of the Saudis’ claims about the vastness of their oil supply. In his four decades of working in the oil and gas industry, everyone he had ever talked to had taken it as gospel that the Saudis had enough oil to bail the world out when other supplies ran short. If that wasn’t true, Simmons believed, the era of cheap oil was over. Demand for crude was on the rise worldwide, and supplies were getting tighter all the time. If the Saudis were pushing up against the limits of their oil production, the world needed to know.
In his typically analytical fashion, Simmons went hunting for data. He found it in the form of hundreds of technical papers submitted by Saudi oil geologists to the Society of Petroleum Engineers over the past 50 years. Simmons spent the month of August 2003 sitting on his porch in Maine and grinding his way through the minutiae of technical accounts of, for instance, reservoir pressure and water-cut percentages, trying to piece together the challenges that the Saudi geologists had encountered in managing their precious oilfields. In the end, his conclusion was clear. “I finished reading the last paper on a Sunday afternoon,” says Simmons, “and I sat back and I thought, Holy crap, this is unbelievable. I’ve just discovered the biggest energy illusion ever in the world. We’re in big trouble. I’m going to write a book.”
And so he did. But writing the book didn’t exhaust his passion. Today he is more convinced than ever that we’ve reached peak oil. If he’s right, current world oil production- 86 million barrels a day- is about as high as we’re going to go.
Of course, if demand goes up but supply doesn’t, prices are apt to go through the roof. And unlike global oil production, global oil demand doesn’t appear to be anywhere near a peak. Both the U.S. government’s Energy Information Association and the independent International Energy Agency, based in Paris, estimate that worldwide demand will be more than 115 million barrels a day by 2030.
Source: http://money.cnn.com/2008/09/15/news/economy/500dollaroil_okeefe.fortune/index.htm
Crude plummets as bailout plan rejected in the House and global economic outlook darkens.
By Ben Rooney, CNNMoney.com staff writer
Last Updated: September 29, 2008: 5:15 PM ET
NEW YORK (CNNMoney.com) — Oil prices tumbled more than $10 a barrel Monday – the second biggest drop in dollar terms ever on an active contract – as the government’s proposed $700 billion bailout was defeated by the House, adding to concerns about the spread of economic weakness worldwide.
A stronger dollar also pushed the price of oil lower as turmoil in the European economy undercut the euro and the pound.
Light, sweet crude for November delivery settled down $10.52, or 8.9%, to $96.37 a barrel on the New York Mercantile Exchange. The biggest drop in dollar terms was $10.56 on Jan. 17, 1991.
Monday’s price decline comes exactly one week after oil spiked $16.37, marking its largest one-day gain ever, as traders scrambled to buy futures before the expiration of the October contract.
But that rally was “technical in nature” and did not result in any “bullish follow through,” said Stephen Schork, oil industry analyst and publisher of the Schork Report.
Instead, the market is “focusing on the real demand destruction in place right now,” Schork said.
Economic weakness worldwide, combined with a seasonal downturn in demand for petroleum products, could drive the price of oil to $75 a barrel, according to Schork.
Bailout. Monday’s decline came as Congress considered a massive intervention in the financial system.
House lawmakers ultimately voted against the controversial plan, which would have used up to $700 billion in tax dollars to buy tainted mortgage-backed securities from Wall Street companies.
The next steps were unclear. Policymakers were left scrambling to decide whether to renegotiate the bill and introduce it again as soon as Thursday.
Stocks were hit hard by the bailout’s failure. The Dow Jones industrial average suffered its steepest one-day point loss ever, plummeting 778 points.
In its current form, the plan seeks to make banks less reluctant to lend money by taking bad mortgage-related assets off of their books. That, according to proponents of the plan, would have helped get the economy back on solid ground.
But the plan was heavily criticized by the public, and lawmakers worked through the weekend to draft a modified version. Among the changes are increased government oversight, limits on executive compensation and provisions for ownership stakes in the companies that benefit from the plan.
Dollar. Oil prices were also pressured Monday by a stronger dollar.
The 15-nation euro fell to buy $1.4428 from $1.4618 late Friday. The U.S. currency also gained ground against the British pound and held steady against the Japanese yen.
Investors often buy crude futures as a hedge against a weak dollar and sell those contracts when the dollar strengthens. And a more robust greenback makes crude less appealing to overseas buyers.
The dollar’s strength comes as the crisis on Wall Street appears to be spreading to the European financial system.
In Germany, government regulators and several banks tossed a multibillion euro line of credit to Hypo Real Estate Holding AG in move aimed at preventing the country’s second largest commercial property lender from going under.
Over the weekend, the governments of Belgium, the Netherlands and Luxembourg partially nationalized Dutch-Belgian banking giant Fortis NV with a $16.4 billion rescue after investor confidence in the bank evaporated last week.
Gasoline. The national average price for a gallon of gas fell one cent overnight.
Regular gasoline fell to $3.643 a gallon Monday from $3.655 the day before, according to the American Automobile Association’s daily survey.
Diesel prices also came down. The national average price for a gallon of diesel fell overnight to $4.084 from $4.095. To top of page
First Published: September 29, 2008: 12:19 PM ET
Source: http://money.cnn.com/2008/09/29/markets/oil/index.htm
With pain at the pump still real, Americans are jumping on those two-wheeled get-ups that Europeans have been riding for generations.
By Catherine Clifford, CNNMoney.com staff writer
September 23, 2008: 2:07 PM ET
NEW YORK (CNNMoney.com) — The scooter is becoming the new must-have set of wheels in a lot of American cities.
While auto sales have continued to sink, scooter sales were up 66% in the first half of 2008 compared to a year ago, while motorcycle sales overall only ticked up 0.5%, according to the Motorcycle Industry Council.
“About 5 years ago, most of the people were buying motor scooters more as a recreational product to enjoy on the weekend,” said Paolo Timoni, president of Piaggio Group Americas, the maker of the Vespa scooter. “Nowadays, most of the people that buy this vehicle buy them as an alternative transportation vehicle.”
Retail gas prices have come significantly off recent highs, but gas prices are still 33% higher than the same time last year, and that is motivation enough for Americans.
Scooter sales are outpacing sales of some motorcycle brands, which are typically more expensive and use more fuel.
A scooter is distinguished not by its size or speed. A scooter is defined by its automatic transmission, step-through design and wrap-around body work that hides the engine.
While a motorcycle gets between 40 and 60 miles per gallon, a scooter gets between 60 and 100 miles per gallon, according to Mike Mount, a spokesman for the motorcycle group.
Customers “are sick of feeding their big trucks,” said Darrin Gitlitz, owner of New York Honda Yamaha. Gitlitz said that he has seen scooter sales increase more than sales of other kinds of motorbikes.
Honda typically sells more than 12 million two-wheeled bikes globally every year, according to John Seidel, a Honda spokesman. This year, in an attempt to capture sales, Honda released its 2009 scooter models to dealers early, according to Seidel.
“We went ahead and released ‘09 this summer,” said Seidel. The two 2009 Honda scooter brands – the Rucqus and the Metropolitan – both sell for between $2,049 and $2,149. In contrast, a Honda motorcycle starts around $3,000 and maxes out near $25,000.
The Italian manufacturer of scooters, the Piaggio Group, has logged record U.S. sales.
The owners of the Vespa, Piaggio and Aprilia scooter brands saw a 100.5% increase in scooter sales in May compared to the same month a year ago. In June, sales were 147% higher in a year-over-year comparison and in July, sales were 173% higher.
While the Vespa scooter brand, which runs anywhere from $2,000 to $8,000, has been hitting record sales numbers, the luxury-class Harley-Davidson (HOG, Fortune 500) motorcycle reported that weakness in the U.S. economy dragged sales down in its second-quarter financial report.
Globally, Harley-Davidson shipped 15.6% fewer motorcycles to dealers and distributors in the second quarter of 2008 compared with the year-ago period. Retail sales in the United States decreased by 8.7% in 2008 compared to the same quarter last year.
A low-end Harley starts at $7,000, but other models can easily run you nearly $20,000 a pop.
Suzuki’s scooters have big engines and therefore actually cost more than some of Suzuki’s motorcycles. The larger scooters range in price from $5,949 to $7,899, but Suzuki’s little cruiser motorcycle, the GZ250, goes for only $3,249.
Sales of the Suzuki scooters, which get between 40 and 50 miles per gallon, ticked up 16% from January through July over last year, according to Glenn Hansen, a Suzuki spokesman. Sales of the GZ250, which gets 80 miles per gallon, are up 53%.
Given the success of the smaller, more fuel-efficient two wheelers, Suzuki is working to bring some of its smaller models, already particularly popular in Italy, to the United States, Hansen said.
Yamaha saw a 99.8% increase in U.S. scooter sales from September 2007 through July 2008 over the same period a year ago, according to Kevin Foley, a Yamaha representative. One of Yamaha’s most popular scooters is the Zuma 50 cc model, which costs only $2,199 and gets 123 miles per gallon.
Between high gas prices, traffic and congestion, “more and more people have started to realize that what they have seen people doing in Europe might be a good idea over here as well,” said Timoni. “Go to Europe – London, Paris, Madrid – you see millions of people driving them to work everyday!”
Source: http://money.cnn.com/2008/09/23/pf/scooter_popularity/index.htm
Automaker shows three prototypes, saying it is working with several partners on the battery technology.
September 23, 2008: 10:52 AM EDT
AUBURN HILLS, Mich. (AP) — Chrysler LLC says it will put an electric car on sale in North America in 2010.
The company showed reporters three electric prototypes Tuesday: an electric Dodge sports car, a Jeep and a Chrysler minivan.
But the automaker’s product development chief, Frank Klegon, says the company hasn’t decided which vehicle will come out in 2010.
The Dodge sports car is completely electric, but the Jeep Wrangler and Chrysler minivan models will be similar to the Chevrolet Volt that General Motors Corp. is planning.
The Volt will have a small engine to recharge the batteries while driving, and GM says it will go on sale in late 2010.
Klegon says Chrysler is still working with several partners on the battery technology for its vehicles.
Source: http://money.cnn.com/2008/09/23/news/companies/Chrysler_electriccar.ap/index.htm?postversion=2008092310
Please! It isn’t even enough to save General Motors.
By Alex Taylor III, senior editor
September 23, 2008: 9:00 AM EDT
NEW YORK (Fortune) — Given the prolonged drum roll of publicity that accompanied the unveiling of the Chevrolet Volt electric vehicle last week, it isn’t surprising that any number of onlookers got caught up in the enthusiasm. When people begin referring to it as a “game changer” and a “paradigm shift,” it’s time to inject a bracing dose of reality.
To put the Volt in perspective, it is an expensive, low-volume automobile that will have no visible impact on GM’s market share, CAFÉ average or profitability. One cynic calls it “a Viper for tree huggers.”
Start with the sales numbers. The best available estimates are that the Volt will sell for around $40,000 and that production volume will be in the “tens of thousands.” That gives it more in common with a Cadillac sedan than a Chevy Cobalt. Nor will the Volt make any money. GM (GM, Fortune 500) executives concede that, given the cost of development, the first generation of Volt vehicles will not be profitable. This project isn’t going to turn GM into a money spinner.
Second, although GM revealed what the Volt will look like last week, the car is far from ready for production. Developing the advanced lithium-ion batteries required to power the Volt and getting them ready for production is an enormous undertaking. No one has ever built auto-sized batteries of this description in significant quantities. Worse, GM has yet to sign a contract with whomever it is will supply the batteries. GM has promised to get the Volt into showrooms by November 2010, but it could be many months after that before significant numbers are available.
Even if GM can meet its deadlines and the Volt turns out to be a huge success, it isn’t going to matter to most people. At best, it will become a second or third car in the garages of the affluent. Yes, it is designed to go 40 miles to a charge of electricity. But it won’t be economical for long trips after the batteries lose their charge, because it will be hauling around hundreds of pounds of excess weight in those non-productive batteries, and its performance is lousy – zero to 60 miles per hour in around nine seconds. Most cars in the $40,000 class get to 60 in well under eight seconds.
If you want a car for everyday use that scrimps on gasoline, Toyota (TM) can sell you a very nice Prius based on proven technology that costs a lot less. To be sure, the Volt will look more upscale and include nifty technology features like a liquid crystal instrument panel that the driver can configure for himself. Sniffed a GM spokesperson: “The Prius is a stripped-down Corolla. The Volt is drastically different. Just compare the interior.” Still, the price difference between a $40,000 Volt and a $25,000 Prius will cover a lot of operating expenses.
So why is GM lavishing so many scarce resources on a rather impractical vehicle? Its original plans to make fuel cell cars the avatar of its technology appear to have foundered on a variety of problems, including infrastructure for hydrogen refueling. It is hoping the Volt will help it regain bragging rights from Toyota. Mike Jackson, CEO of Autonation (AN, Fortune 500), the largest chain of car dealerships, is a fan of Volt. He calls it “a very compelling environmental and technology statement.” But he adds: “Profit generator? No way. It is a sure loser. You will have to charge the losses to the corporate image campaign.”
So give GM credit for taking the plunge with unproven technology that may actually help the environment and reduce gasoline consumption. And wish the automaker well as it starts its second century having dug a very deep hole for itself in North America. But keep the Volt in perspective. Except for its celebrity appeal, the Volt is about as relevant to the survival of GM, much less the world, as Paris Hilton is to the future of Western civilization
Source: http://money.cnn.com/2008/09/22/news/companies/taylor_volt.fortune/index.htm?postversion=2008092309
Recent Comments