Petroleum Inventories Remain Very High

The Energy Information Administration (EIA) reported yesterday in its weekly petroleum report that US crude oil storage fell another ~1% last week. Even so, crude supplies remain more than 10% above average and US output has been rather robust above 5.2 million barrels per day (Mbd). The lower oil rig count in 2009 has yet to lower crude oil production below last year’s levels. Gasoline is the only fuel with below-average inventory levels. And the lower pump price (compared to last year) allowed last week’s gasoline demand to rise 1.1% above the same week in 2008. But demand for distillates (mainly diesel) and propane continued to languish at recessionary low levels — 16.9% and 10.2% lower than last year, respectively. Either further demand recovery or lower output and imports are necessary to drive significant price increases from current levels.

Natural Gas Inventories Sky-High

And the storage level for natural gas has kept prices close to their recent lows below $4.50 per MMBtu. Even though natural gas is substituting coal for electricity generation across much of the Southeast, lower industrial demand and persistent high domestic production have storage levels moving toward record highs. Inventories are almost 23% above average and continue to surprise analysts with its weekly growth.

Higher Oil Prices Spur Hope for Alternatives

Bicycling, pedicabs, solar and wind power, and other alternatives to fossil fuel energy are benefitting from the return of higher oil prices. Oil is now more than double its winter low below $35 per barrel. If non-OPEC output begins to wane in the weeks ahead and the recession does begin to fade, these alternatives may surge forward quickly. I’ll keep you updated on progress in the weeks ahead.

Onwards in the Sustainable Energy Transition-

Coal Use Projected to Fall ~5%

Building on the lower coal consumption trend of the first quarter, the EIA estimates coal demand to be ~5% lower in 2009. With oil and natural gas demand down ~3% and 2.2% (respectively), energy-related US carbon dioxide emissions are projected to fall ~3.5%.

Still room for lower emissions

I still see room for even these projections to be overestimates. Coal consumption could remain almost 10% below 2008 levels due to the huge supply of natural gas and the cutbacks in industrial production from the likes of GM and Chrysler. And oil demand projections are based on a significant increase from the first five months. I see more likelihood that oil demand remains low to leave 2009 consumption at 5% or more below last year.

Such consumption would send overall carbon emissions down more than 5% in 2009 and to less than 5% above 1990 levels. Since the Waxman-Markey ACESA sets targets based on 2005 emission levels, I will also express these emissions relative to 2005. By my estimates, 2009 emissions falling 5% would lower them to more than 8% below 2005 levels. It makes the Waxman-Markey goal of 17% below 2005 achievable by reducing emissions only .8% per year.

Bottom Line: US emissions are poised to fall dramatically in 2009, putting us in a good position to lower emissions significantly below 1990 levels in the 2010s. Based on the prospect of strong growth for wind, solar, and efficiency in the years ahead, emissions levels of 20-25% below 2005 in 2020 (~8-14% below 1990 levels) are achievable by lowering emissions at a reasonable rate of ~1.5% per year.

Let’s make it happen!

Other Developments in the Weekly Oil Report

Crude oil inventories finally moderated this week but remain extremly high, falling more than 1% on lower imports. And gasoline storage fell almost 2% back to average levels for this time of year. Gasoline imports and production were both lower, though gasoline demand more than 4% below year-ago levels moderated the decline. Distillate (diesel) and propane inventories continued to climb way above average for early May as their demand was down 12.1% and 1.3%, respectively. US crude output remained steady ~5.3 Mbd, as new Gulf of Mexico oil made up for other fields’ decline.

Bottom line: Efficient diesel vehicles are competitive again with their gasoline counterparts. And a continued focus on efficiency will allow us to enjoy sub-$3 pump prices for a while with today’s high inventories.

Onwards in the Sustainable Energy Transition-

For instance, overall petroleum use was only 18.2 million barrels per day (Mbd), down 7.9% from last year and the lowest since May of 1999. Last week, demand for gasoline was down 4.2% from 2008, distillates down 17.7%, and propane down a rapid 31.4%. This low demand has sent inventory levels of everything but gasoline close to records. Crude oil production remained ~.2 Mbd (3.7%) below its mid-April peak. But the beginning of output from the Gulf of Mexico’s Tahiti platform started to flow this week, which may help 2009 average US crude production stay above 5 Mbd.

A Weaker Dollar and Stabilizing Economy

While the fundamentals of supply and demand remain largely bearish for now, speculators are sending oil prices up as high as $58 per barrel on the weaker dollar and signs the economy is regaining its footing. The dollar has weakened over 5% in recent weeks and the rate of job losses is decelerating. Some analysts are talking $70 oil in the weeks ahead, but that seems unlikely unless lower rig counts really pull oil production down quickly. But $70+ by year’s end seems reasonable, as the global economy will hopefully get its groove back. This would translate into gasoline prices ~$2.50 per gallon, so I encourage everyone to refocus on efficiency to lower costs (and be climate-friendly).

Natural Gas Rising Too

Natural gas prices have gone up 25% to $4 from their late April low ~$3.15 per MBtu. And the CEO of major natural gas producer Chesapeake, Aubrey McClendon, said prices are likely to rebound dramatically by late 2009. He expects the new normal for prices will emerge to be more than double today’s price, at between $8 and $9 per MBtu to ensure the marginal cost of new supply is reached.

Again, there is no short-term worry as supply is 23% above the five-year average and demand remains low. But production should decrease on today’s lower rig count by late summer.

Wind & Solar Relative Prices Improve

If natural gas and oil do indeed rise another 100+% and 20+%, respectively, then the relative price of wind and solar will improve dramatically. I will keep you updated at SETenergy.org as this develops.

Onwards in the Sustainable Energy Transition-

And petroleum inventories are sky-high as well, as the weekly EIA petroleum report shared. Crude oil climbed 5.6 million barrels (Mb) to ~17% above last year and the highest level since September 1990. Gasoline demand was down 4.2% last week, sending inventories above last year levels and above average. Distillate storage is more than 31% above last year, supported by demand that was 7.4% lower than the same week in 2008. And propane inventories rose to ~60% above last year on 17.5% lower demand.

And it turned out that the small drop in US crude production I wrote about last week was a fleeting phenomenon. Output recovered to 5.482 Mbd, the highest level in several months. Whether it will reach 5.5 Mbd is anybody’s guess as domestic oil drilling wanes.

Attempts at a bull run in fuel prices will take a while to arrive as recession-induced low demand maintains its grip on the energy market. Solar’s ability to compete with the resulting low energy price is diminished unless module producers are able to accelerate their cost reductions in the months ahead. I anticipate a return to higher energy prices this Fall and beyond that will expand the solar and wind markets to new records.

I’ll keep you posted on major developments in supply, demand, and price as it relates to our much-needed Sustainable Energy Transition.

The Details: Natural Gas & Coal Demand Fall

Oil consumption remains about the same as the previous monthly Short Term Energy Outlook (STEO), falling over 2%. But the numbers for coal and natural gas are much lower than previously projected. Natural gas use is expected to fall 1.8% in 2009 on much lower industrial demand (versus the February estimate of ~1.3%). And the lower natural gas price that we are enjoying now incents some utilities to substitute coal-fired electricity with natural gas instead. Thus, coal takes the biggest dip at ~2.5% (versus the February estimate of ~1.3%).

The American Wind Energy Association’s prediction of 5+ GW of new wind capacity in 2009 will certainly help emissions fall by taking an almost 2% share of the US electricity market. If hydropower output also expands, emissions could fall even further.

A 2.5% fall in emissions in 2009 makes 1990 emission levels possible by 2015 as long as we base our economic recovery on clean energy deployment and efficiency (lowering emissions at half the rate of 2008-09 (~1.4% per year)).

I’ll keep you updated on progress as the months pass by…

Of course, oil is not the only fossil fuel. Carbon dioxide also is produced by the combustion of coal and natural gas. As long as average growth for these two fuels is less than 1% in 2009, carbon emissions from energy will likely fall overall. And with the IEA projecting global GDP to fall 1.4% for the year, coal and natural gas demand will probably be closer to zero or even negative.

Oil Demand & Supply Fall

Oil demand is projected to be the lowest in five years, falling at a similar rate to the early 1980s. Such a fall in demand supports OPEC maintaining their current ~4 Mbd cuts through the summer (with impressive ~83% compliance in March). Oil output from non-OPEC countries is now forecast to fall ~.3 Mbd (like last year), mainly due to lower biofuel production, to 50.3 Mbd. Lower non-OPEC oil field investment may translate into continued output declines in 2010, especially in the US where the oil rig count fell a whopping 9% this week to 204 rigs (54% below the November 2008 peak of 442 rigs).

Bottom Line: Emissions aren’t just falling in the US. With global demand for oil forecast to fall more than 2.5%, it is likely that global greenhouse gas emissions will fall significantly in 2009. This is great news for the climate, but can only be replicated sustainably and prosperously if we ramp up energy efficiency and renewables deployment in our economic recovery of 2010 and beyond.

I’ll continue to give you updated info, along with demand details for coal and natural gas, as the weeks roll by.

Onwards in the Sustainable Energy Transition-

Mexico’s national oil company, PeMex, reported their February oil production fell further to a level that is .25 million barrels per day (Mbd) [or 7.6%] lower than last February. This is mostly due to rapid decline in the country’s biggest field until recently, Cantarell. When natural gas liquids are included, Mexico’s oil production stood at just above 3 Mbd. After Mexico consumes ~2 Mbd for itself, this lower production means that oil imports from Mexico are reduced by almost .25 Mbd (~20%) and may fall below 1 Mbd within a few months.

But US crude oil production is picking up the slack for now. This past week, output was more than 5% higher than last year (an increase of ~.4 Mbd). Domestic production is poised to pass 5.5 Mbd in the weeks ahead.

But as I wrote about regarding natural gas last week, the falling rig count threatens future oil output levels too. By late 2009, the almost 50% fewer active drilling rigs today may translate into lower US crude production. If output falls back to ~5 Mbd (~7 Mbd including natural gas liquids), lower Mexican oil imports may begin to bite our overall supply.

But the other puzzle piece is demand. Last week, demand for all major petroleum fuels (from crude for refining to gasoline, distillates, and propane) was significantly below last year. And the recession will probably last for at least another several months. So, if oil demand remains lower, our oil supply should be fine through the Fall. Then we will have to see how far Mexican and US output has fallen and whether OPEC maintains strong compliance to their current low production levels. We could be in for another wild oil price ride if oil field declines (especially in non-OPEC countries) get the upper hand at that point.

Bottom Line: Low demand and high US oil production makes our current position luxurious compared to the tight supplies of just a few months ago. But this by no means points to a perpetual trend. For us to prepare for oil supply constraints in the future (and to mitigate dangerous climate change), efficiency and renewables deployment will continue to be crucial for long-term security and prosperity.

Onwards in the Sustainable Energy Transition-

Image from rushkoff.com

Sustainable Energy Transition (SET) will be featured in its first New York radio spot this coming Monday night 7-8pm. I will be interviewed live by new media and pop culture author and professor Douglas Rushkoff on his new show, The Media Squat. The interview will probably be around 10-15 minutes and in the first half of the show. So if you’re interested in hearing a voice connected to the blogs, I encourage you to tune in to 91.1 FM in the New York City area or via online streaming at wfmu.org

I’ll be sharing developments from SET’s involvement in the Solar College Initiative and local efforts to promote a Paris-style bike share program for New Yorkers. If you are busy Monday night, but wanna hear the interview later, you can pick up a podcast at the site anytime afterward.

Here’s to a great first interview in New York City!

Crude supplies increased to almost 14% above this time last year. Distillates (diesel and heating oil) gained slightly on 6.1% lower demand to remain way above average. Propane also benefited from low demand (down 20.9%) to sit above the average range. The only fuel below last year’s level is gasoline, which fell ~1.5% last week on demand similar to last year matched with below-normal import levels. Gasoline tanks are now ~7.4% below last year’s high level and within the historical average.

The fact that our supplies are ample even with 10% lower crude oil imports is encouraging for those of us promoting energy independence. And since it is on lower demand, there are great climate implications as well.

Here’s to us continuing this trend in the years ahead by rapidly deploying efficiency and renewables! If we don’t, we could get caught up in a zero sum game of competition amongst oil importers for declining global oil exports beyond 2010.

Onwards in the Sustainable Energy Transition-