Scraping the Barrel… 1 August 2012

As today’s barrel scrapings reveal: there’s more to the Indian power outages than the government would have you believe, oil companies carve out a new country in Iraq, and natural gas gluts the energy market. See below the fold for more…

By now you’ve heard about the power outages in India that have left hundreds of millions without electricity. Unless you’re one of those hundreds of millions of people, of course. While the figures themselves are jarring, a look at the factors that led to the catastrophic power cut suggest that it wasn’t just a random surge in demand or northern states exceeding their power quota, as the Indian power minister contends. Years of under-investment in infrastructure have led to India missing every annual target to increase electricity production capacity since 1951. Subsidies on oil products, which in 2011 were about 2% of GDP, and artificial price controls have hindered the government’s ability to invest to develop the power sector, which wasn’t rosy before the most recent outage anyway – in 2011, 289 million people across India, or 25 percent of the population, had no access to electricity according to the IEA. So, just a disclaimer: when you read that the cuts have left “600 million people without power“, note that, in fact, it’s more like 450 million – the other 150 or so million living in affected areas are part of the 289 total that didn’t have electricity in the first place.

In the KRG, the semi-autonomous Kurdish region of northern Iraq, three oil majors have flouted Baghdad by signing contracts without its consent in the past year. The open disregard Exxon, Chevron and most recently Total have shown the Iraqi central government has lent Erbil, the Kurdish capital, a new air of legitimacy bringing it seemingly ever closer to de facto statehood. Foreign oil companies have always tried to influence governments and often come to dominate them – think Anglo-Persian (BP) in Iran or IPC in mid-century Iraq – but, as Steve Levine muses in this Foreign Policy piece, this may be the first time that oil company activity has actually resulted in the creation of a new state. (Though, note that modern Iraq can itself be seen as the baby of Anglo-French colonial oil interests.) The KRG is not yet de jure independent and is in some respects still beholden to Baghdad, but decreasingly so, as these contracts with oil majors seem to suggest.

Resource market guru Dr. Alex Cowie leads a magical mystery tour through the world of energy prices in this piece on Money Morning Australia. Unconventional natural gas has been a game changer with ripples across the entire energy market, especially coal and uranium. As Cowie explains, gas markets tend to be more localized than oil, and the shale gas glut in the US has led to a surge in US coal exports, flooding the market and dropping the Newcastle coal price by 25% in the past year. “Permanently cheap” natural gas, as the General Electric CEO described it, also impacts uranium, the key to nuclear energy. An even bigger natural gas boom is looming, with massive unconventional reserves sitting untapped in China, Argentina and elsewhere, and uranium prices, like coal, are potentially in for a precipitous fall. That’s the impact of gas, but as if that isn’t enough Cowie also touches on the state of graphite and lithium, as well as the impact of growing solar energy demand on pricing of silver. Have fun with this one.

To check out previous news roundups, see the Scraping the Barrel series.

Category: Blogs, Daily news reviews, OpenOil blogs · Tags:

Leave A Comment