The Banking and Strategy Initiative

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A new Energy Flow map for the world

Do you realize that Saudi oil traffic to US has dropped by over 25% in the last year. It is not only the recession, as the lower price by OPEC accordingly means adequate demand is maintained for the concurrent supply levels planned, and they may continue to want $150 for the gas, I’m not paying. On more pricing and playing with fire in commodities head over to the experts here      

The new twist in the tale however is Russia’s new European and Asian supply lines. Witness, this analysis in the WSJ after the ESPO line ( East Siberia Pacific Ocean) from Russia started supplying China and Saudi Aramco followed      

Saudi exports to the U.S. fell to 745,000 barrels a day last August, the lowest level in almost 22 years, according to Platts, the energy information service. Meanwhile, so much Saudi crude is now flowing toward China that the country may soon replace the U.S. as the main market for Saudi Arabian crude.      

via WSJ      

With 5 new alt fuels and Audi advertising TDI, the industry in the US seems to have pinned its hopes away from Middle East Oil, at least till it finds its way around the deficit. There is a lot of other interesting stuff as well, that my friend Barry Ritholtz has discovered and pinned up on the reading list here.      

A Diversion for the Economy      

To answer the question on the double dip recession though, it seems right that if you squeeze my expense right now, I’m not going to be able to stand up right now. Not very encouraging, that. I don’t think Niall Ferguson is entitled to such a broadside at American Government, and I am increasingly of the opinion that deficits are good things and if UK wants to take it to 500% of GDP , it well may and anyone else including the US. It is easier than suffering another recession. Ask the contracting economies in Russia and Venezuela, it hurts too.      

However, I am hedging my bets, and living in growing India or else in another such cosy story in Asia, like Soros before      

As a commodity, there is a lot of Gold people must yet buy, so Oil is fun only in the volumes that can flow through the pipe to China and India to fuel growth. This idea of investing in Oil distribution is a good one. If we build a pipeline today, it can easily cost $1.3-$7 billion per 1000 kms..The US midwest is going to get two pipelines from Alaska in the next ten years, ConocoPhilips and Exxon Mobil leading the projects worth $18 billion and $32 billion respectively.      

Technically speaking, less than 50% of the cost of the pipeline is labour and to quote a Univ of California study      

A pipeline through a rural area without special environmental concerns can cost five times less than a pipeline of the same length and diameter through a dense urban area.

Asia is getting pipelines from the politically sensitive Iran and eastward in Burma, both depending on supplies to China, leaving a lot of India’s investments no option but to withdraw and find a suitable option      

The Iran–Pakistan–India gas pipeline, also known as the IPI pipeline or the Peace pipeline, is a proposed 2,775-kilometre (1,724 mi)[citation needed] pipeline to deliver natural gas from Iran to Pakistan and India. In April 2008 Iran expressed interest in the People’s Republic of China’s participation in the project.      

US may succeed in Pakistan also withdrawing from this pipeline in favor of Tajikistan electricity.   Meanwhile, Ukraine is still trying to get domestic supplies from the twin West Pacific Oil Highway from Russia, where Russia has refused it special considerations in price and quantity. Ukraine still claims to hold all of Russia’s storage infrastructure for its consequent exports and not just the pipelines.       

Oil MapRussia of late, has simply changed the routes in favour of the ones that have not been vandalized by Naftohaz Ukrainy, the Gazprom counterpart in Ukraine, i.e. the Blue Stream that lands directly in Turkey, leading to coming changes in the supply equations for Western and Eastern Europe as well.      

India is investing $168 million from ONGC from its international subsidiary in the Burma pipeline to China worth $3.80 billion including th gas blocks in Myanmar That gives it access to 12.5% of the supply’s profits if assumed on the basis of its ordinary conditions in past projects including GAIL’s  $80 million. ONGC can takes its investment up to $1 billion. Korea owns 60% thru Daewoo and Korea Gas, and China is buying the production at $7.75 per mmbtu for the assured supply. Prices in India are administered at landfall point at much closer to cost at $4.20 per mmbtu      

Similarily, Oman has recently added 1 billion barrels in reserves from new discoveries in 2009 plus more gas diiscovered in adjunct fields. Oman is serviced a total of less than 1000kms of pipeline for 1 m bpd.      

The Trans Sahara Pipeline will bring alternatives to Europe running from Nigria to the northern head in the mediterranean at Algeria, suported by European Oil majors      

 Kazakhistani Oil awaits the Trans Caspian line to bypass Russia at a cost of $4 billion.  Sinopec is building another internally in China across the Yangtse, Criss crossing branches making 2500 km , planned in 2 years for 20bcm of gas ( Ph I 1360 kms) The PetroChina west East line already carries 12 bcm (built at a cost of $5.7 billion)   

The Indian Gas Grid of over 5000kms meanwhile has a grant of $1 billion from the government, building pipelines running north-south and west-east.

3 comments on “A new Energy Flow map for the world

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