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  • av19096 av19096 Jul 10, 2008 11:20 AM Flag

    tears of sorrow or pleasure 1 of?

    DJ UPDATE: OPEC: Conservation, Biofuels Pose Big Risk To OPEC
    (Adds comments from OPEC secretary general and updates oil price.)
    By Spencer Swartz Of DOW JONES NEWSWIRES LONDON--The Organization of Petroleum Exporting Countries on Thursday warned oil-consuming nations that rising energy conservation and increased use of biofuels pose a big threat to demand for its crude and could force it to spend less on new oil pumping capacity next decade.
    The 13-nation producer group, in its 2008 world oil outlook, said it could be left holding an excess of expensive production capacity if new U.S. and European fuel efficiency standards for new automobiles and buildings and growing investment in alternative fuel sources like ethanol choke oil demand in the coming years.
    OPEC is spending about $160 billion on new projects to 2012 that should ease supply concerns to an extent. But after 2012, OPEC says it's unclear how much its members should invest because the U.S. and other important oil-consuming nations are using less crude today to beat high prices -- clouding the prospects of future consumption.
    Crude in New York traded up around $1.50 at $137.50 a barrel Thursday.
    "Why should we invest in spare capacity that will not be used? We see plenty of spare capacity until 2020," OPEC Secretary General Abdalla Salem El-Badri told reporters in Vienna after the group released its report.
    That view is at odds with many other industry analysts, who believe it will take several years to beef-up the world's extra pumping capacity to more comfortable levels after years of underinvestment and amid lagging non-OPEC supply and robust demand from emerging markets.
    OPEC's outlook on future investments underscore some of the divergent opinions between the producer group and consuming countries about today's oil market environment that could end up hindering the delivery of future crude supplies and lower energy prices.
    Consumers in Europe, Japan, and the U.S. see conservation and alternative fuel sources, like ethanol, as allies in fighting high energy costs. But OPEC sees such tools as enemies of oil demand that could sour its appetite to invest in new projects in the years ahead. ...

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    • "If these (demand) uncertainties lead to a more cautious investment pattern, this might mean that the necessary signals are not in place to develop the appropriate (supply) capacity
      .. and hamper the drive towards long-term oil market stability," OPEC said in its report.
      Highlighting OPEC concerns, the International Energy Agency in a separate report Thursday said it expected global oil demand growth this year and in 2009 of just 1%, well below the long-term annual average of about 1.6%, due to declining economic growth and increased fuel efficiency.
      OPEC cut its world oil consumption forecast to 2030 by 4 million barrels a day versus its 2007 report.
      Agreeing on official oil data is also a bone of contention. El-Badri and OPEC ministers believe groups like the International Energy Agency, a watchdog for oil-consuming nations, are too optimistic about oil demand.
      Yet OPEC is accused by some analysts of being too rosy itself at times. Unlike OPEC, the IEA and many other analysts think non-OPEC producers will be lucky to add big amounts of new capacity year after year.
      The world's reliance on OPEC oil is expected to rise from around 40% of daily demand today to possibly as high as 50% over the next two decades, according to the IEA, because non-OPEC suppliers are struggling to add new capacity as aging fields grow less productive. The IEA says the world's spare pumping capacity could double from today's historically low level of about 2 million barrels a day by 2010 before falling to "minimal levels" by 2013.
      OPEC concerns about demand for its oil are understandable, analysts say.
      In the mid-1980s, OPEC invested billions of dollars in new spare production capacity only to see demand and oil prices fall sharply as efficiency gains took hold in consuming nations after the oil price spikes of the late 1970s. Big project investments became uneconomic and many OPEC nations' economic growth deteriorated in this period.
      Bill Farren-Price, director of energy at Medley Global Advisors, said OPEC countries are also growing concerned that Iraq's oil industry will one day get back on its feet -- perhaps in five years -- and deliver big crude volumes to the market.
      But OPEC is not very clear about what precise steps oil-consuming countries are supposed to take to ease its fears about where crude demand will be in 10 years time, other than to say that all parties need "pragmatic dialogue." El-Badri didn't help matters with vague comments on the matter to reporters.
      Despite its current concerns, OPEC isn't totally gloomy about crude's prospects. Oil's share of meeting global demand is expected to ease to 33% of the overall energy mix by 2030 from 37% currently, but crude remains the No. 1 fuel source, even in 2030, according to OPEC data.
      Biomass and other renewable energy sources meet just 5.7% of the world's total energy needs in 2030, up from 3.8% in 2006, according to OPEC data.
      -By Spencer Swartz, Dow Jones Newswires; +44 (0)207 842 9357;

      Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: You can use this link on the day this article is published and the following day.

      (END) Dow Jones Newswires

      July 10, 2008 11:13 ET (15:13 GMT)

      Copyright (c) 2008 Dow Jones & Company, Inc.- - 11 13 AM EDT 07-10-08

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