TW: We saw energy prices go up nearly parabolically in 2005-2007 and then collapse. The collapse was not due to profound new supplies or alternatives but related to the global contraction which has created historic drops in demand. Most of those supply expansion projects (for fossil fuels and alternative fuels) put into motion during the 0'05-'08 period are coming to an abrupt halt.
This applies to the refining capacity addressed below as well as exploration and production throughout the world. When and if demand resumes its growth, prices should rock and roll up. The free market at work, rather messy I would say, there are things like energy taxes which could smooth things out but that would be socialist...better that we panic into a drill, drill, drill mode later.
From Robert Rapier's blog:
"...the conditions are setting up for a gasoline supply crunch - and the price rise that goes along with that. As I pointed out, refiners are cut back, but they can turn that around pretty quickly. The low utilization numbers could lead to a short-term supply crunch, but as prices recover refiners can bring capacity up quickly.What they can't do quickly is implement new capacity additions. Due to the collapse in oil and gas prices, projects are being delayed, both in upstream oil production and in downstream refining. This is setting up for another run on prices as demand begins to recover.
...This isn't something that will play out short term, but if your strategy for investing is more long term...these project postponements will come home to roost in the next 2-3 years"
http://i-r-squared.blogspot.com/2009/02/impending-gasoline-supply-crunch.html
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