Home' Trinidad and Tobago Guardian : August 6th 2015 Contents AUGUST 6 • 2015 www.guardian.co.tt BUSINESS GUARDIAN
ENERGY | BG9
These days it seems whatever can
be burned to power a car, heat
a home, make electricity or ship
people and goods around the
globe is being sold at bargain
Prices for coal, natural gas, oil and the fuels
made from crude such as gasoline and diesel
are all far less expensive than they have been
in recent years.
Consumers are rejoicing. Fossil fuel companies
are reeling. Countries that import energy, such
as the US, China, Japan and those in the Euro-
pean Union, are getting an economic boost.
Exporters, such as Russia, Saudi Arabia and
Venezuela are facing lower income and budget
The possible effect of cheap fossil fuels on
the environment is unclear; low prices certainly
make them more tempting to burn, but low
prices can also help discourage exploration in
sensitive locations and open the way for envi-
The recent price declines are a result of com-
plex factors that have led to a simple outcome:
There is more than enough fossil fuels at the
ready than customers need.
"We just have too much energy hitting the
world," says Suzanne Minter, manager for oil
and gas consulting at Bentek Energy, a division
Price: Average for the year through July is
US$53 a barrel, down 48 per cent compared
with the same period last year and on track for
its lowest annual average since 2004. US crude
inched up Tuesday to US$45.55 a barrel in after-
noon trading, but it has fallen 20 per cent in
the past month.
Reason: Huge increases in oil production in
the US and Canada, along with sizable gains in
Iraq and elsewhere, helped boost global supplies.
Saudi Arabia and other OPEC nations kept
pumping crude at high levels. Iranian crude
could soon return to the market after being kept
off by sanctions.
Meanwhile, global demand for crude is not
as strong as expected because China s growth
has cooled and other economies have become
more energy efficient.
Gasoline: The average US retail price is down
30 per cent through the first half of the year.
It is now US$2.64 a gallon, according to AAA,
lower for this time of year than any other year
over the last decade except 2009.
Diesel and heating oil: Average retail prices
for both are down 27 per cent.
Reason: When oil prices fall, the cost for
refiners to turn it into petroleum products and
fuels goes down. US refineries have been running
at full strength, and big new refineries in Saudi
Arabia and elsewhere have added to global sup-
plies of fuels.
Futures: US futures have averaged US$2.77
per thousand cubic feet through the first half
of the year, 40 per cent lower than last year.
Residential prices: Averaged nine per cent
lower through the first half of the year. For the
full year, natural gas is expected to average
US$10.27 per thousand cubic feet, the lowest
since 2003, according to the Energy Depart-
Reason: US production is strong. Relatively
mild weather has tempered demand for heating
and electric power plants. Around the world,
natural gas prices have also fallen because they
are often linked to the price of crude and pro-
duction of liquefied natural gas that can be
shipped overseas is ramping up.
Price: The average price of coal used for
electricity from Central Appalachia is 20 per
cent lower than last year, according to Platts.
In June, the price hit an eight-year low.
Reason: Coal is sitting in piles or being left
underground as US electric power generators
burn cheap natural gas instead. In April natural
gas briefly overtook coal as the top fuel for
electric power for the first time.
Demand for coal is growing globally, but local
mining capacity is also growing. Pollution con-
cerns and slower global economic growth are
also keeping a lid on coal demand.
Coal consumption could fall even more dra-
matically if rules announced Monday by Pres-
ident Barack Obama to limit carbon dioxide
from electric power plants survive expected
HOW LOW PRICES HELP
Lower energy prices are good for consumers,
giving them more money to spend, and for the
broader economy. Consumer spending accounts
for about two-thirds of the US economy.
While sales at retailers haven t spiked, as
economists thought they might, consumer
spending is growing faster than the overall econ-
omy, suggesting lower fuel prices have helped.
"It s not this huge boost in spending but it
is very good news, relieving pressure at a time
when wage growth is not very strong," says
Nariman Behravesh, chief economist at IHS.
He calculates that the decline in gasoline
prices is saving customers about US$800 a year
compared with what they were spending
between 2010 and 2014.
HOW LOW PRICES HURT
Energy company profits and share prices have
been crushed. Quarterly earnings dropped 52
per cent at Exxon and 90 per cent at Chevron,
the companies announced last week.
On Monday Alpha Natural Resources became
the fourth US coal company to seek bankruptcy
protection in the last 15 months.
The lower revenue and profit are taking a toll
on employment. The US coal industry has lost
21,000 workers since 2011, according to the
Labour Department, a decline of 24 per
cent.Chevron, BP and Shell last week all
announced workforce reductions. Layoffs at
three of the biggest oil and gas service com-
panies---Schlumberger, Haliburton and Baker
Hughes---are approaching 60,000 since the
price decline began.
HOW LOW PRICES AFFECT THE
Low prices encourage higher consumption,
which in turn increases pollution. Sales of sport
utility vehicles start rising as soon as gasoline
prices fall, and US gasoline consumption is on
track to rise to its highest annual level since
2007 thanks in part to low prices.
But low oil prices discourage oil companies
from exploring and producing oil in energy-
intensive, environmentally-destructive ways
because it is so expensive. Development in Cana-
da s tar sands has slowed considerably since
Low electricity prices, a result of low natural
gas prices, make it harder for alternatives like
wind and solar to compete. But low prices can
make environmentally-friendly policies easier
for consumers to accept because they are paying
less overall for energy.
Obama s emissions regulations for power
plants would be far more costly without the
country s abundant natural gas and low prices.
Elsewhere, countries such as Indonesia and
United Arab Emirates have been able to phase
out fuel subsidies that encouraged consumption.
Fire sale on stuff that burns:
Oil, natural gas, coal down
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