Oil demand growth has remained robust, supported by strong growth in emerging markets, particularly China and the Middle East.

With oil prices heading toward $100 a barrel, the rise in energy costs is a new worry for consumers at a time of continued concerns in major economies about fallout from the credit crunch.
The average petroleum spot price (APSP) reached a new high of over $93 on November 7. The three main benchmark prices for oil all reached record highs around the same time, with West Texas Intermediate closing at almost $97, Brent at $94, and Dubai at almost $89, Imf.org said.
But not everyone is receiving the same pinch from the oil price hike. Measured in euro and Special Drawing Right (SDR) terms, the surge has not been as dramatic, reflecting the depreciation of the dollar, the currency that oil producers are paid in. The effects of the depreciating dollar on the price of oil was discussed at the third summit of the Organization of the Petroleum Exporting Countries (OPEC), held November 17-18.
As of mid-November, futures and options markets indicate that the APSP will average almost $88 per barrel in the fourth quarter of 2007 and almost $87 in 2008, with a more than one in four chance that Brent crude prices could be above $100 by early 2008.
The recent oil price surge was sparked by geopolitical concerns about growing tensions in the Middle East and some weather-related production shutdowns, underscoring that in an environment of limited spare oil production capacity and declining inventories, prices have become highly sensitive to news that may indicate possible future supply shortages. The weakening dollar also played a role. But more fundamentally, spare capacity remains low and market conditions are expected to remain very tight.
Oil demand growth has remained robust, supported by strong growth in emerging markets, particularly China and the Middle East. While the International Energy Agency recently revised oil demand downward in the fourth quarter of 2007 because of the slowing US economy, global demand is expected to remain strong in 2008.
In contrast, supply has lagged behind and inventories are falling. During the first nine months of 2007, world oil supply declined moderately by 0.1 millions of barrels per day (year on year), reflecting a decline in OPEC’s output and limited output growth in oil-producing countries that are not members of OPEC. As a result, commercial inventories in OECD countries fell in the third quarter and October, a period normally marked by inventory accumulation.
Supply is lagging demand growth because of the increasing technological and economic challenges for oil production. As a result, tight market conditions are expected to persist and possibly intensify, assuming strong GDP growth continues in emerging markets such as China and India.
Analysis by the IMF shows that, over time, a prolonged price surge will certainly have the effect of curtailing demand--especially in the United States--by inducing greater substitution into other energy sources and by increasing incentives to conserve energy. But in the short term, demand may be insensitive to price changes.
The depreciation of the dollar has amplified the oil price surge in dollar terms. While the APSP rose by almost 51 percent in dollar terms during the year (as of mid-November 2007), it rose only by about 37 percent in euro terms.
Apart from this “accounting effect,“ some market analysts suggest that the weakening of the dollar, combined with financial turbulence linked to the subprime mortgage market in the United States, may have induced investors to diversify away from dollar-denominated financial assets toward commodities as alternative assets.
High oil prices have not so far had much of an impact on global activity and inflation. The limited impact reflects the demand-driven nature of the runup in oil prices since 2002, as well as lower energy intensity, more competitive labor markets, and the improved credibility of monetary policy frameworks. For developing countries in particular, strong global growth and the rise in nonfuel commodity prices have mitigated the impact of higher oil prices on many countries’ trade balances.
That said, the recent oil price surge will likely boost headline inflation in the months ahead (headline or total inflation includes volatile food and energy price components whereas core inflation typically excludes these volatile items). The direct effect of the recent oil price rise on headline inflation in the United States is estimated to be around Ú percentage point by the end of the year.
The impact in other advanced economies will likely be smaller because reliance on private transportation is lower, and because prices have risen less in other currencies. However, central banks may find that they have less room for maneuver in responding to weakening demand caused by the recent financial turbulence, given that higher fuel costs could have second-round effects on other prices and on wages.

Hydrogen as an everyday, environmentally friendly fuel source may be closer than we think, say Penn State researchers.
“The energy focus is currently on ethanol as a fuel, but economical ethanol from cellulose is 10 years down the road,“ says Bruce E. Logan, the Kappe professor of environmental engineering. “First you need to break cellulose down to sugars and then bacteria can convert them to ethanol.“
Logan and Shaoan Cheng, research associate, have recently demonstrated a method based on microbial fuel cells to convert cellulose and other biodegradable organic materials directly into hydrogen, according to RenewableEnergyAccess.com reported.
The researchers used naturally occurring bacteria in a microbial electrolysis cell with acetic acid--the acid found in vinegar. Acetic acid also is the predominant acid produced by fermentation of glucose or cellulose. The anode was granulated graphite, the cathode was carbon with a platinum catalyst, and they used an off-the-shelf anion exchange membrane. The bacteria consume the acetic acid and release electrons and protons creating up to 0.3 volts. When more than 0.2 volts are added from an outside source, hydrogen gas bubbles up from the liquid.
“This process produces 288 percent more energy in hydrogen than the electrical energy that is added to the process,“ says Logan.
Water hydrolysis, a standard method for producing hydrogen, is only 50 to 70 percent efficient. Even if the microbial electrolysis cell process is set up to bleed off some of the hydrogen to produce the added energy boost needed to sustain hydrogen production, the process still creates 144 percent more available energy than the electrical energy used to produce it.
For those who think that a hydrogen economy is far in the future, Logan suggests that hydrogen produced from cellulose and other renewable organic materials could be blended with natural gas for use in natural gas vehicles.
“We drive a lot of vehicles on natural gas already. Natural gas is essentially methane,“ says Logan. “Methane burns fairly cleanly, but if we add hydrogen, it burns even more cleanly and works fine in existing natural gas combustion vehicles.“
The range of efficiencies of hydrogen production based on electrical energy and energy in a variety of organic substances is between 63 and 82 percent. Both lactic acid and acetic acid achieve 82 percent, while unpretreated cellulose is 63 percent efficient. Glucose is 64 percent efficient.
Another potential use for microbial-electrolysis-cell produced hydrogen is in fertilizer manufacture. Currently fertilizer is produced in large factories and trucked to farms. With microbial electrolysis cells, very large farms or farm cooperatives could produce hydrogen from wood chips and then through a common process, use the nitrogen in the air to produce ammonia or nitric acid. Both of these are used directly as fertilizer or the ammonia could be used to make ammonium nitrate, sulfate or phosphate.

Chile is rich in natural resources with energy potential, like the wind, ocean and rivers, the sun and biomass, but the country only began to take them into account in 2004, while importing 72 percent of the energy its population consumes.
In November 2006, the administration of Michelle Bachelet set the goal for 15 percent of new electricity generating capacity to come from renewable, non-conventional sources by 2010, according to IPSNews.net.
“The government’s objective can be achieved. We are on the right track, but not with the intensity we’d like,“ Mario Manriquez, vice-president of the Chilean Association of Renewable Alternative Energies said.
The high prices of petroleum and the restrictions on imports of Argentine natural gas since 2004 have forced two modifications of the General Law on Electrical Services.
But the problems were not resolved by these reforms. That is why the government is working on the passage of new legislation, the expansion of financial support instruments and improvement of information about the sector.
The main thing at stake is a bill that calls for eight percent of the electricity sold by the leading producers to come from non-conventional, renewable sources. It would begin with five percent in 2010, growing 0.3 percent each year until reaching eight percent in 2024. Those who fail to comply would have to pay a fine.
In Manriquez’s opinion, the portion of clean energy sources should increase one percent annually until reaching 10 percent, which he says is still too low.
The capacity of Chile’s four electrical systems is about 12,000 megawatts, of which just 2.6 percent comes from renewable sources--mostly biomass (agricultural waste) from the paper industry, and hydroelectric dams for less than 20 megawatts. Wind energy contributes just two megawatts nationally.
Since 2000, solar panels and small wind-run generators have been installed in isolated households, as part of the Rural Electrification Program.
In 2005, the Chilean economic development agency, CORFO, inaugurated an annual contest that finances up to 50 percent of pre-investment studies in alternative sources and up to two percent of the total investment needed.
After three contests and 4.5 million dollars disbursed, there is a portfolio of more than 100 projects, most of them hydroelectric and wind, which together would provide some 800 megawatts. But it would take 1.7 billion dollars to implement all of them.
The government is negotiating donations and soft credits with Germany for the development of alternative energy sources in 2008.
According to Manriquez, in order to give a true push to clean energy beyond 2010, sales and marketing taxes must be established, as is done in Spain.
Several studies indicate that Chile’s wind energy potential is 10,000 megawatts. But the Alto Baguales wind park, which has operated since 2001 generating two megawatts, is the only one connected to the electrical grid, in the southern region of Aysen. At the end of this year the second one will begin operating, in the central region of Coquimbo.
It is known as Canela, a holding of Endesa Eco, affiliate of the Spanish transnational, with 11 turbines that will produce 18.15 megawatts for the Central Interconnected System, which supplies 93 percent of the population.
In the coming weeks, the results are expected of a study that identifies the irrigation works in which small hydroelectric dams could be built.

With reserves of 35 billion barrels, Nigeria accounts for 60% of proven oil reserves in the Gulf of Guinea.

For decades, Nigerian governments were content to let international oil companies do the pumping, merely taking taxes, royalties and a cut of profits.
Now with global oil prices surging near US$100 a barrel, Africa’s leading oil exporter wants to review agreements allowing oil companies to recoup their costs before sharing profits from deep water exploration, and consolidate all its joint venture oil assets into one potentially powerful company with a global reach, AP wrote.
“We’re looking at models like Petronas in Asia,“ said Tony Chukwueke, head of Nigeria’s Department of Petroleum Resources, citing Malaysia’s state-run oil company. It has oil and gas operations in more than 30 countries.
The reforms Nigeria envisions, if they succeed, may provide a model for others in Africa, where now international oil firms are either operating joint ventures for state oil firms or under contracts that allow them to recoup costs before sharing profits.
“Nigeria should be in the driving seat, doing what it is asking foreign companies to do for it,“ said Chukwueke, whose powerful department in the Energy Ministry is in charge of implementing the country’s oil and gas policies.
Proponents may argue that with more control over the industry, Nigeria can end the paradox of the energy-rich country wracked by fuel and power shortages. But President Umaru Yar’Adua faces skepticism in Africa’s most populous country, where corruption has been identified as the single biggest impediment to development.
More than US$400 billion was stolen from the treasury by Nigeria’s leaders between 1970 and 1999, according to the country’s financial crimes agency. Corruption helped create wide disparities in wealth and a loss of government credibility that in turn bred social unrest and high crime rates. The World Bank estimates that some 70 percent of Nigeria’s 140 million people live on less than US$1 a day; in South Africa, which lacks Nigeria’s oil wealth and has a more diversified economy, it’s 10.7 percent.
Yar’Adua has pledged to fight corruption and has repeatedly stressed the need for reforms in the oil industry, which pumped US$23 billion into government coffers in 2006, according to the latest figures available from Nigeria’s central bank.
Driving the new oil policy is a group of Nigerians with international oil industry experience. Members of the National Energy Council, which reports directly to Yar’Adua, include: Rilwanu Lukman, a mining engineer and long-serving secretary general of OPEC; Emmanuel Egbogah, who was technical adviser to Petronas for eight years; and Chukwueke, who worked for Royal Dutch Shell PLC for 27 years.
With reserves of 35 billion barrels, Nigeria accounts for 60 percent of proven oil reserves in the Gulf of Guinea, a region that has become of strategic importance as global oil demand surges and consumers like the US try to lessen their dependence on the Persian Gulf.
Nigeria is one of the top five suppliers of US oil imports and is emerging as an important liquefied natural gas supplier for Europe and North America. Rising Asian economies such as China and India are also looking to the region.
Six joint ventures with the Nigerian government run by Shell, ExxonMobil Corp., Chevron Corp., France’s Total SA and Italy’s Eni SpA account for more than 90 percent of the country’s normal export capacity of 2.5 million barrels daily. With the majority stake in each of the ventures, Nigeria provided the larger share of capital contributions--averaging US$3 billion a year in the past decade--to fund exploration and production operations.
But strapped for cash to meet its joint venture obligations for deep water exploration in the Gulf of Guinea in the 1990s, Nigeria entered into special contracts that allowed the oil majors to invest their capital and recoup their own costs before sharing profits with the government. The efforts yielded massive finds such as Shell’s Bonga field, Chevron’s Agbami and Total’s Amenan--each with the potential to yield more than 1 billion barrels.
The Nigerian government has yet to see revenue from these offshore oil fields, and wants to review the agreements.
More fundamentally, perhaps, Nigeria wants to consolidate all its joint venture oil assets under one company, which could raise funds for oil investments from international financial markets. Officials say the national oil company will become a joint operator with the international majors.