Monday, June 23, 2008

Petroleum: Basic and Pricing

An Overview

The petroleum industry is involved in the global processes of exploration, extraction, refining, transporting (often with oil tankers and pipelines), and marketing petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. Midstream operations are usually included in the downstream category.

Petroleum is vital to many industries, and is of importance to the maintenance of industrialized civilization itself, and thus is critical concern to many nations. Oil accounts for a large percentage of the world’s energy consumption, ranging from a low of 32% for Europe and Asia, up to a high of 53% for the Middle East. Other geographic regions’ consumption patterns are as follows: South and Central America (44%), Africa (41%), and North America (40%). The world at large consumes 30 billion barrels (4.8 km³) of oil per year, and the top oil consumers largely consist of developed nations. In fact, 24% of the oil consumed in 2004 went to the United States alone.[16] The production, distribution, refining, and retailing of petroleum taken as a whole represent the single largest industry in terms of dollar value on earth.


What Do You Get From A Barrel Of Crude Oil?


Since a barrel of crude oil will be processed into various outputs, will it means that current surge in gasoline (20% of crude output) and diesel (10% of crude output) due to higher demand in gasoline and diesel segments will result in similar surge in other by-products like LPG, heavy Fuel Oil (residual), etc?

Major Fuel Consumers

Looking at the top 15 fuel consumers, and top 15 net importers of fuel, the and innate knowledge of the potential for higher fuel consumption by emerging economies such as India and China, one could conclude that the fuel market is tight; hence a fertile ground for speculative activities in the market.


Total Fuel Consumption in 2006 and Net Import in 2006
Price Movement In Short To Medium Term

With the tight supply in oil market, despite voice to warn the bubble in oil market is ripe for correction, the ascending support line for Oil price remain slightly above USD64 at year end, which justify the notion that low oil price is a bygone era. As to what is the justifiable ceiling price less speculative premium is open to debate, and near impossible to pin ceiling price based on fundamental when there are so much going on in the market for Crude Oil.


OPEC No Longer a Synchronized Orchestra

Recently attempt by Saudi Arabia to increase production is not well-responded within the organization, unlike during the early 70s (during Arab-Israel war). Further new players

No Major Oilfield Discovered

President Bush has lifted the ban on offshore oil drilling which give rise to potential new oilfield discovery but too early to tell how this will impact the global supply of fuel. And with the expected change of administration, it is a question mark on how the incoming administration views on the latest policy that might invite criticism from the environmental lobbyists.

Conclusion

The oil price is unlikely to return the era of USD20 per barrel, anytime soon, if ever. However the recent spike in crude oil price is suspected to be unsustainable but what is the right ceiling price is anyone’s guess.

Sunday, June 22, 2008

Since March 08, 2008

The political scene in Malaysia since March 8, 2008 has been interesting and significant. To start with, the Barisan Nasional (BN) with UMNO being the backbone to the present government has been battered by the Pakatan Rakyat (PR) lead by Parti Keadilan Rakyat and its de facto leader Mr Anwar Ibrahim. The loss of 2/3 majority has been a major blow to BN and Prime Minister (PM) Abdullah Badawi. This is indeed a sharp turn of event from his first election as PM when the opposition was almost vanished from what many described as the strongest mandate given to any PM in Malaysia’s history. Till now, debates are ongoing on what has happened that contributed to such a change of fortune to PM?

Whatever the answers, I do notice the present trends bring about some positive development to the country which I like to highlight:

1) Malaysia is now much more open as a society than before. Freedom of speech has been greatly enhanced and embracing diversity is visible. For example, TV stations have been airing more non-Bahasa programmes, without compromising the quantity and quality of Bahasa-programme. Interestingly, RTM2 has equally good evening Mandarin news slot as compared to other private stations.

2) Malaysians could now get to evaluate alternative governance by oppositions in 4 other states in addition to Kelantan, particularly industrial powerhouses like Selangor and Penang. Now, the oppositions have the best chance to convince the people that they are better alternative by doing the real things. Whoever produces better results, it’s the people who ultimately benefits from it. This is like giving the taxpayers (as shareholders) more choices of government to create long term values.

3) The step-up effort to improve performance of GLCs is another important measure to boast the economy and if well-delivered will bring about tremendous benefits to the country and its people.

4) Further liberalisation of economic policies to encourage FDIs is much welcome. One important measure to this is to allow foreign entities to invest in the country without political intervention, so long as it makes commercial sense. Small successes are visible and plenty of room to improve, what have been done so far is indeed a good beginning.

5) Politically, there have been vocal voices to downplay the racial card which could elevate the country to another level of socio-political maturity, and pave way to move the country in the direction of meritocracy, with those need help should find available resources to their disposal. With this, there is a better chance to realise the ‘Satu Bangsa, Satu Negara’.

On the sideline:

Recently, I spotted the Regent of Perak, Raja Dr Nazrin Shah, shopping for books at Kinokuniya (KLCC) with only one helper carrying a basket of books. Your Highness has been gracious to allow me taking his picture with a smile, to be shown to my 5-month old girl (and he told me he has a 3-month old baby too). He ended up giving my Xin Ning his ‘Best Wishes’. How gracious.


I thought for someone of his stature could be so down to earth and so close to rakyat like me, it is time for those who are holding position in government to do the same and stay in touch with the rakyat. The better you understand rakyat, the better you could serve us and the more effective your government is, whether you are from BN or PR.

Sunday, June 15, 2008

City State Ponders Its Future

Last Saturday (14 June 2008), I came across an article written by columnist, Seah Chiang Nee, on his weekly ‘Insight Down South’, on The Star. The writer sighted waning interest among many in Singapore in areas that were the cornerstone of Singapore’s development, i.e., engineering and even legal profession which experiences shrinking supply amid rising demand for lawyers.

Retired civil servant, Ngiam Tong Dow was quoted to express concern with the present development. According to him, “Britain’s economic decline set in because the best and brightest from Oxbridge, instead of going into engineering and running factories, went into the (financial) City of London... they are not creators of wealth, they just shuffling asserts around the place. In US, the best went to Wall St, their best still go into engineering.

This trend is not unique to Singapore. Many countries, in pursuit of greater socio-economic growth, are facing such reality. But this is never an easy issue to tackle and any policy puts in place will take more than a decade to prove its effectiveness. And in the globalised economy we are in, 3 more issues further add to complexity to this problem:

1) Among those who are trained in so called ‘wealth creation’ skills like engineering, computer science, pure sciences, medical research, so forth, are finding its ways to alternative industries that promise quick returns like financial while some abandon their training for different experience in NGO or others.

2) Emigration is another big headache. The brightest are the most sought after and those who are mobile will quickly find their ways into international labour markets, which often pays these workers higher premium than local market could, besides enhanced lifestyle. For City State like Singapore with solid ability to pay international wages, attracting foreign talents could be a viable option but no one could guarantee these talents will settle in for a long haul.

3) The fast changing nature of these so called ‘wealth creation’ skills often poses challenges to academicians and policy makers on the right dosage comprises the pursuit of pure academic and commercial, and how to incorporate the latest in the curriculum and instil the highly priced creative and innovative thinking. In his major speech, the new Education Minister Ng Eng Hen said: “More education does not necessarily mean more growth, as most politicians and economists unthinkingly suppose”. Tertiary education, he said, should maintain a “focus on quality”, rather than “expanding education thoughtlessly”.

I have a 5-month old daughter. Just like all fathers, i am determined to provide her with the best skills and the article has provided me with a good mental exercise on how i shall be mentoring my little one without compromising her freedom to choose, when the time is right.

Click on URL below to view the above-said article:

http://www.thestar.com.my/columnists/story.asp?col=insightdownsouth&file=/2008/6/14/columnists/insightdownsouth/21540353&sec=Insight%20Down%20South