The Weekly Wrap: August 13, 2010

BP’s Libyan drilling delay. BP moved yesterday to delay the starting date for its planned deepwater drilling project off the coast of Libya. The project, which had been scheduled to begin within a number of weeks, has now been put off to an unspecified date later this year. BP says the company is delaying work because it is still finalizing preparations, which could mean that the company is wary of European fears that a Macondo-like well blowout could occur in the Mediterranean. But the delay also comes in the wake of allegations that BP’s ties to Libya played a role in the Scottish government’s decision to release convicted Lockerbie bomber Abdel Baset al-Megrahi last year, and after the Senate Foreign Relations Committee held hearings on the subject two weeks ago.

Energy innovation from an unexpected source. On Sunday Abu Dhabi announced that it would install "smart grid" electricity meters in every home in the emirate this year, while at the same time creating a subsidy system for solar panels. The subsidy is expected to create a $2 billion market for solar panels over the next decade, which the emirate’s government hopes will attract international investment in the technology, driving down the costs of the technology and encouraging local solar entrepreneurs. Abu Dhabi’s move towards efficient electricity-generation may seem surprising, coming as it does from a country with vast petroleum reserves. But the United Arab Emirates has big plans to expand its current oil output, and part of this plan involves freeing more oil for export from the country’s burgeoning demand for electricity — which also explains the construction of four nuclear reactors there by a Korean firm.

Opening up, and paying up. It was a good week for federal energy regulators, as the new financial regulation law brought unexpected consequences for energy companies. On Wednesday the Wall Street Journal revealed that last month’s Dodd-Frank law contained a provision requiring U.S. oil companies to disclose all payments made to foreign governments in the development of energy and mineral resources. The transparency measure was quietly inserted into the bill, but it has provoked much noise from the industry, which argues that the law will put them at a disadvantage to foreign competitors when vying for exploration and development contracts. Meanwhile, BP agreed to pay the Occupational Safety and Health Administration a record $50.6 million fine yesterday in response to charges from OSHA that the oil giant had neglected to upgrade the safety conditions at its Texas City, Tex. refinery, where a 2005 explosion killed fifteen people and injured nearly 200. These were both rare victories for advocates of tighter energy regulation, whose efforts to create a more far-reaching regulatory environment for oil were frustrated by the Senate’s decision to punt on an energy bill last week.

Sanctions take their toll. Iran is suspending development on two liquefied natural gas projects, forcing the country to scale back its once-ambitious plans to become a leading exporter in the global LNG market. Officials of the National Iranian Oil Company cited costs and complexity as the reasons for the suspension, but the move comes weeks after the United States and European Union introduced tightened sanctions on Tehran. The sanctions have closed off Iranian access to the technology necessary to move forward on its LNG projects; expertise in the sector is heavily concentrated in Western energy firms. News of the suspension comes as a report from the International Energy Agency revealed that Iran’s gasoline imports have been hit hard by the sanctions-despite possessing some of the world’s largest oil and gas reserves, Iran lacks the refining capacity to meet domestic fuel demand. Although Tehran has repeatedly denied the impact of external sanctions, the LNG project suspension may be a grudging acceptance of the effect that the sanctions have had on the country.

Saudi Aramco: What, me worry? Khalid F. Al-Falih, the president and CEO of Saudi Aramco, dismissed concerns about peak oil as "baseless" at the Oxford Energy Forum in the United Kingdom on Tuesday. Citing geological evidence and analyses, Al-Falih argued that the world’s sources of oil and natural gas have remained plentiful, and that with the proper technology, policy decisions, and economic and regulatory environment, these resources can be successfully developed. Saudi Aramco, the world’s largest exporter of crude oil, has repeatedly brushed aside the threat of peak oil in the past, arguing that such concerns have only contributed to price volatility in world oil markets.

Oil markets still a roller-coaster ride. Oil prices fell back to earth this week, after touching 12-week highs last week, to settle at around $76 a barrel yesterday in New York. The Federal Reserve’s announcement on Tuesday that it would hold interest rates at record lows, along with a rise in U.S. applications for unemployment benefits, caused investors to turn sour on crude. Meanwhile OPEC released its global oil demand forecast today, predicting a 1.2 percent increase in demand for the next year, driven by rising consumption in Asia, the Middle East and Latin America. Last week I wrote that oil prices may be heading south thanks to a conflict between Asian growth and weak U.S. demand, and this week’s news seems to confirm that oil will be hanging around the $70-$80 price range for the time being.