The Weekly Wrap: August 20, 2010

Korea National gets hostile. Korea National Oil Corp. launched a $2.9 billion hostile takeover bid for Dana Petroleum, a British independent oil and gas producer and explorer. The bid follows an earlier $2.6 billion offer from KNOC on August 12, which Dana rebuffed. It’s not certain yet whether the deal will go through, but some of Dana’s biggest shareholders have come out in support of the KNOC offer, which could bring a premium of 59 percent over Dana’s late June stock price. KNOC has been in hot pursuit of Dana since June, and the bid reflects South Korea’s ambitious energy strategy as Seoul seeks to play catch-up to China and India in securing overseas energy assets. Asia’s fourth-largest oil importer has nearly doubled its budget for foreign energy projects and acquisitions since last year, from $6.7 billion to $12 billion.

Exxon gives up on Ghana. Catching up on the Ghana oil dispute, ExxonMobil effectively ended its $4 billion attempt to acquire the stake of Dallas-based explorer Kosmos Energy in the large offshore Jubilee field. The abandonment of the deal ends a months-long standoff with the Ghanaian government, which had ardently opposed the sale. Ghana has been trying to acquire the Kosmos stake for itself, which it would then sell to a higher bidder with more favorable conditions for its national oil company. Kosmos will hold onto the stake for now, but it will likely face pressure by its private equity shareholders to sell soon, so long as the price is right. Exxon’s decision to walk away from the deal is only the latest illustration of the rising power of national oil companies, which control the vast majority of the world’s oil reserves. As the increased leverage of these companies becomes the norm, the major oil companies will have to become more accommodating to their demands. Walking away, especially when ready buyers from Asian emerging economies are waiting in the wings, may cease to be an option.

Europe’s renewable energy dilemma. In the last decade, European governments have prided themselves on their forward-thinking renewable energy policies. But as large deficits loom and force E.U. countries to tighten their budgets, subsidies for these greener sources could be facing the axe. Spain’s extensive renewables program is under fire as the government battles a massive deficit. Unwilling to let electricity prices rise to help cover the costs of renewables subsidies to utilities, Madrid has announced sharp cuts in aid to future thermal solar plants and wind farms, and could potentially scale back subsidies for current renewable power plants. Germany is also making efforts to withdraw or reduce green energy subsidies, which turned out to substantially exceed original cost estimates, while Italy too has considered altering a "green certificates" subsidy program. This debate over funding for renewables highlights the fragile position of greener, but more expensive, energy alternatives in an age when an increasing number of voices are clamoring for deficit reductions and budget austerity.

Washington tightens standards on drilling permits. On Monday the Obama administration announced that future offshore drilling permits would be subjected to stringent environmental reviews. The older permit approval process included "categorical exemptions," which eased offshore drilling for oil companies by basing reviews of the well under consideration on environmental impact statements from areas with similar conditions. These exemptions had been common in the past, enabling the government to waive a full environmental review of the ill-fated Macondo well when BP was granted the permit to start drilling. New policies adopted by the Bureau of Ocean Energy Management, Regulation and Enforcement will substantially increase the depth and duration of these environmental assessments. The push for tighter drilling standards from the White House comes as congressional bills with similar regulations are languishing on Capitol Hill. With the midterm election season fast approaching, the administration is eager to show some progress in post-oil spill regulatory drive.

The hidden costs of low oil prices. It’s a common assumption that the OPEC countries would prefer higher oil prices in order to maximize their returns. But Dan Indiviglio at The Atlantic argues this week that lower oil prices, brought on by the global recession, may be even more beneficial to the cartel. Taking a cue from energy analyst Stephen Schork, he points out that lower oil prices would make investments in renewable or alternative energy sources unprofitable, thus prolonging consumer preference for gasoline and other petroleum products.

Crude continues to move south. Turning to world oil markets, prices continued their decline this week, dipping to a six-week low of $73.19 in New York. Reports from the Labor Department on a rise in initial jobless claims, a fall in equities for the week, and a climb in the dollar — which diminishes the purchasing power of oil consumers, since oil is denominated in dollars — all contributed to the downward drive in prices. Meanwhile, the Energy Department reported that U.S. oil inventories had risen to record highs, prompting several analysts to predict that oil may trade below $70 in the coming months, price levels that haven’t been seen since June. Lingering fears that the United States will slip back into recession appear to outweigh any positive economic news from Asia, and prices will likely continue their decline next week.

The next frontier in biofuels: Whiskey? A Scottish research team has developed a biofuel from whiskey by-products called "pot ale" and "draff," the liquid and grains remaining after the distillation process. The biofuel produced is butanol, which delivers 30 percent more power than ethanol, the most common biofuel on the market today. Its by-product ingredients make it less environmentally taxing than ethanol, and certainly lessen its impact on global grain prices. Butanol doesn’t require any adaptation to be used in conventional car engines, and could even be available at commercial gas pumps within five years. Could Scotland and Kentucky be the biofuel hubs of the future?