May OPEC Meeting: Looking Past the Fundamentals, Hoping For Recovery
We’ll take it! As was widely expected, OPEC Ministers meeting in Vienna on May 28 had little trouble reaching an agreement to maintain their current output ceiling of 24.845 million barrels per day (mmbd). The fact that the fundamental outlook for economic growth and oil demand remains bearish, that inventories are still near record levels, and that compliance with the group’s production ceilings has slipped a bit since their last meeting didn’t really matter. The overriding fact that prices were up anyway seems to have allowed OPEC Ministers to look past their differences and come to a swift agreement. Algerian Minister Chekib Khelil reportedly told reporters after the meeting that “we get along better when prices are improving.”
The one-page communiqué issued at the end of the meeting recognized the severe and broad impact the ongoing global economic downturn was having on world oil demand, and that this weakness was likely to persist for some time. It recognized that some positive economic indicators now point towards the possibility of the recession bottoming out before year-end, but that rising unemployment, shrinking world trade and weak industrial production are still major concerns. It also recognized the positive effect that OPEC’s past production decisions have had on restoring some stability to oil prices, but that crude supplies entering the market were still in excess of actual demand and inventories remain near record levels.
For this reason, the Conference of Ministers decided to keep current production levels unchanged at this time. All Members reiterated their firm commitment to abide by their individually agreed production allocations. The communiqué also recognized the impact that volatile oil prices have on the investments required to guarantee adequate energy supplies in the medium and long term, and it reiterated OPEC’s commitment “to providing an economical and regular supply of petroleum to consuming nations while, at the same time, stabilizing the market and realizing the Organization’s objective of maintaining crude oil prices at fair and equitable levels, for the future well-being of the market and the good of producers and consumers alike.”
OPEC’s current target or output ceiling went into effect on January 1, 2009, and is based on a total crude oil production cut of 4.2 mmbd from September 2008 actual production levels for the 11 Members of OPEC currently subject to quotas. OPEC’s production of natural gas liquids (NGLs) is not included in the quota calculation. War-torn Iraq, which currently produces 2.4 mmbd, is exempt from OPEC’s targets but remains a member. The group’s compliance with these production targets improved steadily in January, February and March, before eroding slightly in April.
The still fragile state of the world economy, declining oil demand, rising margins of spare oil production capacity, and record high inventory levels seemed to set the stage for continued market weakness. But oil prices (NYMEX front month WTI), after reaching a 2009 low of $ 33.98 per barrel on Feb. 12, have recently recovered to more than $60 per barrel for the first time since Nov. 10, 2008. While the recent rise in prices is good for OPEC revenues and investment in future supplies, it has many in OPEC scratching their heads to try and understand why. Many people believe speculation is returning to the oil futures market as investors look ahead with anticipation to rising prices and see oil once again as a hedge against inflation and a declining dollar. Contango in crude futures has helped support this view.
NYMEX WTI closed at a 2009 high of $63.45 on May 27, the day before the OPEC meeting. To some observers, the market seems to be defying gravity and flying in the face of the fundamental components of supply and demand. Many analysts believe that the market is over-bought and that some correction in prices may soon occur.
In the lead up to the meeting, Saudi Arabia’s King Abdullah and Minister of Petroleum Ali al-Naimi both reiterated their belief that $75 per barrel is a fair price for oil, but that the market, by looking forward and anticipating a future recovery, may be getting ahead of itself. They believe that the market will eventually reach $75, but only when the global economy and world oil demand are clearly recovering.
The Saudis, who have been strictly adhering to their production targets, are the only OPEC country that is also a member of the G-20, and they clearly don’t want to see too rapid a rise in oil prices undermine the prospects for global economic recovery. It’s a delicate balance. The move up to $60 per barrel helps OPEC with a lot of issues, but could introduce new strains into the still fragile recovery.
Compliance may be slipping. Estimates of OPEC production in April show that OPEC’s compliance with the 4.2 mmbd production cuts agreed upon by the group late last year fell below 80 percent in April, down slightly from an estimated 83 percent compliance in March. The recent run up in crude oil prices—apparent proof of the success of OPEC’s quota system—also appears to have been a temptation too strong to resist for some cash-strapped OPEC members. OPEC production, after declining for seven months in a row, now appears to have ticked up by about 250,000 bpd in April, to a level of 28.2 mmbd for the OPEC 12 (25.8 mmbd for the OPEC 11 subject to quotas).
OPEC produced 955,000 bpd above its target in April, entailing a 77 percent level of compliance with the agreed production cuts. Iran, Venezuela and Angola were responsible for most of the April volume increase, but the degree of compliance by Ecuador also remains low. The recent run up in crude prices is providing a windfall for OPEC’s over-producers and added incentive to produce even more.
Some cracks may be appearing in OPEC’s cohesion as a group. The increase in April output is likely to fuel the differences between those who are strictly adhering to their targets (Saudi Arabia and its neighbors UAE and Kuwait), and the over-producers (Venezuela, Ecuador, Iran and Angola) who generally have unmet revenue needs. It was also reported prior to the meeting that Angola, which joined OPEC at the beginning of 2007, has written a letter to the Secretary General of OPEC asking for a special exemption from the current output targets.
Angola’s production capacity has grown steadily since it first joined OPEC, and it could reach a level of 2.1 mmbd this year, some 600,000 barrels above its current production target. Angola is seeking an exemption similar to the one given to war-torn Iraq; on the grounds that it is still recovering from its long civil war and desperately needs the money for infrastructure and social programs. The communiqué issued at the conclusion of the meeting on May 28 made no mention of this request, whether or not the issue was discussed at the meeting, or how the issue is likely to be decided.
The other OPEC country that bears watching is Nigeria. The Movement for the Emancipation of the Niger Delta (MEND) has recently been stepping up its attacks on oil infrastructure in the oil-producing Niger Delta region, resulting in large weekly movements in oil production. Nevertheless, on a monthly basis Nigeria has managed to produce above its target for the first four months of the year. The potential volatility in Nigeria’s oil outpuInventories. t is probably defying any rational attempt to adhere to OPEC quotas.
Nevertheless, and in spite of these cracks in compliance, OPEC crude oil production so far this year has been on average some 2.9 mmbd lower than last year’s average output of 31.2 mmbd. If OPEC is successful in holding it together, maintaining current output levels and a reasonable degree of compliance with production quotas, it should be enough to more than compensate for the expected drop in demand and minor growth of non-OPEC supplies in 2009. For this reason it is easier for OPEC at the moment to avoid confrontation with the over-producers and hope for an early recovery.
While OPEC still has some leeway to cope with further reductions in global oil demand and rising levels of non-compliance on the part of some of its members, the huge overhang of commercial inventories is still a force to be reckoned with. Inventories are estimated to have risen to about 62 days of forward consumption at the end of March, as inventories rose counter-seasonally and forward demand fell. This is about eight days higher than last year.
Preliminary reports indicate that inventories may have come down slightly in April, but that they still remain close to the record highs seen in early 1998, following the Asian financial crisis. This remains troublesome for OPEC. High inventory levels can borrow from future demand. As spot market prices rise, there is more incentive to liquidate inventories, which depresses demand and pushes prices back down. Continuing weak demand prospects and growing noncompliance with quotas could exaggerate this whole process.
Another challenge. At the same time that OPEC’s compliance appears to be slipping, Russian oil production has been creeping up recently, as have its exports of crude and petroleum products. In addition, the recession-induced drop in local Russian oil demand has freed up more oil for export. The latest figures show that total Russian oil exports are up about 450,000 bpd in recent months, which is directly offsetting 10 percent of OPEC’s announced cuts in production.
Russia appears to be going for market share at the expense of OPEC. When prices were declining last fall and early this year, Russia was flirting with either joining OPEC or some other formal type of cooperation. They sent large, high-powered delegations to the last few OPEC meetings. By all accounts, notions of Russian cooperation with OPEC are over. There was no mention of their attendance at the just-completed meeting.
The Fundamentals. The economic outlook in the lead up to the OPEC meeting was both dismal and encouraging. It was dismal in that the Q1 GDP numbers and forecasts for the year as a whole continued to come down. First quarter GDP fell at an annual rate of 6.1 percent in the U.S., 15.2 percent in Japan, 14.4 percent in Germany, and 21.5 percent in Mexico. According to the International Monetary Fund (IMF), global economic activity is now expected to decline by 1.4 percent in 2009 before recovering to grow at a relatively sluggish rate (by past recovery standards) of 1.9 percent in 2010. Unemployment is expected to continue to rise and to show only modest improvement next year.
On the encouraging side, we seem to have weathered the first part of the financial crisis, and the economic stimulus packages enacted around the world are beginning to have an impact. The issue of how we pay for the financial rescue and stimulus plans put into place in the last eight months will continue to weigh heavily on near- and medium-term recovery prospects.
Nevertheless, a recent survey of 45 economists released by the National Association of Business Economists in the days just prior to the OPEC meeting shows that about 74 percent expect the recession to end in the third quarter of 2009. Another 19 percent expect the economy to reach a turning point in the last quarter, and the final 7 % believe the recession will end in the first quarter of 2010. Nevertheless, they all expect the recovery to be slower paced than usual.
Oil Supply and Demand. The May round of monthly oil market reports published by OPEC, the International Energy Agency (IEA), and the U.S. Department of Energy’s Energy Information Agency (EIA) in the weeks prior to the OPEC meeting all showed continued weakness and further markdowns in demand expectations. These three forecasts now expect global oil demand to shrink by an average of 2.0 mmbd in 2009, from 85.6 mmbd in 2008 to 83.6 mmbd in 2009.
Only one of these forecasts (the EIA) has thus far produced a demand number for 2010, and they expect global demand to rise slowly, by 0.7 mmbd to a level of 84.3 mmbd. This is only slightly higher than global oil demand five years earlier, in 2005. The recession wiped out nearly the last four years of oil demand growth. Many analysts also believe that demand growth is unlikely to come roaring back and resume its pre-recession rate of growth. Improvements in efficiency, new technologies and changes in consumer behavior may all be indications of slower demand growth ahead,
The expectations for non-OPEC oil supplies in 2009, according to the three monthly forecasts, now range from a low of – 0.3 mmbd in the IEA report to a + 0.2 mmbd in the OPEC report. The EIA expects non-OPEC oil supplies to grow by 100,000 bpd in 2009 and by 45,000 bpd in 2010. All three expect OPEC natural gas liquids (NGLs) to grow by 0.3 mmbd in 2009.
Putting all these figures into the blender, the three forecasts now expect the demand for OPEC crude oil (from all 12 OPEC Members) to decline on average by 2.5 mmbd in 2009 to an average annual level of 28.7 mmbd for the year. This is 0.5 mmbd above OPEC’s estimated production in April, and it gives the organization a small margin of comfort to deal with further lapses in compliance, additional markdowns in demand and a gradual return to more normal inventory levels. But it is only a small margin.
Spare Production Capacity. The decline in demand, coupled with production cuts and the completion of some ongoing capacity expansion projects, has raised spare or excess oil production capacity in OPEC from a little more than 1.0 mmbd last summer to near 6.0 mmbd today. Most of this is in Saudi Arabia. Spare capacity is expected to remain at comfortable levels for the next few years, as some additional capacity expansion projects started before the current downturn get completed. In the absence of unexpected developments, the relatively large cushion of spare production capacity should be able to accommodate any turn around in world oil demand we are likely to see in the next few years.
Prices. The daily closing price of the front month NYMEX WTI futures has gradually moved upward from an average level of around $40 per barrel in January and February of this year to a current level of just over $62. The price for the first five months of 2009 now looks like it will come to an average of $47.10. In our earlier forecasts, we expected prices (WTI NYMEX) to average somewhere in the $50 to $60 per barrel range for 2009 as a whole, with the first half being weaker than the second half. We see no reason to change this expectation.
Even if prices average $60 per barrel for the rest of the year, the annual average price would still come in at or around $54.50 per barrel. Prices would have to average $70 per barrel for the rest of 2009 to pull the annual average price up above $60 per barrel, the upper end of our range. We don’t believe that the fundamentals in the market can sustain a price at this level for long.
John Brodman
May 28, 2009
###
Salazar’s Expanded Energy Profile in Obama Administration
When President Obama nominated U.S. Sen. Ken Salazar to serve as Secretary of Interior, many thought the Colorado centrist would focus most of his attention on addressing traditional interior department issues such as water and land use.
Yet Salazar’s first few months in office have proven his portfolio extends far beyond the DOI’s field of traditional issues, and he has been called upon time and again to serve as both spokesman and cheerleader for the administration’s evolving energy policies.
An experienced politician with a knack for dealing with the public and the press, Salazar has raised the profile of the Interior Department as a key player in the wider energy policy space and by all accounts has the approval of the White House for this expanded role.
It was clear early on that Salazar’s tenure at Interior would be unique. “I work for [the president]. That means I will play a keystone role in helping to craft the energy agenda,” Salazar told the Senate Energy and Natural Resources Committee during his confirmation hearing in January. “I would not have taken this job if I was not given the assignment to help to craft the energy moon shot that we will take.”
Certainly the President has other capable and experienced leaders on energy policy in Energy Secretary Steven Chu and White House Czar Carol Browner, but the greater energy community has taken note of Salazar’s expanded role on energy issues.
Salazar says he spends between 30 percent and 40 percent of his time on shifting the priority for public lands to renewable energy. That doesn’t mean he has ignored his duties overseeing the nation’s 500 million acres of public lands. He’s also reversed or put on hold a number of Bush administration decisions, from postponing the opening of coastal areas for offshore drilling to rescinding land leases for oil shale mining and canceling 77 oil and gas leases in Utah’s national parks.
Meanwhile, Salazar keeps turning up, either at the President’s side or as the administration’s point person, to tout Obama’s energy policies on Capitol Hill and at public events. In February he announced the DOI would develop a plan for offshore development by identifying potential resources and issuing rules for offshore windmills and deep-sea turbines. The Outer Continental Shelf accounted for 14 percent of the nation’s natural gas production and 27 percent of its oil production in 2007.
Then again in March, Salazar was out front detailing the President’s New Energy for America Plan at a congressional hearing, a plan that would create a clean energy-based economy that conscientiously uses domestic resources, reduces greenhouse gases and creates millions of new jobs.
In April, Salazar was in New Orleans for a town-hall style meeting at Tulane University where he was answering questions on energy issues and promoting the administration’s effort to create a “comprehensive energy strategy.”
In an administration loaded with left-wing activists, Salazar’s pragmatic approach to energy policy is much appreciated. He supports exploration for oil and natural gas on public lands and the development of clean coal technology. Both environmentalists and oil companies have criticized him, yet Salazar is undeterred. He told Newsweek in February 2009: “I’m not here to please the environmental groups or the oil and gas industries. I’m here to do the right thing. The fact that there’s criticism from the left and the right is something I’m very used to.”
No one may have foreseen Salazar’s expansive role in developing energy policy, even though he oversees extensive oil and natural gas mining resources, but it is certainly welcome. He developed a strong reputation in the Senate as a thoughtful and experienced leader on energy issues, and he will no doubt be an influential member of the President’s energy policy team.
###
March OPEC Meeting: The End is Near (Maybe)
OPEC Ministers met in Vienna on March 15 to review trends in the oil market, global economy, and the adequacy of their three previous attempts to reduce oil production in line with declining global demand. They also examined the degree of each OPEC Member’s compliance with the existing production quotas set at their last meeting in December 2008.
Against the background of an extremely weak and fragile global economic outlook and continuing erosion in the demand for oil, they agreed that no further cuts in their production ceilings (quotas) were needed at this time. They also agreed that a continued high level of compliance with the existing production quotas, now estimated to be near 80 percent, is of paramount importance to the success of their attempts to stabilize oil prices in the months ahead. Full compliance would remove an additional 0.8 million barrels per day (mmbd) from the market.
This decision to stand pat and maintain the production ceilings adopted in December was widely expected by the market. Recent news of improving compliance and a slowdown in the rate of demand decline allowed prices to creep back to the mid-to-upper $40 dollars per barrel in the week before the meeting. Prices fell back slightly in early trading on the first day after the OPEC decision, but did not move appreciably.
In the week leading up to the meeting, Saudi Arabia, which is actually producing slightly less than its quota, also signaled its unhappiness with the poor compliance of some OPEC members, and an unwillingness to take further cuts unless compliance improves. Saudi Oil Minister Ali Naimi reportedly said in a letter to the OPEC President that over production undermines the credibility of the organization and makes further action unlikely.
The fragility of the global economy and the desire of many OPEC members to contribute positively to a collective economic solution led by the G-20 also played a strong role in OPEC’s decision. The drop in oil prices is providing the world economy with a powerful stimulus. Saudi Arabia and Indonesia are the only current and former members of OPEC who are members of the G-20, but the state of the global economy was first and foremost on the minds of the participants. Pushing for an extra $10 per barrel at this time at the detriment of the global economy would not be in OPEC’s best interest in the long term.
In his opening address to the Conference of Ministers, the OPEC President and Minister of Petroleum of Angola, Jose Maria Botelho de Vasconsuelos, noted that the relatively high level of compliance with OPEC’s previous decisions to cut output has helped to stabilize prices, at a time of continued weakness. He also noted that the breakdown in the world’s financial sector and the downturn in the real economy are still very fluid and the final outcome unclear.
Vasconsuelos noted with concern the impact the downturn was having on the oil industry and investment in future supplies. He called on everyone, OPEC and non-OPEC producers and consumers alike, to work together to support policies and strategies to promote market stability now and in the future.
The communiqué issued at the close of the meeting (see OPEC’s site) makes it clear that the Ministers are very concerned about the global economic recession, systemic risks to the financial system, and the potential for further deterioration. The Conference voiced its strong support for the G-20 meeting process currently underway and its hopes that the process will lead to a substantial improvement in the world economy.
The communiqué reported that OPEC now expects world oil demand to decline by 1.0 mmbd in 2009, and that high stock levels, currently at 59 days of forward cover, will take some time to readjust. The communiqué also noted that the relatively high degree of compliance with the existing production cuts, estimated by outside sources to be 79 percent in February, has contributed to the stabilization of prices at around $40 per barrel since the beginning of the year, in spite of the critical economic outlook.
OPEC noted that the global demand for crude oil produced by its 12 members is now expected to average 29.1 mmbd in 2009, a reduction of 1.8 mmbd from the level achieved in 2008. Full compliance with the production cuts agreed to in December, if achieved, would imply a level of OPEC production of 27.2 mmbd for the year (with Iraq, who is not subject to production limits, at 2.4 mmbd), or a level of 28.0 mmbd for the year with 80 percent compliance..
Both these levels are well below OPEC’s own estimate of demand for OPEC crude oil of 29.1 mmbd in 2009 (by 1.9 and 1.1 mmbd, respectively). This implies that OPEC has built in a cushion of extra production cuts that will help it compensate for high inventories, additional demand weakness, deterioration in the level of compliance with production cuts, or some combination of all these factors.
This has led both OPEC and the International Energy Agency (IEA) to conclude in their latest monthly oil market reports, issued March 13, that current OPEC production levels will begin to gradually redress the inventory overhang and bring the market into better balance later in the year. The math is clear. OPEC is now producing less than the expected demand for OPEC crude this year, and inventories should begin to decline.
Non-OPEC producers represented at the Conference included Russia, Azerbaijan, Egypt, Mexico and Sudan. The First Deputy Prime Minister, Igor Setchin, represented Russia. The Conference agreed to meet again on May 28 in Vienna, and again on Sept. 9.
Recap: The last six months.
In retrospect, since OPEC first took action to cut production in September of 2008, the oil market has been dominated by two main factors:
- the speed and magnitude of the drop in oil demand associated with the free fall in world economic activity, and by
- the degree of OPEC’s compliance with their self-imposed production targets..
It is now clear that OPEC was slow to react to the decline in demand last fall, which pushed more oil into the market than was needed, swelling inventories and pushing prices down. To be fair, OPEC was trying to reduce oil supplies fast enough to keep pace with and even get ahead of declining demand, but the speed and magnitude of the drop in economic activity and oil demand took everyone off guard.
OPEC crude oil output peaked in July of 2008, and declined only slightly in August, September and October. After the emergency meeting in October, OPEC production fell by about 0.5 mmbd in November and again in December. By the beginning of the year, however, OPEC was still producing about 1.5 mmbd above its 24.845 mmbd ceiling adopted in December. Since then, compliance has improved, but they produced about 0.8 mmbd above its quota in February.
As a result, commercial inventories on land and at sea swelled significantly by the end of the year. Inventories in the OECD now stand at slightly less than 59 days of forward demand coverage, compared to the 52 – 53 days of cover preferred by OPEC. As a result, oil prices (WTI, NYMEX) fell freely from their intra-day peak of just over $147.27 per barrel on July 11, to a low of $32.40 per barrel on Dec. 19, just two days after the December OPEC meeting.
The rapid deterioration in the world economy coupled with the collapse of the commodities’ complex and global equity markets, and the massive de-leveraging and flight to cash that accompanied the global financial crisis were also important contributing factors to the weakness in oil. In retrospect, oil prices may have overshot the mark on the way down, just as they did earlier in the year on their way up.
OPEC’s December decision to slash production coupled with an apparent but slow improvement in the degree of compliance with OPEC’s production quotas in December, January and February may be working. Given how far and how fast oil prices have already fallen in the fourth quarter of 2008, OPEC was bound to have some limited success in preventing prices from declining further.
Aside from the anomaly in the WTI/Brent price spread that dominated the market in February, oil prices for the most part have remained above $40 per barrel so far this year. They have gradually moved up in the past few weeks and oil traded in the $46 to $48 per barrel range last week, closing on Friday, March 13 at $46.25.
The price of commodities in general, and oil prices in particular, are what economists refer to as “leading indicators” of economic activity. Just as oil prices fell in advance of the collapse in economic activity, oil prices could be expected to stabilize and begin to rise in advance of an economic recovery. Any signs of good news coming out of the world’s financial markets or early signs of a “bottoming out” or a beginning of economic recovery could be expected to lend support to oil prices from here on out. Conversely, continued bad news on the economic and financial fronts will tend to push prices down.
This may be true in spite of the continuing decline in oil demand that may be far from over. OPEC’s decision at its December meeting to cut production by a record amount, an additional 2.4 mmbd (million barrels per day), brought the sum of the announced cuts by OPEC in September, October and December of last year to a total of 4.2 mmbd. The magnitude of these cuts when coupled with a gradually improving degree of compliance (now estimated at around 80 percent) appears to be enough to give OPEC a cushion to absorb some further cuts in demand and work off the inventory overhang.
Supply and Demand Balances
In the latest (March) round of monthly oil market projections published by DOE/EIA, OPEC, and the IEA, global oil demand is now expected to contract by an average of 1.2 mmbd in 2009, after falling by 0.3 mmbd in 2008.. This is in stark contrast to the 0.2 to 0.4 mmbd decline in demand forecast for 2009 published by these organizations at the time of the last OPEC meeting in December. Can demand go lower?
With the real economy falling rapidly, oil demand in 2009 could eventually drop more than currently expected. In the past 40 years, the most oil demand has ever fallen is by 2.1 mmbd in both 1980 and again in 1981. However, all of the current forecasts mentioned above show significant year on year declines in the first quarter of 2009, followed by a rapid tapering off in the year on year declines in the remaining quarters.
While demand prospects may continue to be cut by additional amounts in successive forecasts over the coming months, the drop in demand may level out later this year. Part of the reason for this is purely technical and mechanical: demand fell very rapidly in the second half of 2008, so the year on year declines in 2009 should moderate.
On the supply side, the global financial crisis and recession are taking a toll on non-OPEC supplies. In December, when OPEC last met, the IEA, EIA and OPEC were expecting non-OPEC supplies to rise by 0.5 to 0.7 mmbd in 2009. In the March round of forecasts, non-OPEC oil supplies (including unconventional oil, ethanol, NGLs and refinery gains) are expected to be flat. However, only OPEC NGLs (which are not included in the production targets) are expected to grow modestly by 0.4 mmbd.
Many analysts believe that the markdowns on the supply side are just beginning. Demand markdowns have stolen the show, but the focus is shifting to supply. Delays, cancellations, a lack of credit, high costs and poor profitability are all taking their toll. Deferred maintenance may also accelerate the rate of production decline in existing fields. Further markdowns in the expectations for non-OPEC supplies in the coming months will help create a tighter market.
All things considered, with some luck, with continued cooperation on compliance, and with the beginnings of some economic and financial market responses to the financial rescue and stimulus packages now being put into place, OPEC may not have to cut production further this year. The second quarter of 2009 is likely to remain extremely weak in terms of market balances, but inventories should begin to gradually decline.
Price Outlook
As we said previously, OPEC may have some limited success in preventing prices from falling much further, but it seems doubtful that they will succeed in raising prices to their preferred level of $70 - $75 per barrel anytime soon. Sustained higher prices may only be possible when the global economy shows definite signs of recovery and renewed growth.
In any discussion of the price outlook for this year and next, it’s instructive and humbling at the same time to remind ourselves that oil prices in 2008 covered a span ranging from $32 to $147 per barrel. Is 2009 likely to witness the same kind of volatility? History has shown us that you should never say never when it comes to the oil market. A lot can happen in a year.
Nevertheless, in the absence of any unexpected disruptions or cataclysmic events, a weak global economy and growing margin of surplus oil production capacity should keep prices much lower and less volatile this year than in 2008. Oil could trade in the broad range of $30 to $60 per barrel this year. It seems logical to expect oil to average $40 to $50 per barrel for the first half of the year, when the economy is the weakest and inventories are flush. Prices could then rise to $50 to $60 per barrel in the second half of the year, when and if economic recovery begins and the OPEC cuts begin to shave inventory levels. An average price of around $50 per barrel for the year as a whole seems like a reasonable expectation.
But the oil market defies reasonable expectations. Will things turn out this way? Probably not! We need to remind ourselves that anything, even the unthinkable, can happen. Much will depend on the impact of declining prices on oil demand, the success of the economic stimulus packages being put into place around the world and the depth of OPEC’s supply cuts.
The market is fickle. If the drop in global demand shows signs of leveling off, if macroeconomic prospects turn positive, and if OPEC shows discipline, prices could recover. In the absence of new regulations on futures trading, there is a lot of money sitting on the sidelines that could come back into oil and commodity markets fairly quickly, especially if the dollar weakens once more. Oil prices are a leading economic indicator.
Geopolitical concerns could also play a huge role in 2009. The Middle East is still volatile, Russia and Venezuela are getting more adventurous, Iran is still pursuing nuclear arms, and militants are limiting Nigeria’s oil output, to mention a few.
The production cuts already announced by OPEC coupled with the completion of major expansion plans in Saudi Arabia will provide the world market with a comfortable margin of spare capacity to offset any unforeseen disruptions in supply for the next few years, and this is generally a good thing. It will also provide us with a cushion of supply for a few years, if and when demand begins to recover. But the impact of low prices on investments in additional capacity for the medium and longer term are likely to be disastrous in the long term.
By Abraham Energy Report Contributing Editor John Brodman
###
Launching an Energy Tech Revolution
The Big Three automakers teeter on the edge of bankruptcy, the economy continues to slide, jobs are lost and credit remains elusive. In the midst of all the bad news, one economic number is giving people hope—the price of oil, which is around $100 cheaper than just a few months ago. This bright spot is, however, a mirage that could create a false sense of ease for consumers. Bottom line: The energy crisis is not going away. It will come roaring back once the world economy starts growing again.
How we meet this challenge is clearly a top national priority. While many energy issues, such as the fate of offshore drilling and climate policy, will be resolved in the political arena, one subject on which all sides seem in agreement and President Obama has championed, is the need to allocate significant new government R&D resources toward developing advanced energy technologies. However, with today’s weak economy and skyrocketing federal deficits, the question becomes, “How can we ignite an energy tech revolution in these tight fiscal times?” We have some suggestions.
First, we must make sure federal dollars are deployed for what they were intended, rather than hijacked and earmarked for pet projects. In 2003, President Bush launched his “hydrogen initiative” aimed at developing a hydrogen economy. New funds were requested for the Department of Energy to implement the “initiative,” but it became difficult to execute because various members of Congress wanted some of the funds to go to researchers in their own constituencies, rather than to the top researchers in the field. Similarly, Congress undertook to prematurely allocate some of the money to later-stage research projects before earlier-stage research had been carried out–thus hindering the potential of both types of efforts.
Second, we cannot dilute our research by disbursing funds among too many projects, nor can we abandon projects or significantly reduce their funding before they are adequately developed. This scattershot approach has afflicted federal efforts to develop advanced, automotive-fueling systems. Back in 2000-2001, advocates were calling for more research on hybrid-engines. By 2002, the spotlight had shifted to clean-diesel research. Then, as clean diesel gained momentum, the call for hydrogen fuel cell research rose. Next, just as the hydrogen initiative was being funded, the demand for advanced biofuel research emerged. More recently, as the biofuel/cellulosic ethanol efforts got moving, people started insisting that more attention be directed toward plug-in hybrids.
Instead of using a rifle-shot system, we have taken a “flavor of the month” approach to automotive technology research. The same has occurred in other areas. As a result, various energy technology programs have not received the type of sustained support required for maximum success. This has both hindered the government’s research and confused the marketplace; for example, automotive companies have been forced to repeatedly shift research resources from one “new” fuel alternative to another. The result has been less than optimal.
In addition to maximizing the impact of scarce federal dollars, we should attempt to motivate private money to step up. If we leverage private money correctly, industry will jump on the opportunity and will co-invest significantly.
To do this right, we must first focus government dollars on technologies that can stand on their own economically—ones that do not require continued subsidies to succeed. To do that, the Government should enlist partners that recognize and contribute to the understanding of a very complex marketplace—the needs of the consumer, the existing infrastructure, and the regulatory environment—and put them side-by-side with the capabilities of tomorrow’s technologies.
For that private/public partnership we recommend two vehicles: an advanced federal energy research agency and the creation of strategic innovation funds.
Innovations sparked by Defense Advanced Research Projects Agency (DARPA) throughout its 50 years of existence have been critical to the nation’s success. Recently, DARPA’s director, Dr. Anthony Tether, estimated that one-third of the developments in information technology and more than 75 percent in microelectronics started with DARPA. These two areas have driven enormous U.S. economic growth. DARPA’s remarkable success has been attributed to funding ideas with a high degree of technical risk but a potentially revolutionary payoff. This same spirit and its mechanism of innovation can also be applied to the development of energy technology that will likely foster a similar result.
The 110th Congress agreed with this assertion, in part, authorizing the creation of such an agency within the “America Competes Act.” The Advanced Research Projects Agency-Energy or ARPA-E is modeled after DARPA. Unfortunately, there were no appropriations made for the new agency, so it exists only on paper. It’s now time to fund it properly.
Strategic investment funds should also be considered. Much innovation has been sparked by “angel” investors and venture capital firms, which have enabled brilliant engineers to pursue new approaches and bold ideas with often game-changing outcomes. Many large corporations, such as Intel, Microsoft and General Electric, have leveraged such capital to pursue innovation, aligning their investments with their strategic goals. They sparked advances where they needed them by creating technologies important to their strategic mission, and they made big bucks along the way. Their operating units sit together with venture capitalists and entrepreneurs to determine what makes sense for their businesses. And, they get a multiplier effect by leveraging their own dollars with third-party investors, reducing the cash they have to spend. Considering today’s economy, that’s essential.
We advocate a similar private/public partnership for strategic, energy investment. Simply put, the government sets up funds with professional managers who work to stimulate technologies that will reduce our energy dependence. Just as GE Power Systems works with GE Equity, key government agencies and laboratories such as Sandia and the National Renewable Energy Lab should work with industry partners to help fund investment decisions. As a result, major industry players with relevant expertise such as utilities, power generators, and consumer product companies will participate as co-investors and will provide their relevant market expertise and money. The focus on profit will not only ensure that the investments have a commercial future, but will also provide a return on the dollars spent, thereby turning an expense into an investment with a solid revenue stream going forward into the future.
Spencer Abraham and Hans Kobler
Spencer Abraham is the Chairman and CEO of The Abraham Group. He represented Michigan in the United States Senate from 1995 to 2001, and served as US Secretary of Energy from 2001—2005.
Hans Kobler is the Chairman and CEO of ICx Technologies. He headed the GE Power Technology Investment Group and was also Chief Quality Officer leading the six sigma effort at GE Equity.
###
December OPEC Meeting: Shock Therapy for Declining Demand
Largest Cut in History. OPEC met in Oran, Algeria on December 17, 2008, and decided to cut 4.2 million barrels per day (mmbd) from their actual September production level of 29.045 for the OPEC 11 subject to production quotas, effective January 1. This amounts to an additional cut of approximately 2.4 mmbd from the October production quota level of 27.308, and a cut of 2.9 mmbd from estimated November production, if the cuts are fully implemented.
While this is a somewhat confusing way to present their decision, the Algerian announcement would imply a new OPEC 11 production goal of 24.845 mmbd from January 1. When combined with the October agreement, this latest cut represents a cumulative 4.0 mmbd decline from the September quota agreement, and a 4.2 mmbd cut (or 14.4%) in actual OPEC production from September levels.
The 2.4 mmbd additional cut is the largest the organization has attempted at one time in its history to date. Non-OPEC producers Azerbaijan and Russia, who attended the meeting as observers with great fanfare, declined the opportunity to join OPEC and did not make a formal pledge to cut production and exports. Mexico and Norway declined to participate, saying that their production was already declining as a result of depletion.
Even with these latest cuts, and with cooperation from everyone on compliance, OPEC President Chakib Khelil indicated that 2009 will be a very difficult year and that it may take six months or more to remove oversupply from the market.
Here are the operative words from the communiqué issued after the meeting:
Having reviewed the oil market outlook, including overall demand/supply projections for the year 2009, in particular the first and second quarters, the Conference observed that crude volumes entering the market remain well in excess of actual demand: this is clearly demonstrated by the fact that crude stocks in OECD countries are well above their five-year average and are expected to continue to rise. Moreover, the impact of the grave global downturn has led to a destruction of demand, resulting in unprecedented downward pressure being exerted on prices, which have fallen by more than $90 per barrel since early July 2008. Indeed, the Conference noted that, if unchecked, prices could fall to levels which would place at jeopardy the investments required to guarantee adequate energy supplies in the medium-to-long-term.
In light of the above, the Conference agreed to cut 4.2 million barrels per day from the actual September 2008 OPEC-11 production of 29.045 mmbd, with effect from 1 January 2009, with Member Countries strongly emphasizing their firm commitment to ensuring that their production is reduced by the individually agreed amounts.
Recap. OPEC really had little choice. They had to act and act forcefully. When OPEC met in September with an admonition to its members to “strictly comply” with their production quotas, WTI prices had already fallen from the $147 per barrel peak to a level of $103. Prices continued to slide on news of weakening demand and global recession, prompting OPEC to call an emergency meeting in Vienna on October 24, where they agreed to cut production by a further 1.5 mmbd. By this time, prices had already fallen below $65 per barrel.
Since they last convened formally in Vienna on October 24th, and again informally in Cairo on November 29th, the world economic outlook, prospects for global oil demand, and the price of crude oil have continued to deteriorate. The NYMEX WTI contract for January delivery fell to an intra-day trading low of $40.50 per barrel in the week before the meeting in Algeria, and the OPEC basket hit a four-year low at less than $38.00.
In the last few months, the downward momentum in prices provided a perfect set of circumstances for traders to short the market, putting additional downward pressure on prices in what became a self-fulfilling prophecy. This was just as true for all other commodities as it was for oil. The interesting point here is that the continued weakness of the dollar in the past few weeks has actually been contributing a mild boost to oil prices.
Low prices appear to have focused the minds of the ministers who attended the meeting; agreement was swift, with little apparent dissention. There was a lot of communication among the ministers and with the press in the days before the meeting, and most analysts felt that OPEC would cut by about 2.0 mmbd.
Demand Destruction. The International Energy Agency (IEA), the U.S. Energy Information Administration (EIA), OPEC, and many other oil market analysts continued to cut their oil demand and price forecasts for both this year and next. And there is no guarantee that the markdowns have caught up with reality. The financial crisis is continuing to morph into a global economic recession of uncertain magnitude and duration. Reuters recently reported that apparent oil demand in China fell 3.5 percent in November from a year earlier, the first decline in more than 3 years.
Global oil demand is now certain to shrink in 2008 for the first time in 25 years, and a consensus is developing around the notion that demand will fall next year as well. The only question is by how much. In the December round of monthly oil market reports by OPEC, the IEA, and EIA, only the IEA expects to see some small measure of oil demand growth in 2009, while most others expect further demand decline on the order of 0.2 to 0.4 mmbd. The investment bank Goldman Sachs expects oil demand to contract by as much as 1.7 mmbd next year. Nearly everyone expects the first half of 2009 to be weaker than the second half, especially given the large inventory overhang.
At the current juncture, it appears almost certain that the outlook for oil demand will continue to weaken well into the next year and possibly beyond. Assuming strict compliance, the newly announced cuts, when coupled with the old, now appear to be large enough to account for some additional deterioration in the demand outlook. After some months of relative inaction, OPEC now appears to be racing ahead once again in an attempt to catch up with a declining market.
Bringing supply and demand into better balance next year will still prove to be tricky, especially in the first half of 2009 when demand could be its weakest. In addition to the uncertain global economic outlook, the wild cards in this deck now appear to be the size of the growing inventory overhang, the degree of OPEC compliance with the agreed cuts, and the uncertain outlook for non-OPEC supplies.
As we pointed out in last month’s Abraham Energy Report (“The OPEC Meeting: Chasing Demand Downward”), OPEC did let the market get ahead of them to a large degree in the past few months, as demand fell away faster than supply could be cut. While there are many reasons for this, inventories ballooned as a result, and to a level that could become a further drag on demand in the future.
In part because of declining demand, commercial inventories of crude and products in the OECD industrialized countries swelled to near 57 days of forward demand coverage, well above the five-year average, and well above the 52-53 days of coverage preferred by OPEC. The extra inventory by itself (about 200 million barrels) will require fairly massive production cuts to correct, cuts well below what would be needed to balance supply and demand in 2009, even with some further deterioration in demand prospects.
Steep contango in the market has also provided an economic incentive to oil traders, producers and consumers alike to buy and store oil for future sale at a higher price. Algeria’s oil minister and current OPEC President Chakib Khelil said in a press conference before the meeting that oil stored at sea has swollen to almost a full day’s supply of around 86 million barrels. Other industry experts, however, put the figure closer to 50 million barrels.
OPEC cuts. While the market seems to be fixated on the speed and magnitude of demand destruction related to the global economic meltdown, OPEC has been moving to implement the production cuts agreed to at their last meeting in Vienna on October 24. The latest data on OPEC production in November (see table below) show output for the OPEC 11 subject to quotas at an estimated 27.8 mmbd, a decline of 1.7 mmbd from the August peak. However, even with these cuts, OPEC was still producing nearly 0.5 mmbd above the quota of 27.3 mmbd agreed to in October.
To be fair, it takes time to notify customers, rearrange shipping schedules, and otherwise implement production cuts. Several OPEC members have already notified their customers about further supply cuts in December and January, even in advance of the latest meeting and decision to cut output further in Algeria. In addition, while there is some discrepancy in the November OPEC production figures, especially for Saudi Arabia and Iran, early data showing OPEC’s output at the end of November and early December indicates that there have been some further reductions below the November averages.
It appears that OPEC was already well on its way towards fairly respectable compliance with the previous cuts agreed to on October 24 when this new decision to cut by an additional 2.4 mmbd was made in Algeria. December output by the OPEC 11 could show a large degree of compliance with the October agreement, but it will take some time to implement the additional cuts in the Algerian agreement.
| TABLE 1 (mmbd) |
|||||
| Production | Target | ||||
| OPEC Member | Oct. | Nov. (est.) | Sep. | Nov. | Dec.*** |
| Algeria |
1.4
|
1.3
|
1.357
|
1.286
|
1.201
|
| Angola |
1.9
|
1.8
|
1.900
|
1.801
|
1.507
|
| Ecuador |
0.5
|
0.5
|
0.520
|
0.493
|
0.429
|
| Iran |
4.0
|
3.9
|
3.817
|
3.618
|
3.337
|
| Kuwait |
2.6
|
2.5
|
2.531
|
2.399
|
2.222
|
| Libya |
1.7
|
1.7
|
1.712
|
1.623
|
1.473
|
| Nigeria |
1.9
|
1.9
|
2.163
|
2.050
|
1.705
|
| Qatar |
0.9
|
0.9
|
0.828
|
0.785
|
0.730
|
| Saudi Arabia |
9.4
|
8.7
|
8.943
|
8.477
|
8.020
|
| UAE |
2.5
|
2.3
|
2.567
|
2.433
|
2.227
|
| Venezuela |
2.4
|
2.3
|
2.470
|
2.341
|
2.014
|
|
Total OPEC 11
|
29.2
|
27.8
|
28.808
|
27.308
|
24.845
|
| Iraq * |
2.3
|
2.3
|
(2.300)
|
(2.300)
|
(2.400)
|
| Total Implied OPEC Output ** |
31.5
|
30.1
|
31.108
|
29.608
|
27.245
|
| * Iraq is excluded from quotas ** Crude oil; excludes Indonesia *** Calculated as 85.6% of actual September output as reported by OPEC. Detail may not add to total because of rounding. Sources: EIA, IEA, MEES, OPEC, Reuters
|
|||||
As the table shows, full compliance with the cuts agreed to in Algeria would imply an OPEC 11 output level of 24.845 mmbd (or 27.3 mmbd for the OPEC 12 including Iraq) in 2009. These figures exclude Indonesia, which has suspended its membership in OPEC beginning January 1. This is well below the estimated output of 30.4 mmbd for the OPEC 12 in 2008, and in line with expectations that overall oil demand will shrink in 2009.
OPEC’s own forecast, which came out the day before the meeting in Oran, expects demand for OPEC 12 crude oil to average 29.3 mmbd in 2009. If there is full compliance with the new quota, and if demand doesn’t deteriorate any further (two big ifs), the OPEC cuts just announced could eventually bring the market into better balance.
The question remains if the new cuts will be enough to account for still shrinking global demand and a return to more normal stock (inventory) levels. The problem is also complicated by the fact that the first half of 2009 could be much weaker than the year as a whole, especially if the inventory overhang comes into play.
Compliance. Will compliance with the Algerian agreement be as respectable this time around? With prices and revenues already pinching the budgets of most OPEC members and many non-OPEC supporters, like Russia, there may be reluctance on the part of some members to cut further, especially if prices remain weak. It’s easy to agree to production cuts in a cohesive group setting of an OPEC meeting, but actual production cuts are taken on an individual basis where national politics holds sway.
If the latest round of cuts succeeds in shocking the market and nudging prices upward, revenues will improve and possibly make compliance an easier pill to swallow. On the other hand, higher prices could prove to be a strong temptation to produce more, and lead to quota busting. This will be especially true for Venezuela, Iran, Nigeria and Ecuador, as well as Russia, who are all facing difficult political choices at home.
As a result, its possible that we could see a considerable amount of seesawing in prices and OPEC output over the course of next year. OPEC also has to be wary of the world’s fragile economic condition. Some in OPEC view the drop in oil prices as their contribution to economic recovery, and some may be better prepared and able to live with relatively low prices for a year or two.
Too rapid a rise in oil prices, even to the level of $75 per barrel often mentioned by several OPEC ministers as a “fair” price for oil, could choke off any anemic economic recovery and prolong the recession. Too rapid a price rise could also shrink the demand for oil further and raise the prospect of additional production cuts. This is something many in OPEC do not want to confront.
OPEC may have some limited success in preventing prices from falling much further, but it seems doubtful that they will succeed in raising prices to $75 per barrel anytime soon. Sustained higher prices may only be possible when the global economy shows definite signs of recovery and renewed growth.
The picture is far from clear. There are a lot of uncertainties out there that could radically alter the picture and the market’s perception of balance. Economic meltdown and falling oil demand has been the big story and the main focus of the market. OPEC’s production cuts to date and the almost daily anecdotal evidence of delayed, postponed, and canceled investment in new supplies, have been largely ignored by the market. At some point in the next few years, especially when economic recovery gets underway, the supply side will come back into focus.
The recent production cuts announced by OPEC would provide the world market with a comfortable margin of spare capacity to offset any unforeseen disruptions in supply for the next few years, and this is generally a good thing. It will also provide us with a cushion of supply for a few years if and when demand begins to recover. But the impact of low prices on investments in additional capacity for the medium and longer term could be disastrous.
While the speed and magnitude of the decline in demand have mesmerized the market, the outlook for non-OPEC supplies may be deteriorating almost as rapidly. The latest round of forecasts by OPEC, the IEA and EIA have non-OPEC supplies rising by 0.5 to 0.7 mmbd in 2009, an outcome which is by no means assured. Other forecasts show non-OPEC supplies falling next year by 0.5 mmbd or more, a difference of almost 1 mmbd. A drop or minimal growth in non-OPEC supplies next year will help make the OPEC production cuts more effective.
Who is right among these forecasts remains to be seen, but total non-OPEC liquids production, including natural gas liquids (NGLs), could take a hit from lower prices and recession-induced lower demand for natural gas. OPEC and non-OPEC NGLs have made an important contribution to supply in the past few years, and a global recession could affect natural gas demand and adversely impact NGL supplies.
Key Findings
- OPEC hoped to deliver a dose of shock therapy to the market in an attempt to stem the decline in oil prices but, for reasons largely beyond their control, they may have fallen short.
- 2009 will be a very difficult year. Without some clear signs that the global recession and ongoing markdowns in oil demand are bottoming out, the supply overhang could persist well into the new year and possibly beyond. The inventory overhang could be especially troublesome.
- OPEC may have some limited success in preventing prices from falling much further, but it appears doubtful they will succeed in raising prices to $75 per barrel anytime soon. Sustained higher prices may only be possible when the global economy shows definite signs of recovery and renewed growth.
Analysis by John Brodman, contributing eidtor of the Abraham Energy Report
Dec. 17, 2008
####
Dr. Steven Chu Nominated as Energy Secretary
The nomination of Nobel laureate Dr. Steven Chu to serve as the next Secretary of Energy bodes well for the department as he brings a scientist’s appreciation of the possible (and impossible) to public policy debates, as well as a history of pragmatic collaboration with industry in finding solutions to troublesome energy and environmental problems.
Several of us at the Abraham Energy Report worked with Dr. Chu during our service at the Department of Energy, and we predict that he will have broad support during the U.S. Senate confirmation process.
The 60-year-old son of Chinese immigrants, Dr. Chu is a respected physicist who has spearheaded thinking about the future of global energy demand and championed research into the creation of new sources of energy. Dr. Chu won the Nobel Prize for physics in 1997 for developing methods to cool and trap atoms with laser light.
Energy’s broad portfolio—from nuclear warhead maintenance to energy conservation programs—will likely be maintained under an Obama administration, but the agency’s priorities are expected to change to reflect the incoming President’s drive to invest in renewable energy technologies. The President-elect outlined an ambitious energy agenda during the campaign, touching on everything from developing clean coal technologies to improving urban planning with an eye toward energy conservation. An essential element of the plan is a proposal to spend $15 billion annually on research and commercialization of renewable energy technology. Dr. Chu is perfectly suited to guide that research.
During Dr. Chu’s tenure as director of the Lawrence Berkeley National Laboratory (LBNL), pinpointing the viability of renewable energy and the causes of climate change became central focuses of research. He accelerated study of renewable energy technologies, exploring the creation and application of hydrogen fuel, solar energy and biofuels.
A major initiative during Dr. Chu’s time at LBNL has been the creation of new liquid fuels by combining the biological engineering of non-food plants and nanoscience. Scientists believe this science known as synthetic biology could address issues such as climate change by creating microorganisms that convert plant matter to fuels.
Aware of the potential dangers in synthetic biology, Dr. Chu was one of 17 scientists to sign the “Ilulissat Statement” in 2007. Named for the city in Greenland where it was adopted, the statement outlines the potential of synthetic biology as well as the need to be vigilant in the creation of new biological systems and to protect against abuses.
Dr. Chu recently told the Copenhagen Climate Council that the U.N.’s 2007 Intergovernmental Panel on Climate Change (IPCC) report probably underestimated the severity of climate change and without cooperation by international governments there could be a “sudden, unpredictable and irreversible disaster.” He encouraged attendees to invest in energy efficiency and clean energy technology to reduce greenhouse gases.
“Reasonable investments now—in energy efficiency, new technology, new sources of power and better infrastructure—can make a dramatic difference for the future,” Dr. Chu told the Council. “Making these investments will require changes of all of us—in our behaviors, our jobs and our attitudes. But these changes are minimal compared to the dramatic changes that would confront us and our descendants if we do nothing.”
Dr. Chu’s background in business should assuage energy industry fears that the President-elect might appoint someone hostile to the business community. He served as director of the electronics research laboratory for Bell Labs. At LBNL, Dr. Chu created the Energy Biosciences Institute, a public-private partnership between academia and energy giant BP. The Institute, which is supported by a $500 million, 10-year BP investment, is set to open in 2010.
After faculty criticism of the project surfaced, Dr. Chu defended the decision to work in collaboration with BP in an April 2007 editorial in the San Francisco Chronicle, which he co-authored with Robert J. Birgeneau, chancellor of the University of California-Berkeley.
“Faculty who mistrust industrial partnerships should not be allowed to block other faculty who want to partner with industry. Ironically, an earlier generation of concerned faculty voiced misgivings that the large increase in government-funded research shortly after World War II would distort academic research that had been previously supported primarily by industry and private philanthropy. The lesson we should remember from this earlier experience is simple. As long as the source of external funding is not permitted to compromise the core values of a university, additional support provides us with the means to better serve our students, our scholars and society,” they wrote.
Dr. Chu also has advised two San Francisco Bay-area biofuel startups, Amyris Biotechnologies and LS9.