Wirraway
13th Aug 2004, 16:22
Sat "Melbourne Age"
Getting to the bottom of the barrel
By Barry FitzGerald
August 14, 2004
What is a barrel?
It is a standard measure of crude oil, equivalent to 35 imperial gallons, 42 US gallons or 159 litres of unfinished product. Oils ain't oils. There are three main types: paraffin-based, asphaltic-based and mixed-base. Because of the different mix, oils from different producing regions also have different prices. The global demand is about 80 million barrels a day.
What do refineries make from the average barrel?
The main products are petrol (41 per cent), diesel (32 per cent) and aviation fuel (12 per cent). There are lesser amounts of fuel oil, bitumen, LPG, solvents and lubricants.
What does a barrel cost?
Headlines focus on the price set on the New York Mercantile Exchange. In the past couple of days, it has been trading at near-record levels of $US45.50 a barrel ($A63.77). The price is up by 68 per cent from a low of $US26.93 a barrel last September.
How is the oil price set in Australia?
Just like we don't ask our gold producers to sell their gold at prices below the world price, so it is with oil. But the reference price used in Australia reflects prices set in the Singapore market, the region's biggest market for trading crude oil.
What makes up the petrol price?
At $1 a litre for finished product, there is at present about 50 ¢ in product cost, 47 ¢ in tax and about 3 ¢ in the retail margin.
Factors that drive the oil price:
The Organisation of Petroleum Exporting Countries produces about 38 per cent of the world's daily consumption but holds more than 60 per cent of the reserves. While non-OPEC countries produce flat out, it's OPEC that has the flexibility to increase or decrease output. As a result, threats to OPEC production from wars and terrorist action can be alarming. Most analysts will tell you the terrorist "premium" built into the oil price is about $US15 a barrel.
The China factor:
The booming Chinese economy is a new factor in oil demand/prices. China is now the world's second-biggest oil consumer, at about 7 million barrels a day. It is also the fastest-growing. They love their cars as much as anyone else.
==========================================
Sat "Melbourne Age"
Cheaper oil a pipe dream
Josh Gordon
The surge in oil prices to record levels has been so rapid it has outstripped the ability of many companies to cope. There is already widespread pain throughout the industrial sector as big users and small are discovering how difficult it is to pass on sudden cost increases.
Many long-standing relationships in the industrial supply chain are going to be severely tested if the world price stays above $US45 a barrel for any period, as suppliers and buyers argue about who should bear the cost.
And it is not small beer. Back-of-the-envelope calculations suggest that the rise from $US35 a barrel in April to $US45 now will add $A3.3 billion to Australia's oil bill if sustained over 12 months. Someone has to meet that extra cost.
"It has become such a serious issue to us we are going to go back to our customers outside of our contractual arrangements to suggest we have got to have the extra money," says Legh Winser, managing director of K&S Corporation, one of the country's biggest hauliers.
Transport companies such as K&S - and Qantas Airways and Virgin Blue Holdings - are in the front line when it comes to oil prices. Fuel represents as much as 30 per cent of K&S's operating costs, so the idea that it might absorb the extra cost is laughable.
Winser says directors thought they had oil prices covered with a system of periodic fuel price reviews with clients monthly and quarterly.
"We usually carry the can for a while . . . but the way diesel has gone up another 10 ¢ a litre, roughly, in the last six weeks of the financial period, we are starting to wonder when we are going to catch up."
He says K&S will look to adopt a surcharge system, as the airlines have, to cover sudden jumps in fuel costs.
"We will be going there. I'm sure the whole industry will," he says.
The quicker companies put new arrangements in place, the better, because there are growing fears that the latest price rise might not be a spike, but a pointer to the future.
Deputy Prime Minister John Anderson yesterday warned that the days of cheap oil could be over, blaming soaring demand and geopolitical tensions.
"It may very well be that the era of cheap oil production has ended," Anderson said.
"Hopefully, though, there's an element that higher prices are part of the solution in that it will encourage further exploration and further development and refining capacity."
Renegotiating fuel supply contracts or imposing a surcharge is an option not available to the vast bulk of companies, however.
"Many small manufacturers do not have price review clauses in their contracts," says Ai Group chief executive Heather Ridout, adding that they would not be as badly affected as 20 or 30 years ago. "Fuel consumption per unit of real GDP (gross domestic product) has fallen by half since the '70s, and that's really been through the better application of technology and just more fuel-efficient practices generally."
She is quick to agree, though, that many of the Ai Group's manufacturing constituents will be copping it in the neck. "The big issue is the ability to pass it on. They just don't have the pricing power."
Apart from the transport industry, manufacturers are the heaviest users of energy. And, even if they are not actually using petrol or diesel to power their industrial processes, the price of oil does bear on overall energy costs thanks to its pivotal role as a benchmark for all energy costs.
Steel makers are voracious consumers of a wide range of energy, and this is reflected in OneSteel's management structure, which includes a team dedicated to co-ordinating the sprawling group's entire energy portfolio.
"We have various price points at which we can switch from using more gas to more electricity, for example," says OneSteel's general manager corporate affairs and marketing, Mark Gell.
With an energy bill measured in tens of millions of dollars, any gains translate to useful increments on the bottom line.
"If they can reduce the energy bill by a few per cent, they are heroes. That happened in 2001 when we helped persuade the NSW Government to drop the electricity distribution levy. That saved us $1.8 million."
Mr Gell is chairman of the Energy Market Reform Forum, which led the debate on the levy on behalf of energy-intensive industries in NSW.
But even where there is no substitute available, changing traditional procedures can pay off handsomely, as borne out by a useful breakthrough in NSW recently.
The company's Sydney electric arc steel furnace is such a large consumer of electricity it can actually move the electricity pricing market in some circumstances.
Up to now, the electricity supplier had the right to turn off the furnace if power was in short supply.
Now OneSteel has that discretion, says Gell.
"When we know there is demand spike coming, we can turn our facility down and sell the energy into the grid, which puts a cap on how high the wholesale electricity price can go," he says.
OneSteel then makes its steel on a cheaper time of day, and schedules maintenance for the peak times.
"People are saying $US45 a barrel is historically high, but let's not forget the last time petrol was $1 a litre, oil was $US36 a barrel.
It was the dollar at US50 ¢ which drove the petrol price up. If the dollar was at US50 ¢ now, the pump price would be about $1.30 a litre.
"Then you would have an issue."
- with Josh Gordon
============================================
Getting to the bottom of the barrel
By Barry FitzGerald
August 14, 2004
What is a barrel?
It is a standard measure of crude oil, equivalent to 35 imperial gallons, 42 US gallons or 159 litres of unfinished product. Oils ain't oils. There are three main types: paraffin-based, asphaltic-based and mixed-base. Because of the different mix, oils from different producing regions also have different prices. The global demand is about 80 million barrels a day.
What do refineries make from the average barrel?
The main products are petrol (41 per cent), diesel (32 per cent) and aviation fuel (12 per cent). There are lesser amounts of fuel oil, bitumen, LPG, solvents and lubricants.
What does a barrel cost?
Headlines focus on the price set on the New York Mercantile Exchange. In the past couple of days, it has been trading at near-record levels of $US45.50 a barrel ($A63.77). The price is up by 68 per cent from a low of $US26.93 a barrel last September.
How is the oil price set in Australia?
Just like we don't ask our gold producers to sell their gold at prices below the world price, so it is with oil. But the reference price used in Australia reflects prices set in the Singapore market, the region's biggest market for trading crude oil.
What makes up the petrol price?
At $1 a litre for finished product, there is at present about 50 ¢ in product cost, 47 ¢ in tax and about 3 ¢ in the retail margin.
Factors that drive the oil price:
The Organisation of Petroleum Exporting Countries produces about 38 per cent of the world's daily consumption but holds more than 60 per cent of the reserves. While non-OPEC countries produce flat out, it's OPEC that has the flexibility to increase or decrease output. As a result, threats to OPEC production from wars and terrorist action can be alarming. Most analysts will tell you the terrorist "premium" built into the oil price is about $US15 a barrel.
The China factor:
The booming Chinese economy is a new factor in oil demand/prices. China is now the world's second-biggest oil consumer, at about 7 million barrels a day. It is also the fastest-growing. They love their cars as much as anyone else.
==========================================
Sat "Melbourne Age"
Cheaper oil a pipe dream
Josh Gordon
The surge in oil prices to record levels has been so rapid it has outstripped the ability of many companies to cope. There is already widespread pain throughout the industrial sector as big users and small are discovering how difficult it is to pass on sudden cost increases.
Many long-standing relationships in the industrial supply chain are going to be severely tested if the world price stays above $US45 a barrel for any period, as suppliers and buyers argue about who should bear the cost.
And it is not small beer. Back-of-the-envelope calculations suggest that the rise from $US35 a barrel in April to $US45 now will add $A3.3 billion to Australia's oil bill if sustained over 12 months. Someone has to meet that extra cost.
"It has become such a serious issue to us we are going to go back to our customers outside of our contractual arrangements to suggest we have got to have the extra money," says Legh Winser, managing director of K&S Corporation, one of the country's biggest hauliers.
Transport companies such as K&S - and Qantas Airways and Virgin Blue Holdings - are in the front line when it comes to oil prices. Fuel represents as much as 30 per cent of K&S's operating costs, so the idea that it might absorb the extra cost is laughable.
Winser says directors thought they had oil prices covered with a system of periodic fuel price reviews with clients monthly and quarterly.
"We usually carry the can for a while . . . but the way diesel has gone up another 10 ¢ a litre, roughly, in the last six weeks of the financial period, we are starting to wonder when we are going to catch up."
He says K&S will look to adopt a surcharge system, as the airlines have, to cover sudden jumps in fuel costs.
"We will be going there. I'm sure the whole industry will," he says.
The quicker companies put new arrangements in place, the better, because there are growing fears that the latest price rise might not be a spike, but a pointer to the future.
Deputy Prime Minister John Anderson yesterday warned that the days of cheap oil could be over, blaming soaring demand and geopolitical tensions.
"It may very well be that the era of cheap oil production has ended," Anderson said.
"Hopefully, though, there's an element that higher prices are part of the solution in that it will encourage further exploration and further development and refining capacity."
Renegotiating fuel supply contracts or imposing a surcharge is an option not available to the vast bulk of companies, however.
"Many small manufacturers do not have price review clauses in their contracts," says Ai Group chief executive Heather Ridout, adding that they would not be as badly affected as 20 or 30 years ago. "Fuel consumption per unit of real GDP (gross domestic product) has fallen by half since the '70s, and that's really been through the better application of technology and just more fuel-efficient practices generally."
She is quick to agree, though, that many of the Ai Group's manufacturing constituents will be copping it in the neck. "The big issue is the ability to pass it on. They just don't have the pricing power."
Apart from the transport industry, manufacturers are the heaviest users of energy. And, even if they are not actually using petrol or diesel to power their industrial processes, the price of oil does bear on overall energy costs thanks to its pivotal role as a benchmark for all energy costs.
Steel makers are voracious consumers of a wide range of energy, and this is reflected in OneSteel's management structure, which includes a team dedicated to co-ordinating the sprawling group's entire energy portfolio.
"We have various price points at which we can switch from using more gas to more electricity, for example," says OneSteel's general manager corporate affairs and marketing, Mark Gell.
With an energy bill measured in tens of millions of dollars, any gains translate to useful increments on the bottom line.
"If they can reduce the energy bill by a few per cent, they are heroes. That happened in 2001 when we helped persuade the NSW Government to drop the electricity distribution levy. That saved us $1.8 million."
Mr Gell is chairman of the Energy Market Reform Forum, which led the debate on the levy on behalf of energy-intensive industries in NSW.
But even where there is no substitute available, changing traditional procedures can pay off handsomely, as borne out by a useful breakthrough in NSW recently.
The company's Sydney electric arc steel furnace is such a large consumer of electricity it can actually move the electricity pricing market in some circumstances.
Up to now, the electricity supplier had the right to turn off the furnace if power was in short supply.
Now OneSteel has that discretion, says Gell.
"When we know there is demand spike coming, we can turn our facility down and sell the energy into the grid, which puts a cap on how high the wholesale electricity price can go," he says.
OneSteel then makes its steel on a cheaper time of day, and schedules maintenance for the peak times.
"People are saying $US45 a barrel is historically high, but let's not forget the last time petrol was $1 a litre, oil was $US36 a barrel.
It was the dollar at US50 ¢ which drove the petrol price up. If the dollar was at US50 ¢ now, the pump price would be about $1.30 a litre.
"Then you would have an issue."
- with Josh Gordon
============================================