Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

High oil prices causing oil companies to go bankrupt

by Jerome a Paris Mon May 26th, 2008 at 07:41:39 AM EST

Sinopec says crude tax rebate barely covers loss

Top Asian oil refiner Sinopec Corp is still reeling from refining losses despite a government tax incentive, its chairman said on Monday, as global crude prices have charged above $130 a barrel.

(...) Chen Ge, Sinopec's board secretary, said earlier on Monday that the company was losing 3,000 yuan for each tonne of gasoline and diesel that it produces, as it's squeezed between record crude costs and frozen domestic fuel prices last changed 7 months ago.

Oil firms are weeks away from bankruptcy

A fuel shortage looms ahead of the nation as the oil companies rapidly head towards bankruptcy.

With international crude oil prices hovering around $129 a barrel, the country's three oil marketing companies IndianOil, Bharat Petroleum, and Hindustan Petroleum are collectively looking at losses of Rs 200,000 crore this year. These losses belong to the budget, but finance minister P Chidambaram doesn't want his own copybook ruined. If these numbers were added to this year's Union budget, Chidambaram's fiscal deficit the borrowings needed to finance government expenditure would bloat from a fictitious 2.5% of gross domestic product (GDP) to more than twice that figure.

(...) By early July, they will simply have no cash to run their business and some of them will find it difficult to pay staff salaries. "It is like a time bomb ticking away. If the prices of petro-products are not increased immediately, they will just sink without a trace," top industry sources said.

What is worse, global suppliers of crude and petro-products are not going to honour contracts unless money is paid upfront, which means the country could be looking at a frightening scenario of a fuel shortage.

Governments are caught between a rock and a hard place. Reducing subsidies will cause massive economic pain to the population, and possible revolt, whether of the democratic kind or otherwise, but keeping them in place will bankrupt the oil companies or cause the government to print more money, thus fueling inflation indirectly. So far, China and others have plenty of foreign reserves and can afford to use them to actually buy the oil (but given that they compete with the West for that oil, it only means that prices will go up once again), but beyond the domestic inflationary effect, that may not last that long if prices keep on going up while their demand growth has no reason to slow.

This is a runaway train on its way to an unpredictable crash. Oil company bankruptcies would be an ironic trigger to the crisis, but in any case, the solution will be the same: whether we want it or not, we WILL burn less oil in the future.


Display:
What is to be done? It would have to do something! As citizens of the world.
by PerCLupi on Mon May 26th, 2008 at 10:15:14 AM EST
We need to subsidise the world's unfortunates.

Yes, those poor souls who drive a 4X4.

Inspired by having paid close to £50 to fill up a Toyota Yaris (with diesel) tonight, I looked up the fuel tank capacity of a BMW X5.

The original model had a capacity of 92 litres.

So a full tank of petrol now costs about the £100 mark.

Ouch.  Is it just me, or do I see their resale value falling through the floor?

by Sassafras on Mon May 26th, 2008 at 06:08:41 PM EST
[ Parent ]
All India and China need to do is renationalise those refiners...

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Mon May 26th, 2008 at 10:43:12 AM EST
Not just China and India!

And not just the refiners...

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon May 26th, 2008 at 12:06:29 PM EST
[ Parent ]
They already are naotional companies, for the most part. But it does not matter either way: the issue is subsidies for gas.

If you want to support transport for the masses, support transport for the masses - ie public transportation. Nor cars.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon May 26th, 2008 at 03:22:50 PM EST
[ Parent ]
A government-owned company cannot really go bankrupt, can it?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Mon May 26th, 2008 at 04:28:57 PM EST
[ Parent ]
Of course, they can or they need subsidies, namely from the money printing press aka inflation, hence impoverishing other sectors.
by Francois in Paris on Mon May 26th, 2008 at 06:29:50 PM EST
[ Parent ]
Or from taxes.
by Francois in Paris on Mon May 26th, 2008 at 06:31:57 PM EST
[ Parent ]
Or from foreign reserves (devaluing the currency).

SO we have three kinds of taxes: direct, inflation or devaluation.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Mon May 26th, 2008 at 06:32:55 PM EST
[ Parent ]
We know the solution - let "free" markets do their thing. I'm surprised at you Jerome, thinking that government's should play a role in moderating market failures (wink!).

Sometimes there are no good solutions, just less bad ones. The refiners are looking for a bigger government handout and using the threat of bankruptcy as a lever.

Nationalizing refiners would just make the subsidy of the final fuel price indirect as the government operated the refineries at a loss.

One approach that I suggested a couple of years ago is rationing. I mean the good old fashioned type that was practiced in WWII only with coupon books replaced by some sort of high tech solution like a smart card or similar.

Every licensed driver would get an allotment. If their quota is more than they need they can sell or give away the extra credits and vice versa. There may be some black market activity, but I don't think it will be significant. The overall quota on the population determines consumption. If this is put into operation in the developed countries and the quota is slowly ramped down then pressure elsewhere will lessen and the poor will be able to be subsidized without undue strain on the developing nations.

For a plan like this to be reasonably successful it would need the cooperation of at least China and possibly India.

Perhaps an international body would be needed to set the national quotas around the globe. I'm not sure there is any way to control consumption within the oil producing states like Saudi Arabia, but this may not matter in the grand scheme of things.

Can we get national or international agreement? Stranger things have happened...

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Mon May 26th, 2008 at 11:16:38 AM EST
I don't see why a rationing scheme would necessarily have to be multinational. The Union is a net importer. It is in our own, completely narrow self-interest to curtail demand. There is no reason in principle that we cannot impose such rationing on our own citizens unilaterally.

Nor is there any reason that we cannot bring some rather substantial arm-twisting to bear on some of our trading partners once we have a rationing scheme in place (and hence both a proof of concept and a measure of moral/political high ground).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 26th, 2008 at 11:57:52 AM EST
[ Parent ]
What are "Markets" if not a rationing mechanism whereby those with the most money have rights to the greater share of the good or service being rationed?

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Mon May 26th, 2008 at 12:10:49 PM EST
[ Parent ]
No, no, markets are a way of making sure the largest share goes to the most deserving. Don't you know anything?
by Colman (colman at eurotrib.com) on Mon May 26th, 2008 at 12:25:16 PM EST
[ Parent ]
by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 26th, 2008 at 12:32:49 PM EST
[ Parent ]
Thanks for linking to that...too funny!

Indeed, during war, people fuck, big deal...and in fact, even not during war, not all sex is between people in love...astonishing! What was that about living like god in France? (Better than living like an Englishman in England, that's for sure...)

I have to read the news section more often...

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon May 26th, 2008 at 01:00:31 PM EST
[ Parent ]
...wie Gott in Frankreich...

"Like God in France". A German expression that can come with different verbs in front, though leben is the most obvious. Meaning something like: to live like a king.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue May 27th, 2008 at 09:00:46 AM EST
[ Parent ]
International agreements are needed otherwise if one country rations and other don't those in non-compliance will see the cost decrease and have no incentive to use less themselves.

My goal for rationing would be to lower demand enough that the poorest nations don't get burdened unduly by high fuel prices. These are the ones most likely to suffer drastic consequences otherwise.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Mon May 26th, 2008 at 06:20:36 PM EST
[ Parent ]
And how are you going to convince US voters with that?
by Francois in Paris on Mon May 26th, 2008 at 06:30:37 PM EST
[ Parent ]
Because we're all so rational and egalitarian, of course.
by rifek on Mon May 26th, 2008 at 08:42:45 PM EST
[ Parent ]
They will have less incentive. But it's not like Europe can corner the market that way. Prices are not going to drop that much unless you get at least one of the US, China, Russia and India on board as well. And once you have enough market power to reduce prices with rationing to the level where there is no incentive for others to ration... well, then you have enough market power to agree on raising prices to the level where they will want to ration.

As an aside, a rationing scheme wouldn't have to be all or nothing. One could make a scheme where Europe rations with a severity that is based on how many other countries participate. A kind of "the rest of the world +1" scheme. Of course, that kind of system would be moot if nobody else bought onto it, but it would at least be a show of good faith.

And this is even leaving aside the discussion of whether even a unilateral rationing scheme would be beneficial to a net importer whether the rest of the world joins or not...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 27th, 2008 at 10:06:22 AM EST
[ Parent ]
This is a runaway train on its way to an unpredictable crash.

Predictable or unpredictable?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Mon May 26th, 2008 at 12:23:40 PM EST
That it will crash is predictable. When, where and how is another matter. Run into the bumpers slowly? Fly off a viaduct onto the town and blow up the ammunition dump? Who knows?
by Colman (colman at eurotrib.com) on Mon May 26th, 2008 at 12:24:42 PM EST
[ Parent ]
What I was about to say...before I got distracted by "inkey,pinkey parlay vous"

Of interest is the argument by the US opponents of Kyoto that the US shouldn't sign because India and China wouldn't be included.  Could this be an opportunity, provided the next US administration successfully extracts our collective head from our collective anus?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 26th, 2008 at 01:37:19 PM EST
[ Parent ]
perhaps I shouldn't be so optimistic. As Pope said:

"Hope springs eternal in the human breast"

I just keep forgetting the second line of the couplet:

"Man ne'er is but is always to be blest."

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 26th, 2008 at 01:43:54 PM EST
[ Parent ]
Great!! That leaves more oil for us; the West.

Hey, Grandma Moses started late!
by LEP on Mon May 26th, 2008 at 02:36:29 PM EST
They can't take the USA energy policy:

"This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks."

Thomas Friedman in today NYT.

by kukute on Mon May 26th, 2008 at 02:38:18 PM EST
He didn't say it today but 4 weeks ago.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Mon May 26th, 2008 at 04:27:18 PM EST
[ Parent ]
Sorry,

I went to NYT from a another link.

Anyway, It's nice to see someone saying those things.

On the other hand, nice to see Fraga as a centrist in PP.

The power is a sort of magnet...

by kukute on Mon May 26th, 2008 at 05:16:45 PM EST
[ Parent ]
From our Dear Leader's home: Fishermen  unhappy They're demanding diesel at 0.40 euros/l. That's.... cheap. Current US prices are currently around $4.65 a gallon i.e. a little over 1.20 a liter, or roughly 0.80 euros a liter.  Note that the as it is fishermen are paying 0.75 a liter or in other words about the same price as diesel costs in the US.  Normal folks are paying 1.43 euros a liter.
by MarekNYC on Mon May 26th, 2008 at 02:40:25 PM EST
Wild guess: the world's fishing industry will be 30% of its current size in 10 years.

you are the media you consume.

by MillMan (millguy at gmail) on Mon May 26th, 2008 at 05:11:09 PM EST
[ Parent ]
I also think that the fishing industry is a very hard industry, but we are depleting the sea.

It's not moral to go to Somalia from Basque Country or Spain to fish tunas.

We had an International Congress here in San Sebastian last summer about fishing and sea food.

One of the main conclusions was that the bluefish tuna in Boston and in the Basque Country were the same animals being fished in one side or another of Atlantic Ocean.

And the big pieces were for Japan, in both markets. That's where the war begun!

by kukute on Mon May 26th, 2008 at 05:28:38 PM EST
[ Parent ]


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]