Solving the liquid fuel refining and distribution problems in Nigeria, and across Africa – Chinedu Onyeizu

Chinedu Onyeizu, MIT Sloan Fellow ’17

Producing two-million barrels of crude oil per day, Nigeria has approximately 38 billion barrels of crude oil and 188 trillion standard cubic feet of natural gas in reserve. Despite its abundance of natural and human resources — and its position as the largest crude oil producer in Africa — the country suffers from a persistent fuel shortage, with most Nigerians lacking adequate electricity. Clearly, the current industry model is not working in Nigeria. In the last 7 years, Nigeria has spent N4.7 trillion on petroleum products importation and subsidy payment.

I came to the MIT Sloan Fellows Program to find a solution. I am convinced that Nigeria has the capacity to become a leader in making liquid energy accessible and affordable to Africans. To enable such radical transformation, we need to make major policy, financial and operational changes.

The first step to finding a solution is identifying the cause of the current problems. Three main issues are prevalent in Nigeria: dysfunctional refineries, dependence on imported products and government regulation, and pipeline vandalism and distribution challenges.

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The oil industry’s troubles aren’t bad enough to trigger another global crisis — John Reilly

MIT Sloan Sr. Lecturer John Reilly

MIT Sloan Sr. Lecturer John Reilly

From MarketWatch

The crash in the price of oil — from $108 a barrel in June 2014 to below $27 earlier this year — has rattled the stock market, triggered layoffs across the energy sector, and plunged many oil producing countries into crisis.

Oil has since rebounded significantly from its lows, to above $40 a barrel, but the price plunge since 2014 has put much pressure on oil companies. Reports have pointed to an increase in debt among oil producers, raising the specter of default on bankruptcy and default on debt, withfollow-on effects beyond oil producers.

The upheaval also has sparked fears that oil’s troubles will spread across the globe, echoing the crash in U.S. housing markets that pushed the world economy to the brink of collapse in 2008. Yet despite the woes oil is experiencing, it is unlikely that the repercussions will trigger another global financial crisis.

Looking at the numbers, the mortgage-debt crisis dwarfs what is currently happening in oil. According to a report in the Financial Times, the global oil and gas industry’s debts rose to  $3 trillion from $1.1 trillion between 2006 and 2014. Compare that to the $10 trillion of housing debt weighing on Americans in 2008.

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Keystone Pipeline Foes Should Face Reality — Chris Knittel

MIT Sloan Prof. Christopher Knittel

From Bloomberg

Opponents of the Keystone XL oil pipeline warn of its potentially catastrophic consequences. Building it, climate scientist James Hansen says, would mean “game over” for the climate.

New York Times columnist Thomas Friedman hopes that, if it’s given a green light, “Bill McKibben and his 350.org coalition go crazy.” And he means “chain-themselves-to-the-White-House-fence-stop-traffic-at-the-Capitol kind of crazy.”

Are they all just crying wolf and using Keystone XL as a proxy battle against oil?

I hope so, because the economics behind laying a pipeline from Alberta, Canada, to the U.S. Gulf Coast would make it difficult for the pipeline to have any effect on greenhouse-gas emissions. I trust that if opponents dug a little deeper into the issues and the market for oil, they would agree — at least privately.

Three things would need to be true for Keystone to lead to more emissions. Otherwise, the pipeline could actually reduce them. Read More »

Oil will flow like milk and honey. Here’s why — John Reilly

MIT Sloan Sr. Lecturer John Reilly

From USA Today

The price of oil has fallen nearly 60% since peaking in June, and lately there’s been a lot of ink and pixels devoted to the question of whether oil prices will plunge even further or whether they will shoot right back up. An even bigger issue is whether prices will stay at these very low levels.

While I doubt oil prices will fall much more — how much further could they reasonably tumble? Perhaps another $20 or so? — history suggests we can expect prices to remain low for the foreseeable future. What’s playing out right now in the oil market is likely the same supply-demand dynamic we’ve seen over and over: several years of extremely high oil prices followed by decades of low prices. The twin oil shocks of the 1970s, for instance, resulted in 20 to 25 years of low prices.

Of course, things are different today — but not that much different. Over the past six or seven years, oil has been relatively expensive, often trading at over $100 a barrel. During that time, both the supply and demand sides of the equation have responded.

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Think speculators cause high oil prices? Don’t bet on it — Christopher Knittel and Robert Pindyck

Image credit: Mike Derer/AP on Cognoscenti

From WBUR Cognoscenti

Americans are spending more money at the pump than ever before. According to a recent estimate by the Energy Department, the average U.S. household spent nearly $3,000 on gasoline last year. Earlier this month, the U.S. Energy Information Administration forecast that the price for regular gasoline will average $3.63 a gallon this summer — a slight decline from last summer, not far from the record levels set in 2008. Why do oil prices remain so stubbornly high?

According to some in Washington, the blame lies with “speculators” — investors who buy and sell oil futures contracts to bet on the price of oil. As they see it, these scheming speculators — which may be individuals, but can also be mutual funds, hedge funds, or other investment institutions — inject billions of dollars into commodity exchanges in pursuit of a limited number of barrels, which in turn drives up the price of oil. Speculators, critics say, rake in piles of money at the expense of ordinary people who are going broke fueling their cars and heating their homes. Read More »