Peak Oil is You
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Page added on November 14, 2014
The biggest oil dividend of all
Not much is heard these days of “peak oil”. This is the argument, widely advanced less than 10 years ago, that the world had already passed the peak of sustainable oil production and that new discoveries – which would increasingly be small and incremental – could at best only slow the rate of decline.
As supply continued its seemingly inexorable decline, demand was growing strongly, especially in developing countries. Between 2001 and 2007, world oil demand roughly doubled from 40m barrels a day to over 80m. The price marched steadily higher, reaching a peak of $147 in 2008. Talk of oil at $200 or more a barrel became commonplace.
It hasn’t worked out that way. Oil prices remained fairly robust after the financial crisis, but in the second half of this year they have weakened sharply, with the benchmark Brent crude price dropping from $115 to just below $80 in just three months.
A major factor limiting price growth has been the extraordinary increase in US energy output due to the commercialisation of shale and other forms of “trapped” oil and gas.
In 2012, the US recorded the largest annual increase in oil output in the country’s history. In 2013, it did so again – and accounted for 97 per cent of all the extra oil produced by non-Opec countries, according to BP’s 2013 review of world energy. Total US energy output has set a new record in each of the past four years, and the country’s net oil imports are now 47 per cent lower than they were in 2005.
Until recently, the increases in US output mostly cancelled out decreases in other places, notably Iraq and Libya where production was hit by unrest. But this year, output from Libya in particular has started to recover. At the same time, demand from countries like China has moderated.
Normally, that would elicit a response from Opec, the cartel of 12 producing nations that accounts for about 30 per cent of world supply. But so far, it hasn’t. Richard Hulf, co-manager of the Artemis Global Energy fund, says this is down to a change of attitude within Saudi Arabia.
“The Saudis are effectively sending a message to the other Opec producers, saying they’re sick of being the swing producer,” he says. Until they change their minds – Opec’s next meeting is at the end of November – there seems little prospect of a recovery in prices.
That has weighed heavily on the share prices of oil and gas producers such as Shell and BP which are core holdings for many private investors and equity income funds. Shares in both companies dropped by about 9 per cent in three months to the end of October.
It has also prompted some concern about the sustainability of dividends. In the third quarter of this year, the oil and gas sector accounted for £3.72bn of dividend payments, more than any sector in the UK stock market according to Capita Asset Services. The vast bulk of that came from the big two; Shell and BP were the second- and fourth-biggest payers in the UK respectively.
Disruption to payments from either company would be a serious matter, as investors found out when BP was forced to suspend payments in the wake of the Deepwater Horizon disaster in 2010.
One manager who is conspicuously underweight is Jupiter’s Steve Davies, who points out that one broker recently slashed its forecasts for Shell’s 2015 earnings to $2.54 per share, from $4.26.
In terms of dividends, he thinks the big oil groups could endure a year of prices at these levels. “If it stays at this level for longer, or drops further, then they’ll face trouble,” he says. “Shareholders will want to see capex cut before dividends, but that may be difficult to achieve and just postpones the pain anyway.”
But others think the oil price would have to fall a lot further seriously to imperil the supermajors’ ability to increase dividends. “Shell can do better long-term; on a free cash flow basis they could justify the current dividends with oil in the high seventies. Most others in Europe could survive with it in the eighties,” says Mr Hulf, who thinks that the real pain is being felt by smaller independent companies – the so-called “E&Ps” (see below).
Dollar to the rescue
Even if the rate of payout growth at big oil groups was crimped, another factor might come to the rescue of UK-based investors: the rise of the dollar.
The US currency has appreciated materially this year as the Federal Reserve has scaled back its asset purchase programme, the US economy has continued to create new jobs and other areas, notably China and Europe, have weakened.
This matters because the big oil companies – along with many pharma giants and mining firms – do their accounting and declare their dividends in dollars. Dividends are paid to UK-based investors in pounds, so the prevailing sterling-dollar exchange rate is a material factor in determining what investors actually get.
“This helps a bit as investors are getting quite a lot of dollar dividends,” says James Henderson, who manages income funds at Henderson Global Investors. With interest rates so low, if you’re getting 6-7 per cent a year dividend increases than that is useful real-terms growth.”
Tax cuts by another name
A stronger dollar would of course blunt the benefit of the weaker oil price for UK-based consumers. But economists still think that cheaper fuel will be a net benefit for the UK.
Richard Batley at Lombard Street Research says the consensus is that each 10 per cent drop in the oil price takes about 0.1 percentage points off retail price inflation and adds about 0.1 per cent to GDP. “The maximum impact occurs around four quarters after the price reaches that level,” he notes.
Mr Henderson says businesses that are big energy users, such as the transport, manufacturing and construction sectors, see large benefits relatively quickly.
“For many companies, the cost line is quite flat. Wages are going up a bit, but not much. Top line growth is struggling so cheaper oil gives them immediate margin improvement,” he says.
“A company like Thomas Cook has a £900m annual fuel bill against a profit base of £325m. A 25 per cent cut in that bill would be a big boost to the bottom line,” says Mr Davies, whose fund owns Thomas Cook shares.
It is hard to quantify how much of the benefit of the oil price feeds through into UK inflation rates, because of the effect of exchange rates and because a large part of the retail price of fuel is accounted for by taxation. But it is clearly beneficial. “It’s a modest tax cut for consumers. It puts a bit more money in their pockets,” says Mr Henderson.
Easing inflationary pressures help reduce any urgency to raise interest rates; not long ago, some economists expected a first rise in UK rates in late 2014. Many now think there will be no increase until after next year’s general election.
Here to stay?
In a lower price environment, managers at oil companies would have to re-examine capital investment decisions. “A lot of oil companies have been criticised for lavish capital expenditure and had already begun to respond to shareholder demands to prioritise free cash flow and dividends. They have started to curtail or cancel deepwater and Arctic projects,” says Mr Hulf.
Stephen Williams, an analyst at fund manager M&G, points out that the sharply rising cost of new developments swallowed up much of the cash generated by high oil prices. “Between 2000 and 2012, capex budget for the largest oil producers went from $50bn to $262bn, yet production barely changed. As a result, free cash flow has been extremely challenged.”
This is one reason why Mr Hulf does not think the era of cheaper oil will last very long. “A lot of people in the non-Opec world, which is about 60 per cent of world supply, have planned on the basis of oil at $100 a barrel. If it doesn’t recover to that level then it’s a matter of when, not if, they start shutting in production.”
There are also shorter-term considerations. Mr Henderson says cheaper oil is not a game changer precisely because it could disappear so quickly. “It could easily reverse, for instance if there’s more trouble in the Middle East.”
The message for investors and consumers alike seems to be: enjoy it while it lasts.
Low prices are a gas
Gas is much harder to transport than oil, so there are wide regional variations in gas prices. In the US, with its plentiful supplies of onshore shale gas, the price is $3-4 per thousand cubic feet. In Asia, it’s $15-20.
The good news for UK consumers is that, despite the tensions between Ukraine and Russia, gas prices here are stable or falling. Ofgem’s latest market report states that wholesale gas prices have fallen by 17 per cent since last year. National Grid says gas inventories are at their highest levels ever.
$15-$20
Price of gas in Asia per thousand cubic feet. In the US, it is $3-$4.
Professor Jonathan Stern of the Oxford Institute for Energy Studies told a recent conference that gas demand has also plunged; in the UK it is back down to mid-1990s levels and is unlikely to grow by much. Economic stagnation has also pushed European consumption to 20-year lows just as a glut of liquefied natural gas capacity is poised to start up.
Domestic heating bills are unlikely to fall back immediately as suppliers buy gas as much as two years in advance. But the decline may explain why many are suddenly keen to promote fixed-price tariffs to consumers.
Opportunities as sector contracts
Five years ago, when oil prices fell from $140 to $40 a barrel in a few months, oil companies were in distress, executives were unable to fund developments, and a lack of cash made it impossible for canny industry buyers to buy assets at bargain-basement prices, writes Michael Kavanagh.
Those who took a risk and backed the better players profited handsomely. In 2009, the valuations of smaller and mid-tier UK-listed oil companies, led by Tullow Oil and Cairn Energy, shot back up as oil prices recovered.
In 2010 – when oil traded in a $75-$85 range – the market capitalisation of the UK’s 25 leading independents rose by 28 per cent to £32bn, while the FTSE 100 made a 9 per cent gain, says Deloitte. But a recent move to a similar trading range has provoked sharp falls rather than rises in London-listed companies. Their shares were already falling even as oil traded around $110.
Tullow, which still leads the sector, has seen its shares nearly halve as the investment tide has gone out. It typifies the fall from grace of companies exposed to expensive and risky exploration campaigns. Even successful operators are failing to attract acceptable valuations from the larger companies who typically step in to develop the discovered fields and allow smaller companies to monetise discoveries.
Ophir Energy has also nearly halved in value in the past year, while Cairn Energy, which returned $3.5bn to shareholders in 2012 after a developing a huge discovery in India, has been struck by a similar malaise. Its shares trade well below their “sum of the parts” valuation. Investors in Cairn and a number of other players, according to analysts, are now “getting their exploration for free”.
Aidan Heavey, chief executive of Tullow, this week announced cuts in exploration and appraisal spending from around $1bn a year to $300m. Poor market conditions and investor sentiment cannot be ignored, he says. “Shareholders want cash flow and dividends. Explorers are not in favour. But we have a huge reserve base – and the best way of getting value is by developing reserves.”
That shift left many companies lacking balance sheet strength looking vulnerable, says Simon Thomson, Cairn’s chief executive. “I don’t know if this [oil] price is going to change, but you need a portfolio to deliver through that cycle. For those with financial strength there are opportunities, because some people can’t survive.” Michael Kavanagh
31 Comments on "The biggest oil dividend of all"
Plantagenet on Fri, 14th Nov 2014 7:31 pm
We’re a long way away from the $300/bbl for oil that Matt Simmons was projecting we’d be seeing by now.
dolanbaker on Fri, 14th Nov 2014 8:03 pm
We are now seeing the fruits of the “fuel economy drive” that was spurred on by the high oil prices of the past few years. except in the US of A of course where cheaper oil appears to mean use more!
shallowsand on Fri, 14th Nov 2014 9:22 pm
I do not think that LTO production can continue to expand at the current price levels without further expansion of its debt bubble. I have yet to see anyone with a contrary view back up their view with hard data. The costs of these projects and 60 month recovery rates do not support themselves at current prices. Yes there are many wells that do, but as a whole, they do not work at $75 WTI. I continue to be open to being proven wrong with fact based arguments.
To expand on the debt bubble argument, one only needs to look at the recent phenomenon of the “ten year oil loan”. Through my experience, lenders required a project to satisfy debt in 5 years or less, thus project debt had a five year term, unless tied to additional collateral. This short term, of course, is due to the depleting nature of crude oil/natural gas.
Now, the debt maturities have expanded in many cases to ten years, despite the reserves having steeper decline rates than those prior to the “shale boom”. These loans/bond issues are in many cases being packaged and sold to investors. Does this sound at all familiar?
I have a long term interest in stripper oil production. Since 1973, there have been very few periods where stripper production in the US could not cash flow, although there have been many times where it barely did. The worst, and only period longer than a few months of cash flow failure was 1998 and early 1999.
I view stripper oil wells in the US almost as a separate entity from the rest of US production. This production is stable, decline before new drilling is around 3% and has been at that level for many, many years. The production has remained in the neighborhood of about 750-1 million bbl per day for a couple of decades. For many years this production made up 15-20 percent of total US production, not a small number. It comes from about 450,000 wells. It is remarkable the number of fields 70-120 years old which are still in production.
As the shale boom has come on I have watched closely to see if LTO was economic enough to render stripper wells uneconomic. It is my view that shale wells are less economic on average than US stripper wells on average. Of course, the problem is the high cost to develop, the steep decline and the shear number of wells required to keep the production rate steady, let alone grow it further.
On the other hand, due to the low decline rates in the stripper fields, a much smaller number of wells must be drilled each year to keep production relatively flat.
I estimate minimum price of $75 WTI to keep US stripper production relatively flat, as it has been over the last 20 or so years. This is not the result of any comprehensive study, just a hunch on my part. I am also open to fact based criticism on this point.
I believe that although WTI is prone to overshoots on the high and low side, a floor price of about $75 is where we are at this time long term. However, I can see an overshoot over about $10 or so for up to one year if there is a concerted effort by low cost producers worldwide to stifle US growth. Another economic collapse could cause the price to go below this level.
I have bias towards stripper oil wells and against LTO. Therefore welcome contrary views, especially those with some good data, although insulting one liners are fine too.
Makati1 on Fri, 14th Nov 2014 11:25 pm
Oil at $60 can be just as out of reach as oil at $300. It ALL depends on the ability of the market to profitably use/sell that oil.
You can spin and play with words and numbers all you want but it will not pay for the gas in your car or the heating oil/NG needed for your New England winter.
Reality is cash-in-hand vs cost of necessities. That plastic ATM money tree is dying along with jobs and livable wages in much of the West.
Dave Thompson on Fri, 14th Nov 2014 11:27 pm
Happy holeedaze, enjoy cheaper gas for now and go out shopping cause we all feel so much better off. Rack up the credit card debt a bit. The corporate overlords are counting on a shop till you drop kind of season to keep the good ship world economy afloat a while longer.
meld on Sat, 15th Nov 2014 2:51 am
Bumpy plateau folks. It’s just a sign of how utterly fucked the global economy is. Every real world sign is showing slowdown and collapse whilst the governments pump out propaganda. This price drop will slow exploration, pop the shale bubble and in a couple of years time reverse and go into overdrive.
This is a major reason why transition won’t work. Because collapse is not linear and it never gets consistently worse. We have a collapse and then we stablise, everyone gets used to this new normal and forgets the prosperity they had before. A new collapse happens and the same pattern repeats for the next 200 years till we hit the bottom.
One’s own personal apocalypse will happen sometime in the next 10-20 years. We’ll either adapt or die as individuals but the human race will still be here in tens of thousands of years.
steve on Sat, 15th Nov 2014 4:10 am
“One’s own personal apocalypse will happen sometime in the next 10-20 years. We’ll either adapt or die as individuals but the human race will still be here in tens of thousands of years.”
Wish I had your optimism…I don’t see how this can possibly go on for ten more years…one or even two at the longest….Watch Steve Koppits talk on CAPEX……
Davy on Sat, 15th Nov 2014 5:57 am
Meld, you said allot in a short paragraph that I agree with.
Cloud9 on Sat, 15th Nov 2014 6:43 am
Shallow, thanks for reminding me of the long term production of stripper wells. As I am trying to wrap my mind around this long emergency I had not factored in the idea that the old wells would still be capable of production after the collapse. This tells me that we could still have oil for transport once it has self configured along the lines of the Cuban model.
I suspect that two of our greatest threats as we slip further into this chaos are Kunstler’s golden horde and government of all shapes and sizes. The natural urge to commandeer what others have by the unprepared will in many areas be overwhelming. What concerns me about the stripper wells is that with gasoline, government may have the means to become the biggest brigand of them all.
shallowsand on Sat, 15th Nov 2014 7:08 am
Cloud9. Although I haven’t bought into the doom stuff in my lifetime, I suppose there could be a day far off in the future where one may be defending his one bopd well with a shotgun.
Boat on Sat, 15th Nov 2014 7:17 am
Steve, we are adapting. In spite of the US adding around 36 million people since 2000 gasoline consumption has remained flat. An amazing achievement to capitalism.
rockman on Sat, 15th Nov 2014 9:15 am
“…since 2000 gasoline consumption has remained flat. An amazing achievement to capitalism.” I would offer that the inflation adjusted price of gasoline doubling during that time should probably should get a fair amount of the credit. IOW an “amazing achievement” of demand destruction IMHO.
Kenz300 on Sat, 15th Nov 2014 9:20 am
Bicycle sales are up around the world……….
Adapting to higher oil prices and high transportation costs……..
Top 10 Cycling-Friendly Cities – YouTube
https://www.youtube.com/watch?v=ycKXeKfu4lo
———————
Bike Friendly Cities, The Journey to School – YouTube
https://www.youtube.com/watch?v=4-XenU6UEp8
Mark Ziegler on Sat, 15th Nov 2014 9:37 am
450,000 wells producing 1mbbl per day comes out to 2 barrels per well per day.
shortonoil on Sat, 15th Nov 2014 10:10 am
The price of oil is now going down because the value of oil is going down. When it requires as much energy to produce the oil (and its products) as the oil contains its price becomes zero. Without energy, oil has no value. It is reduced to black (reddish, green, yellow, clear) goo in a barrel. Outside of a feedstock, the only reason we use oil is for its energy.
The energy to produce oil has been increasing slowly since Drake drilled his well in 1859 (actually the first commercial mechanically drilled well was drilled in Canada in 1858). It now takes 83% of the useable energy in a unit of oil to produce it, and its products. As that grows to 100% the price will fall to zero.
http://www.thehillsgroup.org/
oilystuff on Sat, 15th Nov 2014 10:12 am
Shallow, I had to laugh at your comment about bias toward the shale oil business. I could give you about 10 reasons I loathe the shale oil business, starting with 2000 dollars an acre bonuses and ending with a 30% decline in crude oil prices the past 6 weeks. I detest all the lying more than anything.
I too am quite fond of all my stripper wells.
Boat on Sat, 15th Nov 2014 10:46 am
Rock, so what played the bigger role, high prices or efficiencies.
rockman on Sat, 15th Nov 2014 3:46 pm
Boat – Been a while since I’ve seen an updated stat but the mpg’s of new car sales isn’t the key regarding consumption the last 5+ years. It’s the average mpg on the entire fleet on the road. And a couple of years ago the stat was an increase of 1 mpg over the previous several years. Not 1 mpg per year but a total of 1 mpg for the entire period. It takes 10+ years for the entire fleet on the road to be completely replaced.
So I would guess it’s related to folks cutting out more trips. One could classify that as being more efficient. But that’s a choice being made and not an improvement of the equipment.
rockman on Sat, 15th Nov 2014 4:00 pm
Oily – “…I loathe the shale oil business: a 30% decline in crude oil prices the past 6 weeks.” And the same reason many in the oil patch so dislike the oil sands. It took some folks here an incredibly long time to understand why the vast majority of the oil patch would be thrilled if the US gov’t banned the import of the Canadian oil sands. And some still don’t get it.
Take the hype about the Dem’s letting Mary Landrieu of La. push for the Keystone XL permit to help her garner more votes. That might make her popular with the refinery owners but not so much with the oil companies and their employees who are hurt by lower oil prices thanks to all imports. They ain’t gonna vote for Mary because she’s pushing to bring in more oil to compete against their financial well being.
Boat on Sat, 15th Nov 2014 4:03 pm
Rock, this report covers the last 9 years and shows a different story.
U.S. Fuel Economy Reaches All-Time High/Fuel economy gains for new vehicles continue under President Obama’s Clean Car Program
Release Date: 10/08/2014
Contact Information: Christie St. Clair, stclair.christie@epa.gov, 202-564-2880
WASHINGTON – New vehicles achieved an all-time-high fuel economy in 2013, the Environmental Protection Agency announced today. Model year 2013 vehicles achieved an average of 24.1 miles per gallon (mpg) — a 0.5 mpg increase over the previous year and an increase of nearly 5 mpg since 2004. Fuel economy has now increased in eight of the last nine years.
http://yosemite.epa.gov/opa/admpress.nsf/0/87ACB71855BED86585257D6B0052C584
Boat on Sat, 15th Nov 2014 4:20 pm
Rock, you are also right about less miles driven.
http://www.calculatedriskblog.com/2012/03/dot-vehicle-miles-driven-increased-16.html
So the picture is a mixed bag. This is why I come to this site, it makes me do more research and look up my own answers.
rockman on Sat, 15th Nov 2014 4:40 pm
Boat – Read the article. Yes, a very different story because it doesn’t address anything I said. My post points out the change in fuel efficiency of ALL THE VEHICLES ON THE ROAD. And that’s what determines total gasoline consumption. The article only discusses the efficiency of new cars. And they represent just a small portion of the vehicles burning fuel these days. And high “big” a portion:
From the LA Times:”In 2014 there were 253 million cars and trucks on U.S. roads. The number of vehicles on the road reached this record level but only with an increase of 3.7 million new vehicles, or 1.5%, since last year, IHS Automotive reported. That is a level that the auto industry hasn’t seen in the U.S. since 2004-05″.
So even with an uptick those new higher efficiency vehicles represented just 1.5% of the vehicles burning motor fuel for the year. With that slow growth rate of more efficient vehicles coming into the rolling fleet it will take many years for the fuel efficiency of all US vehicles to improve significantly.
Boat on Sat, 15th Nov 2014 6:15 pm
Fuel mph was around 13 in 1975 and 24 in 2014. If 5 of that mph was achieved since 2004 I would think many of those cars are off the road. As I drive through Houston I see mostly newer models that were made since 2004. Except for vans and trucks driven by Mexicans of course.
shallowsand on Sat, 15th Nov 2014 7:28 pm
Mark Z. Yes it does. Amazing those are still worth producing given what all we hear in the media about shales and tar sands.
What I am trying to figure out is whether the shales and tar sands will result in the majority of those strippers wells becoming uneconomic and being plugged, or in need of plugging.
My feeble attempt at humor re one bopd well and shotgun wasn’t a math error, as I have demonstrated I am prone to make. It was kind of a reference to thunder dome, I think.
Makati1 on Sat, 15th Nov 2014 8:21 pm
MPG is NOT what dropped the consumption or miles driven, it was the INABILITY to buy the fuel due to the contraction of the American economy. And, the vehicle replacement time is extending way past 10 years. Most who own a car now will never buy another one because they will not be able to. Therefore, most cars on the road today will be driven until it is impractical to repair them.
Don’t take any “facts” from any government deprtment as the truth. You ALWAYS have to check the source of any article or fact to see the spin. But, it is ALWAYS about money, somewhere.
I too enjoy this site as it make me do research constantly to keep up with the changes.
oilystuff on Sat, 15th Nov 2014 8:29 pm
Yes, Rockman; the Texas and Louisiana Gulf Coast is floating on a sea of oil right now, thanks mostly to LTO. I think bringing more Canadian oil to the party is going to do nothing more than erode well head prices here, for us, and further hamper our ability to sustain domestic production in the US. I do not buy into the notion that tar sands bitumen will simply be refined in Texas and LA to the benefit of Canadian exports and Keystone is just a venue for that. I believe that Canadian crap will be blended with domestic LTO to the actual gain of American free enterprise.
I have seen that mess up there in Alberta, from the air and on the ground. It made me sick to my stomach. Nobody in the oil business along the Gulf Coast with enough sense to pour piss out of a boot, wants Keystone.
Nony on Sat, 15th Nov 2014 10:37 pm
more competition is bad for producers and good for consumers. Bring on the Canadian oil! Oily, no more Ruth Chris for you. 😉
Boat on Sun, 16th Nov 2014 6:31 am
Makati, I never had and problems getting gas and don’t remember reading about any problems with supply.
I average 30+ miles per day and know from experience your maintenance costs go way up after 150,000 or so. And who has time for breakdowns on a Houston interstate.
Some of your thoughts about the US are just plain wrong and I don’t know where you get them.
Makati1 on Sun, 16th Nov 2014 8:08 am
Boat, I lived in the US for 64 years before I moved to the Ps. I go back every year and drive around looking at the changes. I do remember gas rationing and odd-even days. Ether you are too young or have a bad memory.
“…In 1973, U.S. President Richard Nixon named William E. Simon as the first Administrator of the Federal Energy Office, a short-term organization created to coordinate the government’s response to the Arab oil embargo, who was called the “Energy Czar”.[35] Simon allocated states the same amount of domestic oil for 1974 that each consumed in 1972, which worked well for states whose populations were not increasing.[36] In states with increased populations, lines at gasoline stations were common.[36] The American Automobile Association reported that in the last week of February 1974, 20% of American gasoline stations had no fuel at all.[36]
Oregon gasoline dealers displayed signs explaining the flag policy in the winter of 1973–74
In the United States, odd-even rationing was implemented; drivers of vehicles with license plates having an odd number as the last digit (or a vanity license plate) were allowed to purchase gasoline for their cars only on odd-numbered days of the month, while drivers of vehicles with even-numbered license plates were allowed to purchase fuel only on even-numbered days.[37] The rule did not apply on 31st day of those months containing 31 days, or on February 29 in leap years— the latter never came into play, since the restrictions had been abolished by 1976…”
http://en.wikipedia.org/wiki/1973_oil_crisis
Been there, done that, have the memories.
Davy on Sun, 16th Nov 2014 8:14 am
Mak, imagine how bad it will be in the P’s when rationing becomes widespread. The P’s are on the ass end of economic importance. China will suck oil supply right past the insignificant Asian Island nations.
Boat on Sun, 16th Nov 2014 10:00 am
Makati1,
We went from a conversation about the role of efficiency and price effecting the drop and flatlining of gas consumption to the embargo of 1975. I don’t think that is relevant.