The Geopolitics of $130 Oil
« on: 2008-05-29 03:58:40 »
[Blunderov] Of course I disagree with Stratfor's assertion that the Iraq war did not begin because of oil. Perhaps that is true of Afghanistan but to assert the same of the Iraq debacle is to piss into the wind of the blindingly obvious.
"We have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men": George Orwell.
Other than that their observation seems keen. All the fundamental necessities of life are rapidly becoming a global issue. It should not be forgotten that water and fish are also resources which are no longer sufficient for sustaining the global population. There are food riots all over the world. There is a water war in Dafur. The xenophobic violence in South Africa is, ultimately, also about too many people chasing too few resources although admittedly this more due to bad management than anything else. The planet is bursting at the seams. The horrible light of a ferocious new era begins to dawn...
stratfor.com
The Geopolitics of $130 Oil
May 27, 2008
By George Friedman
Oil prices have risen dramatically over the past year. When they passed $100 a barrel, they hit new heights, expressed in dollars adjusted for inflation. As they passed $120 a barrel, they clearly began to have global impact. Recently, we have seen startling rises in the price of food, particularly grains. Apart from higher prices, there have been disruptions in the availability of food as governments limit food exports and as hoarding increases in anticipation of even higher prices.
Oil and food differ from other commodities in that they are indispensable for the functioning of society. Food obviously is the more immediately essential. Food shortages can trigger social and political instability with startling swiftness. It does not take long to starve to death. Oil has a less-immediate — but perhaps broader — impact. Everything, including growing and marketing food, depends on energy; and oil is the world’s primary source of energy, particularly in transportation. Oil and grains — where the shortages hit hardest — are not merely strategic commodities. They are geopolitical commodities. All nations require them, and a shift in the price or availability of either triggers shifts in relationships within and among nations.
It is not altogether clear to us why oil and grains have behaved as they have. The question for us is what impact this generalized rise in commodity prices — particularly energy and food — will have on the international system. We understand that it is possible that the price of both will plunge. There is certainly a speculative element in both. Nevertheless, based on the realities of supply conditions, we do not expect the price of either to fall to levels that existed in 2003. We will proceed in this analysis on the assumption that these prices will fluctuate, but that they will remain dramatically higher than prices were from the 1980s to the mid-2000s.
If that assumption is true and we continue to see elevated commodity prices, perhaps rising substantially higher than they are now, then it seems to us that we have entered a new geopolitical era. Since the end of World War II, we have lived in three geopolitical regimes, broadly understood:
The Cold War between the United States and the Soviet Union, in which the focus was on the military balance between those two countries, particularly on the nuclear balance. During this period, all countries, in some way or another, defined their behavior in terms of the U.S.-Soviet competition. The period from the fall of the Berlin Wall until 9/11, when the primary focus of the world was on economic development. This was the period in which former communist countries redefined themselves, East and Southeast Asian economies surged and collapsed, and China grew dramatically. It was a period in which politico-military power was secondary and economic power primary. The period from 9/11 until today that has been defined in terms of the increasing complexity of the U.S.-jihadist war — a reality that supplanted the second phase and redefined the international system dramatically. With the U.S.-jihadist war in either a stalemate or a long-term evolution, its impact on the international system is diminishing. First, it has lost its dynamism. The conflict is no longer drawing other countries into it. Second, it is becoming an endemic reality rather than an urgent crisis. The international system has accommodated itself to the conflict, and its claims on that system are lessening.
The surge in commodity prices — particularly oil — has superseded the U.S.-jihadist war, much as the war superseded the period in which economic issues dominated the global system. This does not mean that the U.S.-jihadist war will not continue to rage, any more than 9/11 abolished economic issues. Rather, it means that a new dynamic has inserted itself into the international system and is in the process of transforming it.
It is a cliche that money and power are linked. It is nevertheless true. Economic power creates political and military power, just as political and military power can create economic power. The rise in the price of oil is triggering shifts in economic power that are in turn creating changes in the international order. This was not apparent until now because of three reasons. First, oil prices had not risen to the level where they had geopolitical impact. The system was ignoring higher prices. Second, they had not been joined in crisis condition by grain prices. Third, the permanence of higher prices had not been clear. When $70-a-barrel oil seemed impermanent, and likely to fall below $50, oil was viewed very differently than it was at $130, where a decline to $100 would be dramatic and a fall to $70 beyond the calculation of most. As oil passed $120 a barrel, the international system, in our view, started to reshape itself in what will be a long-term process.
Obviously, the winners in this game are those who export oil, and the losers are those who import it. The victory is not only economic but political as well. The ability to control where exports go and where they don’t go transforms into political power. The ability to export in a seller’s market not only increases wealth but also increases the ability to coerce, if that is desired.
The game is somewhat more complex than this. The real winners are countries that can export and generate cash in excess of what they need domestically. So countries such as Venezuela, Indonesia and Nigeria might benefit from higher prices, but they absorb all the wealth that is transferred to them. Countries such as Saudi Arabia do not need to use so much of their wealth for domestic needs. They control huge and increasing pools of cash that they can use for everything from achieving domestic political stability to influencing regional governments and the global economic system. Indeed, the entire Arabian Peninsula is in this position.
The big losers are countries that not only have to import oil but also are heavily industrialized relative to their economy. Countries in which service makes up a larger sector than manufacturing obviously use less oil for critical economic functions than do countries that are heavily manufacturing-oriented. Certainly, consumers in countries such as the United States are hurt by rising prices. And these countries’ economies might slow. But higher oil prices simply do not have the same impact that they do on countries that both are primarily manufacturing-oriented and have a consumer base driving cars.
East Asia has been most affected by the combination of sustained high oil prices and disruptions in the food supply. Japan, which imports all of its oil and remains heavily industrialized (along with South Korea), is obviously affected. But the most immediately affected is China, where shortages of diesel fuel have been reported. China’s miracle — rapid industrialization — has now met its Achilles’ heel: high energy prices.
China is facing higher energy prices at a time when the U.S. economy is weak and the ability to raise prices is limited. As oil prices increase costs, the Chinese continue to export and, with some exceptions, are holding prices. The reason is simple. The Chinese are aware that slowing exports could cause some businesses to fail. That would lead to unemployment, which in turn will lead to instability. The Chinese have their hands full between natural disasters, Tibet, terrorism and the Olympics. They do not need a wave of business failures.
Therefore, they are continuing to cap the domestic price of gasoline. This has caused tension between the government and Chinese oil companies, which have refused to distribute at capped prices. Behind this power struggle is this reality: The Chinese government can afford to subsidize oil prices to maintain social stability, but given the need to export, they are effectively squeezing profits out of exports. Between subsidies and no-profit exports, China’s reserves could shrink with remarkable speed, leaving their financial system — already overloaded with nonperforming loans — vulnerable. If they take the cap off, they face potential domestic unrest.
The Chinese dilemma is present throughout Asia. But just as Asia is the big loser because of long-term high oil prices coupled with food disruptions, Russia is the big winner. Russia is an exporter of natural gas and oil. It also could be a massive exporter of grains if prices were attractive enough and if it had the infrastructure (crop failures in Russia are a thing of the past). Russia has been very careful, under Vladimir Putin, not to assume that energy prices will remain high and has taken advantage of high prices to accumulate substantial foreign currency reserves. That puts them in a doubly-strong position. Economically, they are becoming major players in global acquisitions. Politically, countries that have become dependent on Russian energy exports — and this includes a good part of Europe — are vulnerable, precisely because the Russians are in a surplus-cash position. They could tweak energy availability, hurting the Europeans badly, if they chose. T hey will not need to. The Europeans, aware of what could happen, will tread lightly in order to ensure that it doesn’t happen.
As we have already said, the biggest winners are the countries of the Arabian Peninsula. Although somewhat strained, these countries never really suffered during the period of low oil prices. They have now more than rebalanced their financial system and are making the most of it. This is a time when they absolutely do not want anything disrupting the flow of oil from their region. Closing the Strait of Hormuz, for example, would be disastrous to them. We therefore see the Saudis, in particular, taking steps to stabilize the region. This includes supporting Israeli-Syrian peace talks, using influence with Sunnis in Iraq to confront al Qaeda, making certain that Shiites in Saudi Arabia profit from the boom. (Other Gulf countries are doing the same with their Shiites. This is designed to remove one of Iran’s levers in the region: a rising of Shiites in the Arabian Peninsula.) In addition, the Saudis are using their economic power to re-establish the relationship they ha d with the United States before 9/11. With the financial institutions in the United States in disarray, the Arabian Peninsula can be very helpful.
China is in an increasingly insular and defensive position. The tension is palpable, particularly in Central Asia, which Russia has traditionally dominated and where China is becoming increasingly active in making energy investments. The Russians are becoming more assertive, using their economic position to improve their geopolitical position in the region. The Saudis are using their money to try to stabilize the region. With oil above $120 a barrel, the last thing they need is a war disrupting their ability to sell. They do not want to see the Iranians mining the Strait of Hormuz or the Americans trying to blockade Iran.
The Iranians themselves are facing problems. Despite being the world’s fifth-largest oil exporter, Iran also is the world’s second-largest gasoline importer, taking in roughly 40 percent of its annual demand. Because of the type of oil they have, and because they have neglected their oil industry over the last 30 years, their ability to participate in the bonanza is severely limited. It is obvious that there is now internal political tension between the president and the religious leadership over the status of the economy. Put differently, Iranians are asking how they got into this situation.
Suddenly, the regional dynamics have changed. The Saudi royal family is secure against any threats. They can buy peace on the Peninsula. The high price of oil makes even Iraqis think that it might be time to pump more oil rather than fight. Certainly the Iranians, Saudis and Kuwaitis are thinking of ways of getting into the action, and all have the means and geography to benefit from an Iraqi oil renaissance. The war in Iraq did not begin over oil — a point we have made many times — but it might well be brought under control because of oil.
For the United States, the situation is largely a push. The United States is an oil importer, but its relative vulnerability to high energy prices is nothing like it was in 1973, during the Arab oil embargo. De-industrialization has clearly had its upside. At the same time, the United States is a food exporter, along with Canada, Australia, Argentina and others. Higher grain prices help the United States. The shifts will not change the status of the United States, but they might create a new dynamic in the Gulf region that could change the framework of the Iraqi war.
This is far from an exhaustive examination of the global shifts caused by rising oil and grain prices. Our point is this: High oil prices can increase as well as decrease stability. In Iraq — but not in Afghanistan — the war has already been regionally overshadowed by high oil prices. Oil-exporting countries are in a moneymaking mode, and even the Iranians are trying to figure out how to get into the action; it’s hard to see how they can without the participation of the Western oil majors — and this requires burying the hatchet with the United States. Groups such as al Qaeda and Hezbollah are decidedly secondary to these considerations.
We are very early in this process, and these are just our opening thoughts. But in our view, a wire has been tripped, and the world is refocusing on high commodity prices. As always in geopolitics, issues from the last generation linger, but they are no longer the focus. Last week there was talk of Strategic Arms Reduction Treaty (START) talks between the United States and Russia — a fossil from the Cold War. These things never go away. But history moves on. It seems to us that history is moving.
Tell Stratfor What You Think
This article can be forwarded or reposted but must be attributed to Stratfor.
Gasoline prices are through the roof and Americans are angry. Someone must be to blame and the obvious villain is "Big Oil" with its alleged ability to gouge consumers and achieve unconscionable, "windfall" profits. Congress is in a vile mood, and has dragged oil industry executives before its committees for show trials, issuing predictable threats of punishment, e.g. a "windfall profits tax."
But if there is a villain in all of this, it is Congress itself. That venerable body has made it impossible for U.S. producers of crude oil to tap significant domestic reserves of oil and gas, and it has foreclosed economically viable alternative sources of energy in favor of unfeasible alternatives such as wind and solar. In addition, Congress has slapped substantial taxes on gasoline. Indeed, as oil industry executives reiterated in their appearance before the Senate Judiciary Committee on May 21, 15% of the cost of gasoline at the pump goes for taxes, while only 4% represents oil company profits.
To understand the depth of congressional complicity in the high price of gasoline, one must understand that crude oil prices explain 97% of the variation in the pretax price of gasoline. That price, which has risen to record levels, is set by the intersection of supply and demand. On the one hand, world-wide demand has accelerated mainly due to the rapid growth of China and India.
On the other hand, supply has been curtailed by the cartel-like behavior of foreign national oil companies, which control nearly 80% of world petroleum reserves. Faced with little competition in the production of crude oil, the members of this cartel benefit from keeping the commodity in the ground, confident that increasing demand will make it more valuable in the future. Despite its pious denunciations of the behavior of U.S. investor-owned oil companies (IOCs), Congress by its actions over the years has ensured the economic viability of the national oil company cartel.
It has done so by preventing the exploitation by IOCs of reserves available in nonpark federal lands in the West, Alaska and under the waters off our coasts. These areas hold an estimated 635 trillion cubic feet of recoverable natural gas – enough to meet the needs of the 60 million American homes fueled by natural gas for over a century. They also hold an estimated 112 billion barrels of recoverable oil – enough to produce gasoline for 60 million cars and fuel oil for 25 million homes for 60 years.
This doesn't even include substantial oil shale resources economically recoverable at oil prices substantially lower than those prevailing today. In an exchange between Sen. Orin Hatch (R., Utah) and John Hofmeister, president of Shell Oil Company during the May 21 Senate Judiciary Committee hearing, the point was made that anywhere from 800 million to two trillion barrels of oil are available from oil shale in Colorado, Utah and Wyoming.
If Congress really cared about the economic well-being of American citizens, it would stop fulminating against IOCs and reverse current policies that discourage, indeed prohibit, the production of domestic oil and natural gas. Even the announcement that Congress was opening the way for domestic production would lead to downward pressure on oil prices.
There is an historical precedent for such a step: Ronald Reagan's deregulation of domestic crude oil prices at the beginning of his first term. At the time, thanks to the decision by the Organization of Petroleum Exporting Countries (OPEC) to curtail output, the price of oil was at a level that in real terms is only now being matched. Domestic price controls ensured that the OPEC cartel would face little or no competition in the production of oil.
Price controls were exacerbated by other wrongheaded policies stimulated by the two "energy crises" of the 1970s. One of the most egregious was the infamous "windfall profits" tax, designed to punish oil companies for alleged profiteering. But since it applied to even newly discovered oil, its main impact was to discourage the exploration and drilling that would have increased oil supplies.
Although the energy problems of the 1970s were traceable to government policies, Reagan's decision to deregulate oil prices was ridiculed by policy makers, especially those who had served in the previous administration. For instance, Frank Zarb, who had been Jimmy Carter's "energy czar," predicted that decontrolling the price of crude oil would lead to gasoline prices of $10 a gallon. Instead, the world price of oil plummeted, helping to fuel the extraordinary economic growth of the 1980s.
Reagan's deregulation of crude oil prices created incentives for domestic producers to invest in exploration and to increase production. The threat of increased output by non-OPEC producers destroyed the discipline among OPEC members necessary to restrict production to maintain high prices. Facing the likelihood that an increase in supply would lead to lower future prices, OPEC producers increased output in the hopes of maximizing profits before prices fell. The cascading effect caused oil prices to tumble.
As in the 1970s, U.S. energy policies have essentially restricted the exploitation of domestic sources of energy. Curtailed supplies have combined with rapid, world-wide energy demand to increase the price of oil and other sources of energy. This provides leverage to foreign producers and threatens U.S. energy security. Freeing up domestic energy resources will do today what President Reagan's decision to deregulate oil prices in 1981 did then: cause oil prices to fall, thereby enhancing U.S. energy security.
Mr. Owens is a professor at the Naval War College in Newport, R.I., and editor of Orbis, the journal of the Foreign Policy Research Institute in Philadelphia.
Anyone wondering why U.S. energy policy is so dysfunctional need only review Congress's recent antics. Members have debated ideas ranging from suing OPEC to the Senate's carbon tax-and-regulation monstrosity, to a windfall profits tax on oil companies, to new punishments for "price gouging" – everything except expanding domestic energy supplies.
Amid $135 oil, it ought to be an easy, bipartisan victory to lift the political restrictions on energy exploration and production. Record-high fuel costs are hitting consumers and business like a huge tax increase. Yet the U.S. remains one of the only countries in the world that chooses as a matter of policy to lock up its natural resources. The Chinese think we're insane and self-destructive, while the Saudis laugh all the way to the bank.
There are two separate moratoria on offshore drilling: One is a ban that Congress has attached to every budget since 1982, and the other is a 1990 executive order that President Bush has waived in only a few cases. Republicans made failing attempts to overcome both when they ran Congress, but current Democratic leaders and their green masters remain adamantly opposed. The new political opportunity amid record prices is to convince enough rank-and-file Democrats that they'll suffer at the polls if they don't break with this antiexploration ideology.
While energy "independence" is an impossible dream, there's no doubt the U.S. has vast undeveloped fossil-fuel deposits. A tiny corner of the Arctic National Wildlife Refuge contains an estimated 10.4 billion barrels of oil and would be the largest producing oil field in the Northern Hemisphere. Yet the Senate blocked that development as recently as last month. The Outer Continental Shelf is estimated to contain some 86 billion barrels of oil, plus 420 trillion cubic feet of natural gas. Yet of the shelf's 1.76 billion acres, 85% is off-limits and 97% is undeveloped.
Engineers recently perfected refining solid shale rock into diesel or gas, which may amount to the largest oil supply in the world – perhaps as much as 1.8 trillion barrels in the American West. That's enough to meet current U.S. oil demand for more than two centuries. Yet as late as 2007, Democrats attached a rider to the energy bill that prohibits leasing the federal interior lands that contain at least 80% of America's oil shale. The key vote was cast by liberal Senator Ken Salazar from Colorado, of all places.
These supply guesses are probably conservative, because the only way to know for sure is to drill exploratory wells. Yet most of Alaska and offshore are cut off even from modern seismic testing. Many areas haven't been examined since the 1960s, when exploration technology was far more primitive. This has led to the believe-it-or-not situation in which the Chinese are prepping to drill in Cuban waters less than 60 miles off the Florida coast. American companies are banned from drilling in American waters nearby.
Yes, we know, increased drilling is no energy cure-all; new projects take about a decade to come on line. Then again, more than a few experts say that new production could affect price as the market perceives a new U.S. seriousness to increase supplies. Part of today's futures speculation is based on the assumption that supplies will remain tight for years to come, even as Chinese and Indian demand surges.
Nor would merely repealing the exploration bans be enough. Between 2000 and 2007, the drilling of exploratory oil wells climbed 138%, but over the same period domestic crude oil production decreased 12.4% and fell to the lowest levels since 1947. Refineries for gasoline are stretched to the limit, but multiple regulatory barriers impede new construction or even expansions at existing facilities. Then there is the inevitable lawsuit downpour from the environmental lobby.
Democrats are going to have to grow up. The oil-rich areas they want to leave untouched are accessible with minimal environmental disturbance, thanks to modern technology. Hurricanes Katrina and Rita flattened terminals across the Gulf of Mexico but didn't cause a single oil spill. As for anticarbon theology, oil will be indispensable over the next half-century and probably longer, like it or not. Airplanes will never fly on woodchips, and you won't be able to charge your car with a windmill for some time, if ever.
Public anger over fuel prices could hardly come at a worse time for the GOP, since voters tend to blame a flagging economy on the party that occupies the White House. But the opportunity is to offer a reform alternative to Barack Obama and the high-price energy status quo he embraces. It looks like the public is increasingly ready for . . . change. In a May Gallup poll, 57% favored "allowing drilling in U.S. coastal and wilderness areas now off limits." Just 20% blamed the increase in gas prices on Big Oil, like Mr. Obama does.
Recent weeks have seen some GOP stirrings on Capitol Hill, but John McCain has so far refused to jettison his green posturings, such as his belief in carbon caps and his animus against offshore development. A good reason for a rethink would be $4 gas. At present, it is charitable to call Mr. McCain's energy ideas incoherent, and it may cost him the election.
Re:The Geopolitics of $130 Oil
« Reply #2 on: 2008-06-13 10:06:02 »
Suffice to say, it seems that our pet Troll does not have any more of a clue about energy than he does about military or sociological issues or he would presumably discover better sources to cut and paste.
At the end of the day, the price of shale oil (like tar sands) needs to take into account the energy needed to mine the shale itself, or the energy required to free the "oil" (actually kerogen embedded in a marlstone matrix) from the shale - and as that energy can only come from fossil fuels, the cost of "shale oil" is heavily dependent on oil and gas prices. Which is one reason it is still not viable, even at $130+ per barrel. The fact that processing materials from these sources will release far more CO2 than even conventional oil processing is hardly a selling point.The other huge reason that shale oil (and tar sand oil) is not viable is that it uses massive amounts of clean water in the processing, and in case nobody noticed, the water situation is Colorado is already desperate (and while Alberta's is better, Canada would need to stop exporting water to the US to bring the Alberta tar sands to market).
By 2012 Colorado will need to choose between cities or farming as it won't have enough water for both. That is without planning to expend a huge amount of water on attempting oil recovery from tar. An additional issue is that the total amount of energy that can be usefully extracted from shale is vastly less than estimated, because the estimates have not taken sufficient account of the use of energy in processing (which reduces the nett to the point where Ethanol looks like a good source of energy in comparison), nor have they accounted for the laws of decreasing returns. Sacrificing Colorado (or vast segments of Canada), and those downriver, to gain a few years more fossil fuel at the cost of greatly increased CO2 production, does not sound like the world's greatest bargain.
As for offshore oil, like most American oil supplies, the off-shore oil is found in tiny pockets. Meaning that huge amounts of ecological devastation and large quantities of conventional oil will be expended in the effort to recover it and that once again, once the energy to set up and break down as well as the law of diminishing returns are taken into account the nett recovery will be minimal.
Which is why, despite the bleating emanating from Cheney and his sock puppets, hard headed financial decisions by people who don't have to take off their shoes to do arithmetic that involves numbers greater than 10 has ensured that none of these supposed resources have been tapped. And no matter what happens to the price of oil, they remain unlikely to be tapped unless insanity takes over from reason (which evidence shows is not utterly impossible in Florida).
Finally, while Cuba is sitting on a lake of oil, this, like the Brazilian and Argentinian finds, is at extreme depths and recovery will be challenging and energy intensive. However, it is rather amusing to contemplate the reality that unless the US invades Cuba (which would, like the wars in Afghanistan, Iraq and the coming war in Iran, naturally be another illegal war of aggression), her oil exports will likely ensure that Cuban socialism, like that in Venezuela, will probably outlast the collapse of the US. This will likely rankle amongst those of Cheney's ilk, but it is hard to see what they can do about it.
Kunstler raised many of these issues in "The Long Emergency" and Durango Bill has solid referenced research on much of this, but as our Troll continues to demonstrate, the "need to believe" can overpower any amount of reality.
With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. - Steven Weinberg, 1999
Re:The Geopolitics of $130 Oil
« Reply #3 on: 2008-06-13 13:55:25 »
Speaking of sock-puppets, our troll is still repeating Cheney's lies - but after Cheney had already withdrawn them.
Cheney oil comment attacked
Cheney criticized for saying falsely China is drilling for oil off Florida.
Source: AP News Authors: H. Josef-Hebert Dated: 2008-06-12
Vice President Dick Cheney's office acknowledged on Thursday that he was mistaken when he asserted that China, at Cuba's behest, is drilling for oil in waters 60 miles from the Florida coast.
In a speech to the U.S. Chamber of Commerce, Cheney said on Wednesday that waters in the eastern Gulf of Mexico, long off limits to oil companies, should be opened to drilling because China is already there pumping oil.
"Oil is being drilled right now 60 miles off the coast of Florida," the vice president said. "We're not doing it, the Chinese are, in cooperation with the Cuban government. Even the communists have figured out that a good answer to high prices is more supply."
He cited his source as columnist George Will, who last week wrote: "Drilling is under way 60 miles off Florida. The drilling is being done by China, in cooperation with Cuba, which is drilling closer to South Florida than U.S. companies are."
Congressional Democrats pounced on the vice president's remarks and were backed up by independent energy experts, who called the assertion hyperbole at best and a falsehood at worst.
Cheney's office said in a statement to The Associated Press that the vice president had erred.
"It is our understanding that, although Cuba has leased out exploration blocks 60 miles off the coast of southern Florida, which is closer than American firms are allowed to operate in that area, no Chinese firm is drilling there," according to the statement.
Cuba clearly is interested in developing its deep-water oil resources, estimated at more than 5 billion barrel, including areas within 60 miles of Key West, Fla., energy experts said.
Jorge Pinon, a senior energy fellow at the University of Miami specializing in Latin America, said Cuba has awarded offshore oil leases, or concessionary blocs, in its offshore waters to six oil companies — none of them Chinese — and soon may announce an agreement with Brazil's state oil company, Petrobras.
"But no one is currently drilling in any of those concessions," said Pinon in a telephone interview. Pinon, who supports drilling in the eastern Gulf and believes it can be done without hurting the environment, said China is being raised as an unnecessary "boogeyman" by drilling proponents.
"There is no actual drilling yet. ... There is exploration," said Johanna Mendelson-Forman, a senior fellow on energy and Latin America at the Center for Strategic and International Studies.
She said China's oil company, Sinopac, has conducted exploratory drilling on a lease on land in western Cuba, but is not involved in the offshore development.
But talk of China drilling in waters within 50 miles to 60 miles of Key West has been a common theme among Republicans. They are clamoring to open more of the country's offshore waters to energy development, including the eastern Gulf where drilling is strongly opposed by Florida officials.
"China, thanks to a lease issued by Cuba, is drilling for oil just 50 miles from Florida's coast," Rep. George Radanovich, R-Calif., recently wrote in The Modesto Bee in California, arguing for opening waters that have been off limits for 25 years to U.S. companies.
Radanovich's office said the congressman was in transit and not immediately available Thursday.
House Republican leader John Boehner of Ohio, calling for more domestic oil production, declared, "right at this moment some 60 miles or less off the coast of Key West, Fla., China has the green light to drill for oil."
"Even China recognizes that oil and natural gas is readily available off our shores, thanks to Fidel Castro," complained Rep. Roy Blunt of Missouri, a leader of a GOP energy task force.
Rep. Edward Markey, D-Mass., accused the Republicans of pushing oil development by "scaring up the ghosts of communism and xenophobia" and "perpetuating a myth that China is drilling off the coast of Florida."
With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. - Steven Weinberg, 1999
Re:The Geopolitics of $130 Oil
« Reply #4 on: 2008-06-13 14:23:14 »
An ominous warning that the rapid rise in oil prices has only just begun
[ Hermit : If you don't like oil at $140/bbl, how about at $250 in the forseeable future? ]
Source: The Independent Authors: Danny Fortson (Business Correspondent, The Independent) Dated: 2008-06-11
The chief executive of the world's largest energy company has issued the most dire warning yet about the soaring the price of oil, predicting that it will hit $250 per barrel "in the foreseeable future".
The forecast from Alexey Miller, the head of the Kremlin-owned gas giant Gazprom, would herald the arrival of £2-per-litre petrol and send shockwaves through the economy. His comments were the most stark to be expressed by an industry executive and come just days after the oil price registered its largest-ever single-day spike, hitting $139.12 per barrel last week amid fears that the world's faltering supply will be unable to keep up with demand.
Mr Miller's prediction is well beyond even the most heady market forecasts, the most extreme of which fall between $150 and $200 per barrel, and was explained only by vague references to demand from the developing world. It nonetheless stoked an already febrile atmosphere of growing public anger across Europe over a soaring fuel cost that is wreaking havoc at nearly every level of the economy.
The British Government was urging motorists yesterday not to panic-buy petrol in anticipation of a strike on Friday by lorry drivers who deliver petrol to forecourts for Royal Dutch Shell, assuring motorists that contingency plans would ensure sufficient supplies.
In Spain, the regional government of Catalonia enacted an emergency action plan to bring in fresh food and fuel supplies after nearly half of its forecourts ran dry and supermarkets shelves were left bare. The situation was the result of the second day of an "indefinite" nationwide strike staged by lorry drivers in Spain seeking their government's help to contain the effects of expensive petrol. Scattered protests by drivers and fisherman in France and Portugal also continued yesterday.
In a speech to the European Business Congress in Deauville, France, Mr Miller offered little prospect of relief. He warned that the world was experiencing a fundamental shift in energy prices that will end at a "radically new level. We expect that the oil price will approach $250 per barrel in the foreseeable future".
Philip Shaw, an economist at Investec Securities, warned that oil at that level would exert an extraordinary drag on the economy at a time when it is already decelerating at a rapid rate. "The word is ouch," he said. "Forecasts are forecasts though, and I think it should be treated with some level of scepticism."
The most visible result of $250 oil would be at the petrol pump, which is already at a record 116.9 pence per litre for unleaded. Because more than half of that price, about 68p, is due to duty and taxes, the general rule of thumb is that each $2 increase for oil means a 1p increase of petrol at the pump. Oil at $250 a barrel would mean an increase of almost 60p in petrol prices, even before VAT.
The price of everything from food to energy would see significant price rises. Household electricity and gas bills are particularly vulnerable. Power companies have begun warning of a second round of major tariff increases for household bills this year that they say they will need to push through just to break even.
Mr Miller placed some of the blame on financial speculators for oil's price rise – it has more than doubled in the past year – but said that the primary reason is simple supply and demand, driven by the rapidly expanding countries of the developing world, principally China and India.
It is a view shared by the International Energy Agency. In its monthly oil report, the developed world's energy watchdog said yesterday that the "abnormally high prices [for oil] are largely explained by fundamentals". But whether the price of oil will reach $250 is uncertain at best. Most expect it to reach a breaking point before that figure. The IEA said that the high price would eventually "choke off" demand and a balance between supply and demand would return. [ Hermit : This misses how fundamental cheap energy is to most aspects of life, including or especially in the USA. The demand elasticity is extremely low without major structural changes - and the threat of this - without a massive realignment of how we do economics - is likely to lead to 20 years of massive recession and depression at just the moment when we ought to be attempting to transition to a fossil fuel free life style. As I have observed before, and we don't do this while we have fossil fuel, we won't do it at all. And that will condemn at least 5/6 of the current global population to an early death.]
What is certain is that for Europe, Mr Miller's role will become increasingly important as head of the continent's single biggest gas supplier. He also warned against "protectionist tendencies" in Europe, where worries have grown that the company is being used as a blunt negotiating tool of the Kremlin. "The relationship between Gazprom and Europeans is one of mutual dependence. We rely as much on European consumers as they depend on us," he said.
"In all frankness, I am concerned about certain protectionist tendencies resurfacing in the EU ... How wise it is that the European Commission invents an 'anti-Gazprom clause' to keep investments which are so needed for more efficient satisfaction of raising demand."
With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. - Steven Weinberg, 1999
Re:The Geopolitics of $130 Oil
« Reply #5 on: 2008-06-20 21:51:17 »
Will More Drilling Mean Cheaper Gas?
[ Hermit : To underscore what I said about US oil earlier, here is Time's take on the issue. ]
Source: Time Authors: Bryan Walsh Dated: 2008-06-18
On Wednesday morning President George W. Bush urged Congress to overturn a 26-year ban on offshore oil drilling in the U.S. and open a part of the Arctic National Wildlife Refuge (ANWR) to petroleum exploration. Flanked by the secretaries of Energy and the Interior, Bush also proposed streamlining the construction process for new oil refineries, and explained that these moves would "take pressure off gas prices over time by expanding the amount of American-made oil and gasoline." Coming a day after Republican presumptive presidential nominee John McCain made a similar appeal to enhance domestic oil exploration, Bush was sending an unsubtle election-year message to the American public: I care about the economic toll of $4-a-gallon gas, and Democrats in Congress, who have opposed such an expansion, don't.
But there's a flaw in that logic [ Hermit : Or rather, as I showed above, a whole fleet of problems ] : even if tomorrow we opened up every square mile of the outer continental shelf to offshore rigs, even if we drilled the entire state of Alaska and pulled new refineries out of thin air, the impact on gas prices would be minimal and delayed at best. A 2004 study by the government's Energy Information Administration (EIA) found that drilling in ANWR would trim the price of gas by 3.5 cents a gallon by 2027. (If oil prices continue to skyrocket, the savings would be greater, but not by much.) Opening up offshore areas to oil exploration — currently all coastal areas save a section of the Gulf of Mexico are off-limits, thanks to a congressional ban enacted in 1982 and supplemented by an executive order from the first President Bush — might cut the price of gas by 3 to 4 cents a gallon at most, according to the Natural Resources Defense Council. And the relief at the pump, such as it is, wouldn't be immediate — it would take several years, at least, for the oil to begin to flow, which is time enough for increased demand from China, India and the rest of the world to outpace those relatively meager savings. "Right now the price of oil is set on the global market," says Kevin Lindemer, executive managing director of the energy markets group for the research firm Global Insight. President Bush's move "would not have an impact."
The reason is simple: the U.S. has an estimated 3% of global petroleum reserves but consumes 24% of the world's oil. Offshore territories and public lands like ANWR that don't allow drilling may contain up to 75 billion barrels of oil, according to the EIA. That may sound like a lot, but it's not enough to make a significant difference in a world where global oil demand is expected to rise 30% by 2030, to nearly 120 million barrels a day. At best, greatly expanding domestic drilling might eventually lower the proportion of oil the U.S. imports — currently about 60% of its total supply — but petroleum is a global commodity, and the world market would soak up any additional American production. "This is a drop in the bucket," says Gernot Wagner, an economist with the Environmental Defense Fund.
Still, with Americans hurting at the pump, it may be difficult for environmentalists and other opponents of increased domestic drilling to resist the push for more oil, whatever the cost. As recently as his 2000 presidential run, McCain had been against offshore drilling, but he changed that position Tuesday, arguing that individual states should decide for themselves. (He remains against drilling ANWR, however, pointing out that "we called it a 'refuge' for a reason.' ") The Republican Governor of Florida, Charlie Crist — considered a possible vice-presidential candidate — also flip-flopped, backing McCain's position. Though Democratic Senator Barack Obama and most of his party are against the proposed expansion, McCain and his supporters may have the public on their side: a recent Gallup poll found that 57% of Americans believe we should open up new territories to drilling. "It could help in the long term," says Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University. Still, he acknowledges that even expanded drilling is unlikely to bring prices down much.
Though offshore drilling conjures up fears of catastrophic spills, the petroleum industry rightly argues that safety measures have improved considerably in recent years. A 2003 report by the National Research Council found that only 1% of the oil that polluted U.S. waters came from petroleum operations, like the offshore drilling platforms that run in the Gulf of Mexico — which also weathered Hurricane Katrina without massive spills. If it can be done in an environmentally friendly fashion — and with oil companies themselves footing the bill — opening up some new territory to drilling might be worth it. The reality is that our economy will run on petroleum for the foreseeable future, and that while investing in alternatives is the only way to secure truly low-cost energy over the long term, we'll still need oil for decades more. But any attempt to increase supply must be coupled with even heavier investment in energy efficiency and other methods to decrease oil demand — an approach that, to his credit, McCain has said will be a key part of his energy policy (although in the Senate he has skipped or voted against every fuel efficiency bill since 1990, according to the League of Conservation Voters). In any case, Bush's plan is unlikely to be realized — the Democratic-controlled Congress remains against it, and Bush can't open up the new territory on his own.
Even as Democrats and Republicans squabble over a relatively small amount of petroleum, we're missing out on the opportunity to truly break our addiction to crude. This week the Senate again failed to renew the tax credit for renewable energies like solar and wind; the credit, which expires at the end of the year, is key to the healthy growth of low-carbon alternatives. Without it, "the industry will simply stop," says Santiago Seage, CEO of the Spanish company Abengoa Solar. With energy demand skyrocketing, we'll need more oil, and alternatives like solar, and demand-side measures like toughened auto fuel efficiency standards or tax incentives for Americans to purchase less wasteful cars. We'll have to include action on global warming, like the recently defeated Warner-Lieberman carbon cap and trade bill. A study by the Massachusetts Institute of Technology found that under the bill, U.S. petroleum consumption would have dropped by nearly half by 2030 — savings far in excess of the amount of oil we could ever pull from Alaska or the coasts. "We can't drill our way out of this and we can't conserve our way out either," says Bullock. "We need both." Fair enough. But the sad truth is that neither drilling nor conservation will have an immediate effect on rising gas prices, even if they do have an immediate impact on the presidential race.
With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. - Steven Weinberg, 1999
Author
Logged
