David Seaton's Energy Links® Editorial - David Ricardo Haunts Paris Perhaps the most hopeful development of the West’s tortured 20th century was the creation of a stable, contented, working class with middle class expectations and life style. Through globalization, this social class is now in serious danger of pauperization. The French students with their proverbially wide-awake political consciousness and legendary irritability may be fighting the first skirmishes a class war “revival.”  

Paris based, American analyst, William Pfaff wrote in the International Herald Tribune, “David Ricardo's ‘iron law of wages,’ says that in conditions of wage competition and unlimited labor supply, wages will fall to just above subsistence.  There never before has been unlimited labor. There is now, thanks to globalization - and the process has only begun.” He goes onto say, “It seems to me that this European unrest signals a serious gap in political and corporate understanding of the human consequences of a capitalist model that considers labor a commodity and extends price competition for that commodity to the entire world. In the longer term, there may be more serious political implications in this than even France's politicized students suspect.”

Many American commentators have made the connection between the Hispanic immigrants demonstrating in the USA and the French students taking to the streets. Jim Hoagland wrote in the Washington Post, “A broad generational conflict over the allocation of resources is taking shape in many industrial nations as their working populations age. In the United States, the profligacy of galloping budget and trade deficits has convinced many younger workers that they will never have the kind of Social Security protection their parents enjoyed. It is time to forge global and generational social contracts to recognize and mitigate the inequities that a new world of change fosters. By raising their voices, France's young and America's migrants have called attention to that need.”

There are warning signs everywhere. It would be a grave mistake to think that populist Latin American politicians such as Evo Morales, Ollanta Umala and Hugo Chávez are merely the tropical fruits of political anthropology; rather they are the result of objective economic conditions and social inequalities. Historically Europeans have proven time and again that, under pressure, they are capable of following leaders that make Hugo Chávez seem like a Walt Disney character. The streets of Paris are once again the world’s political thermometer. If the questions the French young people are asking are not answered satisfactorily and if the western working-middle class continues to be weakened, then logically at the first serious downturn of the world economy, the dangers that this artificial social creation was designed to alleviate (Communism and Fascism) will return in full force. David Seaton

High costs threaten oil projects: Opec ministers - Financial Express - Bombay
High oil prices have helped to spur investment needed to calm world markets, but soaring project development costs could stifle production activity, Opec ministers warned on Friday. “Cost is a problem,” said Qatari energy minister Abdullah al-Attiyah. “Costs can sometimes kill the project.” “I am concerned about that. You see the contractors trying to increase the cost very dramatically. Costs may triple from estimate costs,” Attiyah told a conference in Paris. While US crude is trading at around $67, within sight of the record of $70.85 a barrel hit in August last year, other raw materials, including metals have also soared, driving up the price of projects in the oil industry. United Arab Emirates’ oil minister Mohammed bin Dhaen al-Hamli shared Attiyah’s concern. “Now there is an inherent risk,” he said. “Projects that used to cost $1 billion are costing $3 billion. “Now companies are not interested in bidding. You have to negotiate. You have to share the risk.” “People say Opec is a cartel but contracting companies have also turned into a cartel,” acting Opec Secretary-General Mohammed Sanusi Barkindo told the conference. Reuters Meanwhile, Opec’s acting secretary-general said that global oil markets are ‘very well-supplied’ and the Organisation of Petroleum Exporting Countries has about 2 million barrels of spare production capacity, Global demand is expected to increase by about 1.5 million barrels a day this year, with US demand rising by 300,000 barrels a day, the secretary general, Mohammed Barkindo, said on Friday in Paris, where he’s attending the seventh International Oil Summit. Opec produces about 40% of the world’s oil. ‘‘We are doing our best to keep production steady,’’ Mohamed bin Dhaen al-Hamli, the United Arab Emirates’ oil minister, said in Paris at the oil conference. The UAE is Opec’s fourth-largest oil producer. Oil’s high prices are not caused by lack of supply, Barkindo said. Nor are they curbing economic growth, he said. The price of oil in New York has closed above $67 a barrel for the past two days amid concern about supplies of gasoline in the US and tension over Iran’s nuclear research programme. Iran is unlikely to cut oil exports with prices at current levels, said Claude Mandil, the International Energy Agency’s executive director. Strategic stockpiles of oil and products would be released if supplies were disrupted, he said. Up to 400 million barrels of oil output has been lost in the aftermath of storms in the Gulf of Mexico last year that shut oil and natural gas production, the IEA said.
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Oil seen topping $80 a barrel - Reuters
Crude oil is set to rise above the $80 a barrel level in the next few months as output tails off, maintaining energy's role in a continuing commodity bull market, a hedge fund manager said on Wednesday. Benchmark U.S. light sweet crude oil futures for May delivery were around $66.33 by 2:12 p.m. Oil hit a record $70.85 a barrel in late August 2005. "In the next few months we will see oil above $80, as it has passed the peak of the production cycle," David Murrin, chief investment officer at UK-based Emergent Asset Management said at the Reuters Hedge Funds and Private Equity Summit on Wednesday. Although oil markets are well supplied, worries about Nigeria and fellow OPEC producer Iran, which is embroiled in a dispute with the international community over its nuclear programme, have prevented prices from falling far. Murrin said energy, like other major commodities, had much further to run in the current bull market. "They (commodities) are more and more in vogue. This cycle ... is 15 years away from the peak. The world is becoming over-populated and under-resourced," he said. Prices of many key commodities have soared during the last two years in a red-hot bull market fuelled by buying from systems-based, hedge and, most recently, pension funds. "Base metals are on fire at the moment, and softs will be next ... Watch sugar," Murrin said. On Wednesday, copper used in wiring and construction, traded at a record $5,685 a tonne, while zinc, utilised to galvanise steel panels to protect against corrosion, hit a record $2,801.50 a tonne. Soft commodities, by comparison, have lagged. In February, sugar prices hit 25-year highs of 19.30 cents a pound. However, prices at these levels are not expensive -- in 1979 sugar hit 45 cents, while in 1973 it was as high as 63 cents.
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Ecuador seeks bigger share of oil revenues - Seattle Post Intelligencer
Ecuador is prepared to do business with other foreign oil companies if petroleum firms balk at its efforts to renegotiate existing contracts to provide the country with a greater share of windfall revenues, the energy minister said Wednesday. "If there are companies that do not feel comfortable remaining in the country, we will have to look for alternatives," Energy Minister Ivan Rodriguez told a gathering of foreign correspondents. Ecuador's Congress last week passed the law giving the government 60 percent of profits whenever the international oil market exceeds the prices established in existing contracts. "There are other companies that are very interested in entering the oil sector," he said. "We cannot permit that someone from abroad imposes rules of the game on us over national riches." He said that firms from Colombia, India and China have shown keen interest, and that Ecuador has spoken in recent days with Russian companies that are "desperate to enter the country." Brazilian state-run oil company Petroleo Brasileiro SA (PBR), also wants to increase its investment in the country, he added, as does Chilean state energy company Empresa Nacional de Petroleo SA (ENP.YY). Under the previous terms, the government received about 20 percent of profits, President Alfredo Palacio's government has said. Palacio has until the end of this week to sign the proposal into law or veto parts or all of it. Foreign companies such as U.S.-based Occidental Petroleum Company have said the new oil law is a "heavy blow" that could lead them to reconsider investment plans. Ecuadorean Finance Minister Diego Borja said in Brazil on Wednesday dismissed claims that the new law would drive away investors. "The government will earn an additional $600 million (490 million euros) each year," Borja told Dow Jones Newswires Tuesday on the sidelines of the annual meeting of the Inter-American Development Bank. Borja said the windfall tax will still give companies a 60 to 70 percent return on oil operations in Ecuador, down from 120 percent before. "Which other legal business in the world gives you such a return?" Borja asked. "Oil remains a very good investment in Ecuador." Borja said current operating contracts were drafted when oil prices stood at $15 a barrel and don't take into account the reality of current high oil prices. On Tuesday, light sweet crude traded in New York at $66.70 per barrel. Still, some analysts said the measure may chase off investment. "This measure drives oil companies away. They will look for more profitable exploration locations," said Luiz Broad, an oil analyst with the Agora Senior brokerage in Rio de Janeiro.
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Venezuela Oil Field Seizures Cause Jitters - Washington Post
Venezuela has seized control of oil fields from France's Total SA and Italy's Eni SPA in a show of force against those resisting President Hugo Chavez's efforts to pry more profits from the industry at a time of high oil prices. The move signals that Chavez's government is ready to send top oil companies packing unless they play by Caracas' new rules, but experts say the tactic could backfire by spooking partners Venezuela needs to develop potentially some of the world's largest untapped reserves. Oil Minister Rafael Ramirez announced Monday that state oil company Petroleos de Venezuela SA, or PDVSA, had taken control of Total's Jusepin field and Eni's Dacion field, which together produced 115,000 barrels a day, after the two companies refused to turn operations over to state-controlled joint ventures. In challenging the government, they join Exxon Mobil Corp., which earlier sold off its stake in the 15,000-barrel-a-day Quiamare-La Ceiba field rather than submit to tightened terms. The three dissenters are among the world's six largest oil companies by market capitalization. Ramirez was resolute Monday. "We're not going to trample over anybody but we can't accept being trampled on either," he said. "Companies that don't adjust to our laws, we don't want them to continue in the country." The seized properties were among 32 oil fields the government has reclaimed from private companies by voiding their oil-pumping contracts and replacing them with so-called "mixed companies" that give PDVSA a 60 percent to 80 percent stake and sharply raise royalties and taxes, among other measures. "It's sent a very negative sign," said Juan Carlos Sosa Azpurua, president of Grupo Petroleo YV, a Caracas-based energy consultant. Patrick Esteruelas, analyst at the Washington-based Eurasia Group, said in a report distributed Monday that Venezuela was taking a risk playing hardball with the oil majors as "a decline in oil prices and/or the emergence of new opportunities elsewhere could force current players to reassess." Companies representing 25 fields, including Chevron Corp. and Royal Dutch Shell PLC, have signed onto the joint ventures. Four other companies, including Spanish-Argentine Repsol YPF and Japan's Teikoku Oil Co., chose to voluntarily return five fields to PDVSA, though they retained stakes in other more profitable fields. Norway's Statoil sold PDVSA its stake in one field rather than agree to a joint venture. Venezuela has been emboldened by rising oil prices, political instability in the Mideast and Nigeria, and new buyers in Asia. But Sosa warned Venezuela may lose on its gamble: "At the end of the day, it's harmful. There will be no more additional investments." The impact on future investment could prove critical at a time when Venezuela is seeking to develop its vast reserves in the Orinoco tar belt. The region is estimated to hold an estimated 236 billion barrels of extra-heavy oil and tar-like bitumen, which if certified and proved commercially viable, would make Venezuela home to the world's largest crude oil reserves. But developing those deposits requires Big Oil's expertise and technology. Notably, Exxon Mobil, Total and Statoil are among those with investments upgrading about 330,000 barrels a day of heavy oil in the Orinoco region to lighter, more marketable crudes. Having suddenly changed the rules of the game, Venezuela will find it difficult to get such companies to commit to future investments, Sosa said. "It's not as simple as peeling mandarins. It's not so easy," Sosa said.
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