David Seaton's Energy Links®

"The Stone Age came to an end not for a lack of stones and the oil age will end, but not for a lack of oil.'' 

Sheikh Ahmed Zaki Yamani
 

Table of Contents
Editorial
*China's thirst for oil rattles old order - Seattle Post-Intelligencer
*Crude oil leaps on revived geopolitical fears - Press Trust of India
 *G-8 Draft Statement Says Oil Costs, Imbalances Threaten Growth - Bloomberg
*Mexican oil industry threatened - Chicago Tribune
*Hostage taking hitting Nigerian oil industry operations - Market Watch
*Analysis: C. Africa oil production down - United Press International

David Seaton's Energy Links® Editorial - The Iranian Puzzle What is really going on in Iran? Taking the package of proposals that UK, China, France, Germany, Russia and the US offered to Iran Javier Solana went to Tehran and was given a warm welcome. Only two days before Supreme Ayatollah, Ali Khamenei of Iran had given a widely reported speech threatening western oil supplies. Although hardly quoted in the western press, in the same speech Khamenei also said, “All those people who have acted as middlemen to repeat America's words to us, under the American pressure and out of courtesy, have told us in secret that they do not think the same way.”

The White House spokesman, Tony Snow, quoted by the New York Times said he would "counsel patience" in waiting for an Iranian response to the proposals. Many could think that the USA's promising direct negotiations is a face saving move for Iran to make their retreat easier, but it could easily be the opposite: the US could be buying time as it struggles in an increasingly impossible situation in Iraq, where, as Solana said in Sitges, Iran holds the “winning card”, while Bush, facing disaster in November’s elections, has to please the Israeli lobby which has been pushing for a violent Iranian “regime change”. Possible answer: kick the ball into touch.

A former Indian career diplomat and political analyst for the Asia Times of Hong Kong, MK Bhadrakumar, wrote, “the Bush administration's own track record has been one of allowing the Israeli government and the pro-Israel groups in the United States to shape US policy toward Iraq, Syria and Iran” Bhadrakumar goes on to say, “It is inconceivable that Bush has chosen the weakest point in his political standing at home to take on the lobby frontally.”

Perhaps America’s finest political columnist, William Pfaff, wrote in his blog, “There are two possible interpretations of this American policy change. The first is that it is genuine and could succeed. The second is that it is expected or even intended to fail, and in failure to win the support of the Europeans and others for sanctions against Iran, and for a possible eventual attack. There are, however, European reports that the Israelis, who are better informed than anyone else on Iran’s preparations to retaliate against a possible American or American-Israeli attack, are not anxious for this military confrontation. They say it ‘would be no pleasure party for anyone.’ ” Of all the "players", in the "Iran game" the only one in a truly desperate position is Bush. He is staring the most total type of failure as president straight in the face. In such a position even the humblest of men can be dangerous. However, Bush is still the most powerful man on earth.   David Seaton

David Seaton's Energy Links®

China's thirst for oil rattles old order - Seattle Post-Intelligencer
China's surging appetite for energy is engraved in the landscape of this gritty port city: waterfront piles of coal, gas pipes snaking along grimy roads, and tankers anchored amid islands where pirates once lurked. Zhenhai is at the heart of a global energy revolution. As China's leading oil receiving center, the city provides this nation of 1.3 billion people with hundreds of thousands of barrels of crude per day to feed its galloping economy. The shifting pattern of energy consumption is rattling Washington and aggravating an already intense rivalry with neighboring Japan over access to oil and gas supplies, adding to tensions in an already volatile region. "The global demand for oil has been rising faster than supply because there's new economies that are beginning to gin up, new economies growing, like China and India," President Bush said recently. "Oil - the dependence upon oil is a national security problem, and an economic security problem," Bush said. China is acutely aware of the security implications of its growing dependence on imported oil. For more than a decade, its three large state-owned companies have been scouring the globe, from Iran to Angola, to secure supplies. In the past six months alone, China has signed deals totaling more than $7 billion for stakes in oil and gas fields in Kazakhstan, Nigeria and Syria. A state-controlled company is reportedly considering a $2 billion bid for yet another Kazakh property. The worldwide buying spree helped net at least 3.5 million barrels per day of imported oil last year - enough to make China the world's third-leading consumer of foreign oil. Chinese demand is forecast to more than double by 2025, to 14.2 million barrels a day from the current 7 million a day, according to the U.S. government's Energy Information Agency. Although China's imports still only constitute about one-sixth of total world oil trade - compared to 30 percent for the United States - it is already the world's second largest oil consumer. China's increasingly pivotal role as global manufacturer of practically everything has ensured demand will continue to grow. The worry in Washington, Tokyo and other major oil importing centers is that competition is helping push prices to potentially destabilizing levels, and raising the risks of conflict over dwindling resources. China has sought to diversify its energy sources, clinching exploration and production deals in Africa and Latin America to limit its dependence on Middle Eastern oil. It too recognizes the huge economic stakes for all sides. However, those deals also have raised worries. Earlier this year, the Bush administration published a revised National Security Strategy that accused Chinese leaders of "acting as if they can somehow 'lock up' energy supplies around the world or seek to direct markets rather than opening them up." U.S. and other Western oil companies discovered during the oil crises of the 1970s show how vulnerable such deals can be, but "There is considerable rhetoric in some high places that China's trying to monopolize or control world energy resources," says William Overholt, director of the Center for Asia Pacific Policy at RAND Corp. in Santa Monica, Calif. A more broadly shared concern, he says, is that just as U.S. oil needs have helped keep dictatorships in power in the past, "China is buying into oil in places where those purchases support abusive regimes" such as Sudan and Iran, undermining U.S. diplomacy in other areas such as nuclear nonproliferation. While many agree with Overholt's characterizations of China's oil allies, critics point out that Saudi Arabia - whose oil fields were developed by U.S. companies and which has been the anchor of Washington's foreign oil strategy for more than three decades - is also not a democratic society. For China, ensuring future supplies is top priority as it fuels annual economic growth rates of about 10 percent. China still gets more than two-thirds of its energy from coal, and roughly half of its oil supply is from domestic sources - 3.4 million barrels a day in 2005. But veteran fields are beginning to falter and motor vehicle use is surging. "Oil imports are bound to play a very important role in China's future development," said Dong Xiucheng, a professor at the China University of Petroleum. Much of that oil will arrive through Zhenhai, a port city about 100 miles south of Shanghai and home to the country's first national petroleum reserve - as well as the country's biggest refinery. Tankers from the Middle East and Africa berth at busy oil terminals secreted in the nearby Zhoushan archipelago, a pirate hideout in centuries past. A pipeline under construction will connect offshore terminals to factories in the Shanghai region, the country's biggest commercial hub. Surging oil consumption by China, India and other emerging economies - on top of what is already being consumed by wealthy nations like the United States - has added urgency to the debate over future supplies. Some experts believe production will soon peak, and that looming shortages require a fast shift to alternatives. Others say the peak is at least several decades ahead: the U.S. Geological Survey reckons that only about one-third of the world's estimated 3 trillion barrels of recoverable oil has been consumed. China relies most heavily on the Middle East, which provides about 45 percent of its total oil imports, with Saudi Arabia accounting for about 17 percent. In late April, Chinese President Hu Jintao flew to the kingdom for talks with Saudi Aramco, the world's largest oil producer - the latest episode in a continuing Chinese effort to ensure access to Saudi Arabia's 9.5 million barrels per day of oil production. That visit, coming just after meetings between Hu and Bush in the United States, was closely monitored in Washington. China takes American concerns seriously and has worries of its own over its vulnerability to upheavals in global hotspots and to U.S. naval pressure in the Malacca Straits, the narrow Southeast Asian passage through which virtually all Middle Eastern and African oil moves on its way to East Asia. Though Beijing is building up its own navy, analysts say it would take decades - if ever - to match America's. With the naval option of limited value, China has tried to do the next best thing - reduce the amount of oil that reaches it via the Straits. "Gaining access to new routes is a very important strategy for China to ensure the security of its oil imports, aside from diversifying the countries supplying oil," said Dong, the Chinese Petroleum University professor. China is studying alternative routes for African and Middle Eastern oil, including a pipeline through Myanmar, a port project in Pakistan and possibly even building a shipping channel through Thailand. It is also laying pipelines to former Soviet countries. China recently opened a 625-mile link carrying 190,000 barrels a day of Kazakh oil, providing its first direct access to potentially rich central Asian fields. Construction has begun on an even bigger pipeline project that when completed in 2010 will move up to 1.6 million barrels per day of crude from Russia's Irkutsk region to its Pacific coast, with a branch line running into northeastern China. Japan prevailed in persuading Moscow to route the main pipeline to the Pacific, rather than into China, providing low-interest loans to pay much of the more than $10 billion cost. China and Japan are also facing off over potentially rich gas resources in the East China Sea, with no signs of an early resolution. The high stakes of energy rivalry are highlighted in a Chinese online book, "The Battle in Protecting Key Oil Routes." The anonymously authored book is set in a future where oil costs $100 a barrel. It begins with U.S.-Japan naval exercises focused on the Malacca Straits that trigger a real battle between China and the United States when a U.S.-fired missile goes astray. The still incomplete book has drawn little attention, but it does reflect growing awareness of the potential for energy competition to get out of hand. Given the risks, Washington should step up energy cooperation with China, says Sen. Joseph Lieberman of Connecticut - a Democrat regarded as a close security ally of President Bush. "These are two nations following similar international oil acquisition policies," he said. "If we let it go, this could end up in real military conflict, not just economic conflict."
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Crude oil leaps on revived geopolitical fears - Press Trust of India
Crude prices shot higher as concerns resurfaced over tensions in oil-producing nations Iran, Iraq and Nigeria, dealers said. New York's main contract, light sweet crude for delivery in July, rose $1.28 to close at $71.63 per barrel. In London, Brent North Sea crude for July delivery rallied $1.43 to $70.48 per barrel in closing deals on Friday. The market reversed the losses from Thursday after news of the killing of Al-Qaeda's chief in Iraq, Abu Musab al-Zarqawi, as serious worries remained over the volatile situation there, analysts said. "The end of Zarqawi will not be the end of threats to oil," said Mike Fitzpatrick, analyst at Fimat USA. Yesterday, Iraqi oil sector employees came under assault as insurgents killed five people, including three oil engineers, security officials said. "We still feel that the death of Al-Qaeda's leader will not provide a solution to a country that is not only fighting insurgents, but its own people," said Sucden analyst Sam Tilley. Owing to persistent violence and sabotage, Iraq struggles to produce around 2.0 million barrels of oil per day, which is below the 2.5 million it produced before the US-led invasion of the country in March 2003. "News that Iran has launched a fresh programme of uranium enrichment this week - just as the West has offered it incentives to stop - has also supported the market," Tilley added.
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G-8 Draft Statement Says Oil Costs, Imbalances Threaten Growth - Bloomberg
High energy prices and widening global imbalances remain threats to world economic growth that is becoming ``more broadly based,'' Group of Eight finance ministers said in the draft of a statement to be published after a meeting in St. Petersburg today. ``Global growth remains strong and is gradually becoming more broadly based,'' the ministers said in the draft document. ``However, downside risks from high and volatile energy prices and widening global imbalances remain.'' The ministers said ``global economic adjustment is a shared responsibility,'' restating their ``commitment to address global imbalances'' such as the $805 billion U.S. current account deficit and burgeoning trade surpluses in oil producing nations and China. Nations should increase investments in the energy sector, improve energy efficiency and enhance energy market data, they said. The draft statement falls short of the group's pledge for ``vigorous'' action in their communiqué after a meeting in Washington two months ago. The group then also urged the U.S. government to promote national saving, Europe to liberalize markets and boost domestic demand and advised Asian governments to make exchange rates more flexible. In a separate statement on energy for developing nations, the ministers agreed to ``take steps to alleviate energy poverty'' as a lack of access to energy threatens the achievement of United Nations' Millennium Development Goals. ``We will explore opportunities to intensify our aid efforts to alleviate energy poverty and encourage bilateral and multilateral donors to scale up their assistance in this area,'' the draft statement on energy said.
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Mexican oil industry threatened - Chicago Tribune
The cocoa farmers still lie awake at night, deathly afraid of an explosion like the one that turned the sky into a fiery hell and killed eight people in this village last July. But even here, months later, the nightmares haven't changed people's attitude about who should control Petroleos Mexicanos, or Pemex, the national oil monopoly whose natural-gas pipeline sprang a leak that was ignited into the inferno. ``Here oil `belongs to the people,' quote unquote,'' said Amanda Sánchez Martínez, the mayor. The mantra recited by Sánchez is one of the obstacles limiting badly needed reform in Mexico's oil industry, part of the unfinished business of President Vicente Fox and a major challenge for the presidential candidates seeking to succeed him this year. Analysts predict that Mexico's oil reserves, second only to Canada's in filling up U.S. gasoline tanks, could dry up within a dozen years. Meanwhile, Pemex lacks sufficient money to repair antiquated pipelines and explore for more deep-sea deposits. One solution would be outside investment. But almost all Mexicans oppose loosening their constitution to allow private or foreign interests to break the government monopoly and hold a stake in the nation's oil. Though he tried, Fox was frustrated in his reform efforts. His attempts at tweaking the constitution to allow equity investments in gas and secondary oil operations were barely considered by Congress. Many Mexicans argue that there are other ways to save Pemex. First, many say, the company should clean up its notorious corruption and waste. During the 71-year rule of the Institutional Revolutionary Party, or PRI, which Fox ended in 2000, Pemex funds were siphoned off for political campaigns. Powerful union workers still enjoy luxurious benefits. And officials say nearly every operation is vulnerable to fraud and kickbacks. On top of that, the government takes most Pemex profits to cover a third of the federal budget for schools and other public services. Last year, Fox and Congress lowered the amount by about $2 billion a year, but analysts say more relief is needed. Despite today's high oil prices, Pemex remains the world's most indebted oil company, in hock by as much as $85 billion. While producing 3.4 million barrels of oil a day, it imports gasoline because it lacks refineries. ``Petroleum is a cultural problem in this country,'' said Lorena Beauregard de los Santos, a former PRI congresswoman in oil-rich Tabasco state.
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Hostage taking hitting Nigerian oil industry operations - Market Watch
Niger Delta militant activity, including the hostage taking of oil workers, is having a negative impact on operations in Nigeria's oil industry, a senior government official said Friday. "The hostage situation is having an impact on operations," said Tony Chukwueke, the director of Nigeria's Department of Petroleum Resources. However, Chukwueke said this shouldn't scare investors from the oil industry because the government and operators are seeking ways to end the crisis. Chukwueke was answering a question by Dow Jones Newswires on his earlier statement at the start of an oil industry event, when he said the level of crude oil production shut-in by Nigeria was "over 800,000 barrels per day." When reminded that previous reports had put the level of shut-in at just over 500,000 b/d, Chukwueke retracted what he had said earlier and added "the level is still about that (500,000 b/d)," but said the spate of hostage-taking in the region was raising concerns for the government. "The situation in the Niger Delta is one that is sobering us all," Chukwueke said. Chukwueke said Nigeria was filling the gap created by the shut-in with production from the Bonga field, operated by Shell Nigeria Exploration and Production Company, the deepwater subsidiary of Shell Petroleum Development Company of Nigeria Ltd., a unit of Royal Dutch Shell PLC (RDSA). Bonga is currently producing about 220,000 b/d. Government officials have given various figures on the level of crude oil production shut-in by Nigeria as a result of attacks on facilities and personnel by the region's militants, who are fighting for local control over the oil resources. Chukwueke said the Nigerian government was taking the crisis in the Niger Delta seriously. "The security services are focused on it. The operators are focused on it, and with goodwill, the solution will come," he said.
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Analysis: C. Africa oil production down - United Press International
Oil production in Central African countries is expected to drop by 15 percent in the next three years, the Bank of Central African States said in a recent report. Production levels in five of the six nations in the Central African Economic and Monetary Community, or CEMAC, will drop from 59.3 million tons this year to 50.6 million tons in 2009, the bank said, adding that the decline was due to an "'absence of any new discoveries."' Five CEMAC nations -- Cameroon, Chad, Congo Republic, Equatorial Guinea and Gabon -- are oil exporters. Only the Central African Republic does not produce oil. Equatorial Guinea, the lead producer in CEMAC, is expected to experience a production decline from 18.6 million tons this year to 16.2 million tons in 2009. Gabon, whose economy would be hardest hit by the decline, according to experts, could experience a 27 percent reduction in production in the next three years, falling to just under 10 million tons in 2009. Chad is the only country expected to increase production in the coming years, said the bank report, with levels increasing to 8.6 million tons in 2007. Levels then are forecasted to level off at 7.7 million tons by 2009. The central bank`s and International Monetary Fund`s economic forecast for the region predicts that CEMAC oil producers will also experience a strain on central bank and state coffers amid the production decline, despite a constant near-record global price per barrel. As a result, growth for CEMAC nations is expected to average some 2.5 percent per year until 2010. Such minimal gains would signal a need to slash state budgets and would hamper poverty reduction efforts in those countries in the coming years. A minimum of 7 percent gross domestic product per year is needed in that region for efficacy of poverty programs there. While each of the five producers will handle its own production declines separately, all the CEMAC nations, including the Central African Republic, will feel the sting of less oil output. The nations share a common currency and rely on the revenue in their central bank located in Cameroon, Anna-Marie Gulde-Wolf, an IMF economic adviser specializing in Africa, told United Press International. "'A big part of what is going to happen is linked to fiscal policy [in CEMAC],"' she said. "'Our recommendation is to have a fairly rapid adjustment ... by cutting the budget [in CEMAC nations] in the next three or four years."' Belt-tightening will likely come at the expense of some social spending in the coming years, she noted, though the impact will unlikely be disastrous. "'I don`t think there will be any crisis ... this is something that can be adjusted [to],"' she said. Cameroon will mostly likely weather the decline better than other CEMAC producers, said Gulde-Wolf, as the country has the most diversified economy of any of the other countries in the region. In addition to oil, Cameroon exports cocoa, coffee, other mineral resources and boasts an emerging manufacturing and agricultural sectors. Gabon, on the other hand, would be hit the hardest by the decline. The nation doesn`t have an economic sector as diversified as Cameroon, though may draw on a line of IMF credit during lean production years. The decline in CEMAC production levels, meanwhile, should not bode poorly for prices at U.S. pumps, said John Kilduff, senior vice president of the energy risk management group at Fimat USA Inc. "'It`s sort of a mixed bag ...obviously we [the United States] are in position where we need more crude oil, but when we look to the future those nations aren`t on our concern list,"' Kilduff told UPI. He noted that the United States doesn`t buy much of its oil from CEMAC nations. For example, Chad produces an estimated 84,000 bpd destined for U.S. shores. He also speculated that increased production in Nigeria and Libya in the coming months and years would offset any CEMAC oil declines. "'Still,"' he cautioned, "'any time we see these declining production levels, it's disturbing."'
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