David Seaton's Energy Links® Editorial - What it’s worth to be worth a Potosí In Spanish to describe something valuable we say that it is “worth a Potosí,” in reference to Bolivia’s legendary colonial silver mines. Nowadays the World Health Organization estimates that 10 per cent of the population of San Luis Potosí suffers from acute malnutrition. …Maybe better not to be a Potosí?
In the year 2000 the World Bank put Bolivian per capita income at $1,110 a year in 134^th place in the world table. The poorest country bordering Bolivia, Peru has more than double Bolivia’s per capita income. The CIA’s World Fact Book gives average Bolivian life expectancy as 65.84 years which compares favorably with Haiti’s 53.23 years, but not so well with the Madre Patria’s 79.65 years.  According to the American NGO, “Save the Children”, with a current population of 8.3 million, an estimated 3.3 million Bolivians do not have enough food on a regular basis. Bolivia has an infant mortality rate of 67 per 1000. The maternal mortality rate is 390/100,000; Moreover, 27% of children under the age of 5 suffer chronic malnutrition. UNICEF estimates that 28% of under-five child deaths are from malnutrition. According to another American NGO, International Family Planning Perspectives, children under age five account for half of all deaths in Bolivia, with diarrhea the main cause. Tim Miller, a demographer of the University of California, Berkeley, calculates that 40% of Bolivian children could be classified as “stunted” by height-for-age data.  National statistics show that only 38% of children finish 8th grade.
Bolivia has the second largest deposits of natural gas in Latin America and the price of gas has risen dramatically since former Bolivian president Sánchez Lozada lowered the taxes to be paid by the foreign multinationals to18% and signed 40 year contracts with them. William Powers writing in the New York Times says that Morales has a strong legal argument that the privatization that took place in the mid-1990s was unconstitutional. Evo Morales has nationalized the gas with the intention of raising the taxes paid by the foreign multinationals to 82%. This may seem alarming but even the British, the world’s fourth richest country have recently raised the taxes on their North Sea energy by 10% up to 50%.
The multinationals are unhappy and threaten to invest less in Bolivia, but really the question that Morales asks them is this: what have the Bolivian Indians ever received from Bolivia's wealth? How much of "foreign investment" have they ever seen? Would the average Bolivian Indian even notice if Petrobras and Repsol disappeared? Is the average Bolivian Indian better off with "zero point nothing" of huge foreign energy projects or would he benefit more from 82% of something much, smaller? David Seaton

Oil companies likely to resist Venezuela shift - Reuters
International oil companies operating four Venezuelan synthetic crude projects are likely to challenge proposed government contract changes that would cost them billions of dollars in profits, analysts said. Venezuelan President Hugo Chavez is moving to boost royalties and taxes paid to the government and give state oil company PDVSA a majority stake in the deals as part of a sweeping "re-nationalization" of the energy sector. But companies that invested billions in the joint ventures with PDVSA, including U.S. Exxon Mobil Corp. , ConocoPhillips Chevron Corp. , and France's Total SA , will not part easily with these massive investments, experts said. "There's billions of dollars invested in these projects and if they try to use strong-arm tactics, there will be lawsuits," said a Caracas industry source familiar with oil policy who asked not to be named. Chavez says oil deals signed with energy companies before he first won office in 1998 are "robbing" Venezuela by offering access to reserves under preferential terms. He has vowed to make the companies sign new deals under a nationalistic hydrocarbons law he passed in 2001. The left-wing leader last year ordered companies operating 32 small marginal oil fields in Venezuela to shift them to mixed-company joint ventures with PDVSA allowed by the new law and hiked royalty and tax payments. While most oil companies accepted that change, analysts say the scale of investments in the four multibillion-dollar syncrude projects means the companies will put up more of a fight. Combined, the four projects pump around 620,000 barrels per day (bpd) of crude in the OPEC nation. If the projects are migrated to terms similar to those offered to the marginal field partnerships -- including a 60 percent stake for PDVSA -- the loss of future earnings could be substantial. According to Deutsche Bank, ConocoPhillips could lose $4.5 billion, Total $3.3 billion, Chevron $1.5 billion, and Exxon $1 billion based on the present value of estimated future earnings of the projects. "It's going to be interesting to see what they do. The mixed companies are one thing but this is a different story because the values are so much larger," said Ryan Todd of Deutsche Bank. Fitch on Thursday downgraded the debt ratings on the four projects, which upgrade extra heavy oil from Venezuela's vast Orinoco region into lighter, refinable synthetic crude, after the government announced the proposed terms shift. In addition to the mandatory majority stake for PDVSA, the changes increase the income tax on the projects from 34 percent to 50 percent, boost royalty payments to 33.3 percent from 16.6 percent, as well as levying a new 0.1 percent export tax. While the contract changes sting their bottom line, analysts said oil companies are facing similar changes all over the globe as high energy prices embolden producing nations to modify terms. "It's a question of how does it fit your risk profile and business plan whether you accept it or go somewhere else?" said Sarah Emerson of Energy Security Analysis Inc.
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Consumers feeling high cost of crude oil - Yomiuri Shimbun
Consumers have begun to feel the effects of rising crude oil prices, with the price of regular gasoline hitting its highest level in 15 years and the transportation industry raising prices. The nation's average price for regular gasoline reached 134.9 yen per liter on May 1 for the first time since the Gulf War. Although some have expressed hopes of crude oil import prices falling due to the strengthening yen, most in the oil industry predict the price of petroleum products will remain high for a longer period of time than during the Gulf War. The prediction has driven industries consuming gasoline and light and heavy oil to raise prices. The national average price of regular gasoline rose by 11.1 yen per liter in the past year. To save money, some customers buy gasoline 10 liters at a time or choose not to have their vehicles washed at gas stations. The rise in the price of crude oil also has led to higher jet fuel costs for the airline industry. In March, Japan Airlines and All Nippon Airways applied for a special fuel surcharge for international flight rates. Currently the companies charge an additional 2,700 yen for a Narita-Beijing flight, but the newest surcharge would add 400 yen to the surcharge for tickets issued from June 1. One out of four truck companies has included the rise in diesel costs in its fees, despite having been pressured by clients to lower rates. According to a survey by the Japan Trucking Association in February and March, more companies raised their rates in April. It also said some companies have become reluctant to accept long-distance contracts due to low profitability. Material manufacturers face a similar trend. Due to a price surge in materials, such as resin and fuel, Toto Ltd. will raise the price of sanitary ware by an average of 6 percent and tiles by an average of 4 percent from July 1. Faced with the high price of heavy diesel oil (class A), which is used to run boats, the National Federation of Fisheries Cooperative Association urges fishermen to save fuel by pointing out that fuel use by a small fishing boat can be cut by 9 percent by reducing speed by one knot. "Some fishermen, mostly those for seasonal skipjack, refrain from going out on the water because it's not profitable," the association said. Amid soaring crude oil prices, accidents at domestic oil refineries have added to the cause of the high price of petroleum products, said Toshinori Ito, a senior analyst at UBS Investment Bank. Ito predicts regular gasoline prices to rise further by 1 yen to 2 yen per liter. "The industry is under pressure to directly pass the rise in crude oil price on to gasoline prices. Therefore, I don't think the price of regular gasoline would reach 140 yen level per liter. Rather the impact of the rising price of industrial-use fuel, such as heavy oil A, is spreading," Ito said. Some major appliance makers have suspended sales of kerosene heaters. "If the price of crude oil remains high for a long period of time, people will depend more on other fuel," Ito said. The price of regular gasoline reached the current level in February 1991, at the peak of Gulf War. The gasoline price at the time surged by 17 yen per liter in two months from Aug. 27, 1990, when the Oil Information Center began taking weekly data. It surged to the peak at 142 yen per liter on Oct. 22. After eight weeks at the peak price, it gradually fell to the 135 yen per liter mark on Feb. 12, 1991, and to less than 130 yen in July of the same year. For the first time in about eight years, international airfare and airfreight charges for flights departing from Japan were raised by 5 percent in December 1990. Detergent makers began to shift their resources into producing and marketing detergents made mainly from agricultural products, such as palm oil. The latest rise in gasoline price has remained at 4.6 yen per liter for two months in the period up to May 1. However, the rise in oil prices has continued since the spring of 2004. In the past two years, it rose by 29 yen per liter, which, some suggest, is more serious than during the Gulf War. Meanwhile, the yen surged to 111 yen against the dollar, about 20 yen higher than the 130 yen-level during the Gulf War. "If the yen remains strong against the dollar, the impact of high crude oil prices on the Japanese economy will be limited," an analyst said.
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High price of oil alarms even OPEC - The Christian Science Monitor
Reasons for today's high oil prices are so numerous that levels above $60 per barrel seem almost inevitable: from rising global demand and new nationalism in Latin America to a tense standoff over Iran's nuclear program. Those issues are all real enough. But behind them all is a bigger factor, so obvious it almost passes notice: the OPEC cartel. Without the supply constraints imposed over many years by the Organization of Petroleum Exporting Countries, the price of oil today would be far lower, analysts say. "We live in a world where there's a functioning cartel in the oil market," says Amy Myers Jaffe, an energy expert at Rice University's Baker Institute for Public Policy in Houston. "If we had a functioning open market," she reckons, "the price of oil would be $15 [a barrel]." That's a rough estimate, based on current production costs in the Middle East and the price levels of not so long ago. Other experts might pick a higher figure. Still, the prevailing view among oil analysts is that prices have risen so much that oil-importers face an unusual level of uncertainty as they chart energy policies for the years ahead. Even OPEC is worried, they say. "OPEC is a strongly anticompetitive force. There's no question that they have withheld oil from the market," says James Smith, an oil and gas management expert at Southern Methodist University in Dallas. But "I think they're quite alarmed at $60 or $70." A too-high price poses two threats: It could tip a now-strong world economy toward slowdown or recession, and it could fuel a push by consuming nations to reduce their reliance on oil. OPEC hardly has a perfect track record of imposing its will on the world market for oil. The member governments, including major players such as Saudi Arabia, Iran, Nigeria, and Venezuela, agree on quotas for production, not publicly announced price targets. OPEC's target: about $25 a barrel? Many analysts believe that OPEC has sought to keep oil prices within a range of $22 to $28 per barrel, although that number may have ratcheted upward as member nations reap easy profits without pushing the world economy into recession. Like all cartels, OPEC is a force as much for what it doesn't do as what it does. Even as world demand has risen, the 11 cartel members produce barely the amount of oil now that they did in 1977, according to a congressional report prepared last year by economist Theodore Boll of Congress's Joint Economic Committee. "Crude oil is an abundant resource," the report concludes. "Production cost in the Middle East is less than $5 per barrel, and even in higher cost areas is nowhere near today's price." In a perfectly competitive marketplace, willing sellers would compete with one another to produce oil and sell it to willing buyers at a profit. OPEC's long-standing policies, by constraining production capacity, have both raised the price and increased the volatility of prices. Today for instance, in the tight world market engineered largely by OPEC, neither cartel members nor other nations can quickly bring much new oil to the market. Ms. Jaffe at Rice University bases her $15-a-barrel estimate on the prevailing costs of production for the world's biggest producers, and on the fact that prices have been there in the not-so-distant past. Crude oil hovered near that level often from the late 1980s through the 1990s. Other nations have ramped up their production in recent years, but are wary of going too far, uncertain when OPEC might loosen its own spigots and send prices falling again. Given today's tight market, with demand growing in Asia and elsewhere, some analysts say $60 per barrel is a logical price. But with little spare capacity, a tight market also means one with little margin for error. Thus, buyers of oil have also priced in a "risk premium," based on the fear of possible supply disruptions related to weather, politics, or terrorism. In a congressional hearing on oil prices last week, industry analyst Daniel Yergin, of Cambridge Energy Research Associates, put that risk premium at "somewhere between $10 and $15 a barrel." That would account for prices surging above $70 recently, as global tensions over Iran's nuclear program heightened, and why the price fell early this week on news of a diplomatic overture by Iran to the US. The risk premium comes on top of what might be called the "OPEC premium," the impact of cartel-managed output. In addition to the production quotas set periodically at OPEC meetings, another competition-dampening force has risen along with oil prices: nationalism. In Venezuela, oil prices have given leftist leader Hugo Chávez a vehicle for new assertiveness against the United States and for populist policies. He is using the "oil weapon" not as a stick but as a carrot, bestowing favorable prices on countries or groups to bring them into his ideological fold. To garner a greater share of oil revenues, Venezuela last weekend announced a new tax on foreign oil companies. Meanwhile, Bolivia recently moved to nationalize its natural-gas sector. "We don't have anyone controlling the market" for crude oil, says A.F. Alhajji, an oil economist at Ohio Northern University in Ada, Ohio. But he says that various forms of government intervention, from taxes and regulation to outright control, partially thwart market forces. Such policies are often popular, given oil's economic importance, its wealth-producing potential, and the environmental impacts involved. If oil is destined to remain a political football, what could help the oil market function better? Experts see a range of possibilities. "We need to think about what the ultimate diplomatic solution is" says Jaffe. She urges a kind of container-ship diplomacy. Oil-consuming nations could impose trade penalties against nations that don't allow a free flow of investment in their oil industries. Other analysts say that if oil- consuming nations increase their public and private stockpiles of oil, it would create more of a cushion in the market - and perhaps reduce the risk premium built into oil prices. Some environmental, consumer, and national-security advocates say the answer may be to wean America and the world increasingly off reliance on oil as the fuel for transportation. "What would happen if the United States did something about demand?" asks Tyson Slocum, an energy expert at Public Citizen, a nonprofit public interest group based in Washington. He says that just one new policy - hiking the average fuel economy of cars and light trucks to 40 miles per gallon - could cut US oil demand by 20 percent. Since the US accounts for 25 percent of world oil consumption, that shift could have a powerful impact on oil prices. There's no certainty that today's $60-plus oil prices will stick. But if they do, the price hike alone will spur new supplies of energy - alternative fuels or hard-to-reach oil that are have in the past been too expensive to develop. "We're going in that direction," he says.
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