David Seaton's Energy Links


David Seaton's Energy Links ® - Week 46 - Nov 17th, 2003


Table of Contents Editorial Check That Oil - Washington Post Energy Agency Raises Oil Demand Estimates - ABC News Bush Is Wasting His Energy and Ours on Old Ideas - Los Angeles Times Iraq to discuss oil with Saudi - Al-Jazeera Iraqi oil executive wounded in shooting - Reuters Russia's Oil Industry, Caught in a Tug of War - New York Times *Sao Tome's way to oil wealth - BBC

David Seaton's Energy Links® Editorial
Perhaps the strangest thing about the war in Iraq is that the United State's armed forces and massive intelligence services don't really have any clear idea of WHO is killing them. When you consider the huge percentage of America's annual budget spent on the military (about $380billion), this is more than remarkable. If these weren't living, breathing, human beings being mutilated and killed everyday it would be comic. This is as if Mel Brooks had remade the "Texas Chainsaw Massacre". Perhaps only the late, great, Spanish humorist, Miguel (me fusilaron mal) Gila could have done it justice.

Some days the attackers are Baath party "diehards", on other days they are foreign al Qaeda jihadistas or regrouped "Ansar al Islam" fanatics, other days they are said to be young criminals bankrolled by Saddam Hussein, who on other days is said to be too busy running to organize anything... if he is in Iraq at all!

To sum it up, "person or persons unknown" are killing Americans by the dozens in a presidential election year and if something isn't done quickly Bush will be out on his ear by January 2005.

According to the New York Times, the Bush administration is now talking about handing "sovereignty" over to a (hand picked) "democratic, pluralistic provisional government next spring that would provide freedom of religion and civilian control of the military." After that the "foreign troops would stay on only by invitation"... All of this said with a completely straight face!

Of course, meanwhile, the Grand Ayatollah Ali al-Sistani, the supreme authority among the still relatively quiet Shiite majority, and the only man standing between the Americans and total humiliation, has ruled in a key fatwa that a new constitution could only be written after free elections. If they try to write a "Bush approved" Iraqi constitution before the elections there will be a Hawza led, Shiite uprising. The "skinny" or bottom line then is that for Bush and the Neo-Con's original game plan to turn out, convicted confidence man, Ahmad Chalabi has to win a free election in a country where he hasn't lived since 1958... An all the while "person or persons unknown" continue to blow up things and kill people. David Seaton

David Seaton's Energy Links®


Check That Oil - Washington Post Even when the bombs are going off in Saudi Arabia, people tend to take it for granted that the kingdom has a bottomless reservoir of cheap oil. But that perception of low-cost abundance may change if a U.S. investment banker's revisionist critique of Saudi oil reserves proves accurate. "The prevailing view has been that the Saudi oil fields are great big caverns of oil, and that recovery is so easy they will basically last forever," says Matthew Simmons, the chief executive of a Houston-based investment banking firm called Simmons & Co. International. Simmons believes that this traditional image of Saudi Arabia as a perpetual gusher of cheap oil is wrong. He is finishing a book documenting his argument that in the future Saudi oil will be scarcer and more expensive than many people expect. Simmons's analysis has been generating a buzz in oil circles, and he presented some of his findings last week to experts attending a conference here sponsored by the Energy Intelligence publishing group. Essentially, Simmons was revisiting a question that has vexed the CIA since the late 1970s: How much oil can Saudi Arabia produce, and at what cost? Top industry experts caution that Simmons's analysis doesn't change some basic facts: Saudi Arabia still has the world's largest oil reserves, with an estimated 266 billion barrels; and it still has extra capacity to "surge" from its current production of about 8.5 million barrels a day to about 10 million barrels a day. The Saudis used that surplus capacity last spring to make up for lost production from Venezuela, Nigeria and Iraq -- and it's a big reason why the oil market stayed relatively calm. But high Saudi production "is not something one can just count on passively," says a U.S. government energy official who closely monitors the market. He predicts that the Saudis will need to spend more to maintain current production levels -- which could roughly double Saudi production costs from their current $2 a barrel to as much as $4. That would put the Saudis closer to the global industry average cost of about $4 to $6 a barrel. "They will need to invest to keep production up," says a geologist who has worked in the kingdom for Saudi Aramco and is now a top executive with one of the major oil companies. "That means it will become more expensive." Simmons bases his analysis on a review of about 150 technical papers that have been written since 1962 by geologists and engineers at Saudi Aramco and its predecessor, Aramco. The papers, published by the Society of Petroleum Engineers, examine sensitive production issues that are rarely discussed outside the kingdom. It turns out that Saudi oil structures aren't the cavernous reservoirs the world imagines. Rather than having the smooth underground topography that geologists call "homogeneity," which provides strong wellhead pressure and easy recovery, some of the biggest Saudi fields, such as Ghawar and Abqaiq, are instead "heterogeneous," with complex underground fractures that can impede recovery. Click here to read more Contents


Energy Agency Raises Oil Demand Estimates - ABC News Signs of an accelerating global economy, propelled by torrid growth in China, has led the International Energy Agency a watchdog for the world's biggest oil-importing countries to boost estimates for crude demand for this year and 2004. In its influential monthly oil market report, the IEA said Thursday that it has increased its forecast for average daily demand growth in 2003 by 170,000 barrels, arguing now that demand will grow this year by 1.28 million barrels a day. The Paris-based agency expects daily oil demand to average 78.6 million barrels in 2003. The IEA also raised its estimate of demand growth in 2004 by 20,000 barrels a day to 1.08 million barrels, for an average daily world demand of 79.6 million barrels. Although global oil demand should increase by a robust 1.7 percent in 2003, growth will ease somewhat to 1.4 percent in 2004, the IEA said. It attributed this likely slowdown to nonrecurring, one-time factors that have contributed to oil demand this year, including high prices for natural gas a substitute fuel for oil and unusually cold weather in Europe and Japan. Chinese oil demand is set to rise by 9 percent this year. At this rate, China will overtake Japan as an oil consumer in the second half of 2003, the agency said. "At this juncture, China is the engine of oil demand growth with significant room for further expansion in the industrial and transportation sectors," the report said. Despite some concerns that the Chinese economy may overheat, the IEA expressed confidence in the country's continued strong demand for crude in 2004. China alone should account for nearly 30 percent of global growth next year, after contributing roughly 35 percent in 2003, the report said. Together with China's standout performance, a surge in U.S. growth in the third quarter and gathering momentum in Japan and parts of Europe are helping to offset lingering economic uncertainties such as international terrorism and high levels of household debt. "Overall, it's a better picture being painted than we saw a month or two ago," said Rob Laughlin, managing director of London-based brokerage GNI Man Financial. A "feel-good factor" has already started to affect the oil market's outlook for demand growth for the three months starting in December, he said. Laughlin even sounded a note of caution about China, which for much of the year has served as "a dustbin for oil that couldn't find a home" anywhere else. If China's economy continues to sizzle, it could eventually squeeze supplies required by Western countries as they regain their own appetites for crude, he said. Despite a month of volatile prices, futures contracts rose in October by an average of $2.05 per barrel for light, sweet U.S. crude and $2.57 for North Sea Brent crude. December contracts of U.S. crude were trading Thursday at $31.55 on the New York Mercantile Exchange, while contracts of December Brent were trading at $29.20 on the International Petroleum Exchange in London. As for supplies, world oil output surged in October by 1.2 million barrels a day to 80.9 million barrels, the IEA said. Output by the Organization of Petroleum Exporting Countries rose by more than 400,000 barrels a day to 27.2 million barrels. Iraqi production accounted for nearly half of this increase, although the recovery in Iraq's output slowed compared with the three previous months, the report said. Supplies from Russia and other non-OPEC producers grew even faster, with 725,000 more barrels a day in October than in September, it said. OPEC members, which agreed to cut output by 900,000 barrels a day starting in November, plan to meet Dec. 4 to reassess market conditions. If they decide then to make deeper cuts, the IEA said they are unlikely to win over non-OPEC producers to such a strategy unless prices fall "substantially." Click here to read more Contents
Bush Is Wasting His Energy and Ours on Old Ideas - Los Angeles Times President Bush is missing his Nixon-Goes-to-China moment. In 1972, President Nixon was able to go to Beijing and negotiate with the Communists because he was an ardent anti-Communist. Bush, the Texas oil man, has an opportunity to ignite fundamental change in Washington's ruinous energy policies. But he's never done it. The simple truth is that, despite the energy policy plan put forward by Dick Cheney's task force in 2001 and the pending energy bill in Congress, the U.S. doesn't have a viable long-term energy policy. It never has. The new energy bill offers more of the same misguided policies that have driven the U.S. for the last 40 years. The measure, likely to be voted on by the House of Representatives shortly, provides $16 billion in new incentives to increase oil drilling and build new nuclear power plants. It's the same thinking that was in place in 1973, when the first oil shocks rocked the U.S. economy. The U.S. still has energy myopia — a belief that we can produce ever-increasing amounts of energy to fill our gas tanks. It can't be done. About 50 years ago, M. King Hubbert, a geophysicist who worked for Shell Oil in Houston, used mathematical models to predict that American oil production would peak in the early 1970s. That's exactly what happened. In 2001, Princeton University geology professor Kenneth Deffeyes used Hubbert's work to predict that world oil production will peak in the early part of this decade. After that peak, writes Deffeyes, "the world's production of crude oil will fall, never to rise again." In his book, "Hubbert's Peak," Deffeyes predicted the peak would occur in 2003. After that, he writes, "no initiative put in place starting today can have a substantial effect on the peak production year." No new energy sources, he warns, "can be brought on at a sufficient rate to avoid a bidding war for the remaining oil." There's evidence afoot that gives credence to Deffeyes' prediction. It came quietly in the third-quarter results turned in by the major oil companies. In late October, Exxon Mobil, the world's biggest oil company, announced that its profit increased by 38%. But its energy production fell 1%. Production fell even though Exxon Mobil is spending 16% more on exploration efforts — nearly $8.7 billion — than it did last year. Click here to read more Contents
Iraq to discuss oil with Saudi - Al-Jazeera Iraq's interim oil minister Ibrahim Bahr al-Ulum was leaving Jordan for Saudi Arabia on Friday for talks to boost oil product swaps, a ministry spokesman said in Baghdad. Bahr al-Ulum was due to meet with Saudi Oil Minister Ali al-Nuaimi in Riyadh, said the spokesman, Assem Jihad. Al-Ulum is expected to discuss with Nuaimi the prospects of reopening an oil pipeline running from Iraq to Saudi Arabia's Red Sea coast in an effort to boost Iraqi oil exports. Saudi officials said in mid-October the pipeline was in no condition to be used and suggested that the kingdom was not keen on exporting Iraqi crude through it. Click here to read more Contents
Iraqi oil executive wounded in shooting - Reuters Gunmen have shot and wounded a senior executive with an Iraqi oil company in the northern city of Mosul in what appears to be the first assassination attempt on officials from an oil firm. A distraught Mohammed al-Zibari, distribution manager for the Oil Distribution Company, told Reuters from his hospital bed that three gunmen armed with AK-47s opened fire on his car, wounding him in the leg. The attack killed his son, who was travelling with him, Zibari added. "Three people opened fire with AK-47s. My driver saw them and so did my bodyguard," Zibari said on Monday. "Definitely foreign regime loyalists are responsible for this. I have no personal enemies, no tribal or family problems, and I'm not a member of any political party." The Oil Distribution Company is under transition as part of the U.S.-led occupation of Iraq. The company handles distribution in the northern region of Iraq. A doctor at the hospital said that witnessing his son's death had brought on an old cardiovascular ailment that Zibari suffered from, complicating his condition. Click here to read more Contents
Russia's Oil Industry, Caught in a Tug of War - New York Times The battle between President Vladimir V. Putin and a Russian oil tycoon has spread fears that Western companies will shy away from investing in the country's vast energy industry. The good news for the industry is, that probably won't happen. Analysts, economists and investors who follow Russia and its energy sector, the world's largest, say they are not worried that the arrest of Mikhail B. Khodorkovsky and the state seizure of his multibillion-dollar stake in Yukos Oil herald an eventual renationalization of the oil industry and a withdrawal of civil liberties and property rights. But, they add, there may well be a cost. The interests of foreign oil companies, and ultimately their shareholders and customers, may be harmed in less obvious ways, like through more aggressive taxation. Foreign involvement in Russian oil is nearly as old as the industry itself - one Shell project dates to the 19th century - but most of the big investments have been made in the last few years, or even months. Three global oil companies, BP, Royal Dutch/Shell and Exxon Mobil, have invested billions in Russian projects and have committed to investing billions more - close to $20 billion over all. They have the most to lose from any government attempt to reverse the policies that have opened post-Soviet Russia to outside investment. BP, of Britain, became the largest foreign investor in oil with the creation in June of TNK-BP, a 50-50 venture with a consortium of Russian participants, including Mikhail M. Fridman, another of the oligarchs who made vast fortunes after the chaotic privatization of the oil industry in the mid-1990's. BP has spent $2.6 billion so far on TNK-BP and is due to pay $1.35 billion more in this quarter and an additional $1.25 billion in shares in each of the next three years. Exxon Mobil owns 30 percent of the $12 billion Sakhalin I project at Sakhalin Island, north of Japan. Shell has pledged $5.5 billion as the majority investor in a second project at the island, in partnership with two Japanese companies. Shell, a British-Dutch company, also owns half of the $1 billion Salym oil field in Siberia. So far, Exxon Mobil has spent $1.8 billion and Shell about $1 billion. Officials of the three companies declined to comment explicitly about developments in Russia but said they foresaw no changes to their operations there. Russia is important to global energy companies because of the huge scale of its reserves - and the fact that oil in much of the Western world is running out or is in places that make it risky or politically difficult to extract. "These companies need to find very material opportunities to maintain growth to replace mature asset bases," said Jonathan Wright, an energy analyst at Citigroup Smith Barney in London. "Where can they go? The Middle East or Russia. Much of the Middle East has been off limits to Americans. Iran has been slow to open up as well. When you look at Russia, they've got to be there, really." Click here to read more Contents
Sao Tome's way to oil wealth - BBC It is the kind of country where the president's spokesman cannot meet you for a drink because he has to go and read the evening news on national television. Or where the army officer who tried to seize power a few months ago in a failed - but entirely bloodless - coup is today a free man, sitting at a café in the middle of town, waving to his many friends as they drive past. Sao Tome and Principe is a small and friendly place. People joke that the country's initials, STP, stand for Somos Todos Primos - Portuguese for "we are all cousins". One Sao Tomean told me: "They say these islands are run by six families. But actually", he added, "that is an exaggeration. Four is more accurate." Small and friendly and beautiful islands - but also very poor. Sao Tome's economy was built on cocoa; the Portuguese shipped over slaves from the African mainland. They cleared the forests, and in the hills they built wonderfully romantic plantation houses. But there was nothing romantic about the way cocoa was grown. Effectively slavery continued well into the 20th century. Some land-owners built up fabulous wealth, but their labourers lived in dreadful conditions. Then, suddenly, the Portuguese left, and Sao Tome became independent. That was in 1975. Since when, it is fair to say, it has not been in the news much. The economy went into gentle, but apparently terminal, decline. The jungle reclaimed many estates and the plantation houses fell into ruin. Successive governments tried various ways of boosting revenue: international pornographic phone lines, for instance, and postage stamps produced with the foreign collector very much in mind. Recent Sao Tomean stamps have celebrated the life of Princess Diana, the sinking of the Titanic, and the penguins of Antarctica. Valiant efforts, but they have not made much difference. Today Sao Tome has a budget - and a population - similar to that of a medium-sized town in Europe. Except that medium-sized towns in Europe do not have to grapple with rampant malaria, or a small but restless military which is demanding more money. So you might think it strange that this obscure country is suddenly getting a whole lot of visitors. Sao Tome's little airport is busy. Its hotels are packed. Last month Nigerian ministers were in town. Then the President of Brazil popped in. "Things are happening, our country is changing", is what people are saying. And the reason is oil. Nobody knows just how much oil lies beneath Sao Tomean waters; at least 4 billion barrels-worth, say the experts. Click here to read more Contents

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