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"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.'' 

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Table of Contents
Editorial
*Big Shift in China's Oil Policy - The Washington Post
*Critics see security threat in China oil bid - Reuters
*Russian oil giant starts deep drilling in Columbia - Novosti
*OPEC Won't Raise Oil Quotas Before Sept., Qatar Says - Bloomberg
*Ministers highlight terrorism and oil prices - Financial Times
*Daqing unmoved by Putin's remarks about Sino-Russian oil pipeline - Interfax China
*Ecuador Indians Protest Petrobras Oil Development - Planet Ark

David Seaton's Energy Links® Editorial - Discretion is the better part of valor
Islamic terrorism has its origins in America’s military occupation of the Persian Gulf since 1990. Professor Robert Pape of the University of Chicago, who maintains the world’s largest database on suicide terrorists, writes, “What nearly all suicide terrorist attacks actually have in common is a specific secular and strategic goal: to compel modern democracies to withdraw military forces from territory that the terrorists consider to be their homeland. Religion is often used as a tool by terrorist organizations in recruiting and in seeking aid from abroad, but is rarely the root cause.”

Muslim revulsion at infidels occupying their lands has existed since the Crusades; the only thing that has changed is their ability to take the war to the invader’s capitals. The Internet has become what Israeli analyst Reuven Paz calls, “an open university of jihad”. Ironically a civilization dismissed as “medieval” has been quick to grasp the synergies of the newest technologies. Our economy depends entirely on the fluid, cheap and uninterrupted movement of information, people, goods and money around the globe… Ironically today’s logistic networks are as fragile as the ancient camel caravans moving across “Arabia Felix”.  This makes us uniquely vulnerable to the traditional Bedouin, “Lawrence of Arabia” raider tactics that are being brought up to date in Iraq.   Network analyst John Robb commenting on London says, “As we see in Iraq, if appropriately planned, small attacks can have amazing impact. Smaller groups can have tremendous impact at the strategic level if they adopt the Iraqi method. This could reduce a nation to economic chaos in short order.”

Returning to Professor Pape, “The chance of a weapon of mass destruction being used in an American city depends not exclusively, but heavily, on how long our combat forces remain in the Persian Gulf. Keeping the peace from a discreet distance seems a better way to secure our interests in the world's key oil-producing region without provoking more terrorism.”  The United States may finally decide that the vaporization of New York is too high a price for keeping a military presence on the ground in the Middle East and Europeans may decide that a “Reyes Católicos” style expulsion of their Muslim citizens is too high a price for supporting that military presence.  In that case, the terrorism problem might well end up solving itself. The triumphant Islamists who took power would be instantly faced with the reality that “una cosa es predicar y otra dar trigo” and they would have to sell the west their oil to do that. With a fixed address that could be attacked with nuclear weapons the last thing they would want is some “espontaneo” obliterating New York or London with a home made atom bomb. If they ever take power it will be the Islamists themselves who speedily liquidate al Qaeda.   David Seaton

David Seaton's Energy Links®

Big Shift in China's Oil Policy - The Washington Post
Until recently, China's view of the global energy map focused narrowly on the Middle East, which holds roughly two-thirds of the world's oil. Special attention was directed toward one well-supplied country: Iraq. Through cultivation of Saddam Hussein's government, China sought to develop some of Iraq's more promising reserves. Beijing advocated lifting the United Nations sanctions that prevented investment in Iraq's oil patch and limited sales of its production. Then the United States went to war in Iraq in 2003, wiping out China's stakes. The war and its aftermath have reshaped China's basic conception of the geopolitics of oil and added urgency to its mission to lessen dependence on Middle East supplies. It has reinforced China's fears that it is locked in a zero-sum contest for energy with the world's lone superpower, prompting Beijing to intensify its search for new sources, international relations and energy experts say. As a vocal camp in Congress recoils at the prospect of a Chinese state-owned company, Cnooc Ltd., taking control of the California-based Unocal Corp., the Bush administration's decision to wage the war in Iraq stands out as a crucial factor in explaining how China came to scour the earth for energy and why the effort is likely to remain central to U.S.-Chinese relations for some time, those analysts say. "Iraq changed the government's thinking," said Pan Rui, an international relations expert at Fudan University in Shanghai. "The Middle East is China's largest source of oil. America is now pursuing a grand strategy, the pursuit of American hegemony in the Middle East. Saudi Arabia is the number one oil producer, and Iraq is number two [in terms of reserves]. Now, the United States has direct influence in both countries." Many other factors help explain China's motives in dispatching its energy companies abroad for new stocks. Oil demand is exploding in China as people embrace automobiles and as factories, apartment towers and office buildings proliferate. For the third summer in a row, China is rationing energy, limiting production in industrial areas. In little more than a decade, China has changed from a net exporter of oil into the world's second-largest importer, trailing only the United States. Concern is mounting about future prospects for China's domestic oil production, which supplies about two-thirds of the country's crude oil needs. China's government estimates that it will need 600 million tons of crude oil a year by 2020, more than triple its expected output. Worldwide, the best oil fields are already claimed. For the United States, Europe and Japan, the oil shocks of the 1970s supplied the lessons that have shaped their thinking about energy. China is a latecomer to the vagaries of the global energy business. It is grappling with how to manage dramatic growth and soaring demand for energy at the same time it confronts the implications of interventionist U.S. foreign policy. "Many people argue that oil interests are the driving force behind the Iraq war," said Zhu Feng, a security expert at Beijing University. "For China, it has been a reminder and a warning about how geopolitical changes can affect its own energy interests. So China has decided to focus much more intently to address its security." Throughout China's modern history, and particularly under Communist Party rule, the country's leaders have sought self-sufficiency -- a drive fueled by nationalist pride and the experience of colonialism, which fed notions that the outside world wants to prevent China's rise as a great power. Under the rule of Mao Zedong, China -- under the banner of fending for itself -- focused on oil production in its northeast, near the city of Daqing. The government's current push to secure foreign oil fields is driven by worries that there may one day be too little oil to meet worldwide demand and that foreign powers -- in particular the United States -- will choke China. "If the world oil stocks were exceeded by growth, who would provide energy to China?" said Shen Dingli, an international relations expert at Fudan University, who advises the government on security policy. "America would protect its own energy supply. The U.S. is China's major competitor." Such fears involve Taiwan, the self-governing island claimed by China. The United States has pledged to help Taiwan should China attack. Officials in Beijing envision being cut off from energy supplies by the U.S. Navy in the event of war. Many energy experts say owning oil fields provides no real energy security. It does not cushion against a rising cost of energy because no one country is large enough to determine the market price. Neither does it ensure access, because getting oil where it is needed depends largely upon shipping lanes policed by the U.S. Navy. "There's an illusion that ownership ensures either volume or price," said William H. Overholt, director of the Rand Center for Asia-Pacific Policy in Santa Monica, Calif. "Oil is an internationally traded commodity. The key is having secure lines of supply from the Middle East." Even the chairman of Cnooc asserted in an interview that buying foreign oil fields would give China additional security, dismissing the notion that anything other than commercial interest motivates his company's $18.5 billion bid for Unocal. "In today's world, as long as you have money, you can buy oil from anywhere," Fu Chengyu said. Fu maintained that Cnooc's interest in Unocal is purely commercial. The Chinese company is eager to have Unocal's substantial oil and gas reserves in Southeast Asia to help feed the liquid-natural-gas terminals it is developing in coastal China. For China's leaders, however, buying foreign oil and gas fields in the name of energy security has become a central mission. Throughout the 1990s, China made deals to lock in long-term supplies and buy installations from Africa to Latin America. In 2002, Cnooc became the largest offshore oil producer in Indonesia when it bought a field from the Spanish firm Repsol YPF SA. The Iraq war substantially intensified the foreign push. Most immediately, it destroyed China's hopes of developing large assets in Iraq. China had been waiting for the end of sanctions to begin work on the Al-Ahdab field in central Iraq, under a $1.3 billion contract signed in 1997 by its largest state-owned firm, China National Petroleum Corp. The field's production potential has been estimated at 90,000 barrels a day. China was also pursuing rights to a far bigger prize -- the Halfayah field, which could produce 300,000 barrels a day. Together, those two fields might have delivered quantities equivalent to 13 percent of China's current domestic production. But the larger impact of the war was on China's understanding of the rules of the global energy game. "The turning point in China's energy strategy was the Iraq war," said Tong Lixia, an energy expert at the Chinese Academy of International Trade and Economic Cooperation, which is affiliated with China's Commerce Ministry. "After 2003, both the companies and the government realized China could not rely on one or two oil production areas. It's too risky." This year, China began work on a strategic oil reserve in coastal Zhejiang province that would allow the country to operate without imports for as long as three months. But the biggest emphasis has been on securing new stocks abroad, particularly in neighboring countries such as Kazakhstan and Russia, to limit dependence on shipping lanes. China National Petroleum Corp. led the way. Since 2003, the company has signed 20 contracts to explore or purchase production facilities in 12 countries, including Peru, Tunisia, Azerbaijan and Mauritania. In 2004, the company's production of natural gas at overseas facilities nearly doubled from the previous year. Its overseas oil production climbed by a fifth. Late last year, President Hu Jintao said Chinese companies would invest $5 billion in oil projects in Argentina. So far, however, China's foreign campaign has delivered more lessons in the difficulties of the energy business than energy itself. In June 2003, Beijing hailed a $150 billion agreement with Russia to tap fields in Siberia and send the oil through a new pipeline to China. The project was to supply as much as one-third of China's needed imports by 2030. But that deal appeared to disintegrate when the Russian signatory, Yukos Oil Co., fell into disarray last year after its chief founder was jailed on tax-evasion charges. Japan appears poised to capture the Siberian oil with a promise of at least $6 billion to develop the fields, though recent indications are that Beijing is putting together an even more generous package to bring the project back, according to an adviser to the government. With so much competition for assets, China has pursued deals with international pariah states that are off-limits to Western oil companies because of sanctions, security concerns or the threat of bad publicity. China National Petroleum is the largest shareholder in a consortium running much of the oil patch in Sudan, a country accused by the United States of genocide in its western region of Darfur. Last year, China signed a $70 billion oil and gas purchase agreement with Iran, undercutting efforts by the United States and Europe to isolate Teheran and force it to give up plans for nuclear weapons. If Cnooc acquires Unocal, it would have gas fields and a pipeline in Burma, whose operation by the U.S. company has been criticized by human-rights groups. "No matter if it's rogue's oil or a friend's oil, we don't care," said an energy adviser to the central government who spoke on the condition he not be identified, citing the threat of government disciplinary action. "Human rights? We don't care. We care about oil. Whether Iran would have nuclear weapons or not is not our business. America cares, but Iran is not our neighbor. Anyone who helps China with energy is a friend."
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Critics see security threat in China oil bid - Reuters
The bid by China's state-run CNOOC Ltd. to buy U.S. oil producer Unocal Corp. is part of a calculated drive to overtake America economically and politically and would severely limit U.S. influence in Asia, American critics of the attempt said on Wednesday. "I believe the PRC's aim is inexorably to supplant the United States as the world's premier economic power and, if necessary, to defeat us militarily," Frank Gaffney, a Pentagon strategist under the late President Ronald Reagan, told a congressional hearing. Gaffney, a consistent critic of communist China, was one of several witnesses who testified at a hearing of the U.S. House of Representatives Armed Services Committee whose chairman opposes the deal. The chairman, Duncan Hunter, told the meeting said a successful completion of CNOOC Ltd.'s $18.5 billion takeover bid for Unocal would greatly boost China's leverage over U.S. interests in Central Asia. Marshalling national-security arguments against the offer, which ultimately will be decided by an administration review panel, Hunter charged that the chairman of CNOOC's parent company, Fu Chengyu, answered to the ruling Chinese Communist Party's Politburo. As an example of where China's power could rise, Hunter, a California Republican, cited investments by California-based Unocal in pipelines running from Cental Asian oil fields through Azerbaijan, Georgia and Turkey. "China's purchase of Unocal would dramatically increase its leverage over these countries, and therefore its leverage over U.S. interests in those regions," he said in an opening statement at the first congressional hearing on CNOOC's bid. Another critic, Richard D'Amato, chairman of the congressionally created U.S.-China Economic and Security Review Commission, said China's strategy for meeting its energy needs flies in the face of U.S. policy to rely on open markets, to promote energy security for all and to promote sharing arrangements in case of supply disruptions. But Jerry Taylor, director of natural resource studies at the free-market-oriented CATO Institute, disputed the idea that a CNOOC-UNOCAL linkup would give China an "oil weapon." "Only a naval blockade could prevent (the United States) from buying all the oil it needs from international oil markets," he said. CNOOC's cash bid exceeds a $16 billion-plus cash and stock offer from Chevron Corp., which has been recommended by Unocal's board and gained U.S. regulatory approval. Sources close to the deal have told Reuters they expect both suitors for Unocal to adjust their offers. Although Congress has been vocal against CNOOC it would be the Committee on Foreign Investments in the United States (CFIUS) that would review whether a foreign purchase of Unocal would harm U.S. national security. The Wall Street Journal on Wednesday reported that the multi-agency panel chaired by the U.S. Treasury Department, has declined to begin an early review of CNOOC's bid for Unocal, preferring to wait until the companies reach a deal. House lawmakers last month backed a spending measure that would block CFIUS from approving CNOOC's bid but it is not yet clear if the provision has sufficient support in the Senate to become law. President Bush has declined to take a stand on the issue, saying he will await the review process.
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Russian oil giant starts deep drilling in Columbia - Novosti
The Russian oil giant LUKoil has begun deep exploratory drilling at the Condor block in Columbia, a LUKoil spokesperson said Wednesday. LUKoil has a 70% share in the Condor project. The other 30% belongs to the Columbian national oil company, Ecopetrol. Under the agreement signed April 7, 2002, the parties committed themselves to exploratory drilling for six years and, in the event the field proves viable, commercial development for twenty-two years. Condor, one of Columbia's largest hydrocarbon deposits, lies in the eastern Cordillera foothills in the Llanos petroleum basin. Four exploratory wells have already been drilled here and a seismic survey has been carried out. A LUKoil spokesperson said Condor's recoverable oil reserves were an estimated 3.4 million tons, its gas condensate reserves were an estimated 10 million tons, and its natural gas reserves were an estimated 78.5 billion cubic meters. The planned depth of the vertical well is 5,050 meters, and the rig will rise 1,128 meters above sea level. The well drilling is to be completed within the next 10 months. The drilling contractors include the local companies Estudios Geotechnicos, Rogoland, Occipetrol, and Corpro, and also the international service companies Weatherford, Baker Hughes, Swaco, Halliburton, Smith, Cudd, and Schlumberger. LUKoil, Russia's largest privately-owned petroleum company, produced 86.3 million tons of crude oil last year, and its projected 2005 output is 90.2 million tons. It holds 1.5% of global oil reserves and accounts for 2% of global oil production, 19% of Russian oil production, and 19% of Russian oil processing.
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OPEC Won't Raise Oil Quotas Before Sept., Qatar Says - Bloomberg
OPEC, source of about 40 percent of the world's oil, won't raise crude oil production quotas before September as the group's 11 members have already committed their output until then, Qatar's energy minister said. The Organization of Petroleum Exporting Countries, in which Qatar is the smallest producer, decided at its June 15 meeting to raise its official output ceiling by 500,000 barrels a day to 28 million barrels, starting on July 1. It also authorized the group's president, Kuwait's Sheikh Ahmad Fahd al-Sabah, to begin talks on a further 500,000 barrel-a-day boost if he thought it was needed. ``I haven't spoken with Sheikh Ahmad since Vienna,'' Abdullah bin Hamad al-Attiyah said today in an interview in Doha, the Qatari capital after oil prices hit a record last week. Al-Attiyah, 53, said that any agreement on a further quota increase wouldn't come into affect before Sept. 1, adding that, producers have ``already committed to August liftings.'' Oil prices in New York soared to $62.10 a barrel on July 7 partly on concern that OPEC would be unable to meet demand in the months of Northern Hemisphere winter. As prices have fluctuated during the last weeks, Sheikh Ahmad, who is also Kuwait's oil minister, has alternatively said talks to raise output are in progress, or on hold. Global oil use will reach 85.9 million barrels a day in the fourth quarter of this year, the International Energy Agency said today in its monthly report, meaning OPEC will need to pump 29 million barrels of crude a day in the final quarter. That fourth- quarter demand for OPEC oil, the so-called ``call on OPEC,'' was revised down by 700,000 barrels a day from its previous report, mostly because of the cut to world demand. Crude traded on the New York Mercantile Exchange at $60.50 a barrel at 1:50 p.m. London time, up 10 percent since the June 15 meeting. The OPEC president said in Vienna he would start talks on a further raise if oil stayed above $50 a barrel for seven days. Crude in New York last closed below $50 a barrel on May 24. ``There is no shortage of supply of crude oil at all. We see inventories building to a six-year high,'' al-Attiyah said. The 10 OPEC members with assigned quotas pumped a combined 28.30 million barrels a day on average in June, according to Bloomberg estimates of actual production. Including Iraq, which has no quota, OPEC's crude output was 30.08 million barrels. Saudi Arabia, Kuwait, Indonesia and Nigeria have voiced support in recent days for a quota ceiling increase to 28.5 million barrels a day. ``If possible, OPEC should raise production'' as high as possible, Indonesian Oil Minister Purnomo Yusgiantoro told reporters in Jakarta today. ``The most important thing is to lower the price of crude oil. We have asked OPEC through our OPEC governor to increase output.'' Still, OPEC's ability to influence supply and prices is limited because that extra oil capacity, most of it held by Saudi Arabia, is predominantly medium and heavy grades of oil, not the lighter varieties favored by refiners for processing, analysts have said. The Qatari oil minister said he didn't expect OPEC to be able to expand its spare capacity from current levels of about 1.5-2 million barrels a day before 2008, as any new capacity that is added in the interim will be consumed. Iran and Venezuela, which rank as OPEC's second- and third- largest producers, after Saudi Arabia, aren't able to meet their current production quotas, and have opposed the notion of raising quotas further, officials have said.
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Ministers highlight terrorism and oil prices - Financial Times
Eurozone finance ministers last night confronted the latest threats to the region's faltering economy: the danger of terrorism, rising oil prices and the risk that growth differentials in the 12-country bloc could become entrenched. Last week's attacks on London cast a pall over the monthly meeting of finance ministers, with some warning of a drop in consumer confidence, especially if there were more outrages. "We have to keep our fingers crossed and be vigilant," said George Alogoskoufis, Greek finance minister. "Consumer confidence is very fragile." The implications of the attack on London's transport system will also be discussed today at the full Ecofin counci l of 25 European Union finance ministers, chaired by Gordon Brown, British chancellor of the exchequer. The economic outlook has been hit by rising oil prices. Joaquin Almunia, EU monetary affairs commissioner, has warned that the increase could knock 0.2 per cent off his spring growth forecasts, which were 2 per cent for the EU and 1.6 per cent for the single currency area. However, Mr Almunia's spokeswoman said it was too early to adjust the forecasts because the weakening euro was boosting exports. Mr Almunia said ministers should consider ways of improving energy efficiency and transparency in the oil market. But he also reminded them that their failure to carry out fundamental structural reforms to their economies was adding to the eurozone's problems. A European Commission report on economic divergences in the single currency area - there is a 4.5 per cent difference between the highest and lowest national growth rates - said the lack of economic reforms was largely to blame. "This trend is worrying," the report says. "It may mean that the gap between strong and weak growth performers could become entrenched over time." The report urges finance ministers to press ahead with reforms to labour, product and capital markets or face "a high self-imposed price". Differentials in economic performance impair the smooth functioning of its "one size fits all" interest rate, although the Commission says similar differences exist in the US. Italy, which is in recession, is one of the countries causing greatest concern. Today it will face formal EU action over its rising budget deficit, which is expected to top 4 per cent of gross domestic product this year. Ministers are expected to give Italy two years to bring its deficit below the EU's 3 per cent limit, in what is seen as the first test of the effectiveness of the "flexible" new version of the stability and growth pact. Meanwhile, finance ministers are deadlocked on a proposal by France and Germany, backed by Britain, to impose a new tax on airline tickets to fund development in poorer nations. Countries on the periphery of Europe and those with big tourist industries have opposed the proposal.
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Daqing unmoved by Putin's remarks about Sino-Russian oil pipeline - Interfax China
An official involved in drawing up the petrochemical development plans for the city of Daqing has told Interfax that the scheme is still shelved, despite the comments made by Russian President Vladimir Putin regarding the future of the Sino-Russian oil pipeline. When it seemed as if the Pacific port of Nahodka, rather than Daqing, would actually be the priority destination of the pipeline, China's biggest oil-producing city abandoned the petrochemical industry plans it proposed in 2003 as an attempt to take advantage of increased Russian imports, according to an official at the China International Chemical Consulting Corporation (CICCC), which drew up the proposals. The official said that Daqing remains indifferent to the encouraging remarks made by Putin at the G8 Summit in Gleneagles last week. Putin said that the branch pipeline to the Russian border city of Skovorodino would be completed within three years, but the official believes that the long-awaited pipeline will face more challenges in the near future as a consequence of even more interference by Japan and the US. Five expert proposals concerning petrochemical development in Daqing and Heilongjiang Province were submitted to the provincial government in July 2003, with two focusing on refining Russian oil in Daqing and the other three concerning the formation of a petrochemical industrial belt in Heilongjiang as a whole. Oil production in Daqing, where China's largest oilfield in located, has already shown signs of depletion, prompting the local government to consider the new opportunities afforded by the Angarsk-Daqing oil pipeline, which would have eventually delivered 30 mln tons of crude oil per year. "The two proposals dealing with Russian oil [delivered] through the pipeline were abandoned due to the change in the pipeline route, but the formation of the petrochemical industrial belt has progressed well," Liu Yanwei, Director of the Planning Department of the CICCC, told Interfax. As far as Putin's statement last week is concerned, Liu said that they did not necessarily regard it as a positive signal. "Russia is used to changing its ideas on the issue and Putin's words don’t necessarily mean anything," said Liu, "With interference from Japan and US, the prospects of the project remain unclear." Liu said that the city has grown indifferent to these kinds of remarks and no new proposals about processing oil piped in from Russia have been made. "Some progress has been made in Sino-Russian oil cooperation," Liu said. "CNPC and Sinopec have proposed joint exploration with Russia for the oil resource in Sakhalin, which is very near to Heilongjiang. We are seeking opportunities to use these resources," said Liu. CNPC and Sinopec, two Chinese oil giants, signed cooperation agreements with Russia's Rosneft on the joint exploration on Sakhalin early this month.
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Ecuador Indians Protest Petrobras Oil Development - Planet Ark
Indians and environmental protesters marched through Ecuador's capital on Tuesday to demand that Brazilian state oil firm Petrobras suspend operations in an oil block located in one of the Andean nation's most important Amazon national parks. More than 150 members of the Huaorani tribe joined representatives from other indigenous and ecological groups in Quito to press Petrobras to stop activity they said was damaging the Yasuni National Park's fragile ecosystem. "We are saying Petrobras should leave, because Yasuni is the future of our children," said Alicia Ehuenguime Enqueri, vice president of the National Huaorani Organization of Ecuador. The Huaorani tribe, which has little contact with western culture, lives in part of the park, a UNESCO biosphere reserve that covers 982,000 hectares (2.4 million acres) and is home to 90 species of frogs and toads and more than 500 kinds of birds. Petrobras last year was awarded an environmental license to build oil drilling infrastructure for Block 31, an area that shares land in Yasuni. The permit allows Petrobras to build a highway, dock, and bridge on 200 hectares (490 acres) of Yasuni land. Petrobras officials were not immediately available for comment, but the company has said it is using the most modern technology to avoid damaging the park. The Brazilian company has insisted that the project, in which Japanese firm Teikoku is also partnered, will only affect 100 hectares (247 acres) of the Yasuni reserve, which borders Peru. Petrobras Energia Ecuador, part of Petrobras' Argentine unit, expects to begin pumping oil from the field next year. Crude oil is Ecuador's biggest export and a key source of government revenue.
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