David Seaton's Energy Links

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 High Energy Prices are here to stay - Prudent Bear The end of oil is closer than you think - The Guardian Corruption takes its toll on Iraqi oil industry - Daily Star - Beirut OPEC Official: Oil Dry-Up Fears a Myth - Associated Press Oil Firms Face 50 Percent Tax in Venezuela - Forbes Kingdom Finds New Oil Field - Arab News - Saudi Arabia *Is it all relative? Maybe oil prices aren't so bad, after all - Christian Science Monitor

David Seaton's Energy Links® Editorial - Chinoiserie Tension is growing between China and the United States and this tension is being felt in varying degrees by America’s allies. The conflicts are on many fronts: financial, geopolitical, commercial military etc. I believe they are all connected and to a great extent coordinated with a single strategic objective. In short, this multitude of seemingly disconnected frictions forms part of a coherent Chinese strategy. Strategic thinking is to the Chinese what poker is to Americans or Bullfighting is to the Spanish, a national art form.

The Chinese have been obsessed with strategy since time immemorial. The world’s finest book on the subject “Sun Tzu – Bin Fa” or “Art of War” dates from 400BC and even traditional Chinese children’s stories of the Aesop type are filled with heroes that defeat their more powerful foes with their cunning and artful stratagems instead of brute force. Maneuvering a powerful adversary in such a way that he defeats himself without a shot being fired is in the best and most admired Chinese tradition.

I believe that China's leadership has a simple goal which is being pursued with a strategy that is at the same time so pragmatic and yet so sophisticated as to go completely over the heads of the American policy makers, given as they are to overly ideological constructs, pressure groups, lobbies and hurried planning. To save space, I'll explain with bullet points what I think the Chinese are doing:

Objective: China's prime national objective is simply to cease being a "rule taker" in its own neighborhood and become a "rule maker" there. Given China's size and her fundamental, even seminal, influence on Asian culture and given the amour propre of the Han people, I think that this is not an unreasonable or particularly sinister objective.

Obstacle: The principal obstacle to this goal is the obviously foreign military presence and influence of the US in Asia.

Resources: The Chinese Communist Party, which is no longer peddling Marxist-Leninism, has morphed into a re-creation of the traditional Chinese Mandarin class, which successfully governed the Middle Kingdom for thousands of years.

Making China into a rule maker and not a rule taker is, for the "Neo-Mandarins," simply fulfilling the traditional "mandate of heaven".

The Chinese view of life (the Chinese ideogram for “life” is a composite of the characters: “eat” + ”drink” + ”man” + ”woman”) and the Chinese view of action, "black cat, white cat, so long as it catches mice" are of a practicality and empiricism which could be extremely effective when facing modern day America which appears to be lost in a strange ideological fog of neo-liberal economic fundamentalism and neoconservative religious sentimentality.

Most, if not all, of the senior Chinese leadership in place today survived the Cultural Revolution, an experience that would give them abilities of tactical deception and an eye for the "main chance" that would be impossible to develop in the American political system... They must sometimes feel that they are dealing with children.

Method: America's principal weakness in facing China is its drug addict-like dependence on endless consumption. The Chinese use their principal asset, which is infinite, cheap, good labor to supply America's "habit". Then they take the resulting American dollars and buy US treasury bonds, the threat of whose massive sell-off is a sword over America's head in any crisis. They also take the Wal-Mart dollars and reflate the world commodity market, which during the golden 90s had fallen to a point where the commodity producing ex-colonies of the third world were desperate... This flow of American dollars via Chinese hands to these poor countries will give China many supporters if push comes to shove. China, not the Doha Round is what is seen restoring economic health to many poor countries.

The military build up, especially on the Taiwan straights is mostly about credibility, not about immediate conflict. Cruise missiles jet fighters, submarines and passive radar would make it impossible for US carrier groups to operate in the area with impunity, Taiwan will think more than twice about declaring independence and while they are thinking the balance will continue to tip in China's favor. Patience will be rewarded.

Most subtle of all, to counterbalance China the USA is being lured into encouraging Japanese nationalism and militarism which are feared and loathed in Asia the same way the US ally Israel’s presence is in the Middle East... and with predictably similar public diplomacy results for the USA. By turning Japan into a strategic military ally instead of the US being the guarantor of Japan's perpetual innocuousness, as it has since WWII, America will frighten and offend all of Asia. Few will want to follow America in the company of a re-militarized Japan. David Seaton

David Seaton's Energy Links®

High Energy Prices are here to stay - Prudent Bear
Concern that rising oil prices could harm the global economy dominated weekend meetings of world finance ministers and central bankers who gathered after Wall Street plunged to new lows for 2005. There were intense talks about the energy situation at both the meetings of the Group of Seven major industrialized countries and the policy-making committee of the 184-nation International Monetary Fund last Saturday. But is this yet another case of policy makers closing the barn door after the horse has bolted? After all, oil prices now threaten to drop below $50 per barrel, having fallen 9 days in a row amidst concerns of slowing global economic growth, falling stock markets and a further unwinding of the great reflation trade (which is engendering significant liquidation of the speculative long positions on the oil futures market). To be sure, the recent sharp pullback in oil prices from new record highs is also the result of a quite understandable price sticker shock. Oil and petrol prices are now five times as high as they were in 1998 when the world was looking for prices to plummet back to the lows last seen in the mid-1980s. It is also true that the psychological backdrop does not appear conducive to an ongoing bull market in the energy complex: Today’s news flow is comparable to that which arose in the wake of the conclusion of the Iraq war. Newspapers and brokers’ reports write reams of material describing fatter inventories, and note that the transportation bottlenecks which had hitherto afflicted the oil industry have been largely been sorted out (if the recent decline in tanker rates is anything to go by). Oil has twice pushed to the mid-fifties range and sold off violently, leading many chartists to assume that a double top is forming. There are a lot more bulls than there were even three years ago, when we first started making the secular case for higher energy prices, and common sense tells one that no commodity can sustain such a rate of price increases indefinitely. And, as is often the case with any apparent speculative blow-off, there was the widespread publicity accorded to a Goldman Sachs report, in which the possibility of $100 oil was mooted for the first time. So has oil put in a conclusive top? Is all of this market chatter about “peak oil” simply a function of extreme bull market psychology? Given the threats posed to global growth (in particular, consumption), by higher energy prices, there is clearly a vested interest in talking down the price of oil. But as market strategist Chris Sanders, has noted, “Measured in relative terms [oil] has not done that much compared to history. Nominal spot prices are only five dollars or so as of this writing above their October 1979 peak at $44.60, and deflating spot oil by the US consumer price index ex-energy prices we see a much different picture of its relative value against other goods and services. Looked at this way, it has barely retraced half of the 70s bull market run.” Add to this the simple dynamics of supply and demand, and it is easy to make the case that the recent weak price action in the energy complex is but a temporary downdraft, rather than indicative of a new, more bearish trend for oil, gas, and coal prices. As always in such circumstances, it is best to go back to the basics: total new discoveries have been steadily declining for 40 years, and world consumption has outpaced newfound reserves for nearly a quarter of a century. The global economy today now uses more than four barrels of oil for every new one discovered. In fact, according to a report by the industry consultants, IHS Energy, only 50 percent of the world's oil production has actually been replaced by new field discoveries. Annual discoveries have now fallen behind total consumption every year for the past 20 years. The consultants reported that all but three of the top-20 non-OPEC producing countries failed to replace their production with new discoveries in the past five- and 10-year periods. Russia and Mexico — the top-two non-OPEC producers, which together accounted for over 12 million barrels of daily production in 2003 — replaced just 11 percent and 10 percent respectively in the past 10 years. The report also shows that the percentage of discovered oil brought into production has steadily risen since 1975, which means that more and more of the legacy of past discoveries is being consumed. In 1975, about 65 percent of total discoveries were in production. Through the end of 2003 that figure had risen to 85 percent of all the oil ever discovered. In total, about 45 percent of all the oil found worldwide had been consumed by the end of 2003, according to the IHS data. Worst of all, (from an American perspective at least), is that the largest new sources of petroleum are likely to emerge in countries with interests somewhat inimical to those of the US. This is not without historic precedent: In 1970, the seven major international oil companies thought they owned and thus had tied up the huge Middle East reserves beyond the turn of the century. Within five years, the nations there had taken ownership of their own oil - and prices had quadrupled. Although the presence of 140,000 troops in Iraq makes a 1970s style nationalisation a highly unlikely contingency, most of the major oil producing nations are close to full production capacity, notably Saudi Arabia (now producing oil at close to its maximum sustainable rate of about 10 million barrels per day). Both forecast that in spite of current pledges to increase production and investment in infrastructure further, the Saudis probably are unable to raise their output significantly over the next 20 years while global demand, pushed by significantly higher consumption in the United States, China, and India, is expected to rise by 50%. On the other hand, notes author Michael Klare, one of the so-called members of the “Axis of Evil”, has significant scope to increase its role as a major swing producer: “Iran has considerable growth potential: it is now producing about 4 million barrels per day, but is thought to be capable of boosting its output by another 3 million barrels or so. Few, if any, other countries possess this potential, so Iran's importance as a producer, already significant, is bound to grow in the years ahead.” Leaving aside such problematic geopolitical constraints to easier access to crude (at least from the perspective of the world’s largest energy consumer, the US), one would also presuppose that higher prices would lead to improved returns on investment. But the very nature of depletion dynamics undercuts this assumption. According to the energy consultants Wood Mackenzie, the value of new discoveries by the world's 10 largest oil companies fell well below the amount they have spent on exploration over the past three years, which creates a disincentive to increase investment further. A Financial Times report ('Top oil groups fail to recoup exploration costs', October 10, 2004) noted that companies were spending record levels on developing known fields to keep pace with growing demand. But after 2008, according to Robert Plummer, corporate analyst at Wood Mackenzie, "they will need more discoveries to maintain growth ... the problem is exploration has not been generating returns." Add to this the fact that the world is now losing more than a million barrels of oil a day to depletion – twice the rate of two years ago – according to a new analysis published in Petroleum Review, the oil and gas magazine of the Energy Institute in London. The analysis shows that output from 18 significant oil-producing countries, accounting for almost 29 percent of total world production, declined by 1.14 million barrels a day (mb/d) in 2003. The annual rate of decline also appears to be accelerating, contrary to the widely held view that depletion progresses slowly. Combined expenditure of about $8 billion on exploration last year — down from $11 billion in 2001 — produced discoveries valued at less than half that amount. As a consequence (based on data in the latest BP Statistical Review of World Energy), total OPEC production fell from a rate of 24.7 mb/d (recorded in 1997) and to 22.1 mb/d by the end of 2003. “It appears that depletion is now becoming a much more significant, though largely unrecognised, consideration in the supply-demand equation, and may be contributing to the rise in oil prices,” said Chris Skrebowski, Editor of Petroleum Review, who prepared the new analysis. Notes Skrebowski, “Those producers still with expansion potential are having to work harder and harder just to make up for the accelerating losses of the large number that have clearly peaked and are now in continuous decline.” Global discoveries for oil peaked thirty five years ago while demand has climbed inexorably higher. Obviously, there are still parts of the globe to be further exploited, whether this be in the deep ocean beds of the South China Sea, the west coast of Africa, or the highly prospective Falkland Islands. But there regions are the exception, rather than the rule. As Sanders notes, “this cannot last forever, something has to give, and that something is production. There are variables; the business cycle, technology and politics, but these can only affect the date of the peak, not eliminate the peak itself.” Especially when the date of that peak has been brought forward by the new demand variables of China and India; consider that for China and India to reach just one-quarter of the level of US oil consumption, world output would have to rise by 44 percent. To get to half the US level, world production would need to nearly double. That is a virtual impossibility. The world's oil reserves are finite. For all of the vaunted hopes imputed to new extraction techniques, it is worth noting that these processes are more likely to accelerate depletion rates, rather than expand supply. There quite simply are not enough new big oil projects coming on stream anymore to replace the old oil fields that are running low. It takes an average of 6 years from finding new oil to pumping it out, and the known new fields are not kept secret. In 2000, there were 16 major discoveries; in 2001 – eight; in 2002 – just three; and in 2003 – zero. The writing is on the wall. And the bad news is that there is no cheap, easy solution in sight: President Bush has publicly embraced hydrogen as a solution to our looming oil supply shortages. But, as Cal Tech Vice Provost and professor of physics, David Goodstein has noted, there are only two commercially viable ways of making hydrogen. One is to make it out of methane, which is a fossil fuel. The other is to use fossil fuel to generate the electricity that is required to electrolyze water and get hydrogen. The economics of doing that are such that one ends up using the equivalent of six gallons of gasoline to make enough hydrogen to replace one gallon of gasoline. This “solution” , therefore, turns out to be no such thing. Natural gas could be a very good substitute for oil. Cars that are not very different from those driven today can run on compressed natural gas, and it is a particularly clean-burning fuel. But if we turn to natural gas in a major way to replace diminishing supplies of oil, it will only be a temporary solution. The Hubbert Peak for natural gas is only a decade or so behind Hubbert’s Peak for oil (in fact, in the US, natural gas production peaked in 1973). And natural gas also puts Americans face to face again with the uncomfortable realities of the Iranian regime. According to Oil and Gas Journal, Iran has an estimated 940 trillion cubic feet of gas, or approximately 16% of total world reserves. (Only Russia, with 1,680 trillion cubic feet, has a larger supply.) As it takes approximately 6,000 cubic feet of gas to equal the energy content of 1 barrel of oil, Iran's gas reserves represent the equivalent of about 155 billion barrels of oil. This, in turn, means that its combined hydrocarbon reserves are the equivalent of some 280 billion barrels of oil, just slightly behind Saudi Arabia's combined supply. At present, Iran is producing only a small share of its gas reserves, about 2.7 trillion cubic feet per year. This means that Iran is one of the few countries potentially capable of supplying much larger amounts of natural gas in the future, although presumably a pre-emptive attack in response to Iran’s ongoing uranium enrichment activities could disrupt this supply (as well as any inconvenient and growing ties between Iran and America’s leading competitors in the global energy market, China and India). Wind and solar power are also being discussed as viable alternatives to oil. And they are, but only to a limited extent. Power generated from waves, windmills, and solar panels is weak, intermittent, and expensive—at least twice the cost of electricity produced from coal or gas. When it is cold or dark, solar panels don’t produce energy; when it is calm, wind turbines don’t turn. Moreover, in regions like northern Europe, where fossil fuels are very expensive and the wind is strong (and, hence, a viable alternative to rival hydroelectric power as a source of energy), other obstacles remain: places such as Scotland have been marked by protests developing over the “eyesore” wind farms being built over the pristine Highlands. Similar protests are emerging over plans to build Britain’s biggest wind farm along the borders of the Lake District National Park on the grounds that it will destroy one of the country’s most treasured and inspirational landscapes. Even allowing for resolution of these conflicts, there are relatively few places on earth, like northern Scotland or England’s Lake District, where the wind blows strongly and steadily enough for it to be a dependable energy source, leaving aside the question of engendering political support to build these aesthetic monstrosities. In recent years, the debate over nuclear power has revived, and to judge from the tremendous rally in the price of uranium and various uranium stocks, the market has already concluded that nuclear power is firmly back on the political agenda again. Nuclear power has undoubted attractions, as it would facilitate compliance with the Kyoto Treaty. But its replacement potential for oil is still limited. To produce enough nuclear power to equal the power derived from fossil fuels, would entail production of 10,000 of the largest possible nuclear power plants, according to Goodstein: “That’s a huge, probably nonviable initiative, and at that burn rate, our known reserves of uranium would last only for 10 or 20 years.” Eventually, scientists, geologists and entrepreneurs may develop or discover entirely new sources of energy -- for example, geothermal, biomass, or hydrogen-based systems -- but at current rates of development, none of these alternatives will be available on a large enough scale to provide a cheap, affordable alternative to the 20th century’s generally low prevailing energy prices. The recognition of oil’s depletion dynamics neither means that oil is in imminent danger of running out, nor that no more will be discovered, that alternative technologies cannot be invented and deployed as substitutes. It does mean that the single most important and chemically unique storehouse of energy on the earth is finite and cannot be relied upon to deliver infinitely extended growth on its own, and the global economy will have to adjust to significantly higher energy inputs for the foreseeable future in spite of the recent price weakness recorded in the markets. This likely implies lower aggregate growth (and, by extension, corporate profits) and, from a geopolitical standpoint, a growing tension between the forces binding the world more tightly together into a global financial and production system and the forces competing to control the resources that fuel that production.
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The end of oil is closer than you think - The Guardian
The one thing that international bankers don't want to hear is that the second Great Depression may be round the corner. But last week, a group of ultra-conservative Swiss financiers asked a retired English petroleum geologist living in Ireland to tell them about the beginning of the end of the oil age. They called Colin Campbell, who helped to found the London-based Oil Depletion Analysis Centre because he is an industry man through and through, has no financial agenda and has spent most of a lifetime on the front line of oil exploration on three continents. He was chief geologist for Amoco, a vice-president of Fina, and has worked for BP, Texaco, Shell, ChevronTexaco and Exxon in a dozen different countries. "Don't worry about oil running out; it won't for very many years," the Oxford PhD told the bankers in a message that he will repeat to businessmen, academics and investment analysts at a conference in Edinburgh next week. "The issue is the long downward slope that opens on the other side of peak production. Oil and gas dominate our lives, and their decline will change the world in radical and unpredictable ways," he says. Campbell reckons global peak production of conventional oil - the kind associated with gushing oil wells - is approaching fast, perhaps even next year. His calculations are based on historical and present production data, published reserves and discoveries of companies and governments, estimates of reserves lodged with the US Securities and Exchange Commission, speeches by oil chiefs and a deep knowledge of how the industry works. "About 944bn barrels of oil has so far been extracted, some 764bn remains extractable in known fields, or reserves, and a further 142bn of reserves are classed as 'yet-to-find', meaning what oil is expected to be discovered. If this is so, then the overall oil peak arrives next year," he says. If he is correct, then global oil production can be expected to decline steadily at about 2-3% a year, the cost of everything from travel, heating, agriculture, trade, and anything made of plastic rises. And the scramble to control oil resources intensifies. As one US analyst said this week: "Just kiss your lifestyle goodbye." But the Campbell analysis is way off the much more optimistic official figures. The US Geological Survey (USGS) states that reserves in 2000 (its latest figures) of recoverable oil were about three trillion barrels and that peak production will not come for about 30 years. The International Energy Agency (IEA) believes that oil will peak between "2013 and 2037" and Saudi Arabia, Kuwait, Iraq and Iran, four countries with much of the world's known reserves, report little if any depletion of reserves. Meanwhile, the oil companies - which do not make public estimates of their own "peak oil" - say there is no shortage of oil and gas for the long term. "The world holds enough proved reserves for 40 years of supply and at least 60 years of gas supply at current consumption rates," said BP this week. Indeed, almost every year for 150 years, the oil industry has produced more than it did the year before, and predictions of oil running out or peaking have always been proved wrong. Today, the industry is producing about 83m barrels a day, with big new fields in Azerbaijan, Angola, Algeria, the deep waters of the Gulf of Mexico and elsewhere soon expected on stream. But the business of estimating oil reserves is contentious and political. According to Campbell, companies seldom report their true findings for commercial reasons, and governments - which own 90% of the reserves - often lie. Most official figures, he says, are grossly unreliable: "Estimating reserves is a scientific business. There is a range of uncertainty but it is not impossible to get a good idea of what a field contains. Reporting [reserves], however, is a political act." According to Campbell and other oil industry sources, the two most widely used estimates of world oil reserves, drawn up by the Oil and Gas Journal and the BP Statistical Review, both rely on reserve estimates provided to them by governments and industry and do not question their accuracy. Companies, says Campbell, "under-report their new discoveries to comply with strict US stock exchange rules, but then revise them upwards over time", partly to boost their share prices with "good news" results. "I do not think that I ever told the truth about the size of a prospect. That was not the game we were in," he says. "As we were competing for funds with other subsidiaries around the world, we had to exaggerate." Most serious of all, he and other oil depletion analysts and petroleum geologists, most of whom have been in the industry for years, accuse the US of using questionable statistical probability models to calculate global reserves and Opec countries of drastically revising upwards their reserves in the 1980s. "The estimates for the Opec countries were systematically exaggerated in the late 1980s to win a greater slice of the allocation cake. Middle East official reserves jumped 43% in just three years despite no new major finds," he says. The study of "peak oil" - the point at which half the total oil known to have existed in a field or a country has been consumed, beyond which extraction goes into irreversible decline - used to be back-of-the envelope guesswork. It was not taken seriously by business or governments, mainly because oil has always been cheap and plentiful. In the wake of the Iraq war, the rapid economic rise of China, global warming and recent record oil prices, the debate has shifted from "if" there is a global peak to "when". The US government knows that conventional oil is running out fast. According to a report on oil shales and unconventional oil supplies prepared by the US office of petroleum reserves last year, "world oil reserves are being depleted three times as fast as they are being discovered. Oil is being produced from past discoveries, but the reserves are not being fully replaced. Remaining oil reserves of individual oil companies must continue to shrink. The disparity between increasing production and declining discoveries can only have one outcome: a practical supply limit will be reached and future supply to meet conventional oil demand will not be available." It continues: "Although there is no agreement about the date that world oil production will peak, forecasts presented by USGS geologist Les Magoon, the Oil and Gas Journal, and others expect the peak will occur between 2003 and 2020. What is notable ... is that none extend beyond the year 2020, suggesting that the world may be facing shortfalls much sooner than expected." According to Bill Powers, editor of the Canadian Energy Viewpoint investment journal, there is a growing belief among geologists who study world oil supply that production "is soon headed into an irreversible decline ... The US government does not want to admit the reality of the situation. Dr Campbell's thesis, and those of others like him, are becoming the mainstream." In the absence of reliable official figures, geologists and analysts are turning to the grandfather of oil depletion analysis, M King Hubbert, a Shell geologist who in 1956 showed mathematically that exploitation of any oilfield follows a predictable "bell curve" trend, which is slow to take off, rises steeply, flattens and then descends again steeply. The biggest and easiest exploited oilfields were always found early in the history of exploration, while smaller ones were developed as production from the big fields declined. He accurately predicted that US domestic oil production would peak around 1970, 40 years after the period of peak discovery around 1930. Many oil analysts now take the "Hubbert peak" model seriously, and the USGS, national and oil company figures with a large dose of salt. Similar patterns of peak discovery and production have been found throughout all the world's main oilfields. The first North Sea discovery was in 1969, discoveries peaked in 1973 and the UK passed its production peak in 1999. The British portion of the basin is now in serious decline and the Norwegian sector has levelled off. Other analysts are also questioning afresh the oil companies' data. US Wall street energy group Herold last month compared the stated reserves of the world's leading oil companies with their quoted discoveries, and production levels. Herold predicts that the seven largest will all begin seeing production declines within four years. Deutsche Bank analysts report that global oil production will peak in 2014. According to Chris Skrebowski, editor of Petroleum Review, a monthly magazine published by the Energy Institute in London, conventional oil reserves are now declining about 4-6% a year worldwide. He says 18 large oil-producing countries, including Britain, and 32 smaller ones, have declining production; and he expects Denmark, Malaysia, Brunei, China, Mexico and India all to reach their peak in the next few years. "We should be worried. Time is short and we are not even at the point where we admit we have a problem," Skrebowski says. "Governments are always excessively optimistic. The problem is that the peak, which I think is 2008, is tomorrow in planning terms." On the other hand, Equatorial Guinea, Sao Tome, Chad and Angola are are all expected to grow strongly. What is agreed is that world oil demand is surging. The International Energy Agency, which collates national figures and predicts demand, says developing countries could push demand up 47% to 121m barrels a day by 2030, and that oil companies and oil-producing nations must spend about $100bn a year to develop new supplies to keep pace. According to the IEA, demand rose faster in 2004 than in any year since 1976. China's oil consumption, which accounted for a third of extra global demand last year, grew 17% and is expected to double over 15 years to more than 10m barrels a day - half the US's present demand. India's consumption is expected to rise by nearly 30% in the next five years. If world demand continues to grow at 2% a year, then almost 160m barrels a day will need to be extracted in 2035, twice as much as today. That, say most geologists is almost inconceivable. According to industry consultants IHS Energy, 90% of all known reserves are now in production, suggesting that few major discoveries remain to be made. Shell says its reserves fell last year because it only found enough oil to replace 15-25 % of what the company produced. BP told the US stock exchange that it replaced only 89% of its production in 2004. Moreover, oil supply is increasingly limited to a few giant fields, with 10% of all production coming from just four fields and 80% from fields discovered before 1970. Even finding a field the size of Ghawar in Saudi Arabia, by far the world's largest and said to have another 125bn barrels, would only meet world demand for about 10 years. "All the major discoveries were in the 1960s, since when they have been declining gradually over time, give or take the occasional spike and trough," says Campbell. "The whole world has now been seismically searched and picked over. Geological knowledge has improved enormously in the past 30 years and it is almost inconceivable now that major fields remain to be found." He accepts there may be a big field or two left in Russia, and more in Africa, but these would have little bearing on world supplies. Unconventional deposits like tar sands and shale may only slow the production decline. "The first half of the oil age now closes," says Campbell. "It lasted 150 years and saw the rapid expansion of industry, transport, trade, agriculture and financial capital, allowing the population to expand six-fold. The second half now dawns, and will be marked by the decline of oil and all that depends on it, including financial capital." So did the Swiss bankers comprehend the seriousness of the situation when he talked to them? "There is no company on the stock exchange that doesn't make a tacit assumption about the availability of energy," says Campbell. "It is almost impossible for bankers to accept it. It is so out of their mindset." Crude alternatives "Unconventional" petroleum reserves, which are not included in some totals of reserves, include: Heavy oils These can be pumped just like conventional petroleum except that they are much thicker, more polluting, and require more extensive refining. They are found in more than 30 countries, but about 90% of estimated reserves are in the Orinoco "heavy oil belt" of Venezuela, which has an estimated 1.2 trillion barrels. About one third of the oil is potentially recoverable using current technology. Tar sands These are found in sedimentary rocks and must be dug out and crushed in giant opencast mines. But it takes five to 10 times the energy, area and water to mine, process and upgrade the tars that it does to process conventional oil. The Athabasca deposits in Alberta, Canada are the world's largest resource, with estimated reserves of 1.8 trillion barrels, of which about 280-300bn barrels may be recoverable. Production now accounts for about 20% of Canada's oil supply. Oil shales These are seen as the US government's energy stopgap. They exist in large quantities in ecologically sensitive parts of Colorado, Wyoming and Utah at varying depths, but the industrial process needed to extract the oil demands hot water, making it much more expensive and less energy-efficient than conventional oil. The mining operation is extremely damaging to the environment. Shell, Exxon, ChevronTexaco and other oil companies are investing billions of dollars in this expensive oil production method.
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Corruption takes its toll on Iraqi oil industry - Daily Star - Beirut
The Iraqi Oil Ministry has sacked more than 450 employees suspected of selling fuel on the black market. The recent move is the most recent in a series of measures designed to crack down on corruption within the industry, the country's most lucrative sector. Iraq is thought to have the world's second largest oil reserves after Saudi Arabia. But graft and attacks on fuel tankers and pipelines have led to disappointing revenues for 2004. The Oil Ministry's general inspector Ali Muhsin Ismael said the government's inability to provide a secure environment was partly responsible, but noted that his ministry accepted some of the blame for the situation. "There is still corruption in the Oil Ministry and this cannot be [completely eradicated]," Ismael said. Ismael said that criminals used a number of methods to defraud the industry, including the manipulation of fuel pump gauges and incorrect measurement of tankers' contents - both of which can result in an undeclared surplus that can then be sold on the black market. In Basra, which is the site of Iraq's southern oil fields, resident Hussein al-Sabti said that oil smuggling operations were now carried out in the open. "This has prompted the population of Basra to ask whether or not smuggling of petrol is a legitimate act," he said. An official from the Iraqi Army's Border Forces 4th Regiment Command, which controls frontier crossings and the ports, claimed that some government officials had asked the authorities to turn a blind eye to oil smuggling. "[We were ordered to] allow some citizens of a neighboring country to cross the border with the aim of visiting the holy shrines, without having official documents," the border official said. "It appeared later on that they had something to do with oil smuggling operations." Abdel-Kareem Liaibi, the Oil Ministry's fuel distribution project manager, said that the government had recently discovered that one of its southern pipelines was peppered with more than 20 illegal taps, allowing tankers to top up their loads at will. Liaibi claims that organized gangs are behind these corrupt practices, and blames them for the fact that only 60 percent of trucks carrying oil products from wells to other areas reach their destination, the remainder being attacked and hijacked. He also said that many petrol station managers are also selling their products on the black market - sometimes in cooperation with the police. Yahia al-Rubai, supervisor of Baghdad's Al-Khalisa fuel station, said that within days of him taking charge, armed bandits had seized control of petrol distribution and started stealing fuel. "When I confronted them, the bandits tried to attack me with their guns," he said. "The country's economy and security is dependent upon catching those who engage in corruption and the criminals who collaborate with them." The government as a whole is facing a struggle against corruption, according to Judge Radhi Hamza al-Radhi, chairman of the Commission on Public Integrity. "This waste of public finances is worrying government officials in Iraq," he said. "It is difficult to combat corruption due to the absence of a strong mechanism to control all the institutions' civil servants, and due to a lack of support from law enforcement bodies." In an effort to deal with the corruption problem, the Iraqi Oil Ministry has sacked more than 450 employees suspected of selling fuel on the black market. But Oil Ministry official Liaibi isn't sure whether actions such as this will put an end to graft. "I can't recommend any civil servants or workers," he said. "Today they are honest but, after one month, they are engaging in corruption. I can't even guarantee that I won't be joining them."
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OPEC Official: Oil Dry-Up Fears a Myth - Associated Press
Global oil reserves are in little danger of running out for many decades, and OPEC will continue to boost production as necessary to stabilize prices, a senior official of the group said Wednesday. "The problem in 2004 was we did not anticipate the strength of demand ... it appears that in 2005 we are reaching a plateau," said Adnan Shihab-Eldin, acting secretary-general of the Organization of Petroleum Exporting Countries. Unusually high prices cannot continue forever, "as long as you continue to put greater supply in the market," he said. Crude futures were trading around US$52 a barrel Wednesday, down more than US$6 from their intraday peak of $58.28 on April 4, but remain sharply higher than they were a year ago, driven up by surging demand and worries about spare production capacity. At a March meeting in Iran, OPEC increased its production ceiling by 500,000 to 27.5 million barrels a day, and provided for an identical increase if crude prices did not stabilize. "OPEC must continue to increase production, so there is more supply than demand," Shihab-Eldin said. "Prices settle down if there are no conflicts or major supply disruptions," he said, saying $30 a barrel "is an indication of where prices could go. The higher side will be somewhere below US$50 perhaps." Shihab-Eldin, speaking at a regional development conference in Athens, said OPEC is committed to keeping spare capacity high, to keep prices stable. "In 2004, the spare capacity dropped to about 4 percent and that allowed prices to go very high. Now we have recovered spare capacity to about 10 percent," he said. "We will continue to do so until the year 2010, with spare capacity reaching 15 percent." Qatar's oil minister, however, said earlier Wednesday that OPEC members have little room to increase production. "OPEC is almost producing to the maximum," said Abdullah bin Hamad Al Attiyah. "In a few countries they have spare capacity, but in most member countries they have no spare capacity." Al Attiyah, said global oil inventories were strong, though, with more in the market than OPEC had expected. And Shihab-Eldin said fears of the world's oil supply running out are unfounded. "There is no danger oil will run out," Shihab-Eldin said. "Total cumulative production has been around 1 trillion barrels. But there are about three trillion left proven, recoverable reserves left ... There's about half a century to a century before oil will start to lose its economic viability." With current world demand at about 83 million barrels per day, the figure should rise to about 105 million in 2020, with much of the additional demand coming from China and India, he said.
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Oil Firms Face 50 Percent Tax in Venezuela - Forbes
Oil firms with contracts to pump oil in Venezuela are bracing for more taxes as the government has said they will now be required to pay 50 percent income tax amid record oil prices. Private firms will have to pay a 50 percent income tax rate instead of a previous 34 percent preferential rate, Oil Minister Rafael Ramirez said Sunday, without specifying when the new rate will be applied. "A company that drills, produces and operates oil has to pay a 50 percent income tax, which is what corresponds to oil activities," Ramirez said in the interview with the Venezuelan channel Televen. When the contracts were signed in the 1990s, oil firms were registered as contracted help for the state-run Petroleos de Venezuela S.A. (PDVSA), making them eligible for the lower industrial rate. But Ramirez said the national tax office will strip them of that lower rate. "These companies were paying a non-oil tax of 34 percent," said Ramirez, who is also the president of PDVSA. The tax agency, he said "will reclassify the tax." The move is the latest in a series of oil tax hikes in Venezuela. Last week, the government said private firms operating 32 production agreements will have to come into compliance with the 2001 Hydrocarbons Law, which has a 30 percent royalty tax rate, up from 16.6 percent in previous legislation. Under the law, PDVSA must have a majority stake in all oil production projects. Last year the government of President Hugo Chavez increased the royalty tax on 600,000 barrels a day of heavy crude from the Orinoco tar belt to 16.6 percent from 1 percent. Large oil companies appeared to be waiting for the dust to settle before taking a stand. Firms with contracts to produce oil for PDVSA include ChevronTexaco, BP, Repsol, Total, Petrobras, Royal Dutch Shell and China National Petroleum Corp. "Of the operating agreements, I don't know how many will remain," said Leonardo Belloso Medina, the president of Petrolera Integral Venezolana C.A., an oil consulting firm. Before Venezuela can start charging the higher rate, it must first increase the number of oil companies that pay taxes. Officials say many foreign oil firms declare losses citing high costs and heavy investments, and pay no taxes. Chavez has threatened to charge oil firms back taxes for dodging payments in recent years, and has ordered the tax office to investigate. Chavez says he is leading a "revolution" for the country's poor, and his government allocated more oil revenues toward a range of social programs for the needy.
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Kingdom Finds New Oil Field - Arab News - Saudi Arabia
A new oil field producing light crude has been found in the center of the Kingdom, Minister of Petroleum and Mineral Resources Ali Al-Naimi announced yesterday. Saudi Aramco found the Duaiban-1 well, which will pump 3,300 barrels per day of sulfur-free crude with an API gravity of 41 degrees, 125 kilometers southeast of the capital Riyadh. According to Al-Naimi, the oil in Duaiban field is accompanied by three million cubic feet a day of gas. “We expect that the new oil field could produce large quantity of light crude,” the Saudi Press Agency quoted him as saying. OPEC sources say the Kingdom is pumping around 9.5 million bpd this month. Production is expected to rise toward the 10 million mark in May, according to industry sources. Al-Naimi said earlier that the Kingdom would pump more crude later this year. “World demand is forecast to grow in the last part of the year, which will necessitate an increase in production. Hence Saudi Arabia will raise its production from the current level later this year,” Al-Naimi said. Riyadh has embarked on an ambitious scheme to boost production capacity, officially pegged at 11 million bpd, to 12.5 million by 2009. Saudi Aramco recently signed contracts with international engineering and construction firms to develop its Khursaniyah oil and gas project and Hawiyah NGL program. Aramco said the Khursaniyah project will add 500,000 barrels of crude oil per day to Saudi Arabia’s production capacity by the end of 2007. The Hawiyah NGL recovery program will produce an additional 310,000 barrels of ethane and NGL products by 2008.
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Is it all relative? Maybe oil prices aren't so bad, after all - Christian Science Monitor
We groan when our grandparents go on about Coca-Cola costing only a nickel in their day. How did things become so much more expensive, they always want to know? Here's the short answer: With inflation factored in, that same bottle of Coke during World War II would cost roughly what we pay for it today. Eggs, milk, and bread now cost less. But when the subject of gasoline comes up, we sound like our elders. How did it get to be so much? The fact is, oil is still relatively inexpensive. By one measure tracked by Dow Jones, we are still far from matching an April 1980 spike in US oil prices. The $39.50 per barrel price that month exceeds $90 in today's dollars. We remain a long way from that, with oil easing below the $50 mark in trading Monday. That's not to say that energy costs aren't hitting families and corporations in the pocketbook. Even as oil prices have softened in recent days, there's been new concern about energy dampening economic growth. But a broader view - looking at oil over a longer period and against other goods and services - puts the impact in a less dire perspective. "Gas is actually cheap right now," says Timothy McMahon, editor of InflationData.com. "Up until a year ago, oil was at a historic low, and they were giving this stuff away. And so to go from $20 a barrel to $50 a barrel looks like a big increase in a small period of time. But if it were spread out over those 25 years, nobody would say a thing." Even with the rising costs, economists say, energy still makes up a small percentage of a family's budget, about 4 percent. That's half what it was in the early 1980s. In fact, lots of goods and services have gone down in price during that time, including clothes, electronics, and food. But don't dismiss your grandparents that quickly. Certain things like new cars, new homes, healthcare, and a college education are considerably more expensive today. AAA, the nation's largest organization for motorists, is quick to point out that most families try to stick to some kind of household budget and do feel the pinch when oil prices fluctuate. "AAA's view for a long time has been that inflation-adjusted prices for energy are probably helpful to economists and policymakers, but not for the typical family that has to pay a gasoline credit-card statement every month," says Geoff Sundstrom of AAA. "The prices are paid with real dollars or current dollars." Consumers seem to be taking the rapid rise in oil prices in stride. Many aren't cutting out that weekend movie to make up for the damage at the pump. Jeff Stepanik, for instance, says gas prices over $2 a gallon have not had any impact on his family's budget (or lack thereof). He is still tinkering around with motorcycles and his wife is still happily hitting the mall. "We don't live any differently than we did before," says the Houston account manager. "It's not like we're going without a meal because of gas prices." But he is considering a life with routinely higher gas prices - as witnessed by his family's most recent purchase. Three weeks ago, Mr. Stepanik sold his wife's "gas-guzzling" Ford Expedition and bought a hybrid Nissan. "This vehicle made more financial sense, because we are not going to stop driving," he says. He estimates that gas prices would have to exceed $10 a gallon before he considers changing his driving patterns. That's not an uncommon attitude in the United States. Even during the oil embargo of the 1970s, it took a while before consumers began buying smaller, more fuel-efficient cars or moving closer to where they worked. "It's going to take a lot higher gas prices for people to consider using mass transit or carpooling again," says Mark Baxter, director of the Maguire Energy Institute at Southern Methodist University in Dallas. "It is really difficult for Americans to give up the freedom they have with the automobile." He sees it happening perhaps first with the younger generation, who are more shocked by the rising prices because they have grown up with cheap gas. For instance, he knows a college student who took a lower-paying summer job because it was 20 miles closer to where he lived. "They are doing the math," says Mr. Baxter. But Michael Solomon, consumer behavior expert at Auburn University in Alabama, calls the frenzy over rising gas prices "a tempest in a teapot," considering the amount of money people spend on small indulgences. "The same people who are complaining about gas prices don't blink when they pay $3.50 for a latte," he says. "That's different somehow." What's different is the changing perception of certain goods and services, he says. The necessities, such as food, clothing, and energy, are supposed to stay relatively constant, so that every year consumers are able to afford a little more of the "good stuff." "We learn that a loaf of bread is $2.29 and we base our expectations on that. The usual becomes the right," says Dr. Solomon. "But the 11th Commandment is not that bread shall be $2.29."
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