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
*Beyond the Oil Peak - Globalist
*Oil Rises Above $70 on Surging U.S. Economy and Iran Stalemate - Bloomberg
 *House OKs Oil Drilling in Alaska Refuge - San Francisco Chronicle
*Russia Oil Fund Changes Currency - Associated Press
*Norway and India join Spain in hunt for oil in Cuban waters - NBC News
*China Seals Oil Exploration Deal with Nigeria - Ohmynews - Korea

David Seaton's Energy Links® Editorial - A joke’s a joke The roots of great economic and political crisis are sometimes revealed most clearly by apparently trivial anecdotes. About a month ago, at a private dinner for the President, the First Lady and the White House press corps, the main speaker, television comedian Stephen Colbert brutally ridiculed the president to his face. Thanks to the Internet, Colbert’s speech has become an instant classic, the most popular download on Apple I-Tunes and Google Videos.

Colbert whose comedy consists of satirically playing the part of an idiotic far-right journalist and ardent Bush supporter, said things like, “I'm a simple man with a simple mind, I believe the government that governs best is the government that governs least. And by these standards, we have set up a fabulous government in Iraq. (…) I believe democracy is our greatest export. At least until China figures out a way to stamp it out of plastic for three cents a unit. (…) Most of all, I believe in this president. The greatest thing about Bush is you know where he stands. He believes the same thing Wednesday that he believed on Monday, no matter what happened Tuesday. Events can change; this man's beliefs never will. So don't pay attention to the approval ratings that say 68% of Americans disapprove of the job this man is doing. I ask you this, does that not also logically mean that 68% approve of the job he's not doing? Think about it. I haven't.”    

The President of the United States has become a figure of fun. Comedians mock him to his face and Americans roar with laughter.  As George Friedman of Strategic Forecasting put it, “The United States is the center of gravity of the international system. When a presidency fails, the world begins to operate in a different way.” Besides oil and Israel, the prime reason for invading Iraq was to show the world that American military strength could rearrange reality to its liking. A few thousand Iraqi insurgents using a homemade arsenal have stopped the hyperpower in its tracks. That is perhaps the key lesson and strategic defeat for the USA and the starting point for all the problems, political and economic, that follow.

 A Harvard  history professor, the noteworthy (and genuine) right-wing political commentator Niall Ferguson  explained it this way in the Los Angles Times, “foreign investors might not mind lending vast sums to the U.S. at trivially low rates of return if this was a kind of tribute to the American empire, paid in return for the benefits of the Pax Americana. However the empire can continue to collect its tribute only if the pax it provides is real and has legitimacy.”  David Seaton

David Seaton's Energy Links®

Beyond the Oil Peak - Globalist
Peak oil is described as the point where oil production stops rising and begins its inevitable long-term decline. Combined with continued fast-growing demand, the result is sharply rising oil prices. But even if oil production growth simply slows or plateaus, the resulting tightening of supplies due to demand will still drive the price of oil upward — albeit less rapidly. Few countries are planning a reduction in their use of oil. Even though peak oil may be imminent, most countries are counting on much higher oil consumption in the decades ahead, building automobile assembly plants, roads, highways, parking lots and suburban housing developments as though cheap oil will last forever. New airliners are being delivered with the expectation that air travel and freight will expand indefinitely. Yet in a world of declining oil production, no country can use more oil except at the expense of others. Some segments of the global economy will be affected more than others simply because some are more oil-intensive. Among these are the automobile, food and airline industries. Cities and suburbs will also evolve as oil supplies tighten. Stresses within the U.S. auto industry were already evident before oil prices started climbing in mid-2004. Now General Motors and Ford, both trapped with their heavy reliance on sales of gas-hogging sport utility vehicles, have seen Standard and Poor’s lower their credit ratings, reducing their corporate bonds to junk bond status. Although it is the troubled automobile manufacturers that appear in the headlines as oil prices rise, their affiliated industries will also be affected, including auto parts and tire manufacturers. The food sector will be affected in two ways. Food will become more costly as higher oil prices drive up production costs. As oil costs rise, diets will be altered as people move down the food chainand as they consume more local, seasonally produced food. Diets will thus become more closely attuned to local products and more seasonal in nature. At the same time, rising oil prices will also be drawing agricultural resources into the production of fuel crops, either ethanol or biodiesel. Higher oil prices are thus setting up competition between affluent motorists and low-income food consumers for food resources, presenting the world with a complex new ethical issue. Airlines, both passenger travel and freight, will continue to suffer as jet fuel prices climb, simply because fuel is their biggest operating expense. Although industry projections show air passenger travel growing by some five percent a year for the next decade, this seems highly unlikely. Cheap airfares may soon become history. Air freight may be hit even harder, perhaps leading to an absolute decline. One of the early casualties of rising oil prices could be the use of jumbo jets to transport fresh produce from the southern hemisphere to industrial countries during the northern winter. The price of fresh produce out of season may simply become prohibitive. During the century of cheap oil, an enormous automobile infrastructure was built in industrial countries that requires large amounts of energy to maintain. The United States, for example, has 2.6 million miles of paved roads, covered mostly with asphalt, and 1.4 million miles of unpaved roads to maintain even if world oil production is falling. Modern cities are also a product of the oil age. From the first cities, which took shape in Mesopotamia some 6,000 years ago, until 1900, urbanization was a slow, barely perceptible process. When the last century began, there were only a few cities with a million people. Today there are more than 400 such cities, 20 of them with 10 million or more residents. The metabolism of cities depends on concentrating vast amounts of food and materials and then disposing of garbage and human waste. With the limited range and capacity of horse-drawn wagons, it was difficult to create large cities. Trucks running on cheap oil changed all that. As cities grow ever larger and as nearby landfills reach capacity, garbage must be hauled longer distances to disposal sites. With oil prices rising and available landfills receding ever further from the city, the cost of garbage disposal also rises. At some point, many throwaway products may be priced out of existence. Cities will be hard hit by the coming decline in oil production, but suburbs will be hit even harder. People living in poorly designed suburbs not only depend on importing everything, they are also often isolated geographically from their jobs and shops. They must drive for virtually everything they need, even to get a loaf of bread or a quart of milk. Suburbs have created a commuter culture, with the daily roundtrip commute taking, on average, close to an hour a day in the United States. While Europe’s cities were largely mature before the onslaught of the automobile, those in the United States, a much younger country, were shaped by the car. While city limits are usually rather clearly defined in Europe, and while Europeans only reluctantly convert productive farmland into housing developments, Americans have few qualms about this because cropland was long seen as a surplus commodity. This unsightly, aesthetically incongruous sprawl of suburbs and strip malls is not limited to the United States. It is found in Latin America, in Southeast Asia, and increasingly in China. Flying from Shanghai to Beijing provides a good view of the sprawl of buildings, including homes and factories, that is following the new roads and highways. This is in sharp contrast to the tightly built villages that shaped residential land use for millennia in China. Shopping malls and huge discount stores, symbolized in the public mind by Wal-Mart, were all subsidized by artificially cheap oil. Isolated by high oil prices, suburbs may prove to be ecologically and economically unsustainable.
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Oil Rises Above $70 on Surging U.S. Economy and Iran Stalemate - Bloomberg
Crude oil rose above $70 a barrel in New York after the U.S. economy grew at a faster rate than initially reported and talks to convince Iran to abandon uranium enrichment ended inconclusively. The U.S. economy expanded at an annual rate of 5.3 percent in the first quarter, the Commerce Department said today in Washington. This compares with a 4.8 percent rate reported on April 28. The U.S. consumes 25 percent of the world's oil. The United Nations Security Council's five permanent members and Germany met in London yesterday to coordinate Iran policy. ``The U.S. GDP numbers, showing the fastest growth in 2 1/2 years, are very supportive,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Inc. in New York. ``Gasoline stocks may have risen last week, but growth during the second quarter has been weak. There's tremendous supply risk from geopolitical problems such as in Iran.'' Crude oil for July delivery rose 54 cents, or 0.8 percent, to $70.40 a barrel at 12:53 p.m. on the New York Mercantile Exchange. Futures reached $75.35 on April 21 and 24, the highest since trading began in 1983. Prices are up 38 percent from a year ago. Brent crude oil for July settlement rose 69 cents, or 1 percent, to $69.91 a barrel on the London-based ICE Futures exchange. Futures touched $74.97 a barrel May 2 and 3, the highest since the contract began trading in 1988. ``Oil, gold, copper and zinc have all traded erratically since hitting records or multi year highs in recent weeks,'' said Michael Fitzpatrick, vice president of energy risk management at Fimat USA Inc. in New York. ``In a vicious cycle, record high commodity prices prompt concern about inflation, interest rates and subsequently weaker global growth.'' Iran is under increasing pressure from the U.S. and Europe to abandon its nuclear program. The U.S. accuses Iran, the fourth- biggest oil producer, of using nuclear research as cover for the development of weapons. Iran's government insists the uranium work, a purification process that can produce fuel for a reactor or a bomb, is intended only to generate electricity. The United Nations Security Council's five permanent members, France, China, Russia, the U.K. and the U.S., can veto sanctions. Russia and China, both with economic ties to Iran, have so far resisted using the threat of sanctions against the Islamic republic, while the European Union, backed by the U.S., is pushing for them should diplomacy fail. The U.S. Embassy in London canceled a briefing to be given by Nicholas Burns, undersecretary of state for political affairs, yesterday. Earlier, U.K. Foreign Secretary Margaret Beckett told reporters that the meetings in London would be ``key,'' though they were unlikely to complete an agreement, according to Agence France-Presse. The Organization of Petroleum Exporting Countries, which pumps 40 percent of the world's oil, should continue pumping crude at near-record levels through the end of the year, Algerian Energy Minister Chakib Khelil said yesterday. OPEC, which meets June 1 in Caracas to review third-quarter output, should maintain production targets, Khelil said. Indonesia has called for OPEC to keep the same output quotas. Officials from Iran and Qatar said the group is unlikely to reduce supplies. ``I think we're going to stick with the policy we've had up until now,'' Khelil said in Washington where he is attending a conference on African energy. ``I don't see any major changes in what makes the market behave the way it is. I don't see any major changes through the end of the year and beyond.'' Prices fell yesterday after the Energy Department reported that U.S. gasoline supplies climbed 2.11 million barrels last week. An increase of 1.28 million barrels was forecast by 16 analysts surveyed by Bloomberg News. Gasoline inventories in the week ended May 19 were 0.8 percent lower than the five-year average for the period, the department said. Gasoline for June delivery rose 3.35 cents, or 1.7 percent, to $2.0525 a gallon in New York. Prices are up 41 percent from a year ago.
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House OKs Oil Drilling in Alaska Refuge - San Francisco Chronicle
Citing the public outcry over $3-a-gallon gasoline and America's heavy reliance on foreign oil, the House on Thursday voted to open an Alaska wildlife refuge to oil drilling, knowing the prospects for Senate approval were slim. Drilling proponents argued that the refuge on Alaska's North Slope would provide 1 million barrels a day of additional domestic oil at peak production and reduce the need for imports. But opponents to developing what environmentalists argue is a pristine area where drilling will harm caribou, polar bears and migratory birds, said Congress should pursue conservation and alternative energy sources that would save more oil than would be tapped from the refuge. The House voted 225-201 to direct the Interior Department to open oil leases on the coastal strip of the Arctic National Wildlife Refuge — an area of 1.5 million acres that is thought likely to hold about 11 billion barrels of recoverable oil. But the action may be little more than symbolic. Arctic refuge development, while approved by the House five times, repeatedly has been blocked in the Senate where drilling proponents have been unable to muster the 60 votes needed to overcome a filibuster. "We need to develop energy, here at home. ... We can't say no to everything," declared Rep. Richard Pombo, R-Calif., who pressed for a House vote on opening the refuge that lies east of the declining Prudhoe Bay oil fields 200 miles north of the Arctic Circle. Access to ANWR's oil has been a key part of President Bush's energy agenda, although over the last five years he's been unable to convince Congress of its merits. Energy Secretary Samuel Bodman on Thursday urged the Senate to pass a drilling measure "so we can strengthen our nation's energy security." Bush praised the House vote. "This project will keep our economy growing by creating jobs and ensuring that businesses can expand," he said in a statement. "And it will make America less dependent on foreign sources of energy." The refuge was set aside for protection in 1960 and expanded by Congress to 19 million acres in 1980 with a stipulation that its oil — limited to the coastal strip — could be developed, but only if Congress allows it. The federal government would share revenues equally with the state. While oil companies have long eyed the area where federal geologists estimate anywhere from 5.4 billion to as much as 16 billion barrels of oil may be recoverable, environmentalists consider it one of their top priorities for protection. "There are simply some places that should be off limits to drilling. The Arctic refuge should be one of them," said Rep. Lois Capps, D-Calif. The coastal strip is a calving area for caribou, home to polar bears and musk oxen, and a seasonal destination for millions of migratory birds. Drilling opponents cited an Energy Department analysis that ANWR's oil would have little impact on gasoline prices and reduce imports by only a few percentage points. Currently 60 percent of the 21 million barrels of oil used daily in the United States comes from imports. Advocates for opening the refuge to energy development said the tundra and its wildlife can be protected using modern drilling techniques and environmental restrictions. They contended the additional domestic oil would help move the country toward more energy independence. Congress approved drilling in the refuge in 1995, but President Clinton vetoed the bill. Had Clinton not issued his veto "we would have had a million barrels of oil today," said Rep. Don Young, R-Alaska. "We should be drilling off shore, we should be drilling in the Rockies and most of all we should be drilling in the Arctic refuge." Rep. Sherwood Boehlert, R-N.Y., countered that had Congress passed improved auto fuel economy measures 11 years ago when they were considered, today "we would save far more oil than ANWR would produce." "This Congress hasn't voted on a single conservation measure since gasoline hit $3 a gallon," said Boehlert. "Rather than debating how we could increase the fuel efficiency standards (of cars) over the next few years, we are debating about a bill that won't produce the first barrel of oil for 10 years and it will come from a pristine wildlife refuge," complained Rep. Ed Markey, D-Mass., a leading drilling opponent. The vote fell heavily along party lines. Twenty-seven Democrats joined the Republican majority in support of the legislation. Only 30 Republicans opposed the measure.
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Russia Oil Fund Changes Currency - Associated Press
Russia is switching its oil windfall fund from rubles to U.S. dollars, euros and British pounds sterling, Finance Minister Alexei Kudrin said Wednesday, news agencies reported. Kudrin said that he had signed an order on Monday for the transfer of the ruble-denominated Stabilization Fund to foreign currency deposits at the Central Bank. Russia's swelling oil fund, which currently stands at 1.8 trillion rubles (US$66.7 billion, euro52 billion), is forecast to grow to about 2 trillion rubles (US$74 billion) by the end of 2006. Kudrin said that the deposits would be held 45 percent in dollars, 45 percent in euros and 10 percent in pounds sterling. The move will not result in any net purchase of foreign currencies because the rubles held in the fund will be exchanged into dollars, euros and sterling from the central bank's own reserves. The announcement marks the first step toward a government investment program aimed at maximizing returns from the rainy day fund that will see it invested in Western government bonds and eventually also in blue-chip shares once legislation is passed permitting this. The fund, which receives oil export revenues above a certain point, was created as an inflation-fighting tool to absorb the petrodollars pouring into Russia's economy as oil prices break new records and to help pay down foreign debt. Russia is the world's second-largest oil exporter after Saudi Arabia. Kudrin said that the rate of return on the currency deposits would be 5 percent in U.S dollars and slightly less in euros. Also Wednesday, Russian lawmakers gave initial approval to legislation that would ban businesses listing prices in euros and dollars and bar Cabinet ministers from peppering their speeches with references to currencies other than the ruble. The measures, which passed easily in the 450-seat parliamentary lower house, are aimed at bolstering the authority of the ruble, which has staged a remarkable comeback after its chronic weakness during the economic turmoil of the post-Soviet era. But opposition Communist lawmakers said that the new laws were an empty initiative that would not do anything to change Russians' continued preference for foreign currencies despite the stability of the ruble in recent years.
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Norway and India join Spain in hunt for oil in Cuban waters - NBC News
State companies from India and Norway signed on this week to exploration plans by the Spanish petrochemical group Repsolin Cuba's Gulf of Mexico waters, in a move sure to fuel debate in Washington over its trade embargo exclusion of US groups from oil and gas reserves at a time of rising prices and demand. Norway's Norsk Hydro and ONGC Videsh of India will each take on 30 per cent of the risk for drilling, expected to begin in about 18 months. "We like what we see and think this area has good potential," said Egil Gloppen, Norsk Hydro executive. A partnership with the state-run Cubapetroleo (CUPET) must be formed if commercially viable amounts of oil or gas are discovered. Repsol reported it had found indications of good quality oil when it sank the first offshore well in the area in 2004. A CUPET official said the deal confirmed Cuba's offshore potential, adding that the involvement of other countries would make it harder for the US to block exploration. The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused. Cuba's share of the Gulf of Mexico was delineated through treaties signed with the US and Mexico in 1977, before new technologies made deep-water oil development possible. Oil and gas are believed to be present on both sides of the dividing line between US and Cuban waters. The US Geological Survey estimated there were 4.9bn barrels of undiscovered oil, 9,800bn cubic feet of undiscovered natural gas and 0.9bn barrels of undiscovered natural gas liquids in Cuba's North Cuban basin. US environmental law prohibits exploration on the US side. Cuba has repeatedly offered to work with US companies to develop the area. Legislation was introduced earlier this month in the US Congress exempting oil exploration from the embargo, but opponents countered with a bill that would impose sanctions on third-country companies for working with Cuba. "The question is whether the US pursuit of new oil sources will trump its longstanding distaste for the Castro government," said Daniel Erikson, Caribbean programmes director at the Inter-American Dialogue, a Washington policy group. "This flood of foreign investment into Cuba's energy sector is being very carefully watched by our oil and gas companies," he added. Mr Gloppen said the three companies had looked closely at legal questions involving the US but, since the area had never been expropriated, they had found no problems. The 43,000 square mile exclusive economic zone runs along the north-west coast of Cuba, then straight down past the western tip. Cuba parcelled it into 59 blocks for foreign exploration in 1999. In 2000, Repsol took the rights to the six blocks closest to shore on Cuba's northwest coast. Sherritt International, a Canadian company, opted more recently for four adjoining blocks. Companies from China, Venezuela and elsewhere are also considering exploration.
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China Seals Oil Exploration Deal with Nigeria - Ohmynews - Korea
Nigeria gave four of 17 drilling licenses to China National Petroleum Corp. (CNPC) on May 19. The deal cements an agreement made last month during a visit by Chinese President Hu Jintao. China will explore two areas in the restive, oil-producing Niger Delta and two areas in the Chad basin, where oil is yet to be produced. In exchange for the licenses, China will invest $4 billion to build a railway system and power stations and to control a stake in the 110,000 barrel-a-day Kaduna oil refinery. China is expected to pay some $15 million for the exploration rights in the Niger Delta, and a much smaller amount for the rights in the "risky" Chad basin. "The success at the bidding has given us the opportunity to be part of Nigeria's massive oil sector," said Huang Yu, vice president of CNPC. Eleven companies qualified for the bid including two local companies. In the agreement made last month, China held first right of refusal for four exploration licenses in the auction. Nigeria is the largest oil producer in Africa and the seventh largest in the world with an estimated daily production of 2.6 million barrels of crude oil. China is the biggest consumer of oil after the United States. As its consumption continues to rise, China's quest for new sources of oil has become more and more urgent. The deal is seen as a significant first step for China in positioning itself as a future player in the Nigerian oil sector, which is dominated by Western countries.
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