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Oil heads toward $70, with potentially grave consequences for global economy

Brad Foss, Associated Press via Minn. Star Tribune
While last summer’s price spike triggered outrage in Congress and hurt sport utility vehicle sales, it caused only a hiccup in motor-fuel consumption. And for now, with demand back on the rise, the economy seems capable of absorbing uncomfortably high prices.

Analysts warn, however, that consumers and businesses could be just one major supply disruption away from more serious financial consequences.

Sherry Cooper, chief economist at BMO Nesbitt Burns, said the ramifications of $70 oil and $3-a-gallon gasoline would be “more mild” the second time around “because we’re getting kind of used to it.”

But while the gas-price sticker shock may be wearing off, Nomura Securities chief economist David Resler fears a more subtle fuel-related angst settling in among consumers.

“There is the pessimistic notion that this is not going to go away and that’s going to have a more lasting impact on driving habits and behavior, I suspect, than we’ve seen so far,” Resler said.

In that context, a hypothetical supply disruption that jolts oil prices to $80 or higher and keeps them there for an extended period – say, three months – could result in “a substantial falloff in discretionary spending” that snowballs into a serious slowdown.

Perhaps the top threat for the oil market is the standoff between the United Nations and Iran, OPEC’s No. 2 producer, over Tehran’s nuclear energy ambitions.
(31 March 2006)

Energy policy a contradiction in Bolivia

Tyler Bridges, Knight Ridder via Duluth News Tribune
LA PAZ, Bolivia – President Evo Morales warned of an undocumented dark conspiracy last month against him by the natural-gas industry, only days after taking office, and has also called for “nationalizing” the foreign-owned operations.

Yet Morales and other senior government officials have welcomed more foreign investment in Bolivia’s natural-gas industry and indeed want to use tax dollars generated by increased gas production to finance an ambitious program of new schools, health clinics and natural-gas connections to the homes of poor people.

Welcome to Bolivia, the land of contradictions when it comes to its huge natural-gas holdings, which are eyed hungrily not only by the foreign producers but by Bolivia’s natural-gas-starved neighbors.

…Fueling public anger has been that perhaps only 20 percent of Bolivians actually directly benefit from having a gas hook-up for home cooking. Most Bolivians either have to buy gas in expensive mini-tanks or, if they are very poor, they use wood, straw or cow dung.

“This is how we cook,” Elsa Falcon said as she put straw under a pot that would be used to make squash soup, under a lean-to behind her simple home in the town of Mecapaca, outside of La Paz. “And yet we have had presidents who sell our gas to other countries. We need to use gas to industrialize Bolivia.”
(30 March 2006)

Venezuela takes on ExxonMobil

Associated Press via MSNBC
CARACAS, Venezuela – Venezuela had a blunt message this week for Exxon Mobil, one of the world’s most powerful oil companies: Get off my crude-rich turf.

Venezuela is tightening its squeeze on the oil industry, telling oil companies to give the state a greater share of profits — or get out.
(30 March 2006)

Iran’s plan to weaken the dollar will fail

Milton Ezrati, Christian Science Monitor (commentary)
Tehran lacks the freedom and transparency needed for a successful oil exchange.
JERSEY CITY, N.J. – If, as is widely believed, the original tales of the 1001 Arabian Nights came out of Persia, then Iran, Persia’s modern successor, has just given the world yet another great fantasy: the Iranian oil bourse.

Surely Tehran lost touch with reality when it developed its plan to use a new, euro-based oil exchange, on Kish Island in the Persian Gulf, to dethrone the greenback from its position as the world’s reigning reserve currency. Such a project is neither likely to attract much business nor to have Tehran’s desired effect on the dollar or the United States.

Tehran’s plan of attack has the virtue of economic logic at least. Iran’s planners recognize that the heavy use of the dollar in international trade sustains its foreign exchange value by forcing people to hold greater dollar balances than they otherwise would. The dollar’s consequent strength encourages its use in other transactions, which requires still greater dollar holdings in a dollar-boosting cycle. Iran’s planners hope that their euro-based exchange will disrupt this pattern. By forcing oil traders to hold euro balances instead of dollar balances, Tehran expects the oil bourse to induce dollar selling and consequently force a drop in value. Those foreign exchange losses will draw still more trading away from the dollar, further weakening it, until, ultimately, it loses its world-leading position. Iran’s planners expect to do the US great harm in this way.

This economic logic, though reasonable from a theoretical standpoint, misses some very practical hurdles to success. Tehran’s exchange simply is not attractive compared with the exchanges in London and New York, where dealers and traders are prospering amid their well-developed networks.
(29 March 2006)
The last news we saw about the Iranian bourse in the March 14 Globe and Mail (Canada) indicated that it was postponed:

..Despite repeated reports over the past 18 months or so that the planned bourse would finally open for business on March 20, 2006 — and go head to head with the New York Mercantile Exchange and the ICE Futures Exchange in London — the start date has been postponed by at least several months and maybe more than a year.

Petroleos Mexicanos: private funds needed to bolster output

El Universal
Petroleos Mexicanos, the world´s third-largest oil producer, risks declining output for the first time in seven years unless lawmakers allow for private investment, cutting supplies on the world market as demand increases.

Pemex Chief Executive Officer Luis Ramírez Corzo said Mexico will leave billions of barrels untapped in deep Gulf of Mexico waters and in a costly onshore field without partners to provide technology and share risks. Mexican law allows only Pemex to extract oil and gas and to refine crude, barring companies such as Exxon Mobil Corp. and Royal Dutch Shell Plc from investing in the industry.

The country since 1979 has pumped the majority of its oil from Cantarell, the world´s second-biggest field by production, and reinvested little on other deposits, Ramírez said. With Cantarell supply declining for the first time this year, Pemex must emulate state-controlled companies such as Norway´s Statoil ASA to drill in more remote areas.
(31 March 2006)

LaDuke: Three Affiliated Tribes at a crossroads: Which energy path?

Winona LaDuke, Indian Country Today
Tex Hall is eager to bring a synfuels refinery and other tribal energy resources into the market. ”The tribe is concerned about delays … We really want to work with our senators and kick-start the regulatory and funding process to get the new Indian energy programs under way,” Hall explained at an early October meeting with the Crow and Fort Peck tribes. At the meeting, Hall proposed the northern tribes consider a strategic formal alliance on energy and economic development. ”Our tribes are rich in energy resources,” he said.

Wes Martel, a former tribal council member of the Wind River reservation, echoed his sentiments. ”We’re here to support Tex’s tribal economic alliance,” he said, adding that tribes can’t depend on federal agencies.

At stake is a flagship project at Three Affiliated Tribes and, potentially, a large number of other projects in the region as tribes grapple with options from the fossil fuel or the renewable energy economy. The proposed $80 million Makoti synfuels oil refinery will be sited on the Fort Berthold Reservation, employing some 300 construction workers and providing 80 full time jobs. The tribe has approved a lease for this land, as well as 200 acres to oil companies. The draft environmental impact study was released just this past month.

Regionally, Bill Kitto, BIA superintendent at Fort Berthold, is lauding a minerals study reporting l to l.5 billion tons of coal on the reservation, with an estimated 560 tons of coal in the White Shield community alone. At the other end of the energy spectrum, Fort Berthold has some of the best wind energy potential of any location in the world, with an estimated 17,000 times more wind power available than can be used on the reservation.

Arguably one of the most powerful Indians in North America, Hall’s past leadership at the National Congress of American Indians means that the Mandan/Hidatsa/Arikara tribal chairman’s choice to focus most on a conventional fossil-fuel path on energy issues sends a message. It also illustrates the complex challenges of tribal governments, and worries many of his tribal members.
(31 March 2006)