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US urges Opec not to cut production further

Carola Hoyos, Financial Times via MSNBC
The US on Friday urged the Organisation of the Petroleum Exporting Countries not to make further cuts to its oil production.

Samuel Bodman, US energy secretary, said: “I encourage them to keep markets well-supplied.”

But almost simultaneously in Cairo Ali Naimi, Saudi Arabia’s oil minister, indicated that the cartel needed to give serious consideration to further reducing its production when it met in Abuja, Nigeria’s capital, on December 14. He told reporters that demand was “okay”, US inventories were high, and 100m barrels of oil would have to be removed from the market to achieve a balance.

Several of Opec’s most hawkish members, including Venezuela and Nigeria, have called on the group to reduce its production by at least another 500,000 barrels a day. Libya, Algeria and Kuwait, more moderate Opec members, have been more guarded about whether further cuts are needed.
(1 Dec 2006)

OPEC sends conflicting signal on need for deeper cut

Summer Said and Talal Malik, Reuters via Washington Post
CAIRO – OPEC ministers sent conflicting signals on Saturday on whether the group needed to reduce oil production further to bring markets back into equilibrium.

Most ministers in OPEC, which pumps more than a third of the world’s oil, are concerned about swelling fuel inventories but others seem to feel the group would be hard-pressed to justify fresh supply curbs with oil prices firmly above $60 a barrel.

Libya’s top energy official said markets seemed to be nearing a balance and he did not feel there was a need for OPEC to add to the 1.2 million barrel per day cuts agreed in October.

“For me, it doesn’t look at this moment that a cut is necessary, but we have to see,” Shokri Ghanem told reporters.

But influential Saudi Oil Minister Ali al-Naimi reiterated that the market was out of balance because of high stockpiles and that 100 million barrels should be removed.
(2 Dec 2006)

Bodman: Africa Increasing in Strategic Energy Importance

Ian Talley, Dow Jones via RigZone
U.S Energy Secretary Samuel Bodman said Friday that Africa – one of the fastest growing petroleum regions in the world – was of growing strategic energy importance to the U.S., particularly as it tries to diversify its supply of oil and gas.

Speaking to ministers, officials and executives at an African Oil and Gas Forum here, Bodman said, the projected rise in U.S and global demand, “puts Africa in a position of increasing strategic importance to the U.S. and global markets.”

Bodman’s statement’s come ahead of an Organization of Petroleum Exporting Countries meeting in December, where several key producing states have said they want to cut crude supplies again.

The Secretary said he was urging OPEC members to keep the global market supplied ahead of winter demand and thought another cut would be unnecessary.

Any hopes the U.S. may have to loosen some of the control the OPEC cartel has on the crude market through increased oil development of Africa’s crude and natural gas production may have been diminished by an announcement earlier this week by Angola that it wishes to join OPEC.
(1 Dec 2006)

OPEC Expansion Ups Clout But Also Brings Problems

Spencer Swartz and Selina Williams, Dow Jones via RigZone
The already sizeable footprint of the Organization of Petroleum Exporting Countries in global oil markets is set to become even bigger as the group prepares to enlarge its club with new members and with oil production from non-OPEC countries set to plateau within the next decade.

The 11-nation producer group confirmed Thursday that West African producer Angola is poised to join the group and that its fellow African country Sudan has taken additional measures to seal its membership in OPEC.

In South America Ecuador’s new left-leaning President Rafael Correa also said Sunday that it’s possible the former member would rejoin OPEC.

Although the move would give OPEC more clout in oil markets buoying up oil prices, it could also slow investment by Western oil companies in the three countries, potentially hindering new supplies of crude oil coming to increasingly thirsty world markets, oil analysts said.

“Our main concern would be the impact this could have on investment flows into the upstream sectors of those countries,” said David Fyfe, supply-side oil analyst with the Paris-based International Energy Agency.

The industrialized world’s energy watchdog has identified Angola – a major oil supplier to the U.S. and China – as one of the top growth areas outside OPEC. Angola, like Sudan, has relied heavily on foreign oil investment to develop the sector.
(1 Dec 2006)

Oil policy: who are our governments working for?

Jerome a Paris, Daily Kos

Joining Opec could deter investors, Angola told [Financial Times, behind a paywall]

Angola, one of the world’s fastest-growing oil producers, could discourage further foreign investment in its energy sector if it presses ahead with its plan to join the Organisation of the Petroleum Exporting Countries, analysts at the International Energy Agency warned yesterday.

You gotta love it when “analysts” in an institution specifically tasked with protecting the West’s oil supply (the IEA was created in 1973 to coordinate the West’s energy policies after the oil embargo) are so sollicitous of the interests of an oil producing country, and when the news headline is not the actual fact (Angola intending to join OPEC), but the reaction of an interested third party to such an event.

Sudan and Ecuador have also recently indicated an interest in joining Opec; or rejoining, in Ecuador’s case. Sudan’s president was reported yesterday to be considering approving an application.

But Angola would be by far the most significant new member, because of the size and rate of growth of its output, which would make it the cartel’s 10th-largest member.

Left unsaid, of course, is the more significant fact that Angola is the biggest oil producing country outside of the rich world whose oil production is still dominated by Western oil majors – and it is one of the few countries where they can still expect to increase production in the coming years. Take Angola out, and the prospects of several big oil companies (starting with BP, Chevron and Total) suddenly look pretty bad. Thus any potential limitation of production is a direct threat to the production levels of the oil majors.

Of course, bringing another couple percent of global oil production under the OPEC umbrella gives that organisation more ability to influence market supply and prices – at the apparent expense of the oil majors (they will be actually the first beneficiaries of increased oil prices, even if they apply to slightly lower volumes).

If Angola becomes the first country to join Opec since 1975, it is not expected to have much immediate impact on the oil market because the cartel is likely to set Angola a quota that will accommodate its expanding production.

But in the longer term, it could deter investment in the country’s oil industry, said Lawrence Eagles, head of the oil markets division at the IEA, the rich countries’ energy watchdog.

“The imposition of quotas could add significantly to the risks in any oilfield development, affecting the country’s prospects and opportunities for expansion,” he said. “It seems quite a strange move.”

I seriously doubt that any such restrictions will limit foreign investment. Oil companies are simply too desperate to get access to oil reserves, as so few countries welcome them these days, that they’ll take slightly degraded terms rather than give up altogether.

But of course, they’d like to avoid such degraded terms, and the IEA is, in effect, just lobbying on their behalf there. Whether that serves the interest of its member countries is another question altogether…

Our oil addiction problem will not be solved on the supply side, but on the demand side. Focusing on the supply side, simply means, today, that we run ever faster to stay in the same place. See, for instance, this post over at the Oil Drum showing stagnant Saudi oil production despite a sharp increase in the number of oil rigs. It is getting increasingly hard to bring more production online, and any progress on that side gets eaten up in very little time by the noxious combination of the decline of existing fields and our increased global consumption.

We will only find a durable solution to our oil addiction on the demand side, i.e. by reducing our consumption. Anything that increases our production allows us to procrastinate for a few more days or months (but no more) but will not make us avoid the inevitable crunch – it will just make it more brutal as we will be less prepared.

Thus, anything that gets oil prices up and forces us to actually work on our demand is a good thing in my book – even if, of course, a gas tax whereby the money stays with our governments and can be used to help the most vulnerable amongst us to cope would be better.

So yay to Angola joining OPEC! Anything that gets us closer to finally realize that we cannot expect ever-increasing oil production goes in the right direction, even if it needlessly enriches a few corrupt dictators and their bankers in the meantime.

And shame on the EIA and our governments for maintaining the fiction that production will always be able to increase to accomodate our righteous needs and thus that we need not make any effort to change our ways.
(1 Dec 2006)