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The U.S. and China are over a barrel

Michael T. Klare, Los Angeles Times
In the costly competition for oil, cooperation is the wisest course.

Among the many reasons given for the recent surge in gas prices is China’s soaring demand for petroleum. Because the Chinese are running around the world buying up every available barrel of oil, the argument goes, we Americans have to pay that much more to outbid them for the leftover pools of crude. And the fact that the Chinese yuan has been growing stronger while the American dollar is shrinking in value has only exacerbated the problem.

Unquestionably, there’s some truth to this. China’s consumption of oil rose from about 4.2 million barrels a day in 1997 to 7.8 million barrels in 2007, an increase of 86%, the U.S. Department of Energy reported earlier this year. More to the point, the percentage of this oil that had to be imported grew even more. In 1997, China supplied all but 1 million barrels of the oil it consumed each day from domestic fields; by 2007, the shortfall between domestic output and consumption had jumped to 4 million barrels, all of which had to be imported.

To obtain these additional barrels, the Chinese have, in fact, been shopping in some of the same foreign oil bazaars as the United States — and, with more demand chasing a finite supply, prices naturally tend to rise.

But let’s put this in perspective. In 2007, according to Energy Department figures, the United States consumed about 21 million barrels of oil a day, nearly three times as much as China. Even more significant, we imported 13 million barrels every day, a vastly greater amount than China’s import tally. So, although it is indeed true that Chinese and American consumers are competing for access to overseas supplies, thereby edging up prices, American consumption still sets the pace in international oil markets.

… A far wiser course, I believe, would be to promote energy cooperation with China, rather than competition. Given that the United States and China are the world’s two biggest users of petroleum — a fuel whose worldwide availability is likely to peak at 100 million barrels or so per day in the next five years or so and then commence an irreversible decline — it makes great sense for us to collaborate in the development of oil alternatives and energy-saving technologies.

Such collaboration could take the form of joint ventures to develop advanced biofuels (not derived from food crops) and transportation fuels extracted from coal (without releasing heat-trapping carbon dioxide into the atmosphere). It could also include the development of super-light vehicles, advanced hybrid engines and other energy-saving systems.
(28 April 2008)
Contributor DLC writes:
While it is a rare pleasure to read of an eminent American urging the rational necessity of co-operation in international affairs, it is worth noting that the techno-fix level proposed is almost irrelevant compared with the need for co-operation over the allocation of all nations’ carbon emission rights.

This latter focus, which is to be decided in Copenhagen in 2009 under the UN.FCCC, is of course the co-operative “tailpipe” constraint on each nation’s energy usage, and thus on their conduct in fossil fuel acquisition.

Russia says has no plans to cap carbon emissions

Simon Shuster, Reuters
Russia will not accept binding caps on its greenhouse gas emissions under a new climate regime, currently being negotiated to succeed the Kyoto Protocol after 2012, top officials said on Monday.

… “Energy must not be a barrier to our comfort. Our emerging middle class… demands lots of energy and it is our job to ensure comfortable supply,” he said.

“We don’t plan to limit the use of fuel for our industries. We don’t think this would be right,” he said, referring to the current round of Kyoto.

Asked if Russia would resist capping the use of fossil fuels, which emit the planet-warming gas carbon dioxide when burned, under a new climate deal after 2012, he said:”In the foreseeable future, this will not be our model, no.”

He pointed out that the United States had also declined to impose emissions caps.
(28 April 2008)

We will rely on Iraq for a while
Rolf E. Westgard, St Cloud Times
Little noticed during the furor of recent battles in Basra and Baghdad was the announcement by Iraq’s Oil Ministry that 35 oil companies from 17 countries had qualified for consideration in the first round of Iraqi oil field development contracts.

The U.S. led the list with seven qualifiers – Anadarko, Chevron, Conoco Phillips, ExxonMobil, Hess Corp., Marathon and Occidental Petroleum. China and Japan placed four and Britain had three, including BP Amoco PLC (formerly British Petroleum).

All of the oil companies who have signed deals in the north with the Kurdish Regional Government are blacklisted from programs with the central government. The Oil Ministry is also expected to announce shortly that five of the 35 companies will receive negotiated contracts for services covering six of Iraq’s major fields, including Kirkuk, Missan, West Qurna, Zubai and North and South Rumaila.

As a new oil law has yet to be ratified by Parliament, the contracts will be limited to two years. Payments will be made in oil barrels. The first awards are expected to go to majors who have the resources to produce results in that two-year period.

Shell can be expected to receive deals with Kirkuk in the north and Missan in the south. Shell has been studying Missan, and it has convinced the Oil Ministry it can substantially increase Missan’s daily output of 120,000 barrels. BP is well along on discussions to provide management, services and supplies to both Rumaila fields. We can expect Exxon Mobil, Chevron and French giant Total to receive the remaining contracts.

Iraq is one big, sedimentary oil- and natural gas-bearing basin, which is only about 25 percent explored with modern seismology.

There are conflicting estimates of Iraq’s potential. But Iraq’s proven reserves of 115 billion barrels could potentially double or even triple with new drilling technology, making it a rival to Saudi Arabia and Russia as the world’s top producer of a dwindling resource.

Most of the world’s recent large oil finds are in deep ocean waters like Chevron’s Jack 2 in the Gulf of Mexico and Petrobras’ Tupi field in the Santos Basin. Individual wells in those fields cost $100 million to $200 million each. Iraq’s easier-to-reach, high-quality oil lies relatively near its dry land surface.

U.S. State Department Iraq Coordinator David Satterfield recently announced both a binding Status of Forces Agreement on military cooperation, and a nonbinding Strategic Framework for economic relations with Iraq.

The Strategic Framework includes a reference to “facilitating and encouraging the flow of foreign investments to Iraq, especially American investments, to contribute to the reconstruction and rebuilding of Iraq.”

The current version of the Iraqi oil law is still stuck in Parliament.

It would leave 12 major oil fields under government control with 62 others, plus new discoveries, open to a variety of joint ventures. Many of those would presumably be with “especially American” partners.

Iraq’s Parliament is balking at this oil law, apparently waiting for elections approved by Iraq’s presidential council.

Some in the Parliament are suggesting that the attacks on the anti-U.S. Mahdi Army in Baghdad and Basra are an attempt to block election of leaders opposed to the pro-U.S. Maliki regime.

Those legislators know that more and more oil-rich countries are setting up national oil companies, axing old production sharing agreements with international oil companies, and keeping a larger share of the oil in both old and new programs.

They fear losing the lion’s share to those international companies under the current oil law’s provisions.

The new agreements on economic and military cooperation between the U.S. and Iraq, and Iraq’s oil potential, suggest we will be perched on the shoulder of Iraq’s government for a long time.

Major U.S. investments in permanent Iraq facilities such as the world’s largest embassy and the huge Balad Air Base support this notion.

It is now clear that the war in Iraq was not about mythical WMDs, elusive Middle East democracy, or the war on terrorism.

The United States has been accused of invading Iraq to trade blood for oil. We can say that the Bush administration does not intend to trade blood for no oil.

Rolf E. Westgard is a professional member of the Geological Society of America and a member of the American Association of Petroleum Geologists.
(28 April 2008)
Not available online. Submitted by author.