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Barclays and Bank of America see looming oil crunch

Ambrose Evans-Pritchard, Telegraph (UK)
For oil markets, it as if the Great Recession never happened. Surging demand in China, India and the Middle East is making up for decline in the debt-crippled West, ensuring another global crunch within three or four years.

Bank of America and Barclays Capital, two leading oil traders, have told clients to brace for crude above $100 (£64) a barrel by next year, before it pushes relentlessly higher over the decade. This is a stark contrast from recessions in the 1980s and 1990s, when it took years to work off excess drilling capacity built in the boom.

“Oil has the potential to flirt with $100 this year. We forecast an average price of $137 by 2015,” said Amrita Sen, an oil expert at BarCap. The price has doubled to $78 in the last year.

… Francisco Blanch, from Bank of America Merrill Lynch, said crude may touch $105 next year, with $150 in sight by 2014. “Approximately 1.7bn consumers in emerging markets with a per capita income of $5,000 to $20,000 are eagerly waiting to buy cars, air-conditioning units, or white goods,” he said.
(18 February 2010)

CNPC in Iran gas deal, beefs up Tehran team -source

Chen Aizhu, Reuters
China’s top energy group CNPC has clinched a deal to develop phase 11 of Iran’s South Pars gas project, and beefed up its business operations in the Islamic Republic that sits on one of the world’s largest hydrocarbon reserves, an industry official told Reuters.

CNPC will start drilling in the gas field as early as March to evaluate the reserves, after its initial overall development plan won Tehran’s approval near the end of last year, pushing ahead the $4.7 billion project after a preliminary pact was sealed last June.

CNPC, parent of listed PetroChina (0857.HK: Quote, Profile, Research), had beefed up staff in December to about 60, based in Beijing and Tehran, dedicated to operations in Iran that also include two oil projects that together with South Pars will likely cost a combined $10 billion.

“The real work will start as soon as after the Chinese New Year holiday,” said the official familiar with CNPC’s international operations…
(10 February 2010)

Saudi Arabia Fears a Peak in Oil Demand — And It’s Going Green, Sort Of

Kirsten Korosec, bnet
Concerns over peak oil — that moment when oil demand exceeds global oil supply — has produced little more than a disdainful eye roll from Saudi Arabia. After all, the largest oil producer in the world has far more pressing problems — like peak demand, for example.

In fact, Saudi leaders are so worried that demand for oil could peak in the next decade they’ve done the unexpected — and slightly ironic — by calling for an economy that includes renewable energy. It’s an interesting reversal coming from a country that has poo-pooed investments in renewable energy in the past.

Let’s not forget Saudi Arabia — along with OPEC, the oil cartel it’s a member of — was a major opponent of greenhouse-gas reduction proposals during the climate summit in Copenhagen last year.
(17 February 2010)

A Close Look At OPEC Strategy Reveals That They’re 100% Short-Term Focused, And Sure Of Peak Oil

Ferdinand E. Bank, Business Insider
The IEA has apparently calculated that OPEC earned 575 billion (U.S.) dollars in oil export revenues in 2009, a relatively depressed year, and might earn more than 700 billion this year.

If this is true, I choose to believe that OPEC’s future strategy is almost identical to the one I would employ if I were in their place. I am sure that this confession will win me neither friends nor employers, however as we said in the United States when I was a boy, “I would rather be right than president!” To be explicit, OPEC’s announced intentions are almost the same as those predicated by the late Howard Chenery of Harvard University, who together with Professors Tinbergen and Fritsch (the first winners of the Nobel Prize in economics) was the most sophisticated development economist of the 20th century.

His book on the analytics of economic development, written with Paul Clark of the Rand Corporation (1962), was used at the African Institute for Economic and Development planning (Dakar, Senegal) when I taught there, but it appears to have been ignored by later generations of teachers and students because of its heavy content of linear programming and input-output analysis.

Although not immediately obvious, Chenery’s approach was similar to that recently adopted by several major (and perhaps minor) oil companies, and theoretically reduces to the following: in an inter-temporal framework, more emphasis will be placed on short-term profits than the expansion of exploration, and attempting to designate a future production scheme in the light of increasing uncertainty about the availability of reserves. The mathematics here is straightforward, and seems relevant even though – for example – the EIA estimates a demand increase of 1mb/d this year, 1.47 mb/d in 2011, and almost certainly more later.

OPEC’s ‘management’ is also concerned with short term profits, but not for the same reason. The more far-sighted OPEC personalities and/or theoreticians have as an ultimate goal the use of oil incomes to reconfigure the economic structure of OPEC economies – i.e. to move from being producers of petroleum to producing oil products and petrochemicals, and to a certain extent beyond. An intention of this nature logically means restricting the production of oil.

Assuming that every barrel of oil reserves that is not produced now will be produced later, many of these ‘future’ barrels will be transformed into oil products (e.g. naptha), and a large fraction of these items into petrochemicals. As the last Shah of Iran mentioned, “crude oil is too precious to be burned up in the air.”

What about the consumers of oil – do they have a strategy? If we think of consumers as a group, they do not have a strategy – they have a dream. Their dream features a gradual rearrangement of the global oil picture so that the price of vehicle and aviation fuel descends to that experienced eight or ten years ago, and stays at that level. The genesis of this fantasy is a profound indifference to what has taken place in the great world of oil over the past few decades. Just the sort of deficiency that I told my students they should avoid if they preferred a passing to a failing grade, they were also told to learn the following perfectly: …

The author is a professor at Uppsala University, Sweden
(17 February 2010)