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One Commodity to Rule Them All: Oil

karoli, Crooks and Liars
On the global stage, morality only stretches as far as not to disturb the operations of oil companies in different regions. A recently-released Wikileaks cable reveals Shell Oil’s frustration at sanctions on Iran, and how it feels constrained as a result.

Written in 2006 from The Hague embassy to Washington DC with copies to key embassies around the world, it conveys Shell’s frustration at UN sanctions on Iran and how it constrains their business operations in that country, and exposes their influence at watering down those sanctions in order to continue their operations in the region.

MFA’s Roosegaarde Bisschop responded with three main points on Iran. First, he said MFA supports a UNSC resolution with teeth, meaning reversible sanctions targeted against the assets and travel of individuals associated with Iran’s nuclear program. Iran had crossed the line. The Dutch, he said, fully support the P5 discussions, as part of a dialog aimed at a diplomatic solution. Harsher measures — such as omnibus sanctions or those complicating Shell operations — are not on the table and would be very difficult to get through the UN, he said.

The cable goes on to discuss Shell’s views on the US government’s push for hard-line sanctions on Iran:

Crocker expressed concern about USG efforts to discourage investment in Iran’s energy sector. In the short run, he said, the volume of oil produced in Iran will remain unchanged, whether or not Shell participates in Iran oil projects. This is because phase I oil extraction — a period that normally lasts 10 years — is not tricky, and the Iranians and Chinese have the requisite technology to proceed on their own. It is from the second phase onward, Crocker added, where the exclusion of foreign oil companies will have an impact. Since this is beyond 2020, it might make life difficult for ordinary Iranians at a time when the political environment hopefully may be more friendly toward the west, Crocker said. That said, he added that Shell views its relationship with the USG as important and that the company is very conscious of how its actions are perceived.

I’d just like to be able to say I don’t give a rat’s ass about whether Shell has a tough time because the US is less reliant on foreign oil. In fact, I’d like to not use oil at all, because the one thing that keeps getting driven home to me over and over and over again in these cables is how utterly dependent every aspect of diplomacy is on oil extraction. It’s obscene.

From another cable on the same topic, this time in January, 2009: …
(23 January 2011)

The Will to Drill

Benjamin Wallace-Wells, New York Times
… Oil reserves have been declining for a decade, and it is an article of faith among petroleum geologists that the easy oil — easier to find, less complicated to drill — has all been extracted and that the explorers are now into the hard oil. When the Deepwater Horizon rig, drilling an exploratory well deep into rock through a mile of water and three miles into the ocean floor off the Louisiana coast, struck a highly pressurized pocket of oil and gas, causing an explosion, it was in some ways a consequence of this iterative, competitive game, each generation of discoveries pushing further into the unknown.

A few years ago, the industry norm was to drill at depths of 15,000 or 20,000 feet. Now the frontier is 35,000 feet, where engineers find higher temperatures and pressures. “The scarcity of new reserves has been driving companies into plays that have previously been seen as extremely high risk and high cost,” said Brian Maxted, the chief executive officer of Kosmos Energy, a deepwater-exploration company in Dallas. “The trend recently has been in going toward ever-deeper waters and ever-more challenging environments.”

… The possibility of a boom commands particular attention now, because the industry’s faith in a limitless future has begun to diminish. The International Energy Agency — which had until recently been optimistic about oil — concluded last fall that the world has very likely already passed its peak oil production.

“The deepwater was one of the last big exploration plays on the planet,” says Gerald Kepes, a partner and head of upstream and gas at PFC Energy, a consulting firm. “We’re now looking at the second half of the global deepwater play. You can see the end of it, maybe 25 years from now.”

This is not the only way of looking at the data; other analysts, recalling the technological advances and the unforeseen finds that have marked exploration’s history, are more positive.
(14 January 2011)
Hat tip to Leanan at TOD. -BA

Cuba doesn’t share our oil concerns

Rolf E. Westgard, Opinion Page, Brainerd MN Daily Dispatch
The recent Gulf oil spill has caused a slowdown in U.S. off shore oil drilling, as we assess the risks. Cuba doesn’t share our concern. Spanish oil company, Repsol, will begin test drilling in the Cuban area of the Florida Straits in late 2011. Cuba is also negotiating with Brazil oil giant, Petrobras. Cuba’s oil minister, Fidel Rivero, considers Petrobras the “world leader in deep water drilling.” Actually, the U.S. is the world leader. Our embargo prevents American drilling service companies from doing business with Cuba, even to assist with an oil spill.

Undeterred by embargoes or drilling restrictions, oil companies from Canada, Venezuela, China, India, and Norway have also discussed drilling rights with Cuba.

The U.S.-Cuba 1977 Maritime Agreement divided drilling rights in the narrow Florida Strait between the two countries. Cuba has divided its half of the Strait into 59 oil exploration blocs. The 1977 agreement was never ratified by the US Senate, but it has been renewed every two years by U.S. presidential letter. Senator Bill Nelson, D-Fl. , wants President Obama to recall his ratification letter to Havana.

Senator Nelson reminded Obama of the environmental risks demonstrated by the BP spill.

By early 2012, Americans may observe Cuba licensed drilling platforms within 50 miles of Key West. As oil is pumped up in the Cuban sector, pressure will lower, and oil from formations beneath U.S. waters will seep toward the Cuban wells. In law it’s called the Rule of Capture. You capture it and it’s yours.

In the 2007 film, “There will Be Blood”, oil man Daniel Day-Lewis, tells how he took his neighbor’s oil. He explains: “If I have a long straw and my straw reaches across the room, I drink your milkshake!”

And there are no customs barriers below the sea bottom.

ROLF E. WESTGARD is a member of the American Association of Petroleum Geologists. He teaches a Winter Quarter class on oil and gas from the Gulf spill to the electric car for the University of Minnesota’s Lifelong Learning program.
(29 January 2011)