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US military sees oil nationalism spectre
Andy Webb-Vidal, Financial Times
Future supplies of oil from Latin America are at risk because of the spread of resource nationalism, a study by the US military that reflects growing concerns in the US administration over energy security has found.
An internal report prepared by the US military’s Southern Command and obtained by the Financial Times follows a recent US congressional investigation that warned of the US’s vulnerability to Venezuelan President Hugo Chávez’s repeated threats to “cut off” oil shipments to the US.
The Southern Command analysis cautions that the extension of state control over energy production in several countries is deterring investment essential to increase and sustain oil output in the long term.
“A re-emergence of state control in the energy sector will likely increase inefficiencies and, beyond an increase in short-term profits, will hamper efforts to increase long-term supplies and production,” the report said. So far this year, Venezuela has moved to double the level of taxes levied on oil production units operated by multinationals, Bolivia has nationalised its oil and gas fields, and Ecuador has seized several oilfields from Occidental Petroleum, the largest foreign oil company in the country.
…That the US Southern Command, which oversees military relations with Latin America, has embarked on a detailed study of the subject underscores the view that energy has become a key facet of US national security.
…“Pending any favourable changes to the investment climate,” the Southern Command study concluded, “the prospects for long-term energy production in Venezuela, Ecuador and Mexico are currently at risk.”
(25 June 2006)
The US military oil consumption in Iraq and Afghanistan
Sohbet Karbuz, Blogger
Conclusions
According to the Defense Logistic Agency website, DLA supplied more than 2.8 billion gallons of fuel to Operation Iraqi Freedom and more than 2.2 billion gallons of fuel support to Operation Enduring Freedom as of March 2006. This makes more than 5 billion gallons, or more than 119 million barrels of oil.
According to my conservative estimates (based on official figures) the US military consumes daily 56 000 barrels of oil per day (or 56 kb/d) in Afghanistan and Iraq.
Roughly 16 kb/d of oil is consumed in Afghanistan. Of this amount roughly 2.7 kb/d comes from Turkmenistan, 2.4 kb/d from Uzbekistan and 10.8 kb/d from Pakistan.
Roughly 40 kb/d of oil is consumed in Iraq. Of this amount roughly 7 kb/d comes from Jordan, 9 kb/d from Turkey and 24 kb/d from Kuwait.
With an average cost of $40 per barrel, delivered fuel cost for 119 million barrels of oil in more than four years (up to March 2006) is roughly $5 billion. Today, it should stand at over $3 million a day. Note that this is the cost for delivered fuel, whose price are normally fixed in advance for an entire fiscal year, [13] and does not include the delivery cost.
“Ten years after the Cold War, over 70 percent of the tonnage required to position today’s U.S. Army into battle is fuel. Naval forces depend each day on millions of gallons of fuel to operate around the globe. The Air Force, largest DoD consumer, spends 84% of its fuel delivery budget to deliver 6% of its fuel.” [14] DESC alone spends $1 million per day just for transportation cost. [15]
… Unfortunately, total amount of paid and unpaid oil used by the US military in “freedom” operations in Afghanistan and Iraq, and its true cost (including delivery) are still a mystery.
(10 June 2006)
Dr. Sohbet Karbuz is former head of non-OECD energy statistics section of the International Energy Agency (Paris).
Before joining the IEA he held academic positions in Germany and Austria. The subject of his blog is “Oil Geopolitics, Peak Oil, Oil Market, Oil Prices, Lie with Statistics, Mass Deception.” His most recent entry is a skewering of the Petropolitics Laws of Thomas Friedman.
More articles by Sohbet Karbuz at Energy Bulletin. -BA
China’s Economy Forecast to Grow 10.3% in First Half
Bloomberg
China’s economic expansion will accelerate this year as investment and exports continue to grow at a rapid pace, the central bank’s research bureau said.
Gross domestic product will likely increase 10.3 percent in the first half and 10 percent for the full year, the People’s Bank of China said in a report, published today in the state-owned China Securities Journal. China’s economy grew 9.9 percent in 2005, overtaking the U.K. as the world’s fourth largest.
Premier Wen Jiabao said in April he wants curb to an expansion by factories, which has caused an oversupply of goods in China and pushed global commodities prices to records. The government is seeking to avoid a sudden economic slowdown in China, the world’s biggest market for steel and second-largest oil user, by shifting its focus to raising incomes and consumer spending.
“The forecast of slower GDP growth in the second-half of the year reflects the central bank’s expectations that macro-economic measures taken in late April will take effect and help slow economic growth,” said Wang Qing, senior currency strategist at Bank of America Corp. in Hong Kong and a former International Monetary Fund official.
(24 June 2006)
Is Oil In a Price Bubble?
Stuart Staniford, The Oil Drum
An alternative explanation for the plateau (besides probably the start of peak oil) runs as follows:
There is a speculative bubble going on in the oil markets. Financial institutions (optionally aided by too much money supply from the Fed) are pumping money into the oil futures market and jacking up prices. This is depressing demand and meaning that suppliers have to leave oil in the ground because there’s no customers for it, even though prices are very high.
I’ve been hearing this argument with increasing frequency – it seems to be particularly beloved by OPEC ministers and oil company executives that don’t want to acknowledge peak oil, but also don’t want to be blamed for high oil prices. One variant of it is articulated clearly over at A greek speculator’s journal. Aspects of it have also been discussed by James Hamilton here in Contango, speculation, and the price of oil, in commenting on strange remarks by Al-Naimi, and then in the last few days in a debate in comments here.
(24 June 2006)
An interesting post by Stuart, which serves as a good basic introduction to the concept of speculative bubbles, while using some mathematical methods to suggest that peak oil has not yet created a bubble. -AF
Iraqi oil production at 2.5 mln bbl/day
Joel Rothstein, Reuters
Iraq’s new oil minister offered an optimistic forecast for the country’s oil industry on Sunday, saying daily production has reached 2.5 million barrels a day and that Iraq hoped to rival top oil exporter Saudi Arabia within a decade.
Iraq expects its daily oil production to reach 2.6 million to 2.7 million barrels per day (bpd) by the end of the year, rising to about 4 million bpd by 2010, and 6 million bpd by 2012, Hussain al-Shahristani said in an interview on CNN’s “Late Edition.”
Since the U.S.-led invasion in 2003, oil production had been stuck at 2 million bpd, with exports of 1.5 million bpd. That compares to pre-war output of just under 3 million bpd and exports of around 2 million.
(25 June 2006)
Drilling on Wall Street
Dave, The Oil Drum
Finding it easier to add new reserves on Wall Street than from E&P in the ground, Anadarko bought both Kerr-McGee and Western Gas on Friday, June 23rd in a $21 Billion Deal in the Oil Patch — from the Houston Chronicle.
In an unexpectedly bold move Friday, Anadarko Petroleum Corp. announced it would purchase not one but two oil and gas companies for a combined $21.2 billion, in a ringing endorsement of U.S. energy exploration….
It’s buying Kerr-McGee, a storied energy company out of Oklahoma City that is heavily entrenched in the Gulf of Mexico’s deep waters and the Rocky Mountains, and the smaller Western Gas Resources of Denver, which also has significant reserves in the Rockies.
The double deal had some analysts doing a double take.
This analyst was also a bit stunned and a little investigation turned up a number of interesting things. Let’s check this deal out.
…This is a startling revelation. “There’s no place like home”. Apparently, Hackett’s cost/benefit analysis concluded that the cost of doing business internationally over the long term was higher than trying to exploit difficult to produce natural gas in North America in a friendly political climate. There are still exceptions like Algeria or Brazil where the geopolitical risks are lower but many other regions of the world are becoming increasingly unpredictable from a business point of view given the long lead times necessary to put new projects online.
To conclude, Anadarko has adopted a strategy that makes two key assumptions.
* Natural gas prices will remain high indefinitely in the future. LNG imports will not affect this situation.
* Ultra deepwater from the Gulf of Mexico and unconventional sources from the North American western provinces will be profitable. Both types of production have a high potential payoff despite the technical and logistic challenges mentioned here. Hurricanes in the GOM will not cause sufficient future disruptions that will affect the bottom line.
Only time will tell if Anadarko’s strategy pays off. About prices, I have little doubt. However, the 2nd assumption seems dubious. We shall see.
(26 June 2006)
