Tweet
We may be watching the earliest outlier symptoms of the beginnings of food hardship in the world's poorest countries dependent on global grain prices. These are directly due to the ethanol hype and resulting distortion of the grain markets.
With the ethanol craze in full swing in America, which is still "the grains breadbasket of the world", food hardship in those parts of the global population most vulnerable to sharp and sustained grain price spikes seems increasingly likely. The driver seems to be the need for projected future global energy production to rely increasingly heavily on liquid fuels production from "alternative sources".
If so, the contrast of soccer moms keeping their monster SUV's running on ethanol / gasoline mix, while corn and grain prices head for the sky is another highly unfortunate additional "tail" pinned on the already well advertised horse's butt that is America's blissful ignorance of the implications of a globally tightening energy market.
Will tightening energy markets now spilling over into global food costs fan already massive currency and credit markets inflation with a massive back-draft, into a bonfire of runaway proportions?
Inflation then would be closing in on two fronts - out of control "virtual money" by CB's and metastasizing credit markets, and permanently worsening critical shortage of liquid fuels to run ... EVERYTHING, closing in from the other side.
---------------------------------
3. 'ACCUMULATING RISKS' TO WORLD ENERGY SUPPLY-US NPC
By Chris Baltimore
Thu Jul 5, 2007 4:36PM EDT
WASHINGTON, July 5 (Reuters) - The world is not running out of crude oil and natural gas but there are "accumulating risks" to securing global supplies through 2030, a high-level board of U.S. oil company executives found in a report obtained by Reuters on Thursday.
Those risks include "political hurdles, infrastructure requirements and availability of trained work force," according to the study by the U.S. National Petroleum Council, conducted at the behest of U.S. Energy Secretary Sam Bodman.
The NPC, whose members include executives of big oil companies like ExxonMobil (XOM.N:Quote, Profile, Research) and Chevron Corp. (CVX.N: Quote, Profile, Research), will present the study at its July 18 meeting.
The council, formed in 1947 at the request of President Harry Truman, is chaired by Lee Raymond, the former chief executive of ExxonMobil.
When Bodman called for the study in October 2005, he asked the council to study the concept of "peak oil," whether the globe was running out of hydrocarbons.
"Perspectives vary widely on the ability of supply to keep pace with growing world demand for oil and natural gas," Bodman wrote at the time.
In a draft letter to Bodman outlining its findings, the group says, "The world is not running out of energy resources, but there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically."
The group calls for "a new assessment of the global oil and natural gas endowment and resources to provide more current data for the continuing debate."
Matt Simmons, founder of Houston-based Simmons and Co. International, who has argued that world oil production is declining irreversibly, criticized the report's findings.
Simmons, a member of the council who provided input for the report, pointed to a graph showing oil production from existing reserves falling below 20 million barrels per day (bpd) by 2030 from current levels near 75 million bpd.
In that chart, the addition of output from known reserves, enhanced oil techniques, unconventional sources like Canada's oil sands and "exploration potential" boosts the total to near 120 million bpd by 2030.
"We don't have any idea where those reserves are going to come from or how we are going to get them out of the ground," Simmons said. "The odds of this ever happening are zero."
On the other side of the issue, prominent energy expert Daniel Yergin, chairman of oil consultancy Cambridge Energy Research Associates, who served as vice chairman of demand issues for the council, has dismissed the idea of "peak oil."
Instead, Yergin's group has predicted an "undulating plateau" of crude oil production over several decades, followed by a slow decline.
The National Petroleum Council also debunked the idea that the United States can wall itself off from dependence on foreign oil suppliers like Saudi Arabia and Venezuela, a notion popular with some U.S. lawmakers.
"The concept of energy independence is not realistic in the foreseeable future," the study says.
The study calls for boosting energy efficiency across all sectors -- including transportation -- and expanding energy sources like coal, nuclear, biomass and unconventional hydrocarbon sources.
The only mention of OPEC -- the producers group that controls a third of global oil exports - is in a footnote.
---------------------------------
4. OPEC TO MAINTAIN CURRENT LEVELS OF OIL OUTPUT: ALGERIAN MINISTER
Jul 05, 2007 (A.K.A. - what demand - no-one's asked us for any extra oil !! )
ALGIERS, Jul 5, 2007 (Xinhua via COMTEX) -- The Organization of Petroleum Exporting Countries (OPEC) will maintain its oil output at the current levels until the next meeting, which is scheduled to be held in September, Algerian energy minister Chakib Khelil was quoted as saying Thursday by the Algerian daily "EL Watan."
"We reckon that prices will remain at the current levels this summer, probably not at the 72 U.S. dollars per barrel range as prices could rise a little bit further," the minister said.
"In any case, I hope that prices will not fall below the 60 dollars per barrel range before the end of the year," the minister added.
London's Brent Crude Oil prices Wednesday fell to 72.98 dollars per barrel after rallying to a high of 73.12 dollars per barrel while New York's Light Sweet Crude price index reached to 71.45 dollars per barrel.
---------------------------------
5. OCCUPIERS MUST NOT GET IRAQI OIL: SADR BLOC
(What will Fatih Birol of the IEA have to say about this? He's suggesting Iraq MUST be the crucial swing producer for the world, because "Saudi Arabia cannot grow production significantly to meet this requirement")
AFP - Najaf, 06 July 2007
Followers of Shiite cleric Moqtada al-Sadr on Thursday joined a growing chorus of Sunni, Kurdish and Shiite opposition to a draft oil law approved by Iraq's cabinet and backed by Washington.
Sadr's supporters said they would not support any law that would allow firms "whose governments are occupying Iraq" -- a reference to the United States, Britain and their coalition allies -- to sign Iraqi oil deals.
"We reject this unclear law that contains a number of points which prevent us from accepting it," said Sheikh Salah al-Obaidi, a Sadr office spokesman in the Shiite shrine city of Najaf. "This law has no grounding in Iraqi reality," he added.
The nationalist Shiite movement particularly objects to the bill's provision for production-sharing agreements with foreign oil firms designed to bring investment into Iraq's oil sector, according to one senior member.
"The most serious problem with the law is the production-sharing agreements, which we categorically reject," Nassar al-Rubaie, the spokesman for Sadr's parliamentary bloc, said.
Such agreements, which provide for foreign oil companies to share investment and profits with the state, would "undermine Iraq's sovereignty in the short run and will strip it of its sovereignty in the long run", he added.
Speaking for the 32-member bloc that is currently boycotting parliament, Rubaie insisted the movement would only approve the law with an amendment to ban oil contracts with "companies whose governments are occupying Iraq".
The draft law, which Washington considers a "benchmark" of political progress in the war-torn country, was drawn up in February but remains a point of contention among Iraq's feuding ethnic, political and religious groups.
The law, which has yet to be debated in parliament, aims to distribute revenues from crude oil exports equitably across 18 provinces and open the sector to foreign investors.
On Wednesday, Iraq's Kurdish and Sunni leaders expressed similar concerns, complaining that they had not seen the final bill as approved by the cabinet, which is currently being boycotted by some Sunni ministers.
Oil exports are Iraq's single most important source of revenue, even after more than four years of frequent insurgent attacks on oil facilities -- Its proven oil reserves, estimated at 115 billion barrels, are thought to be the third largest in the world, but since the US-led invasion in 2003 production has tumbled from 3.5 million barrels per day to around two million.
---------------------------------
10. IRAN'S OIL INDUSTRY: A HOUSE OF CARDS?
Dr. Gal Luft -- The Institute For The Analysis Of Global Security
At first glance, Iran looks like an energy superpower. It is the second largest oil producer in the Organization of Petroleum Exporting Countries (OPEC). It owns 11 percent of the world's conventional oil reserves, second only to Saudi Arabia. It also sits on 16 percent of the world's gas reserves, the largest reserve after Russia. With rising oil prices, Iran's oil export revenues have increased steadily, from $32 billion in 2004, to $47 billion in 2006. Finally, its geographic position on the world's most important energy corridor, the Strait of Hormuz, through which 40 percent of the world's oil traffic passes, gives Iran the ability to disrupt the flow of oil to global markets.
A closer look, however, reveals that Iran's energy sector is a house of cards. It is neglected, crumbling and underinvested. Many of its oil and gas fields are in dire need of foreign technical expertise to help reverse their natural decline. An analysis published last year in Proceedings, a journal of the National Academy of Sciences, asserts that, "Iran is suffering a staggering decline in revenue from its oil exports, and if the trend continues, income could virtually disappear by 2015." Iran's deputy oil minister, Mohammed Hadi Nejad-Hosseinian, confirmed recently that, "if the projects for increasing the capacity of the oil and protection of the oil wells will not happen, within ten years there will not be any oil for export."
Oil may be Iran's greatest strength, but it is also Iran's greatest weakness. As such, the debate in the West on how to prevent Iran from developing nuclear weapons should focus less on the risky military option, or the seemingly ineffective diplomatic option, and more on a comprehensive economic warfare strategy that targets Iran's energy sector. With oil exports accounting for half the government's budget and around 80 to 90 percent of total export earnings, the surest strategy to bring down Tehran's Islamic regime is to break its economic backbone.
A Precipitous Decline
In the mid-1970s, with a production level of more than 6 million barrels per day (mbd), Iran was one of the world's leading energy producers. After the 1979 revolution, Iran's fortunes reversed. Production plummeted to 1.5 mbd, and during the subsequent eight-year war against Iraq, Iran's oil infrastructure was crippled further. Today, if Iran were to try to match its pre-1979 level, it would require at least $80 billion in investment. Moreover, its gas industry would require an extra $85 billion by 2030.
U.S. sanctions have ensured that Iran's oil sector would not recover. President George W. Bush has renewed sanctions first imposed in 1995 by President Bill Clinton, citing the "unusual and extraordinary threat" to U.S. national security posed by Iran. These sanctions prohibit U.S. companies and their foreign subsidiaries from conducting business with Iran, while also banning the financing of development of Iranian energy resources. In addition, the 1996 Iran-Libya Sanctions Act (ILSA) imposes sanctions on non-U.S. companies investing more than $20 million annually in the Iranian oil and natural gas sectors. The 2006 Iran Freedom Act (IFSA) extended ILSA until December 2011. Thanks to these sanctions, investment has plummeted.
Today, Iran produces only 4 mbd and exports 2.34 mbd, about 300,000 barrels below its OPEC quota. This shortfall represents a loss of about $5.5 billion a year.
The decline in oil and gas export revenues is amplified by growing domestic energy demand. To keep 70 million Iranians content, Tehran annually spends about $20 billion, or 15 percent of its economic output, to subsidize gasoline, natural gas, kerosene and electricity prices. These subsidies have spurred rapid growth in consumption, prompting 15 percent to 30 percent inflation, and sparking a full-blown financial crisis.
Iran's dire economic situation has also impacted its lack of refining capacity to meet domestic need for gasoline and other essential refined petroleum products. Gasoline production stands at 10.5 million gallons a day, compared with a daily demand of 18.5 million gallons. With 43 percent of its gasoline imported, Tehran plans to curb demand by launching an unpopular, and potentially explosive, rationing system this year. For a regime that promised to bring oil revenues to every family, eradicate poverty, and reduce unemployment, the decline in oil revenues, coupled with austere gasoline rationing measures and the eradication of energy subsidies, could be dangerous for the survival of the Mullahs' regime.
The economic crisis brewing in Iran is an opportunity for the West. Should the West decide to exploit this situation and ratchet the pressure on Iran's crumbling energy sector, Tehran's house of cards could eventually collapse.
---------------------------------
11. ENERGY GURU: $4 PER GALLON GAS STILL LIKELY
Morris Beschloss -- July 5, 2007
An exclusive interview with one of America's leading energy gurus, Phil Flynn, in Chicago last week disclosed the hard facts U.S. oil producers and consumers will be facing this year.
Flynn is vice president of marketing for Alaron, a major energy trading firm.
He has become the "go-to man" on many major networks, including CNBC, MSNBC, Fox and CNN, and the Wall Street Journal and New York Times. I had the privilege of serving with him on an economics TV panel in Chicago prior to settling in the desert permanently a few years ago.
Flynn has been remarkably accurate in forecasting the pricing movements of crude oil and gasoline in the past few years and the reason for their volatility.
His predictions have been so uncanny that he has been approached by major publishers to write a book on the world's worsening energy crisis.
In our dialogue, Flynn blamed the ongoing gasoline and crude oil availability pressure on the following major factors:
U.S. refinery shortages and maintenance problems, which are due to get worse as the year progresses.
OPEC's desire to restrict shipments on what they know is a vanishing resource. The Middle East oil monopoly also is adamant in squeezing the top prices out of its oil availability, realizing that alternative energy sources eventually will cut into crude oil demand.
Saudi Arabia, the only remaining "swing" producer, conceivably could be losing production in one or more of its five major oil fields at this time.
Although crude oil touched $70 per barrel late last week, Flynn believes it should be priced even higher since West Texas Intermediate, which is quoted on the New York Mercantile Exchange, has faced increasing refining blockage. The refinery bottlenecks have caused a crude inventory backup in Cushing, Okla., the nation's main storage area.
As refinery capacity utilization is climbing to the 90 percent plus level, U.S. crude prices will rise to the mid $70 range, while London-traded Brent crude will lag by $2 to $4, the reverse of today's circumstances.
Because the latter is more difficult to refine due to its OPEC-based heavy sulfur content, it will revert back to its historically cheaper price structures.
Flynn attributes California's high prices at the pump to the state's multi-faceted blends, the state's inability to import from elsewhere and the unexpected consumer demand increase this year.
He cites the recent $4 per gallon prices in Chicago to the production breakdown of the major Whiting, Ind., refinery, and the confiscatory Illinois state taxes.
He invites consumers to check the high taxes that federal and state governments charge in these areas to ascertain what gas at the pump really costs.
Flynn believes that the present ethanol approach is an unmitigated disaster.
"Without the 51 cent subsidy," he exclaims, "this unproven energy alternative would be out of business."
Flynn considers Congress' anti-gouging legislation political grandstanding.
Although no apologist for the Big Five multinationals, he believes these major global oil and natural gas producers are beset by government restrictions, political propaganda and an inability to project their strategies through effective communications.
Flynn believes that these international monoliths are less likely to expand refining capacity as government is calling for less gasoline through mandated ethanol blends in future years.
He believes the world's geopolitical situation is getting increasingly dangerous, as the natural resource heavy nations are gaining the upper hand.
Flynn cites Vladimir Putin's Russia, Hugo Chavez's Venezuela and Mahmoud Ahmadinejad's Iran as the new "axis of oil and natural gas evil."
This is not only due to OPEC's price rigging but the loss of technological skills as engineers, geologists and other experts flee these increasingly authoritarian countries.
Even though major new oil fields are being located, Flynn says, the costs of extraction are so prohibitive that countries like Mexico financially are not capable of exploiting them.
By precluding foreign investment in their energy industry, these countries are shutting out the necessary expertise and financing.
Putting his superior forecasting record on the line, Flynn believes that crude oil will reach $75 per barrel this summer and break last year's $78 record if the hurricane season becomes increasingly active. He adds that "if the geopolitical situation deteriorates," the $85 per barrel mark is a distinct possibility later this year.
With crude oil comprising at least 50 percent of gasoline costs, $4 per gallon at the pump won't be far behind.
"And if the ethanol scam reaches anywhere near its destructive possibilities, look for gasoline to become increasingly expensive," he adds. When asked what all this would mean to corn-based products in America, Flynn stipulated that such inflationary impact on consumer products would be harshly felt as the year progresses.
With worldwide demand of oil at an all-time high of 86 million barrels a day, according to the International Energy Agency, Flynn concludes that the supply/demand squeeze practically will eliminate the thin margin between production and usage that now exists.
---------------------------------
12. OIL MAY HIT $100 A BARREL
Nina Berglund -- Aftenposten: News from Norway -- July 4, 2007
A leading Norwegian economist and one of the oil-producing country's major investors think oil prices will keep rising until alternative energy starts paying off. That can mean prices of more than USD 100 a barrel within a few years.
Spot prices for North Sea oil went over USD 74 a barrel on Tuesday. Some analysts think they'll keep rising, as the summer driving season gets underway in both North America and Europe.
Others think they'll fall back, but not banking firm Nordea's chief
economist Steinar Juel. Both Juel and industrialist Jens Ulltveit-Moe, now a private investor, contend that prices will rise until alternative energy sources become economically advantageous.
Juel told newspaper Dagens Næringsliv Wednesday that he wouldn't rule out oil prices of more than USD 100 a barrel, a level considered unthinkable just three years ago.
World economic growth, Juel noted, points toward an ongoing need for high oil and energy demand. And the world seems to be living with high oil prices, which so far haven't blocked the growth.
Moreover, he notes, there's little sign of any new large sources of oil
coming on line. "I have difficulty seeing where a lot of new oil will come from," Juel told Dagens Næringsliv.
Investor Ulltveit-Moe, a former head of Norway's largest employers'
association, agrees, and notes that oil prices will likely approach levels that will make alternative energy more viable. Coal, he notes, is the biggest rival to oil, and the costs of extracting it and cutting its emissions will guide oil prices.
---------------------------------
13. FOOD VS FUEL WARS JUST BEGINNING
By Gioietta Kuo -- China Daily -- 2007-07-06 06:58
As everyone in China knows, food prices have risen sharply over the past year. If it gives any comfort to anyone, China is not the only country. Rising food prices are a worldwide phenomenon.
The story goes back to the days after World War II. The Western industrial nations went about developing their economy at a fast pace. The basis for this development was cheap oil. From 1945 all the way to the present day, cheap oil seemed to be a bonanza with no end in sight.
As a consequence of cheap oil, the society that developed was based on the internal combustion engine - the motor car. Even though some Americans have been aware of oil running out sometime in the future, the country still consumes oil as if the supply will last forever.
In the US, transport is based on the individual automobile rather than public transport like subways, trains. Even freight is carried by large trucks instead of trains.
Petroleum is fundamental to our modern life. From oil we make plastics, fertilizers, medicine and chemicals. We burn oil to produce electricity.
When countries like China and India began to industrialize, the global scene changed because of increasing demand for oil.
In 2005, easily extracted oil from the oilfields peaked. From now on, the flow will be at a reduced rate, eventually running dry. Oil extracted from the more difficult oilfields, requiring more technology and consequently more expense, is expected to peak in four years, according to some experts in the United Kingdom. Since the global demand for oil exceeds supply, oil prices are going to continue rising.
In the US, there is growing awareness that the country should not depend on foreign oil from unstable regions like the Middle East. More importantly investors have realized there is profit to be made by converting corn into ethanol which can be used as motor fuel.
As more and more ethanol production distilleries come on line, 30 percent of the US corn harvest next year will go into ethanol production.
The US is the world's biggest grain producer and exporter. Almost 70 percent of all the grain imported by many nations around the world comes from the US.
As well as providing food for humans, corn is used as feed for livestock - chickens, cows, pigs. So, as the US turns corn into ethanol, the world community experiences a food shortage. The result is higher prices for foods such as meat, milk, eggs and ice cream.
This inflation initially hit countries like China, India, Mexico and the US, containing 40 percent of the world's population. In China, compared with last year, January pork prices were up 20 percent, eggs up 16 percent. Food prices rose 3 to 4 percent just in the month of May compared with the corresponding period last year.
In India, food prices are now 10 percent higher than last year. In the US, the forecast for 2007 is that the price of chicken will rise 10 percent, eggs 21 percent, and milk 14 percent.
It should be noted that if the entire US corn crop were converted into ethanol, it would satisfy only 16 percent of US transport needs. The amount of corn that goes into the gas tank of a large automobile could feed one person for a year.
So there is direct competition between the 800 million people who own automobiles and the world's poorest 2 billion. Basically there is now a link between the food industry and the energy industry.
When the market sees that it is more profitable to produce ethanol than sell the grain for food, the food industry will be in trouble. Since ethanol is used as a fuel, its price will be tied to the price of oil. As oil prices climb because of the impending world shortage of oil, ethanol prices will rise. As a consequence food prices will rise as well.
China also has an ethanol industry. It was basically started by Western investors who sought to profit by China's corn and the relatively cheap labor as the global price of oil climbs. The Chinese government has
been quick to recognize the danger of diverting corn into ethanol. It has said that in view of the food shortage, ethanol production has no place in the Chinese economy.
How should governments proceed in what is a free market economy? The chief remedy is to reduce government subsidies to the ethanol industry. This seems difficult in the US Congress because of vested interests such as farmers who grow corn.
We are already seeing urban protests in countries such as Indonesia, Egypt, Algeria, Nigeria and Mexico. In Mexico, 75,000 people have taken to the streets forcing the government to initiate price controls on corn-based tortillas, their staple food.
It does not take a leap of imagination to see that continuing down the path of corn for fuel will lead to worldwide famine affecting billions of people. This will certainly lead to political instability, social unrest and general chaos.
The picture is not complete if we do not mention another major reason for the global rise in food prices. That is the fast growth of the world population.
More people means more mouths to feed. It is obvious that when the growth of population outstrips the capacity of the world to produce food, famine is the inevitable result.
We have to give every incentive to reduce the world's population right now. The world's population presently stands at 6.5 billion. It is projected to grow to 8.2 billion by 2030 and 9 billion in 2050.
How are we going to feed these additional people when there is already hunger in the world?
This is the most urgent problem humanity has yet faced. Unless we solve this problem, all the other problems such as global warming, water shortages, oil running out will become irrelevant.
There are two important questions at issue here. The first is a moral question: Should we deprive many less developed countries of food just so that we in the industrial countries in the West can have our pleasure rides? Second, a much more important question is: Can the world afford the destabilization - economic, political and social - that is sure to follow from a starving populace?
The author is advisor and senior fellow at the American Center for International Policy Studies
With the ethanol craze in full swing in America, which is still "the grains breadbasket of the world", food hardship in those parts of the global population most vulnerable to sharp and sustained grain price spikes seems increasingly likely. The driver seems to be the need for projected future global energy production to rely increasingly heavily on liquid fuels production from "alternative sources".
If so, the contrast of soccer moms keeping their monster SUV's running on ethanol / gasoline mix, while corn and grain prices head for the sky is another highly unfortunate additional "tail" pinned on the already well advertised horse's butt that is America's blissful ignorance of the implications of a globally tightening energy market.
Will tightening energy markets now spilling over into global food costs fan already massive currency and credit markets inflation with a massive back-draft, into a bonfire of runaway proportions?
Inflation then would be closing in on two fronts - out of control "virtual money" by CB's and metastasizing credit markets, and permanently worsening critical shortage of liquid fuels to run ... EVERYTHING, closing in from the other side.
---------------------------------
3. 'ACCUMULATING RISKS' TO WORLD ENERGY SUPPLY-US NPC
By Chris Baltimore
Thu Jul 5, 2007 4:36PM EDT
WASHINGTON, July 5 (Reuters) - The world is not running out of crude oil and natural gas but there are "accumulating risks" to securing global supplies through 2030, a high-level board of U.S. oil company executives found in a report obtained by Reuters on Thursday.
Those risks include "political hurdles, infrastructure requirements and availability of trained work force," according to the study by the U.S. National Petroleum Council, conducted at the behest of U.S. Energy Secretary Sam Bodman.
The NPC, whose members include executives of big oil companies like ExxonMobil (XOM.N:Quote, Profile, Research) and Chevron Corp. (CVX.N: Quote, Profile, Research), will present the study at its July 18 meeting.
The council, formed in 1947 at the request of President Harry Truman, is chaired by Lee Raymond, the former chief executive of ExxonMobil.
When Bodman called for the study in October 2005, he asked the council to study the concept of "peak oil," whether the globe was running out of hydrocarbons.
"Perspectives vary widely on the ability of supply to keep pace with growing world demand for oil and natural gas," Bodman wrote at the time.
In a draft letter to Bodman outlining its findings, the group says, "The world is not running out of energy resources, but there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically."
The group calls for "a new assessment of the global oil and natural gas endowment and resources to provide more current data for the continuing debate."
Matt Simmons, founder of Houston-based Simmons and Co. International, who has argued that world oil production is declining irreversibly, criticized the report's findings.
Simmons, a member of the council who provided input for the report, pointed to a graph showing oil production from existing reserves falling below 20 million barrels per day (bpd) by 2030 from current levels near 75 million bpd.
In that chart, the addition of output from known reserves, enhanced oil techniques, unconventional sources like Canada's oil sands and "exploration potential" boosts the total to near 120 million bpd by 2030.
"We don't have any idea where those reserves are going to come from or how we are going to get them out of the ground," Simmons said. "The odds of this ever happening are zero."
On the other side of the issue, prominent energy expert Daniel Yergin, chairman of oil consultancy Cambridge Energy Research Associates, who served as vice chairman of demand issues for the council, has dismissed the idea of "peak oil."
Instead, Yergin's group has predicted an "undulating plateau" of crude oil production over several decades, followed by a slow decline.
The National Petroleum Council also debunked the idea that the United States can wall itself off from dependence on foreign oil suppliers like Saudi Arabia and Venezuela, a notion popular with some U.S. lawmakers.
"The concept of energy independence is not realistic in the foreseeable future," the study says.
The study calls for boosting energy efficiency across all sectors -- including transportation -- and expanding energy sources like coal, nuclear, biomass and unconventional hydrocarbon sources.
The only mention of OPEC -- the producers group that controls a third of global oil exports - is in a footnote.
---------------------------------
4. OPEC TO MAINTAIN CURRENT LEVELS OF OIL OUTPUT: ALGERIAN MINISTER
Jul 05, 2007 (A.K.A. - what demand - no-one's asked us for any extra oil !! )
ALGIERS, Jul 5, 2007 (Xinhua via COMTEX) -- The Organization of Petroleum Exporting Countries (OPEC) will maintain its oil output at the current levels until the next meeting, which is scheduled to be held in September, Algerian energy minister Chakib Khelil was quoted as saying Thursday by the Algerian daily "EL Watan."
"We reckon that prices will remain at the current levels this summer, probably not at the 72 U.S. dollars per barrel range as prices could rise a little bit further," the minister said.
"In any case, I hope that prices will not fall below the 60 dollars per barrel range before the end of the year," the minister added.
London's Brent Crude Oil prices Wednesday fell to 72.98 dollars per barrel after rallying to a high of 73.12 dollars per barrel while New York's Light Sweet Crude price index reached to 71.45 dollars per barrel.
---------------------------------
5. OCCUPIERS MUST NOT GET IRAQI OIL: SADR BLOC
(What will Fatih Birol of the IEA have to say about this? He's suggesting Iraq MUST be the crucial swing producer for the world, because "Saudi Arabia cannot grow production significantly to meet this requirement")
AFP - Najaf, 06 July 2007
Followers of Shiite cleric Moqtada al-Sadr on Thursday joined a growing chorus of Sunni, Kurdish and Shiite opposition to a draft oil law approved by Iraq's cabinet and backed by Washington.
Sadr's supporters said they would not support any law that would allow firms "whose governments are occupying Iraq" -- a reference to the United States, Britain and their coalition allies -- to sign Iraqi oil deals.
"We reject this unclear law that contains a number of points which prevent us from accepting it," said Sheikh Salah al-Obaidi, a Sadr office spokesman in the Shiite shrine city of Najaf. "This law has no grounding in Iraqi reality," he added.
The nationalist Shiite movement particularly objects to the bill's provision for production-sharing agreements with foreign oil firms designed to bring investment into Iraq's oil sector, according to one senior member.
"The most serious problem with the law is the production-sharing agreements, which we categorically reject," Nassar al-Rubaie, the spokesman for Sadr's parliamentary bloc, said.
Such agreements, which provide for foreign oil companies to share investment and profits with the state, would "undermine Iraq's sovereignty in the short run and will strip it of its sovereignty in the long run", he added.
Speaking for the 32-member bloc that is currently boycotting parliament, Rubaie insisted the movement would only approve the law with an amendment to ban oil contracts with "companies whose governments are occupying Iraq".
The draft law, which Washington considers a "benchmark" of political progress in the war-torn country, was drawn up in February but remains a point of contention among Iraq's feuding ethnic, political and religious groups.
The law, which has yet to be debated in parliament, aims to distribute revenues from crude oil exports equitably across 18 provinces and open the sector to foreign investors.
On Wednesday, Iraq's Kurdish and Sunni leaders expressed similar concerns, complaining that they had not seen the final bill as approved by the cabinet, which is currently being boycotted by some Sunni ministers.
Oil exports are Iraq's single most important source of revenue, even after more than four years of frequent insurgent attacks on oil facilities -- Its proven oil reserves, estimated at 115 billion barrels, are thought to be the third largest in the world, but since the US-led invasion in 2003 production has tumbled from 3.5 million barrels per day to around two million.
---------------------------------
10. IRAN'S OIL INDUSTRY: A HOUSE OF CARDS?
Dr. Gal Luft -- The Institute For The Analysis Of Global Security
At first glance, Iran looks like an energy superpower. It is the second largest oil producer in the Organization of Petroleum Exporting Countries (OPEC). It owns 11 percent of the world's conventional oil reserves, second only to Saudi Arabia. It also sits on 16 percent of the world's gas reserves, the largest reserve after Russia. With rising oil prices, Iran's oil export revenues have increased steadily, from $32 billion in 2004, to $47 billion in 2006. Finally, its geographic position on the world's most important energy corridor, the Strait of Hormuz, through which 40 percent of the world's oil traffic passes, gives Iran the ability to disrupt the flow of oil to global markets.
A closer look, however, reveals that Iran's energy sector is a house of cards. It is neglected, crumbling and underinvested. Many of its oil and gas fields are in dire need of foreign technical expertise to help reverse their natural decline. An analysis published last year in Proceedings, a journal of the National Academy of Sciences, asserts that, "Iran is suffering a staggering decline in revenue from its oil exports, and if the trend continues, income could virtually disappear by 2015." Iran's deputy oil minister, Mohammed Hadi Nejad-Hosseinian, confirmed recently that, "if the projects for increasing the capacity of the oil and protection of the oil wells will not happen, within ten years there will not be any oil for export."
Oil may be Iran's greatest strength, but it is also Iran's greatest weakness. As such, the debate in the West on how to prevent Iran from developing nuclear weapons should focus less on the risky military option, or the seemingly ineffective diplomatic option, and more on a comprehensive economic warfare strategy that targets Iran's energy sector. With oil exports accounting for half the government's budget and around 80 to 90 percent of total export earnings, the surest strategy to bring down Tehran's Islamic regime is to break its economic backbone.
A Precipitous Decline
In the mid-1970s, with a production level of more than 6 million barrels per day (mbd), Iran was one of the world's leading energy producers. After the 1979 revolution, Iran's fortunes reversed. Production plummeted to 1.5 mbd, and during the subsequent eight-year war against Iraq, Iran's oil infrastructure was crippled further. Today, if Iran were to try to match its pre-1979 level, it would require at least $80 billion in investment. Moreover, its gas industry would require an extra $85 billion by 2030.
U.S. sanctions have ensured that Iran's oil sector would not recover. President George W. Bush has renewed sanctions first imposed in 1995 by President Bill Clinton, citing the "unusual and extraordinary threat" to U.S. national security posed by Iran. These sanctions prohibit U.S. companies and their foreign subsidiaries from conducting business with Iran, while also banning the financing of development of Iranian energy resources. In addition, the 1996 Iran-Libya Sanctions Act (ILSA) imposes sanctions on non-U.S. companies investing more than $20 million annually in the Iranian oil and natural gas sectors. The 2006 Iran Freedom Act (IFSA) extended ILSA until December 2011. Thanks to these sanctions, investment has plummeted.
Today, Iran produces only 4 mbd and exports 2.34 mbd, about 300,000 barrels below its OPEC quota. This shortfall represents a loss of about $5.5 billion a year.
The decline in oil and gas export revenues is amplified by growing domestic energy demand. To keep 70 million Iranians content, Tehran annually spends about $20 billion, or 15 percent of its economic output, to subsidize gasoline, natural gas, kerosene and electricity prices. These subsidies have spurred rapid growth in consumption, prompting 15 percent to 30 percent inflation, and sparking a full-blown financial crisis.
Iran's dire economic situation has also impacted its lack of refining capacity to meet domestic need for gasoline and other essential refined petroleum products. Gasoline production stands at 10.5 million gallons a day, compared with a daily demand of 18.5 million gallons. With 43 percent of its gasoline imported, Tehran plans to curb demand by launching an unpopular, and potentially explosive, rationing system this year. For a regime that promised to bring oil revenues to every family, eradicate poverty, and reduce unemployment, the decline in oil revenues, coupled with austere gasoline rationing measures and the eradication of energy subsidies, could be dangerous for the survival of the Mullahs' regime.
The economic crisis brewing in Iran is an opportunity for the West. Should the West decide to exploit this situation and ratchet the pressure on Iran's crumbling energy sector, Tehran's house of cards could eventually collapse.
---------------------------------
11. ENERGY GURU: $4 PER GALLON GAS STILL LIKELY
Morris Beschloss -- July 5, 2007
An exclusive interview with one of America's leading energy gurus, Phil Flynn, in Chicago last week disclosed the hard facts U.S. oil producers and consumers will be facing this year.
Flynn is vice president of marketing for Alaron, a major energy trading firm.
He has become the "go-to man" on many major networks, including CNBC, MSNBC, Fox and CNN, and the Wall Street Journal and New York Times. I had the privilege of serving with him on an economics TV panel in Chicago prior to settling in the desert permanently a few years ago.
Flynn has been remarkably accurate in forecasting the pricing movements of crude oil and gasoline in the past few years and the reason for their volatility.
His predictions have been so uncanny that he has been approached by major publishers to write a book on the world's worsening energy crisis.
In our dialogue, Flynn blamed the ongoing gasoline and crude oil availability pressure on the following major factors:
U.S. refinery shortages and maintenance problems, which are due to get worse as the year progresses.
OPEC's desire to restrict shipments on what they know is a vanishing resource. The Middle East oil monopoly also is adamant in squeezing the top prices out of its oil availability, realizing that alternative energy sources eventually will cut into crude oil demand.
Saudi Arabia, the only remaining "swing" producer, conceivably could be losing production in one or more of its five major oil fields at this time.
Although crude oil touched $70 per barrel late last week, Flynn believes it should be priced even higher since West Texas Intermediate, which is quoted on the New York Mercantile Exchange, has faced increasing refining blockage. The refinery bottlenecks have caused a crude inventory backup in Cushing, Okla., the nation's main storage area.
As refinery capacity utilization is climbing to the 90 percent plus level, U.S. crude prices will rise to the mid $70 range, while London-traded Brent crude will lag by $2 to $4, the reverse of today's circumstances.
Because the latter is more difficult to refine due to its OPEC-based heavy sulfur content, it will revert back to its historically cheaper price structures.
Flynn attributes California's high prices at the pump to the state's multi-faceted blends, the state's inability to import from elsewhere and the unexpected consumer demand increase this year.
He cites the recent $4 per gallon prices in Chicago to the production breakdown of the major Whiting, Ind., refinery, and the confiscatory Illinois state taxes.
He invites consumers to check the high taxes that federal and state governments charge in these areas to ascertain what gas at the pump really costs.
Flynn believes that the present ethanol approach is an unmitigated disaster.
"Without the 51 cent subsidy," he exclaims, "this unproven energy alternative would be out of business."
Flynn considers Congress' anti-gouging legislation political grandstanding.
Although no apologist for the Big Five multinationals, he believes these major global oil and natural gas producers are beset by government restrictions, political propaganda and an inability to project their strategies through effective communications.
Flynn believes that these international monoliths are less likely to expand refining capacity as government is calling for less gasoline through mandated ethanol blends in future years.
He believes the world's geopolitical situation is getting increasingly dangerous, as the natural resource heavy nations are gaining the upper hand.
Flynn cites Vladimir Putin's Russia, Hugo Chavez's Venezuela and Mahmoud Ahmadinejad's Iran as the new "axis of oil and natural gas evil."
This is not only due to OPEC's price rigging but the loss of technological skills as engineers, geologists and other experts flee these increasingly authoritarian countries.
Even though major new oil fields are being located, Flynn says, the costs of extraction are so prohibitive that countries like Mexico financially are not capable of exploiting them.
By precluding foreign investment in their energy industry, these countries are shutting out the necessary expertise and financing.
Putting his superior forecasting record on the line, Flynn believes that crude oil will reach $75 per barrel this summer and break last year's $78 record if the hurricane season becomes increasingly active. He adds that "if the geopolitical situation deteriorates," the $85 per barrel mark is a distinct possibility later this year.
With crude oil comprising at least 50 percent of gasoline costs, $4 per gallon at the pump won't be far behind.
"And if the ethanol scam reaches anywhere near its destructive possibilities, look for gasoline to become increasingly expensive," he adds. When asked what all this would mean to corn-based products in America, Flynn stipulated that such inflationary impact on consumer products would be harshly felt as the year progresses.
With worldwide demand of oil at an all-time high of 86 million barrels a day, according to the International Energy Agency, Flynn concludes that the supply/demand squeeze practically will eliminate the thin margin between production and usage that now exists.
---------------------------------
12. OIL MAY HIT $100 A BARREL
Nina Berglund -- Aftenposten: News from Norway -- July 4, 2007
A leading Norwegian economist and one of the oil-producing country's major investors think oil prices will keep rising until alternative energy starts paying off. That can mean prices of more than USD 100 a barrel within a few years.
Spot prices for North Sea oil went over USD 74 a barrel on Tuesday. Some analysts think they'll keep rising, as the summer driving season gets underway in both North America and Europe.
Others think they'll fall back, but not banking firm Nordea's chief
economist Steinar Juel. Both Juel and industrialist Jens Ulltveit-Moe, now a private investor, contend that prices will rise until alternative energy sources become economically advantageous.
Juel told newspaper Dagens Næringsliv Wednesday that he wouldn't rule out oil prices of more than USD 100 a barrel, a level considered unthinkable just three years ago.
World economic growth, Juel noted, points toward an ongoing need for high oil and energy demand. And the world seems to be living with high oil prices, which so far haven't blocked the growth.
Moreover, he notes, there's little sign of any new large sources of oil
coming on line. "I have difficulty seeing where a lot of new oil will come from," Juel told Dagens Næringsliv.
Investor Ulltveit-Moe, a former head of Norway's largest employers'
association, agrees, and notes that oil prices will likely approach levels that will make alternative energy more viable. Coal, he notes, is the biggest rival to oil, and the costs of extracting it and cutting its emissions will guide oil prices.
---------------------------------
13. FOOD VS FUEL WARS JUST BEGINNING
By Gioietta Kuo -- China Daily -- 2007-07-06 06:58
As everyone in China knows, food prices have risen sharply over the past year. If it gives any comfort to anyone, China is not the only country. Rising food prices are a worldwide phenomenon.
The story goes back to the days after World War II. The Western industrial nations went about developing their economy at a fast pace. The basis for this development was cheap oil. From 1945 all the way to the present day, cheap oil seemed to be a bonanza with no end in sight.
As a consequence of cheap oil, the society that developed was based on the internal combustion engine - the motor car. Even though some Americans have been aware of oil running out sometime in the future, the country still consumes oil as if the supply will last forever.
In the US, transport is based on the individual automobile rather than public transport like subways, trains. Even freight is carried by large trucks instead of trains.
Petroleum is fundamental to our modern life. From oil we make plastics, fertilizers, medicine and chemicals. We burn oil to produce electricity.
When countries like China and India began to industrialize, the global scene changed because of increasing demand for oil.
In 2005, easily extracted oil from the oilfields peaked. From now on, the flow will be at a reduced rate, eventually running dry. Oil extracted from the more difficult oilfields, requiring more technology and consequently more expense, is expected to peak in four years, according to some experts in the United Kingdom. Since the global demand for oil exceeds supply, oil prices are going to continue rising.
In the US, there is growing awareness that the country should not depend on foreign oil from unstable regions like the Middle East. More importantly investors have realized there is profit to be made by converting corn into ethanol which can be used as motor fuel.
As more and more ethanol production distilleries come on line, 30 percent of the US corn harvest next year will go into ethanol production.
The US is the world's biggest grain producer and exporter. Almost 70 percent of all the grain imported by many nations around the world comes from the US.
As well as providing food for humans, corn is used as feed for livestock - chickens, cows, pigs. So, as the US turns corn into ethanol, the world community experiences a food shortage. The result is higher prices for foods such as meat, milk, eggs and ice cream.
This inflation initially hit countries like China, India, Mexico and the US, containing 40 percent of the world's population. In China, compared with last year, January pork prices were up 20 percent, eggs up 16 percent. Food prices rose 3 to 4 percent just in the month of May compared with the corresponding period last year.
In India, food prices are now 10 percent higher than last year. In the US, the forecast for 2007 is that the price of chicken will rise 10 percent, eggs 21 percent, and milk 14 percent.
It should be noted that if the entire US corn crop were converted into ethanol, it would satisfy only 16 percent of US transport needs. The amount of corn that goes into the gas tank of a large automobile could feed one person for a year.
So there is direct competition between the 800 million people who own automobiles and the world's poorest 2 billion. Basically there is now a link between the food industry and the energy industry.
When the market sees that it is more profitable to produce ethanol than sell the grain for food, the food industry will be in trouble. Since ethanol is used as a fuel, its price will be tied to the price of oil. As oil prices climb because of the impending world shortage of oil, ethanol prices will rise. As a consequence food prices will rise as well.
China also has an ethanol industry. It was basically started by Western investors who sought to profit by China's corn and the relatively cheap labor as the global price of oil climbs. The Chinese government has
been quick to recognize the danger of diverting corn into ethanol. It has said that in view of the food shortage, ethanol production has no place in the Chinese economy.
How should governments proceed in what is a free market economy? The chief remedy is to reduce government subsidies to the ethanol industry. This seems difficult in the US Congress because of vested interests such as farmers who grow corn.
We are already seeing urban protests in countries such as Indonesia, Egypt, Algeria, Nigeria and Mexico. In Mexico, 75,000 people have taken to the streets forcing the government to initiate price controls on corn-based tortillas, their staple food.
It does not take a leap of imagination to see that continuing down the path of corn for fuel will lead to worldwide famine affecting billions of people. This will certainly lead to political instability, social unrest and general chaos.
The picture is not complete if we do not mention another major reason for the global rise in food prices. That is the fast growth of the world population.
More people means more mouths to feed. It is obvious that when the growth of population outstrips the capacity of the world to produce food, famine is the inevitable result.
We have to give every incentive to reduce the world's population right now. The world's population presently stands at 6.5 billion. It is projected to grow to 8.2 billion by 2030 and 9 billion in 2050.
How are we going to feed these additional people when there is already hunger in the world?
This is the most urgent problem humanity has yet faced. Unless we solve this problem, all the other problems such as global warming, water shortages, oil running out will become irrelevant.
There are two important questions at issue here. The first is a moral question: Should we deprive many less developed countries of food just so that we in the industrial countries in the West can have our pleasure rides? Second, a much more important question is: Can the world afford the destabilization - economic, political and social - that is sure to follow from a starving populace?
The author is advisor and senior fellow at the American Center for International Policy Studies
Comment