[oil and gas] $100, $200 a barrel in the next year ... or not
There’s an awful lot of gloom and doom being talked about at the moment over oil.
"If another major event takes place, it's not at all unrealistic for oil to spike to $100," said Bruce Lanni, an oil analyst at A.G. Edwards. "And there's no fundamental reason in this current climate to see oil prices retreat below $70 in the next few months."
An Iranian official has warned that oil prices could hit $200 if international sanctions were imposed on his country in its nuclear dispute with the West, though analysts have disregarded this remark. Saudi Arabia, the world's biggest crude exporter, believes oil should not be used as a weapon even in the conflict between Israel and Hezbollah.
Oil jumped to record highs Thursday and Friday, breaking the $78 mark, over fears that fighting between Israel and Lebanon will spread to the broader Middle East, which accounts for 30 percent of the world's oil output and holds 60 percent of its proven reserves [excluding Russia, of course].
Of course, it’s much more than the price of a barrel of oil and that’s what this article touches on - possible scenarios and how national pride and passion make a heady brew for those carving out the new world direction.
It is a mantra of globalization that what really matters is which country controls the world's energy resources. Evo Morales's decision to nationalize Bolivia's natural-gas industry after speaking in Havana with Venezuelan President Hugo Chavez, then Iranian President Mahmoud Ahmadinejad’s defiant words on uranium enrichment and also Vladimir Putin’s efforts to put Russia back into the sphere of world clout, all are predicated on oil and gas.
The Yukos issue, the Gazrom slap on the wrist to the Ukraine and so on, sent the European Union into a deep-seated spiral of fear and a lingering uneasiness. According to the Energy Charter Secretariat in Brussels, by 2020, the Western Europeans are expected to get half their gas from Russia, which commands 28 percent of world gas reserves, more than any country in the world.
That was why Putin’s speech to the western press in Moscow before the G8 [which is in the piece on oil here] was so significant. It was establishing the ground rules and apart from the money, the goal here was petro-respect. You keep us out of NATO, you keep us out of the WTO, you keep us out of Europe … well ... you’re intelligent people, aren’t you?
And one must agree. What is it with this business of wanting in on the petro-dollars and infrastructure in Russia and then turning around and shutting out the new boy on the block from the Euro-spoils? One gets a different perspective from over here. The Europeans basically realized there weren’t that many alternative suppliers who could be relied on. And that was the thing – who could be relied on?
One worrying aspect in Russia is that though it’s learning, it’s still barely able to overcome it’s crippling corporate practices. The real problem with government oil policy, critics say, is that there is none.
"Russia unfortunately has an energy policy where everyone has a say, so no one knows who's in charge," says Adam Landes, a London-based oil analyst at Russian investment bank Renaissance Capital.
"If another major event takes place, it's not at all unrealistic for oil to spike to $100," said Bruce Lanni, an oil analyst at A.G. Edwards. "And there's no fundamental reason in this current climate to see oil prices retreat below $70 in the next few months."
An Iranian official has warned that oil prices could hit $200 if international sanctions were imposed on his country in its nuclear dispute with the West, though analysts have disregarded this remark. Saudi Arabia, the world's biggest crude exporter, believes oil should not be used as a weapon even in the conflict between Israel and Hezbollah.
Oil jumped to record highs Thursday and Friday, breaking the $78 mark, over fears that fighting between Israel and Lebanon will spread to the broader Middle East, which accounts for 30 percent of the world's oil output and holds 60 percent of its proven reserves [excluding Russia, of course].
Of course, it’s much more than the price of a barrel of oil and that’s what this article touches on - possible scenarios and how national pride and passion make a heady brew for those carving out the new world direction.
It is a mantra of globalization that what really matters is which country controls the world's energy resources. Evo Morales's decision to nationalize Bolivia's natural-gas industry after speaking in Havana with Venezuelan President Hugo Chavez, then Iranian President Mahmoud Ahmadinejad’s defiant words on uranium enrichment and also Vladimir Putin’s efforts to put Russia back into the sphere of world clout, all are predicated on oil and gas.
The Yukos issue, the Gazrom slap on the wrist to the Ukraine and so on, sent the European Union into a deep-seated spiral of fear and a lingering uneasiness. According to the Energy Charter Secretariat in Brussels, by 2020, the Western Europeans are expected to get half their gas from Russia, which commands 28 percent of world gas reserves, more than any country in the world.
That was why Putin’s speech to the western press in Moscow before the G8 [which is in the piece on oil here] was so significant. It was establishing the ground rules and apart from the money, the goal here was petro-respect. You keep us out of NATO, you keep us out of the WTO, you keep us out of Europe … well ... you’re intelligent people, aren’t you?
And one must agree. What is it with this business of wanting in on the petro-dollars and infrastructure in Russia and then turning around and shutting out the new boy on the block from the Euro-spoils? One gets a different perspective from over here. The Europeans basically realized there weren’t that many alternative suppliers who could be relied on. And that was the thing – who could be relied on?
One worrying aspect in Russia is that though it’s learning, it’s still barely able to overcome it’s crippling corporate practices. The real problem with government oil policy, critics say, is that there is none.
"Russia unfortunately has an energy policy where everyone has a say, so no one knows who's in charge," says Adam Landes, a London-based oil analyst at Russian investment bank Renaissance Capital.
And yet, with huge, cheap reserves, Russia's oil industry still has plenty of potential to attract investment and the changes in the fabric, in the infrastructure, wrought by the petro-dollar, have to be seen to be believed. Reminds one of Malaysia and all the vast, unoccupied office complexes in 1997/8. The construction going on [always the outwards manifestation of prosperity] is awe inspiring.
But much, much more than this is that the burgeoning middle class has roubles in the pocket. My own business is doing nicely, thank you, thanks to people’s overweening confidence, which requires some understanding. They so want to be confident that ... they're confident.
People, on principle here, don’t trust Moscow. But this is not Moscow. Here everyone has Moscow in their eyes and wants to recreate the same – the same labels, the same goods and services, the same BMWs [the traditional sign you’d made it before the unfavourable Euro shifts], the same easy lifestyle. Everyone wants a slice of the good life as they perceive it and credit is the means by which to get it.
Moscow has a case for saying this will continue. It’s getting wise – for example, Gazprom has hired Schröder as a consultant and Medvedev has admitted that Britain’s Centrica could even be a potential takeover target. "With our present financial strength, it is very difficult to find a company which is not on our watch list," he said. The oil and gas dollar [or Euro] is flowing.
Putin is not personally power-hungry, for the simple reason that he has the power already and is near the end of his official term. Almost completely. No, the big thing over here is Russia’s reassertion of prestige on the world stage and Vladimir P. wishes history to associate him with it. And as can be seen here, he's not making blind assurances.
Meanwhile, the Iran, Iraq and Venezuela issues have added a potential $10-$20 premium to oil and that’s why the Americans are being primed for the worst at the gas pump, no matter how far the government cushions the blow.
Iran's Deputy Oil Minister Mohammad Hadi Nejad-Hosseinian last Friday said, "There is still a possibility of crude reaching $100 a barrel due to geopolitical problems worldwide and peaking of winter demand." He was in the Indian capital for talks on a proposed $7 billion gas pipeline. He did not see the possibility of Iran withdrawing crude supplies from global markets in the event of U.S. military action against Tehran over its controversial nuclear program.
In another development, Russia and Iran are also resisting US pressure to build the trans-Caspian pipeline to Baku, Azerbaijan.
The ultimate fear in the west is that Iran may cut off its oil exports or, worse, attempt to disrupt tanker traffic through the narrow Strait of Hormuz just off its coast. About a quarter of the world's oil passes through the strait on its way to market.
However, there is a solid body of opinion which sees such a scenario as unlikely.
"Markets tend to over-react," said Steven Cook, a Middle East expert at the Council on Foreign Relations [itself a 4th player body and therefore to be listened to carefully]. "Iran doesn't need to be sinking ships in the Gulf, they have other cards to play," like increasing support for fighters in Iraq or Lebanon.
James Phillips, a research fellow at the think tank Heritage Foundation, said Iran has only limited military capability to disrupt shipping. He also said Iran, unlike Saudi Arabia and Kuwait, which can export oil via pipeline, it is completely dependent on the Gulf to export its product. "It would truly have to be an act of desperation on Iran's part," said Phillips, saying it would take a U.S. strike on its oil facilities to push the country that far.
On top of this is Henry Groppe, of Groppe Long & Little [1955], who believes in the "peak oil" theory, which says global oil production will soon reach peak output, if it hasn't already, followed by steady decline just as the world demands more supplies to run its economies. Henry Groppe is himself a very, very interesting character, if you look at his history.
In 1980, when everyone warned of $100 oil, Mr. Groppe predicted $15 by 1985 and he was right. In 1998, the Economist magazine predicted prices were headed to $5. Mr. Groppe said a major rise was on the way. A year later, oil was headed for $30.
Yet many economists disagree, arguing that higher prices will stimulate previously uneconomical oil exploration and development while encouraging the use of other forms of energy, such as nuclear or hydrogen power. That’s certainly so in Russia.
Mr. Groppe's point is that output in country after country is in decline. A 2002 oil depletion study done by Ohio State University notes that Venezuela's four biggest and oldest fields once collectively produced two million barrels a day. The figure is now 850,000. Nigeria's production peaked in 1978, Britain peaked in 1999. Canada keeps rising. Ghawar is not all roses itself.
Simply, there is a gap between what is being extracted [a lot] and what is being discovered [not a lot]. Oil companies always try to find the biggest fields first. It does not mean no more monster-size fields exist; Russia is a case in point. Mr. Groppe doesn't think we're running out of oil - just cheap oil.
"We ran out of $2 oil in 1973; it had been $2 a barrel for 25 years," he says. "Then we ran out of $8 oil, then $15 oil. Now we're running out of $40 oil."
Western analysts are still scared though, not just about the drying up of oil and gas but about who is controlling this process. And it sure isn’t the USA. That is America’s presence in the Middle-East in a nutshell. And again I have to agree with the principle, if not the process.
Only a madman would support the war in Iraq for its own sake. Who [except for the European based 4th player] could condone the killings, bombings and so on and so on; who could approve of how the issue has mushroomed to include Israel and of the impossibility with people like the Arabs of achieving any sort of stability, except on their terms?
And yet America has two alternatives – to get off the petro-standard and rediscover alternative fuels which were mooted many times and shelved under oil company pressure; or else capture the oil market.
The latter it will never do, as it lacks the muscle to take on the whole Arab world, plus Europe, plus Russia and China. It can put any number of smart weapons into a local area; it can nuke the world’s major ciities but the petro-money machine remains firmly in the hands of its respective owners. And again – is it any wonder? Of course it was always going to be this way.
Back in the west, ExxonMobil [despite its profit margins] now own just 6 percent of supplies, against 77 percent that's now owned by state-owned entities, according to the Petroleum Finance Corp., Washington.
Katrina demonstrated just how fragile U.S. economic security now is and how dependent on oil. The powers that be always knew this, as did the analysts. It’s just that Lorraine Davies and her three kids in Sioux City, Iowa, also know it now. All of these things are behind Bush's call for an end to "America's oil addiction".
It’s all to do with the free flow of goods and resources. ExxonMobil spokesman Russ Roberts says, "The Iraqi oil belongs to the Iraqi people. If the Iraqi people determine that they want the help of international oil companies in developing their resources, then ExxonMobil would certainly be interested in participating."
On the other hand, there are limits to how far you can play the oil card. $100 a barrel is going to have the effect of causing countless millions, not least in America, to radically rethink there own micro-energy strategy. Plus another thing. There is a deep nationalistic resentment in many countries to the Arab world holding a gunbarrel to people’s heads thousands of kilometres away.
Oil and gas are all they have to play with and for now the ball is in their court but for how much longer?
People, on principle here, don’t trust Moscow. But this is not Moscow. Here everyone has Moscow in their eyes and wants to recreate the same – the same labels, the same goods and services, the same BMWs [the traditional sign you’d made it before the unfavourable Euro shifts], the same easy lifestyle. Everyone wants a slice of the good life as they perceive it and credit is the means by which to get it.
Moscow has a case for saying this will continue. It’s getting wise – for example, Gazprom has hired Schröder as a consultant and Medvedev has admitted that Britain’s Centrica could even be a potential takeover target. "With our present financial strength, it is very difficult to find a company which is not on our watch list," he said. The oil and gas dollar [or Euro] is flowing.
Putin is not personally power-hungry, for the simple reason that he has the power already and is near the end of his official term. Almost completely. No, the big thing over here is Russia’s reassertion of prestige on the world stage and Vladimir P. wishes history to associate him with it. And as can be seen here, he's not making blind assurances.
Meanwhile, the Iran, Iraq and Venezuela issues have added a potential $10-$20 premium to oil and that’s why the Americans are being primed for the worst at the gas pump, no matter how far the government cushions the blow.
Iran's Deputy Oil Minister Mohammad Hadi Nejad-Hosseinian last Friday said, "There is still a possibility of crude reaching $100 a barrel due to geopolitical problems worldwide and peaking of winter demand." He was in the Indian capital for talks on a proposed $7 billion gas pipeline. He did not see the possibility of Iran withdrawing crude supplies from global markets in the event of U.S. military action against Tehran over its controversial nuclear program.
In another development, Russia and Iran are also resisting US pressure to build the trans-Caspian pipeline to Baku, Azerbaijan.
The ultimate fear in the west is that Iran may cut off its oil exports or, worse, attempt to disrupt tanker traffic through the narrow Strait of Hormuz just off its coast. About a quarter of the world's oil passes through the strait on its way to market.
However, there is a solid body of opinion which sees such a scenario as unlikely.
"Markets tend to over-react," said Steven Cook, a Middle East expert at the Council on Foreign Relations [itself a 4th player body and therefore to be listened to carefully]. "Iran doesn't need to be sinking ships in the Gulf, they have other cards to play," like increasing support for fighters in Iraq or Lebanon.
James Phillips, a research fellow at the think tank Heritage Foundation, said Iran has only limited military capability to disrupt shipping. He also said Iran, unlike Saudi Arabia and Kuwait, which can export oil via pipeline, it is completely dependent on the Gulf to export its product. "It would truly have to be an act of desperation on Iran's part," said Phillips, saying it would take a U.S. strike on its oil facilities to push the country that far.
On top of this is Henry Groppe, of Groppe Long & Little [1955], who believes in the "peak oil" theory, which says global oil production will soon reach peak output, if it hasn't already, followed by steady decline just as the world demands more supplies to run its economies. Henry Groppe is himself a very, very interesting character, if you look at his history.
In 1980, when everyone warned of $100 oil, Mr. Groppe predicted $15 by 1985 and he was right. In 1998, the Economist magazine predicted prices were headed to $5. Mr. Groppe said a major rise was on the way. A year later, oil was headed for $30.
Yet many economists disagree, arguing that higher prices will stimulate previously uneconomical oil exploration and development while encouraging the use of other forms of energy, such as nuclear or hydrogen power. That’s certainly so in Russia.
Mr. Groppe's point is that output in country after country is in decline. A 2002 oil depletion study done by Ohio State University notes that Venezuela's four biggest and oldest fields once collectively produced two million barrels a day. The figure is now 850,000. Nigeria's production peaked in 1978, Britain peaked in 1999. Canada keeps rising. Ghawar is not all roses itself.
Simply, there is a gap between what is being extracted [a lot] and what is being discovered [not a lot]. Oil companies always try to find the biggest fields first. It does not mean no more monster-size fields exist; Russia is a case in point. Mr. Groppe doesn't think we're running out of oil - just cheap oil.
"We ran out of $2 oil in 1973; it had been $2 a barrel for 25 years," he says. "Then we ran out of $8 oil, then $15 oil. Now we're running out of $40 oil."
Western analysts are still scared though, not just about the drying up of oil and gas but about who is controlling this process. And it sure isn’t the USA. That is America’s presence in the Middle-East in a nutshell. And again I have to agree with the principle, if not the process.
Only a madman would support the war in Iraq for its own sake. Who [except for the European based 4th player] could condone the killings, bombings and so on and so on; who could approve of how the issue has mushroomed to include Israel and of the impossibility with people like the Arabs of achieving any sort of stability, except on their terms?
And yet America has two alternatives – to get off the petro-standard and rediscover alternative fuels which were mooted many times and shelved under oil company pressure; or else capture the oil market.
The latter it will never do, as it lacks the muscle to take on the whole Arab world, plus Europe, plus Russia and China. It can put any number of smart weapons into a local area; it can nuke the world’s major ciities but the petro-money machine remains firmly in the hands of its respective owners. And again – is it any wonder? Of course it was always going to be this way.
Back in the west, ExxonMobil [despite its profit margins] now own just 6 percent of supplies, against 77 percent that's now owned by state-owned entities, according to the Petroleum Finance Corp., Washington.
Katrina demonstrated just how fragile U.S. economic security now is and how dependent on oil. The powers that be always knew this, as did the analysts. It’s just that Lorraine Davies and her three kids in Sioux City, Iowa, also know it now. All of these things are behind Bush's call for an end to "America's oil addiction".
It’s all to do with the free flow of goods and resources. ExxonMobil spokesman Russ Roberts says, "The Iraqi oil belongs to the Iraqi people. If the Iraqi people determine that they want the help of international oil companies in developing their resources, then ExxonMobil would certainly be interested in participating."
On the other hand, there are limits to how far you can play the oil card. $100 a barrel is going to have the effect of causing countless millions, not least in America, to radically rethink there own micro-energy strategy. Plus another thing. There is a deep nationalistic resentment in many countries to the Arab world holding a gunbarrel to people’s heads thousands of kilometres away.
Oil and gas are all they have to play with and for now the ball is in their court but for how much longer?
Some links and references:
Steve Hargreaves, CNNMoney.com, July 14 2006
http://www.riskcenter.com/story.php?id=13299&PHPSESSID=1d970d0839e27ed18b9b715839ba0e0b
http://www.energybulletin.net/5699.html
http://www.businessweek.com/magazine/content/05_30/b3944088_mz015.htm
http://money.cnn.com/2006/07/14/news/economy/oil_lookahead/index.htm
posted by James Higham @ 07:56
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