The Great Geopolitical Battle Over Energy Transit Routes
The Great Geopolitical Battle Over Energy Transit Routes
by Philip H. de Leon
As we all live in the present, it is very hard to fully assess the future implications of decisions supported or made by political and business leaders. An extraordinary game of geo-strategy is under way to lock in long-term agreements, notably in the energy sector. At a global level, the transit routes of future oil & gas pipelines become the object of a power struggle involving not only the suppliers and end-users but also the transit countries. Intensive courtships are under way where a ménage à trois, or more, may be the best option to prevent any country from being in a dominating position to rule a region and exercise political or economic pressure.
Let’s take a practical example and look at some of the dynamics behind the Nabucco pipeline and at the different interests involved.
The Untapped Energy Riches of Uzbekistan
The Untapped Energy Riches of Uzbekistan
by John C.K. Daly
While many Western investors remain fixated on somehow acquiring a slice of Turkmenistan’s natural gas riches, despite a recent scandal over the country’s actual reserves, there is another country further east whose energy and mineralogical reserves have been overlooked – Uzbekistan.
While a number of factors are responsible for this oversight, including relative geographical isolation (Uzbekistan, along with Liechtenstein, is one of the world’s doubly landlocked nations, requiring crossing two other nations to gain access to the oceans), which currently limits energy exports available for the global market, there are a number of pluses that the country has for investors willing to “think outside the box.”
With a population of 27 million, Uzbekistan is Central Asia’s most populous and dominant power. A conservative fiscal policy since 1991, including inconvertibility of the national currency, the som, has shielded its citizens from the hyperinflation that ravaged other former Soviet republics, but the policy previously diminished potential foreign investment.
Since the global recession that began a year ago, however, Uzbekistan’s fiscal conservatism, previously dismissed by the foreign investment community, has looked more and more like a pragmatic policy that isolated the country from the worst aspects of the recession in stark contrast to other post-Soviet states that fervently embraced free market capitalism like Lithuania, whose economy contracted 18.1% this year and is expected to shrink further by 3.9% in 2010. In a move certain to be welcomed by foreign investor Uzbekistan is slowly moving towards making its currency convertible but whenever it happens, for the present the country offers a fiscal stability unmatched by many of its more free-market neighbors.
Houston We Have a Problem – Feedback?
Back in June I took a first look at a new movie called “Houston We Have a Problem” – now there is an updated theatrical trailer (see below) and some recent screenings in select cities and film festivals (right now at the Austin Film Festival).
Houston We Have A Problem is about America’s ferocious appetite for oil from the insider’s perspective of the Energy Capital of the World – Houston Texas. The film explores our dangerous addiction to oil through candid insights from the Barons, Wildcatters, CEO’s and Roughnecks that comprise the world of Big Oil. Oilmen on oil addiction.
Has anyone been able to see the film? What did you think?
Mexican cartels smuggle stolen oil into U.S.
Mexican drug cartels are skimming oil from the government owned pipelines an selling it to several U.S. refineries.
In a surprising public acknowledgment, Mexican President Felipe Calderon said last week that drug cartels have extended their operations into the theft of oil, Mexico’s leading source of foreign income which finances about 40 percent of the national budget.
At least one U.S. oil executive has pleaded guilty to a conspiracy that involved what prosecutors said was about $2 million in stolen Mexican oil, U.S. Justice Department officials confirmed to The Associated Press.
First Look: Houston We Have a Problem [Movie Trailer]
Here’s a first look at the trailer for a new film Houston We Have a Problem – a feature documentary about America’s ferocious appetite for oil from the insider’s perspective.
Exploring our dangerous addiction to oil through candid insights from the Barons, Wildcatters, CEO’s and Roughnecks that comprise the world of Big Oil. This film is an inside look into the culture of oil that explores the history of our dependency that has led us to our current ENERGY CRISIS.
We learn how the perceived perpetrators of this critical American problem understand its complexities better than anybody. These seasoned professionals and New Wildcatters are presenting innovative strategies with a systemic shift to renewable, sustainable energy sources.
For too long, the energy policy of this country has been dictated by lobbyists and knee-jerk political decisions but now, politicians and business are finally joining together for a solution
The film premiered at the AFI Dallas International Film Festival earlier this year. Unfortunately, I wasn’t lucky enough to be there. There is, however, an interesting interview from the festival with director Nicole Torre and producer Eric Mofford where they talk about how the motivation for the film developed out of a conversation where two people, representing two distinctly different political and social perspectives, were able to overcome the obvious obstacles and discuss real solutions to the shared crisis.
I talked briefly with the film’s director Nicole Torre yesterday who told me they are still shopping it around for national theatrical distribution, and the screening schedule and DVD release date is not yet available.
You can learn more about the film Houston We Have Problem and it’s schedule at their website, or on the film’s FaceBook page.
Where does your gas money go?
There’s an outstanding report from American Petroleum Institute (API) called Energizing America. I’m going to cherry pick some of the best and most informative info-graphs from this report and highlight them over the next few weeks. You can download a free copy of their report from their website.
Click image to enlarge.
The API report wants to emphasis that oil companies only make a 5.5% margin on each drop of oil the buy, refine, and transport to your local filling station.
More interesting are the taxes; nearly a quarter of the money consumers spend at the pump gets fed back to local, state, and federal governments. Any idea why every administration since the 1970’s oil crisis has so far failed to solve our oil addiction? Anyone?
Fuelishness! Feed: Oil firms above $60; Venezuela builds oil rig with China; The end of the gas guzzler; Will transform US auto fleet; Safety could suffer
- Oil firms above $60 – Oil prices have been on an upward trend since mid-April on equity-led rallies. They have recovered from below $33 in December after a plunge from record highs above $147 in July.
- Venezuela set to build first oil rig with China – China buys 300,000 barrels of Venezuelan crude every day, and is eager for more from the Latin American country as part of its global quest for a diverse range of energy supplies.
- The end of the great American gas guzzler – President Barack Obama will unveil new fuel efficiency standards today in an effort to limit the release of greenhouse gases by cars and trucks.
- Obama’s new rules will transform US auto fleet – The new rules would bring new cars and trucks sold in the United States to an average of 35.5 miles per gallon, about 10 mpg more than today’s standards. Passenger cars will be required to get 39 mpg, light trucks 30 mpg.
- Safety could suffer if we boost mileage by making cars smaller - The National Academy of Sciences, Insurance Institute for Highway Safety, Congressional Budget Office and National Highway Traffic Safety Administration have separately concluded in multiple studies dating back about 20 years that fuel-economy standards force automakers to build more small cars, which has led to thousands more deaths in crashes annually.
Gas prices up slightly as refineries improve margins
Some insight:
For a while, when the price at the pump was around $1.59 a gallon in the Iowa Quad-Cities, the refining margin on gasoline was negative, MacIntyre said.
“Refiners were losing money in that they were selling the gasoline to wholesalers for less than what they were paying for the crude oil that goes into the refining,” MacIntyre said.
However, they were making money on other products such as diesel and jet fuel, he added.
The price of gasoline is not set by the refiners, MacIntyre said. Gasoline prices, as well as the prices of all the other products refineries make from oil, are set by the market.
Or…
There are a lot of partial explanations. It’s partly due to some refineries cutting production, both to increase profit by reducing supply and to make repairs, at least in California. It’s partly due to the crude oil market being in contango, the term for when “the current month’s (Feb.) future price is trading lower than the futures price for the following month”—which means there’s a lot of oil being bought and stored in tankers for future sale. (The problem: we don’t know how this contango directly translates to higher prices at the pump. Does it create a shortage? Can anyone educate us in laymen’s terms?) Oh, it might also partly be due to the temporary spike in crude prices back at the end of 2008, because often pump prices lag crude prices.
More…
Gas prices continue upward spiral – AAA says for the third consecutive week crude oil prices have declined and retail gasoline prices drifted higher. Consumer demand remains weak and supply is so ample that offshore oil tankers are carrying millions of barrels of crude oil and going nowhere.
Why Do Gas Prices Rise As Oil Prices Fall? – Alvarez has one theory that speculators are behind the increase, betting the crude oil will rise in the coming days. Alvarez does stress, however, that gas station owners have the final say on how they price their gas.
I’ve written several times, bout OPEC cuts, and crude oil stowed at sea… is this having an effect? What do you think?
Crude Oil Prices Continue To Chill
Today as a mass of “global-warming-denying” arctic weather shuts in much of the country with punishing and historic low temperatures; crude oil prices slip again – this time to under $34 – leaving oil companies to float their stock at sea in the bellies of supertankers.
From the Indian Ocean to the South Atlantic to the Gulf of Mexico, giant supertankers brimming with oil are resting at anchor or slowly tracing racetrack patterns through the sea, heading nowhere.
The ships are marking time, serving as floating oil-storage tanks. The companies and countries leasing them for that purpose have made a simple calculation: the price of oil has fallen so far that it is due for a rise.
Some producing countries are trying to force that rise by using the tankers to withhold oil from the market, while traders are trying to profit by buying cheap oil now to store and sell at a higher price later. Oil storage has become so popular that onshore tank capacity is becoming scarce.
The crude oil markets are none-to-worried about the “unrest” in the middle east either, it seems. Normally a war (or threat of a war) in that area results in a spike in the price of crude, as futures traders bet on a resulting shortage resulting from direct action or political punishment. But not this time. There was a blip last week, just a hint of warming… but it didn’t last long.
OPEC lowered its energy demand forecast for 2009, with investors already shrugging off production cuts of 4.2 million barrels a day by member countries. The Organization of Petroleum Exporting Countries said in its January report that it expects world demand for crude will fall 180,000 barrels per day in 2009, compared with the previous year.
Is Gaia herself giving us a glimpse into our financial future? Do the record low temperatures foretell the continued glacerialization of world economies, the freezing of credit, and the icing-over of hope?
Even Hugo Chavez can’t believe his eyes, or the bottom line. He’s busy eating a little crow at the moment, hoping to court western oil companies to help bail him out of the mess he’s created in his oil-rich but cash-starved
President Hugo Chávez, buffeted by falling oil prices that threaten to damage his efforts to establish a Socialist-inspired state, is quietly courting Western oil companies once again.
Until recently, Chávez had pushed foreign oil companies here into a corner by nationalizing their oil fields, raiding their offices with tax authorities and imposing a series of royalties increases.
But faced with the plunge in prices and a decline in domestic production, senior officials here have begun soliciting bids from some of the largest Western oil companies in recent weeks — including Chevron, Royal Dutch/Shell and Total of France — promising them access to some of the world’s largest petroleum reserves, according to energy executives and industry consultants here.
This economic slowdown, recession, adjustment (whatever you’d like to call it) seems bigger than currently imagined.
Meanwhile, U.S. oil inventories have been rising for months, suggesting that the recession severely cut into energy demand. The Energy Information Administration said Wednesday that crude inventories grew by 1.2 million barrels for the week ended Friday after jumping 6.7 million barrels the previous week…
Refineries are cutting back production because profit margins are next to nil.
Flynn said any existing storage facilities could be flooded with crude as the February contract comes to a close Tuesday, leaving little excess capacity.
“We’re running out of places to put it,” he said. “There’s more oil out there now than we’ve had in a long time.”
Saskatchewan Has Record Oil Drilling Year (2008)
From our conservative friends up north at SDA:
It turns out 2008 was the second-best year ever for Saskatchewan in terms of actual drilling with 4,045 oil and gas wells created. Most of that attention is focused on the Bakken oil play and the Weyburn-Estevan area.
Part of the reason that sector has exploded in recent years is the advent of horizontal drilling. Once an experimental technique it’s become common-place in our province, accounting for nearly half of total oil production.
Apparently as world oil prices fall the smaller oil drilling companies are increasingly competitive with the bigger companies, thanks to their lower overhead costs and high demand for the sweeter oil they are pumping that requires less refining.
Source: CKOM
Energy Freedom Summit – First Impressions
Today and tomorrow I’m in Chicago attending the Energy Freedom Summit, organized by the Set America Free Coalition. I wasn’t sure what to expect from this summit, not knowing much about the organization until just two months ago.
 My first impression after today’s panels; I’m impressed with the knowledge, experience, focus and pace of this organization – they have a laser-lock on what they intend to do, and are efficient in getting the message out as powerfully as possible.
The panels are impressive leaders in their fields, from geo-political security experts to plug-in hybrid magazine editors. I’m taking many notes.
The attendees are an ambitious and eclectic group of people from a variety of backgrounds who are interested in understanding and solving the current energy crisis. Authors, government officials past and present, entrepreneurs, concerned citizens fill the conference hall – about 150 in all.
I’ve met several authors, a frog farmer, a history professor, a few lawyers, and several “regular joes” who are attending in an effort to ”do something” about this problem.Â
I’m not yet sure where I fit in here, but I keep talking to people, and am learning quite a lot.
(Update 10/27/08 – I’m home from Chicago, with enough new information to fill this blog for weeks. I’m currently writing a few entries, and will begin posting them as they are completed.)
Supply and Demand: Oil Prices Dropping
 You’ve probably noticed oil and gas prices are the lowest they’ve been all year. Demand has slipped not just here at home, but around the world. Even China’s demand is showing signs of cooling.
Source: IHT.comÂ
At the beginning of the year, OPEC producers felt confident that strong economic growth and tight supplies would keep oil prices high. When oil crossed the $100-a-barrel threshold in February, the cartel’s president blamed speculators and said there was not much OPEC could do.
But now, panic is gripping producers as prices drop. Oil is down by half since July, and the speed of the decline has stunned oil-rich governments that have become dependent on high prices.
OPEC is worried that prices are going to slip too far. This, of course is great news for consumers, who have been suffering for months paying balooning prices at the pump. It’s also a confirmation that basic rules of supply and demand still work to determine the cost of commodities like fuel. Of course lower fuel prices would be even more welcome if not for the global economic downturn.
Were fuel prices a contributor to the economic crisis - a perfect storm of the housing credit and oil bubbles? I’m sure that high fuel prices helped push consumer confidence down. How can you be optimistic about weathering your other economic problems when every day the price of fuel rises, and never seems to fall. High fuel costs may have pushed us over the economic edge we have be teetering at for the last few years.
Early in the year there were numerous reports from government transportation agencies and commercial groups like AAA that Americans were curtailing driving, driving less that they had the year before, indicating the first decrease in driving in decades. In any case, the oil market is finally reacting to months of run-ups, where we found ourselves paying over $140 for a barrel of oil just a few short months ago. We stopped buying as much, and the price slips.
Now OPEC, the largest oil cartel, may attempt to flex its muscle to prop up falling oil prices and protect their profits, by purposely reducing oil supply.Â
Is it possible to demonstrate more clearly the need to find alternative supplies for energy than this? Is it possible to demonstrate more clearly the effect of energy conservation than this? We all participated in the grandest supply and demand experiment of modern history.
Conservation works – and works quickly, without any new technology required. Finding alternative sources of energy, or just stating the intention of finding alternative sources of oil, also works to reduce prices. It doesn’t take years, as predicted by politicians from each side. Speculators and cartels are discouraged when they hear the largest customer has decided to shop around a little. Sellers tend to sweeten the deal in order to keep the customer. It’s less about actual drops of oil, and more about managing human greed. Let’s not be lulled back into old habits by lower prices.
Let’s also remember that relatively small changes in demand led to fairly substantial changes in price. It’s true that Americans are driving less than last year – but it’s only by a small percentage. Look around, there are cars everywhere – moving around all hours of the day. American’s haven’t abandoned their cars, they are just using them a little less, or using them a little more efficiently. I’d like to think we contributed, however slightly.
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