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‘Resource Nationalism’ Threatens the Future Availability of Oil

Byron King — Fri, 29 Aug 2008 09:21:28 +0000

Crude oil is heading for its biggest weekly gain in almost two months as Gustav approaches the Gulf of Mexico.

According to Bloomberg: “Gustav is expected to reach Louisiana next week, passing through a region home to a quarter of U.S. oil output and 14% of natural gas production.”

Hurricanes pass. But over the long term, says energy and oil expert Byron King, we are facing a “profound change” in the future availability of oil. That’s because Western oil companies are being kept away from resources by uncooperative states…

This from Byron’s Energy and Oil blog:

The key strategic development in the first decade of the 2000s has been, arguably, the concept of “resource nationalism.” That is, in the many nations that were formerly friendly toward Western companies, the attitudes toward foreign investment have fundamentally changed. Western oil companies have found themselves squeezed in resource-rich areas.

Western companies have experienced outright nationalizations, such as what occurred with Exxon Mobil and ConocoPhillips (NYSE:COP) in Venezuela. Or Western companies have been shown the door through intimidation and bullying legal tactics under the guise of “tax laws” or “environmental enforcement,” such as what happened with Shell Oil Co. (NYSE: RDS.A / RDS.B) at its Sakhalin project in Russia.

Even Brazil has shown its nationalistic teeth to foreign investment. Recently, Brazil withdrew numerous areas from prospective lease sales after it became apparent that the odds of finding oil were quite good. Why not just save it for Petrobras (NYSE:PBR)?

Whatever the case might be, Western companies have been shunted aside or, in the best cases, forced to renegotiate contracts on less favorable terms. The traditional model of resource development, in which Western companies obtain legal title and control over oil and gas deposits in the ground, is fighting a losing battle. Assertive host governments are gaming the rules to favor their state-owned national oil companies (NOCs).

As recently as the late 1970s, Western oil companies controlled well over half of the world’s oil production. But now the NOCs – such as Saudi Aramco, National Iranian Oil Co., Kuwait Oil Co., Petroleos de Venezuela, Petroleos Mexicanos (Pemex), etc. – control over 85% of the world’s oil resources. Western majors control about 7% of the world’s oil resource base.

All the while, oil output from mature regions is in decline. From the North Sea to the Alaska North Slope, the Western oil companies are faced with lower volumes from existing oil holdings. And there is a much thinner book of potential business elsewhere in the world. According to Amy Myers Jaffe, who studies the oil business from her chair at Rice University, “This is an industry in crisis.”

This sense of crisis also helps explain why Western oil companies are fighting to expand their options for offshore drilling in the U.S., as well as to expand access to areas like northern Alaska. The U.S. offshore, and other frontier areas such as the Arctic National Wildlife Refuge (ANWR) are among the few options remaining for Western oil companies.

So one key point that the Western oil industry makes is that its resource base and reserves are in decline. And over the medium to long term, this means that the economic importance of the Western companies will erode. Despite any plans or efforts at conservation and efficiency, as well as a large-scale shift to alternative energy sources, the Western world will become increasingly dependent on NOCs for oil.

From the standpoint of energy and strategy, this will not be a good thing for the West.

Source: Peak Oil, Politics, and U.S. Energy Supply

US Agriculture Supply and the Coming Election

Byron King — Thu, 12 Jun 2008 19:58:09 +0000

Really, could the Demos & Repubs have nominated two more energy-illiterate candidates?

I received an article from Kevin Kerr the other day on our current US agriculture supply.

Here is the link:
http://biz.yahoo.com/rb/080609/markets_grains.html?.v=4

I like this…

“Worries about tight fundamentals, such as low stocks and high demand, was likely to continue feeding the rally in corn, market participants said.”

Gee, do ya think so?

Hey, over the weekend, parts of Indiana got hit with 10 inches of rain. Not exactly corn-weather, if you get my drift. Can’t do much planting in those conditions.

Stand by for an ag disaster this fall….

Also over the weekend, I was listening to a speech by Obama… He said that we’d solve our energy problems over time, “by switching to getting our energy from windmills, solar and biofuels.” No crap. That’s what he said. I almost wrecked the car against a bridge abutment as I listened to that comment.

On the other side, McCain doesn’t want to drill in ANWR because “ANWR is a national treasure like the Grand Canyon.” No crap, that’s what he said. Huh? I’ve been to ANWR and ANWR is no Grand Canyon.

We be doomed…

Really, could the Demos & Repubs have nominated two more energy-illiterate candidates?

Problem is that Big Politics treats energy like “just another issue.” As in, Are you for abortion or against it? For gun control or against it? For estate taxes or against them?

From the “energy” standpoint, you have the faux-environmental movement that says we are doing “the earth” a favor by not developing resources. It’s an issue, and on that issue they vote for Demos or not. (Never vote for a Repub, which makes McCain’s position all the more curious.) It’s just an article of faith within the enviro movement to oppose development. Oppose Uber Alles.

And whenever someone does propose development, that’s called a “fund raising opportunity” for enviros. They put out “oil spill & dying seal” brochures that make a lot of advertisements look tame by comparison.

But the no-grow thinking is premised on the assumption that the US dollar is still supreme. As a nation, we need something with which to “buy it” if we don’t produce it at home. That is, if there are still people who want to sell it to us.

I’d like to put it in terms the enviros can understand. Indeed, I’ve often wondered how the most ardent environmentalists think that without oil & refineries, the airlines can somehow buy the jet fuel it takes to fly from LAX to JFK for the weekend trip to the Big Apple. Really, flight requires jet fuel… Do the enviros really get that?

Until we meet again,

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: US Agriculture Supply and the Coming Election

US Cuts Oil Imports for the First Time Since 1977

Contrarian Profits — Tue, 20 May 2008 16:00:18 +0000

The US is finally doing something about its addiction to foreign oil, according to a report from the Department of Energy.

The report says America’s foreign oil dependency is expected to fall from 60%, to 50% in 2015. The projected reduction is due to high crude oil prices, more efficient cars, and the use of ethanol, which have cut imports of oil to the US for the first time since 1977.

The trend is likely to have significant implications for US national and foreign policies, reports the Financial Times:

… it [will be] harder to prove the case for drilling in Alaska’s Arctic National Wildlife Refuge and to reverse the ambitious biofuels production targets regardless of their impact on global food prices.

ANWR Oil Will Have Little Impact on Oil Prices

Contrarian Profits — Tue, 29 Apr 2008 18:12:55 +0000

Where is ANWAR? This is what thousands of investors are searching the internet for following President Bush’s attempt to persuade Americans that high oil prices are due to the fact that Congress has “repeatedly blocked environmentally safe exploration” there.

For those confused by Bush’s statements today, ANWR (the correct spelling) stands for Arctic National Wildlife Refuge. Bush claimed today that Congress’s refusal to open the reserve for exploration is a major contributor to sky-high oil prices. However, a US Energy Department analysis released today revealed that oil development in ANWR Alsaka would only slightly reduce America’s dependence on imports and would lower oil prices by less than 50 cents a barrel.

According to MSNBC:

The report, issued by the Energy Information Administration … said that if Congress gave the go-ahead to pump oil from Alaska’s Arctic National Wildlife Refuge, the crude could begin flowing by 2013 and reach a peak of 876,000 barrels a day by 2025.

But even at peak production, the EIA analysis said, the United States would still have to import two-thirds of its oil, as opposed to an expected 70 percent if the refuge’s oil remained off the market.

Whether ANWR Alaska is the answer or nor, Bush and Congress better think of an alternative to the US dependence on Middle East oil soon.

Jason Simpkins at Money Morning has startling evidence that the Saudis are lying about their oil capacity.

As investing legend Jim Rogers pointed out in a recent interview with Money Morning Investment Director Keith Fitz-Gerald, Saudi Arabia has claimed to have the same amount of oil it did 20 years ago, but logic seems to run contrary to that assertion.