$150 Per Barrel Petroleum??

Russian Gas Shortfall Is `Urgent' Concern, U.K. Lawmakers Say
By Mark Deen

Nov. 25 (Bloomberg) -- Russian gas production may not be enough to supply both the country's domestic needs and its export markets in Western Europe, a panel of U.K. lawmakers said.

``The prospective shortfall in Russian gas production represents an urgent energy security concern for the European Union,'' Parliament's Foreign Affairs committee said today in a report. The threat ``is a greater one than the risk of Russia disrupting supplies for political reasons.''

Western Europe imports about a quarter of its gas from Russia, which threatened to cut of supplies to Belarus in December 2006 and temporarily cut off deliveries to Ukraine the previous January. The U.K. is a net gas importer.

This is but the latest example of important energy investments cancelled as the result of politicians imposing taxation (Alberta) or outright expropriation (Venezuela, Russia).

"The more you tax something, the less of it you get."
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Conoco scraps project on Alaska oil tax hike-report
Tue Nov 27, 2007 9:12am EST
NEW YORK, Nov 27 (Reuters) - ConocoPhillips Inc (COP) has canceled a planned $300 million clean fuels project on the Alaska North Slope after changes to state tax legislation denied it deductions for the investment, the Anchorage Daily News reported Tuesday.

Conoco, the largest oil producer in Alaska, had threatened to cancel the upgrade of its topping plant at its Kuparuk oil field earlier this month when state legislators were debating an increase in taxes on oil production.

Other oil producers, including BP Plc (BP.L) and ExxonMobil Corp (XOM), have said they will review all of their planned investments in Alaska in the wake of the tax increase and have warned that higher taxes could lead to less investment and more rapid declines in Alaskan oil production.

Alaska lawmakers passed the bill on Nov. 16 that raises tax rates on oil produced in the state and limits the deductions big producers like Conoco and BP can take for operating costs at large fields including Kuparuk and Prudhoe Bay.

Conoco and BP currently extract diesel fuel for their North Slope operations from produced crude oil at Kuparuk and Prudhoe Bay using simple, miniature refineries called topping plants.

From 2010, the companies are required to use ultra-low sulfur diesel (ULSD) fuel to comply with federal environmental legislation and modifications would be required to the topping plants to reduce the sulphur content of the diesel they produce.

Conoco now plans to truck ULSD to the North Slope, the Daily News said. Alaska's only producer of ULSD is the Tesoro Energy Corp (TSO.N) refinery in Nikiski, south of Anchorage, approximately 1,100 miles from the North Slope oil fields. (Reporting by Robert Campbell; Editing by John Picinich)
© Reuters 2006. All rights reserved

Free market prices, once more, encourage innovation, substitution, conservation and risk-taking.

"The solution to high prices is..................high prices."
____________________________________________________

Google plans big renewable energy push
Tue Nov 27, 2007 12:31pm EST
By Eric Auchard

SAN FRANCISCO, Nov 27 (Reuters) - Google Inc (GOOG) said on Tuesday the Web services and online advertising group plans to spend hundreds of millions of dollars in coming years to promote a new push to encourage cheap renewable electricity.

The project, known as Renewable Energy Cheaper Than Coal, is hiring engineers and targeted investment financing at advanced solar thermal power, wind power technologies, enhanced geothermal systems and other new technologies, Google said.

Google is, in effect, taking advantage of its growing mountain of cash, global brand recognition and mushrooming market capitalization as a pulpit to campaign for alternative energy. The company's leaders argue that the time is ripe for investments in innovative research to cut energy costs.

"Our goal is to produce one gigawatt of renewable energy capacity that is cheaper than coal. We are optimistic this can be done in years, not decades," Larry Page, Google's co-founder and president of products, said in a statement.

One gigawatt can power a city the size of San Francisco.

Google is seeking to capitalize on the recent excitement among Silicon Valley entrepreneurs to apply the risk taking that computer, biotech and Internet businesses are famous for to the field of alternative energy production.

Google's latest moves come as the price of a barrel of oil nears $100 and coal, which produces 40 percent of the world's electricity, faces regulatory and environmental pressures that could drive up prices.

Working with its philanthropic arm Google.org, the company said it plans to spend tens of millions of dollars in 2008 on research and development and related efforts in renewable energy.

Eventually, the Mountain View, California-based company said it will spend hundreds of millions of dollars in "breakthrough renewable energy projects which generate positive returns."

"Renewable Energy Cheaper Than Coal" is hiring engineers and energy experts to lead its research and development work. It said it will begin on solar thermal technology and will also investigate enhanced geothermal systems and other areas.

Page said Google gained experience in designing large-scale energy projects through its investments in energy-efficient computer data centers. The roofs of Google's headquarters buildings also boasts one of the biggest solar energy installations of any U.S. company.

"We want to apply the same creativity and innovation to the challenge of generating renewable electricity at globally significant scale and produce it cheaper than from coal," Page said in the statement. (Reporting by Eric Auchard in San Francisco

Oil Surges After Enbridge Pipeline Explosion Cuts U.S. Supplies
By Grant Smith and Eduard Gismatullin

Nov. 29 (Bloomberg) -- Oil surged more than $4 a barrel, the most in a month, after an explosion cut Canadian oil shipments through Enbridge Inc. pipelines that typically provide about 15 percent of U.S. crude imports.

The blast yesterday killed two workers and initially closed four pipelines that supply U.S. refiners with an average 1.5 million barrels a day. Two of those have now reopened and a fire near the Clearbrook terminal in Minnesota where the pipelines meet has been extinguished, Enbridge said today.

``It is a major incident with major supply issues in an important area,'' said Paul Horsnell, head of commodities research at Barclays Capital in London. ``It will put pressure on prompt demand in the Midwest,'' of the U.S.

Crude oil for January delivery gained as much as $4.55, or 5 percent, to $95.17 a barrel in electronic trading on the New York Mercantile Exchange, the biggest gain since Oct. 31. The contract, which rose for the first time this week, traded at $93.32, up $2.70, at 12:11 p.m. London time.

``At least one or two lines will be shut down for quite sometime,'' Denise Hamsher, a spokeswoman for Calgary-based Enbridge, said today by telephone.

Brent crude oil for January settlement climbed as much as $3.01, or 3.4 percent, to $92.82 a barrel on the London-based ICE Futures Europe exchange. The contract pared gains to trade at $91.56 a barrel at 12:11 p.m. in London.

Snaps Slide
Today's rise snaps a 7.7 percent slide in the first three days of the week, driven by signs that the Organization of Petroleum Exporting Countries is raising production and may increase output further. Crude touched a record high of $99.29 in New York on Nov. 21.

``It's an important pipeline and it's also where it's being hit, these pipeline junctions are a nightmare,'' said Rob Laughlin, a senior broker at MF Global Ltd. in London. Oil ``could go up further if it's shut for some time.''

Enbridge's pipelines typically feed 1.5 million barrels a day of crude to refineries including BP Plc's plant in Whiting, Indiana, and plants in the U.S.'s refining heartland on the Gulf Coast. The U.S. imported 10.3 million barrels a day last week.

U.S. crude oil stockpiles fell 452,000 barrels to 313.2 million last week, the Energy Department said yesterday. Oil inventories in Cushing, Oklahoma, the delivery point for the U.S. benchmark grade, were at 15.2 million barrels as of Nov. 23, the lowest since October 2005.

The Enbridge blast threatens ``a lot of crude, but U.S. crude stocks are comfortably mid-range,'' said Mike Wittner, head of oil research at Societe Generale SA in London. ``Based on past experience, pipelines are normally repaired in a matter of days, not weeks, and certainly not months.''

Two Lines Reopen
The leak and explosion occurred at the No. 3 pipeline, which was undergoing maintenance, according to Enbridge. The No. 1 and No. 2 pipelines have now reopened.

U.S. refineries operated at 89.4 percent of capacity, the highest since the week ended Sept. 14, the energy department said. Refiners usually start in November units that were shut during the previous two months for repairs after the summer driving season ends and before demand for heating oil picks up.

Qatar's oil minister yesterday refuted reports that OPEC plans to raise oil output when it meets next week in Abu Dhabi, as the market is well-supplied and OPEC members are providing all they can.

trysail said:

Russian Gas Shortfall Is `Urgent' Concern, U.K. Lawmakers Say
By Mark Deen

Nov. 25 (Bloomberg) -- Russian gas production may not be enough to supply both the country's domestic needs and its export markets in Western Europe, a panel of U.K. lawmakers said.

``The prospective shortfall in Russian gas production represents an urgent energy security concern for the European Union,'' Parliament's Foreign Affairs committee said today in a report. The threat ``is a greater one than the risk of Russia disrupting supplies for political reasons.''

Western Europe imports about a quarter of its gas from Russia, which threatened to cut of supplies to Belarus in December 2006 and temporarily cut off deliveries to Ukraine the previous January. The U.K. is a net gas importer.

Click to expand...

Significant - Russia happens to be the leading the world in oil production by a significant margin, and has been for a while.

Governments everywhere seem intent on taxing this industry to death. There are consequences and there is bound to be a reckoning- ask Mexico. Hugo Chavez is well on the way to destroying the golden goose of PDVSA.
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Oil Taxes Must Be Simpler to Spur U.K. Output, Lawmakers Say
By Gonzalo Vina

Nov. 30 (Bloomberg) -- The U.K. Treasury must simplify oil taxation to spur output from the North Sea after high operating costs discouraged companies from working there, a panel of lawmakers in Parliament said.

The industry needs a more ``consistent and predictable'' tax system to ensure companies invest enough to keep undersea oilfields up to their potential, the Scottish Affairs Committee in the House of Commons said in a report in London today.

The findings are a criticism of Prime Minister Gordon Brown, who lifted taxes on North Sea producers in 2002 and 2006 when he served as chancellor of the exchequer. Oil companies including Royal Dutch Shell Plc and Exxon Mobil Corp. have sold assets in the region to tap more profitable regions like Africa and Russia.

``Within the industry, there is clearly a perception of instability, and if there are to be further changes to the fiscal regime, they should seek to improve stability and predictability,'' the committee of lawmakers from Britain's main political parties said. ``Changes to the fiscal regime should aim to make the system simpler to administer.''

Britain's oil production has declined 43 percent to 1.64 million barrels since 1999 as the government increased its share of revenue from North Sea fields and the cost of maintaining fields has risen.

Even though oil prices have tripled since 2002, lower output is cutting U.K. tax receipts. The Treasury collects a petroleum revenue levy and corporation tax from companies operating in the region.

Treasury Revenue
The Treasury is considering changes to the North Sea tax system and finished a process of consultation with companies in September. It plans to publish a document outlining its options in the coming months.

In October, the Treasury shaved 900 million pounds ($1.9 billion) from its estimate for North Sea revenue through April 2009. It expects revenue to dip to 7.5 billion pounds in the current fiscal year ending in March 2008 from 9 billion pounds in the year through March 2007.

The North Sea oil industry employs 100,000 people off the east coast of Scotland and brings in about 4 billion pounds a year in export earnings for the U.K.

Last year, Brown doubled to 20 percent a supplementary charge on profits earned by North Sea producers, which is levied on top of corporation taxes all companies pay. He introduced the charge in 2002.

Britain has extracted about 36 billion barrels of oil from the North Sea and has estimated reserves of as many as 25 billion barrels, according to the U.K. Offshore Oil and Gas Industry Association.

The industry lobby group estimates operating costs have risen 40 percent in the North Sea since 2005. New fields cost about $22 a barrel to develop, 45 percent higher than two years ago, and this will rise to $25 a barrel by early 2009.

So, what's the deal? Do you think Señor Chavez is just another in a long line of megalomaniacal crackpots? It appears to me that he is slowly destroying Venezuela's economy. There are reports that food and milk supplies are becoming unreliable and that even some of his former political allies have defected.
_________________________________________
Chavez Threatens to Seize Banks, Media as Vote Nears
By Guillermo Parra-Bernal and Steven Bodzin

Dec. 1 (Bloomberg) -- Venezuelan President Hugo Chavez, facing a close vote in a referendum tomorrow to change the constitution, stepped up attacks against the U.S., Spanish banks and the media in an offensive aimed at winning over voters.

Chavez told tens of thousands of supporters in Caracas he is prepared to stay in power until 2050 if voters pass his proposal, which includes eliminating presidential term limits. He vowed to seize Spanish banks and expel journalists from the country to defend his goal of turning Venezuela into a socialist state.

``I swear to God and to my mother that if I have to take up an assault rifle to defend my country, I will again,'' Chavez, 53, said to a cheering crowd at the referendum campaign's final rally last night. ``Our victory this Sunday is a defeat to our enemy, the North American empire.''

By portraying Venezuela's economic independence and his so- called socialist revolution as being under siege, Chavez is seeking to motivate undecided supporters to approve the referendum, said David Scott Palmer, a professor of political science and international relations at Boston University.

``Chavez sees a tightening electoral situation for Sunday and this explains the invective and the increase in conspiracy theories involving various foreign actors,'' Palmer said in a telephone interview.

Today, Chavez said he would shut down oil exports to the U.S. if it interferes in tomorrow's vote. That would send the price of oil to $200 a barrel, he told foreign journalists at a Caracas press conference.

Venezuelans at `Crossroads'
Chavez's rhetoric may tone down with a victory on Sunday, while a defeat may provoke him to make good on pledges to nationalize banks controlled by Spanish lenders, said Miguel Octavio Vegas, executive director of Caracas-based brokerage Bbo Servicios Financieros.

Chavez, who was first elected in 1998, says modifications to the constitution are needed to further his socialist revolution, which he says will transfer power to citizens and help redistribute income from soaring oil prices. The proposed changes include cutting the workday to six hours from eight, nationalizing the gas and coal industries, and ending central bank independence.

The proposal has divided Venezuelans, and some pollsters say the outcome of the referendum is too close to call a year after Chavez won re-election with 63 percent support.

U.S. Plots
About 100,000 opponents of the referendum rallied in Caracas on Nov. 29, according to estimates by opposition leaders including the First Justice political party. Estimates of the turnout by Chavez's supporters last night weren't immediately available.

``There's a lot at stake in this election for citizens and for the government,'' said Marjorie Hernandez, a Latin America economist for HSBC Holdings Plc. in New York. ``It's no surprise to anyone that Venezuelans are at crossroads over this ballot.''

Chavez said the U.S. had written a plan to destabilize the country during and after this weekend's referendum. He didn't give details. Foreign Minister Nicolas Maduro said earlier this week he may kick out a U.S. embassy worker over the document.

``We reject and are disappointed by the allegations from the Venezuelan government that we are involved in any kind of conspiracy to affect the outcome of the referendum on Sunday,'' said Jennifer Rahimi, a spokeswoman at the U.S. embassy in Caracas. ``We reject that there's any kind of conspiracy.''

Threats to Media
Chavez said he'll shut down local news channel Globovision and expel foreign journalists if they ``break rules'' in their coverage of the referendum.

Spanish King Juan Carlos can prevent Chavez from moving against Spanish investments in Venezuela by apologizing for remarks made last month, Chavez said. The king told Chavez to ``shut up'' during the Ibero-American summit in Santiago on Nov. 10.

After his threat to nationalize private banks last night, Chavez went to an event where he used money from public-sector banks to offer low-interest loans and mortgages to business owners and renters.

Venezuelans were alienated by sales of state assets to foreign companies in the 1990s and may be won over by Chavez's pro-nationalization speech, HSBC's Hernandez said. In January, Chavez nationalized the oil and electricity industries and the country's biggest phone company.

`Gauging My Options'
``I am gauging my options,'' Chavez said in the rally, referring to the lenders controlled by Spanish financial groups. ``It wouldn't cost me a penny taking them over again and putting them at the service of my people.''

Cesar Aristimuno, a Caracas-based banking analyst, said a seizure of the units of Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, Spain's two biggest banks, might fulfill Chavez's goal of using credit to spread his socialist revolution more rapidly in low-income urban and rural communities.

BBVA's Banco Provincial SA and Santander's Banco de Venezuela SA make up for a third of the system's profits and 20 percent of outstanding loans, according to government data.

``For many Venezuelans, nationalism equals nationalizations regardless of the efficiency,'' Aristimuno, president of Aristimuno Herrera & Asociados, said in an interview. ``A decision depends of course on the result of this referendum.''

In a Nov. 29 report, Moody's Investors Service said Chavez's constitutional plans may pave the way for a nationalization of the industry, which has posted record profits in the three of the past four years.

Madrid-based spokesmen for Santander and BBVA declined to comment on Chavez's remarks.

... and demagogic politicians continue to discourage this activity with threats of "windfall profit taxes?"
____________________________________

Massive deep-water oil find in Brazil challenges technology
By Jack Chang, McClatchy NewspapersSat Dec 1, 6:00 AM ET

http://news.yahoo.com/s/mcclatchy/20071201/wl_mcclatchy/2767052;_ylt=A0WTcVzcyVJH3_4AQQCs0NUE


RIO DE JANEIRO, Brazil — This country, famed for its development of sugar-cane-produced ethanol, soon could become one of the world's great oil powers— if its state-controlled energy company, Petrobras, can tap a potentially massive deposit beneath the South Atlantic Ocean.

Experts believe the deposit, in the Tupi field 180 miles off the southeastern Brazilian coast, holds up to 8 billion barrels of light oil and natural gas. If confirmed, the deposit would be the largest petroleum find in seven years and would propel Brazil to the No. 12 position in oil reserves, after the United States and ahead of Canada and Mexico.

Analysts estimate that the deposit could be worth as much as $60 billion and predict that Brazil, which last year for the first time produced as much oil as it consumed, could become a major oil exporter.

Yet the find will challenge Petrobras' reputation as one of the world's best at exploiting deep-sea oil deposits.

About 70 percent of Petrobras' oil production comes from deep-water wells, making it the world's biggest oil producer at such depths. But the Tupi deposit is deeper than Petrobras has ever drilled— under 7,000 feet of ocean water and more than 16,000 feet of rock, sand and salt, including a 1.2-mile-thick layer of rock-hard salt.

How to tap into the find has set off a technological race, spurred because the potential rewards of exploiting the deposit are so great— especially as the price of oil nears $100 a barrel.

"It's among the most complicated projects in the world in terms of deep water," said Caio Carvalhal, a Brazil -based research associate with the U.S. consulting firm Cambridge Energy Research Associates . "But Petrobras has proved in the past that it is up to the task."

Company officials have said that years of planning lie ahead, and experts estimate that the Tupi field won't start operating fully until 2013. Although the company announced the find last year, it just released estimates of its size in November. The company will have to drill more wells to better calculate the size of the deposit.

"This was the first time that we arrived at this depth, and the technology is expensive," said Guilherme Estrella , Petrobras' director of exploration and production. "The costs are elevated, but the quality of the oil brings robustness and viability to this investment."

The Tupi field is the latest landmark in a technological race to the bottom of the ocean that many say is the energy industry's future.

Already, about a third of world oil production is offshore, with as much as 15 percent coming from deep waters, said energy consultant David Llewelyn , who's worked extensively in Brazil . Some of the most promising offshore oil regions lie in the so-called Golden Triangle, made up of the Gulf of Mexico and the coasts of Brazil and western Africa .

In 2005, U.S.-based Chevron and its partners drilled the deepest offshore oil and gas well in history at 34,189 feet below sea level in the Gulf of Mexico , according to Transocean, the world's largest offshore drilling contractor, which completed the well. The deepest onshore well, at 37,016 feet, was completed earlier this year on Sakhalin Island, off the Russian coast, for ExxonMobil.

Last year, Chevron announced it had found one of the biggest oil deposits in the United States, as much as 15 billion barrels of petroleum, more than 28,000 feet below sea level in the Gulf of Mexico .

"This is where the industry has to go to make the big finds like this," said Thomas Marsh , the Houston -based vice president of the consulting group ODS-Petrodata, a world leader in offshore exploration analysis. "And a lot of money is being spent on getting the industry going where it needs to go."

Oil companies reach such ultra-deep deposits by lowering drill bits into the ocean floor through a system of pipes connected to a floating platform on the water's surface. The pipes and drills get smaller the farther into the ocean floor they penetrate. At maximum depth, they're only about 8 inches wide, which increases their chances of being damaged.

The dangers come with the intense water pressure and heat, which can damage even the hardiest of metal drills. Temperatures 30,000 feet below the ocean floor can reach 400 degrees Fahrenheit, hot enough to turn oil into natural gas.

The biggest technical challenge of the Tupi deposit is penetrating the solid salt layer, which can become a kind of gel that squeezes and resists the drill bit. The salt also can interfere with sound wave-based seismic imaging that engineers use to figure out what's below it.

The deposit's location far from the Brazilian coast also complicates the task of delivering an estimated 53 million cubic feet of natural gas daily to consumers in the project's pilot phase.

Because natural gas can't be stored, Petrobras might have to build an enormous gas pipeline that would stretch 180 miles to shore or install gas liquefaction facilities above the deposit to turn the natural gas into storable liquid.

Despite all the difficulties, Petrobras will rise to the challenge, said Marcio Rocha Mello, president of the Brazilian Association of Petroleum Geologists and a former head of the company's geosciences section.

Before confirming the Tupi find, Petrobras already had drilled 15 wells into the solid salt along Brazil's southeastern coast, mapping an undersea basin of oil and gas stretching about 500 miles long.

"We've already put a lot of training and resources into this," Rocha Mello said. "The technology involved is already fully understood. It's not going to be a problem."

Drilling the first well alone cost $240 million, and tapping the Tupi deposit will require investing at least $5 billion at the outset, Llewelyn said. Petrobras controls a 65 percent stake in the deposit, with British company BG Group and Portugal's Gal Energia controlling the rest.

Petrobras has made such investments pay off in the past largely through innovation. The company pioneered the use of floating platforms to drill wells and store oil and has come up with new ways to heat and transport extracted petroleum.

The company has tried such technology in more than two dozen countries, including in the United States, and shared its know-how with countries also looking at going deep. In the process, Petrobras has lowered its costs for finding new deposits.

And unlike state energy companies in Venezuela and Mexico, Petrobras is known as one of the best-run firms in the industry.

Innovation has come with risks, however, and even tragedy. In 2001, a Petrobras rig that was then the largest in the world caught fire and sank off the Rio de Janeiro coast, killing 11 people.

Despite such setbacks and the enormous investments required, the Tupi discovery guarantees that Petrobras will be exploring the ocean floor off the Brazilian coast for years to come.

"With a find this size, the cost isn't really an issue," said energy consultant Llewellyn. "You really just have to do it."

I observed the exchange below on another message board and found it both informative and amusing.
___________________________________________________________

Question:"If we don't fund alternative energy now, then when?"

Response:"we?"

If you're donating your own money to a non-commercial enterprise, then, yes, use, "we."

If you're taking what others have invested and saved, that's called stealing.

***************************************

Here's a translation of those parts of the House Bill:

1) Let's steal money from those who have invested in oil and gas and who gave us super productivity for over a hundred years, and let's give it to those who have ideas in which they themselves won't invest sufficient money. We hate any business not centered in NYC or California, and, of course, we love the "family" farmer, especially Ted Turner.

2) Let's require that a large percentage of electricity be generated by the most expensive and least reliable methods rather than by the most economical and dependable methods. We love the poor!

3) Let's cover our open spaces with windmills and solar farms while saving the mosquitoes of ANWR. We love the environment!

4) And let's use our government to require non-believers to contribute through higher costs, fewer choices, and less freedom to our new secular religion that will save the world from man, sunspots, weather, breathing and farting. We care about people, but we hate their presence on Mother Earth.

Mid-American studies Idaho nuclear unit
Fri Dec 7, 2007 7:04pm EST

HOUSTON, Dec 7 (Reuters) - MidAmerican Energy Holdings Co has formed a nuclear unit and is investigating development of a nuclear plant in Idaho to supply power across the U.S. West, the company said on Friday.

The new unit, Mid-American Nuclear Energy Co, notified the U.S. Nuclear Regulatory Commission this week that it is studying options to build a new reactor in Payette County, Idaho, said Bill Fehrman, president.

While the nuclear unit, formed just two months ago, is "very early in the due diligence phase," Fehrman said it will be ready to decide whether to move forward to seek a combined operating license (COL) for a new reactor by the middle of 2008, in time to take advantage of financial incentives offered in the Energy Policy Act of 2005.

"We would be prepared to submit a COL by the end of next year, but we aren't going to submit a COL and go down that road if we aren't serious about building a plant," Fehrman said.

Critical factors will include plant cost, the need for additional transmission and water availability, Ferhman said. The company has not settled on a preferred technology for the new reactor.

Because no reactors have been built in the U.S. in nearly 30 years, new projects face a variety of challenges, including materials, technology, labor, project management and regulatory issues, according to industry sources.

"We want to make sure we get the analytics right, get the cost-certainty for us correct and have a good understanding of what the plant means to us," Fehrman said.

MidAmerican's plan is to build the reactor as a merchant plant selling power at wholesale prices rather than recovering billions from customers of its regulated utilities.

Fehrman said additional electric supplies are needed throughout the rapidly growing west.

"By locating in Idaho, we'll be central to all the states we presently serve: Idaho, Oregon, Utah, Wyoming, Washington and California," Fehrman said. "We'd have good access to move power to other areas from there."

The state also has a "rich nuclear history," he said, citing the Idaho National Laboratory in Idaho Falls.

About 45 percent of MidAmerican's PacifiCorp's 1.7 million electric customers are in Utah. Oregon customers comprise about 33 percent of the utility's customers with the remainder in Wyoming, Washington, Idaho and California.

Earlier this year, state regulators in Oregon rejected a plan by PacifiCorp utility to build two coal-fired power plants there.

The NRC has received three license applications this year and expects expects applications for more than 30 new reactors in the coming years. (Reporting by Eileen O'Grady; Editing by Christian Wiessner)

© Reuters 2007

It's the grid stupid.

Exxon plans new LNG terminal offshore New Jersey
Tue Dec 11, 2007 3:49pm EST
By Michael Erman

NEW YORK, Dec 11 (Reuters) - Exxon Mobil Corp (XOM) hopes to build a $1 billion facility off the New Jersey coast to receive and regasify liquefied natural gas, which could ease concerns of a natural gas supply crunch in the U.S. Northeast.

The largest U.S. oil and gas company said on Tuesday it would file for regulatory approval for a floating liquefied natural gas (LNG) receiving terminal with the capacity to supply about 1.2 billion cubic feet per day to New Jersey and New York.

It plans to anchor the terminal, which it calls BlueOcean Energy, about 20 miles off the New Jersey coast and 30 miles offshore New York state.

Cleaner-burning natural gas has been the fuel of choice for new power generation for the last decade, but price spikes during periods of peak demand have raised concerns about the adequacy of supply, particularly in the Northeast.

The Northeast "is a market that we think needs additional infrastructure," Ron Billings, vice president in charge of Exxon's global LNG operations, said in an interview.

"It's a growing market -- particularly in New Jersey -- that is looking for additional supplies of energy. The new source of natural gas for that region could readily replace coal in existing applications as well as future power plants. We think there's a lot of upside and growth in that market," he said.

Still, the company expects a lengthy and rigorous approval process for the terminal -- a process that has already derailed other proposed regasification terminals around the country.

One factor working in Exxon's favor is the project's proposed offshore location, which could allay some of the security concerns that have faced some of the onshore terminals.

Billings said Exxon currently projects spending between 18 months and 2 years receiving the necessary permits from various federal and state agencies, including the Coast Guard and Federal Energy Regulatory Commission. The company expects the terminal to begin service around the middle of next decade.

EXPANDING MARKET
Liquefied natural gas is natural gas that has been cooled to liquid form in order to make overseas transport of the fuel practical. It is later warmed, or regasified, so the natural gas can be moved in pipelines.

Putting LNG facilities near high demand coastal markets like New York can cut transport costs and eases pipeline bottlenecks that can occur when shipping gas from the Gulf Coast.

LNG is widely expected to account for a major portion of future U.S. energy use with the number of receiving terminals set to sharply increase.

Exxon expects LNG to grow to around 20 percent or more of total gas demand by 2030. It currently makes up less than 5 percent of the natural gas used in the U.S.

The BlueOcean Energy terminal will be built on a floating platform anchored to the sea floor. It is designed to receive LNG supplies from ships about twice a week and store the fuel in insulated tanks.

The stored LNG could then be warmed back into natural gas for delivery to New Jersey and New York markets through a new subsea pipeline that will connect to onshore pipelines.

Exxon is currently building an LNG terminal near Sabine Pass, Texas. It also has terminals under construction in Wales and offshore Italy.

The company has partners in all the projects. Qatar's state-owned oil company holds a stake in all three terminals.

Exxon is helping Qatar Petroleum develop the country's huge North Field. Much of the LNG from their joint ventures is earmarked to be sent to Exxon's LNG terminals.

BlueOcean is currently an Exxon Mobil project. Billings said commercial arrangements could evolve over the next several years.

The company plans to assess supply options for the project during the permitting phase.

Billings said the company is bullish for LNG both worldwide and in the U.S. market. Still, he indicated that the company does not have further plans to build U.S. LNG terminals.

"We think with one on the East Coast and a very large one on the Gulf Coast, we're well positioned," he said. (Additional reporting by Joe Silha, editing by Phil Berlowitz)

© Reuters 2007.

trysail said:

I observed the exchange below on another message board and found it both informative and amusing.
___________________________________________________________

Question:"If we don't fund alternative energy now, then when?"

Response:"we?"

If you're donating your own money to a non-commercial enterprise, then, yes, use, "we."

If you're taking what others have invested and saved, that's called stealing.

***************************************

Here's a translation of those parts of the House Bill:

1) Let's steal money from those who have invested in oil and gas and who gave us super productivity for over a hundred years, and let's give it to those who have ideas in which they themselves won't invest sufficient money. We hate any business not centered in NYC or California, and, of course, we love the "family" farmer, especially Ted Turner.

2) Let's require that a large percentage of electricity be generated by the most expensive and least reliable methods rather than by the most economical and dependable methods. We love the poor!

3) Let's cover our open spaces with windmills and solar farms while saving the mosquitoes of ANWR. We love the environment!

4) And let's use our government to require non-believers to contribute through higher costs, fewer choices, and less freedom to our new secular religion that will save the world from man, sunspots, weather, breathing and farting. We care about people, but we hate their presence on Mother Earth.

Click to expand...

In most of the world, energy taxes are expressly for the purpose of incentivising the free market to develop alternate sources and to "wean" ourselves off of oil. While its success has been problematic due to over compensating demand from what was formerly low energy using "third world" countries (China, India, Russia) but are now red hot market economies... the idea behind the energy taxes was to encourage consumers to seek alternative (and now price competitive) energy sources. The "stick" method.

Additionally, the tax revenues are to offset tax incentives for investing in alternative energy sources. The "carrot".

While I understand your abhorrence to paying taxes, I am surprised you would not favor this use of the free market to find energy solutions....

After all, this same model, "tax 'em until they stop buying" has been remarkably effective in reducing the use tobacco products without resorting to prohibition..... (although that is certainly only a matter of time....when the "critical mass" of users declines sufficiently)....

Just curious....

-KC

The Peak Oil Crisis: The Times Drops The First Shoe
Written by Tom Whipple
Thursday, 13 December 2007

Peak Oil started as a story about geology. It was once relatively simple. After 150 years of pumping up oil, the easy-to-find kind was gone and from here on out it was going to be much more difficult to find and eventually prohibitively expensive.

In recent years, however, the peak oil story took on new facets such as rapidly increasing consumption of oil in Asia and producing countries, concentration of most production in the hands of a few governments, unstable world finances, rapidly increasing cost of production and a growing inability or unwillingness to export oil to other countries.


Of all the reasons that gas prices are going up, only the geologic constraint – “supplies are running out” – has an air of finality. There is nothing anybody can do about it.

Other constraints on unlimited oil flows sometimes called “above ground factors” carry with them the subtle implication that there is something that can and just might be done to set things right. A war on top of your oilfield? Stop it! Getting too expensive to produce the necessary oil? Invest more. Government failing to step up production? Change the government! You get the idea. Peaking of world oil production by definition implies that the oil age is on the way out. Almost any other reason for restricted oil flows implies there is a “fix” which will allow us to continue on for awhile without any great disruption.

For over 25 years now, nobody in America has had to think much about oil. It was cheap, hardly taxed at all (by European standards), and available in unlimited quantities. In the last few years, this has started to change with gasoline circa $3 a gallon, oil in the $90s and, thanks to the ethanol craze, food prices going through the roof. Our newspapers are starting to take notice. The problem has become too big to ignore.

Three weeks ago the Wall Street Journal took a stab at explaining what was happening and came up with the notion that world oil production was only “plateauing,” not peaking. Plateauing carries the implication that life as we know it can go on for awhile. All the oil we import today will continue to be available and, if only the Chinese economy would stop growing so fast, all will be well.

Last Sunday, the New York Times came at the high gas price problem from a different direction – availability of imports. Drawing on the combined wisdom of no less than seven of their reporters strung out around the earth, the Times boldly concluded that “The economies of many big oil-exporting countries are growing so fast that their need for energy within their borders is crimping how much they can sell abroad.”

The Times then told its readers some very scary stuff. “Experts say the sharp growth, if it continues, means several of the world’s most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth.” I particularly like the “if it continues” clause which suggests that the Russians, Mexicans, Venezuelans, Iranians and all those incredibly rich Persian Gulf Arabs might just stop buying new cars, building themselves places to live, and buying flat screen TV’s so they can export their oil to their good friends in America instead.

After more scary talk about world oil exports dropping by 2.5 million barrels a day in the next three years and how a drop of this size could lead to major economic problems, the Times switches to a reassuring mode. “The trend, though increasingly important, does not necessarily mean there will be oil shortages. More likely, experts say, it will mean big market shifts, with the number of exporting countries shrinking and unconventional sources like Canadian tar sands becoming more important, especially for the United States. And there is likely to be more pressure to open areas now closed to oil production.”

They even go so far as to suggest that an era of peace and friendship might just break out in the next few years. ”Greater political stability and increased drilling in some important oil states, notably Iraq, Iran and Venezuela, could help offset the rising demand from other oil exporters.”

After reassuring us that all is not necessarily lost, the Times concludes by reinforcing its basic point by saying “Internal oil consumption by the five biggest oil exporters — Saudi Arabia, Russia, Norway, Iran and the United Arab Emirates — grew 5.9 percent in 2006 over 2005, according to government data. Exports declined more than 3 percent. By contrast, oil demand is essentially flat in the United States. CIBC’s demand projections suggest that for many oil countries, including Saudi Arabia, Kuwait and Libya, internal oil demand will double in a decade.”

The Times and the Journal have taken a major step forward by admitting for essentially the first time in front-page stories that the U.S. is going to face a big problem in the next few years. Neither however has connected the dots.

Nowhere does the Times remind us that the U.S. is now importing two-thirds of its oil consumption each day and that a drop of a few percent in daily flow is likely to cause pandemonium at the pumps as it did back in the 1970’s. Neither paper has as yet mustered the editorial courage to discuss the 800-pound gorilla, oil depletion, which every year quietly eats away 4 or 5 percent of our oil supply – the life blood of modern civilization.

Until our major newspapers begin discussing in a frank and open manner what will soon be the first major crisis of the 21st Century, the U.S. Congress is doomed to empty posturing and debating energy red herrings. It is clear that most have no clue as to what is about to befall us.

Wow, to think that us peak oil chicken littles were right after all.

How Long Will Siberia's Gas Last?
Der Spiegel
SPIEGEL ONLINE - December 18, 2007, 05:47 PM
URL: http://www.spiegel.de/international/world/0,1518,524140,00.html

How Long Will Siberia's Gas Last?
LAST MAJOR FIELD GOES ON LINE
By Christian Wüst

Europe depends on Russia for its natural gas, but, as Gazprom begins production at the last major field, it is unclear how much gas is left in Siberia. Developed fields are almost exhausted, and tapping new reserves involves huge technical difficulties.

The Russian gas industry was celebrating on Tuesday. At a ceremony in Moscow, Gazprom board chairman Dmitry Medvedev, who is widely expected to be the next president of Russia and the German foreign minister, Frank-Walter Steinmeier, pressed a ceremonial button and the last major natural gas field in the world's most productive region went on line. A live video link showed footage from northwestern Siberia where the actual event was taking place, namely valves being opened.

The process, prosaic as it was, prompted executives in the energy industry to wax poetic. Burckhard Bergmann, the head of German energy conglomerate E.on-Ruhrgas, calls the site "Siberia's last pearl."

The new field, which is called Yuzhno-Russkoye, lies about 900 meters (2,953 feet) below the surface and contains more than 800 billion cubic meters (28.6 trillion cubic feet) of natural gas -- a number that seems inconceivably large and yet is ultimately very small. Yuzhno-Russkoye's entire reserves hardly amount to more than one year's worth of production for the entire Russian natural gas industry.


Demand for energy is growing, both domestically and abroad, and Russian energy forecasters predict Siberia will satisfy that demand. Alexander Grizenko, an advisor to the board of directors of Russian energy giant Gazprom, expects production volume to increase until 2030 when, according to his predictions, a peak level of well over 800 billion cubic meters a year will have been reached. Grizenko also emphasizes that the country will be able to maintain a very high level of production for another 30 years after that.

But Jean Laherrere, chief statistician at the Swedish-based Association for the Study of Peak Oil and Gas, paints a completely different scenario. He believes that production will peak in only eight years and decline rapidly after that. According to Laherrere's prognosis, in 2060 -- when Russian visionaries predict that production levels will still be higher than they are today -- it will in fact be close to zero.

Who is right? The answer to this question will be critical to energy supply in Europe, which already buys close to half of its natural gas from Russia today -- a share that is expected to increase now that the North Sea gas fields are almost exhausted.

Russia's future is also closely linked to the future of its gas reserves. Natural gas is the central currency of the new economic miracle that has blessed this vast country stretching from the Baltic Sea to the Pacific Ocean. Russia's gas reserves lie north of the Ural Mountains, in one of the world's most inhospitable regions. It's a flat wasteland, icebound in the winter and a swamp in the summer, where temperatures can drop to as low as -60° Celsius (-76° Fahrenheit) and climb as high as 40° Celsius (104° Fahrenheit).

Geologists estimate that about 150 million years ago, when the region was a warm ocean inlet, the bodies of dead creatures turned into dark sediments rich in organic matter. Over the course of the ensuing millions of years, the organic matter then turned into oil and natural gas reserves stored between layers of sandstone.

More than 50 years ago, when the first drilling teams arrived in what was then a virtually uninhabited region, the ground was so saturated with fossil fuels that some of the Soviet mining pioneers, along with their equipment, were blown up in explosions.

Sergei Chernezky, a spokesman for the Russian gas industry in the Siberian city of Yamburg, talks about one of these accidents as if it were the big bang that set off the region's energy bonanza. An explosion occurred near a town called "Little Birch Village," just as a drilling supervisor was about to enter his hut to document the fact that his team had found nothing. "All of a sudden it was clear that there was gas here," says Chernezky. "A lot of gas."

In 1966, scientists working near the Arctic Circle discovered what was then the largest-known natural gas field on earth: Urengoy. The field, 120 kilometers (75 miles) long, contained at least 10 trillion cubic meters (357 trillion cubic feet) of natural gas in the upper sediment layers alone. Father north, the Yamburg field was discovered a few years later, a hydrocarbon giant almost the size of Urengoy and containing vast reserves of methane and liquid condensed gas.

The first shipment was sent to Austria in 1968, and soon afterwards other Western countries began appearing on the Soviets' list of customers. The Soviet Union, still the West's political nemesis at the time, gradually became Europe's most important supplier of natural gas.

An energy highway unparalleled worldwide extends for 5,000 kilometers (3,108 miles) from western Siberia to European Russia and on to Western Europe. It consists of a dozen steel pipes, each up to one and a half meters (5 feet) in diameter and capable of handling an operating pressure of 70 to 90 bar. It takes about a week for a gas molecule to make the journey from Yamburg to Hamburg. Compressor stations placed at roughly 200-kilometer (124-mile) intervals maintain flow pressure.

The abundance of natural gas acts as a tremendous incentive for consumption. Russians are wasteful when it comes to natural gas, the cheapest fossil fuel and the one that is least harmful to the climate, says E.on-Ruhrgas CEO Bergmann. But Western Europeans aren't exactly parsimonious in their use of the highly refined fuel, either. Russia exports roughly one-third of its natural gas, and Germany is its biggest customer.

According to official Russian figures, the country still has viable natural gas reserves of 48 trillion cubic meters (1.7 quadrillion cubic feet). At constant production levels, this would be enough to last almost to the end of the century. But where is this natural gas? Can it even be extracted? A skeptical Laherrere estimates existing reserves to be around 43 trillion cubic meters (1.5 quadrillion cubic feet), but believes that only a fraction of these reserves are in fact extractable.

"The days of easy gas production are gone," says Bernhard Schmidt, the head of exploration for the Wintershall Group. A subsidiary of chemical giant BASF, Kassel-based Wintershall is the only German company currently involved in the development of Gazprom fields.

To date, gas fields in western Siberia have only been tapped to depths of little more than 1,500 meters (4,921 feet). Developing these reserves dating from the mid-Cretaceous period is relatively easy for mining experts. Schmidt, a native Austrian, calls the process "skimming the sugar off the top."

Urengoy and Yamburg were precisely the kinds of sweet finds Schmidt is referring to -- enormous and easily exploited -- and they have been drained at rates corresponding to their accessibility. Both fields are already more than halfway depleted. If they were oil reserves, production would already have been discontinued. However, because gas is lighter than petroleum, up to 80 percent of the underground treasure can be extracted. But once that point is reached, little else can be done. Siberia's largest natural gas reserves are close to this point. Satellite fields like Zapolyarnoye and Yuzhno-Russkoye are still full, but much smaller.

There is more gas to be found, but only at far greater depths. The gas content is especially high in Lower Cretaceous sediments in the region, but they are located at 3,500 meters (11,480 feet) beneath the Earth's surface.

Gazprom, in a joint venture with Wintershall, is currently tapping the so-called Achimov Formation in the Urengoy field. Five wells have already been drilled, and production is expected to begin next year. The German partner's experience is apparently in high demand, because gas is extremely difficult to extract at this level.

Contrary to what some people might imagine, oil and gas fields do not consist of underground caverns. The fuel is found in porous rock formations (the word petroleum is derived from the Latin terms for rock, "petra," and oil, "oleum"), and must travel through the pores into the drilling pipe. In the deep Urengoy sediments, the rock is extremely solid and fine-pored. In addition, the gas has a high content of liquid condensate that can clog the pores. To overcome these difficulties, Wintershall plans to use a high-pressure technology known as "fracturing." In this process, the rock is fractured and sand is forced into the cracks.

Despite all of these efforts, deep drilling will never be as productive as extraction from upper layers of rock. The Achimov Formation of the Urengoy field will yield 2 trillion cubic meters (71 trillion cubic feet) at best, or barely a fifth of the upper-level reserves. Clearly these sorts of finds will not be sufficient to meet Russia's production targets.

These limitations have prompted Gazprom to explore potential new reserves. On the opposite end of the Ob River delta, northwest of the current drilling areas, lies the Yamal Peninsula. Geologists have already explored the peninsula and have discovered formations indicating the presence of fields containing more than 10 trillion cubic meters (355 trillion cubic feet) of natural gas -- potentially another Urengoy.

But the gas exploration teams are operating in highly challenging terrain. "Yamal is probably the world's most difficult extraction region," says Roland Götz, an expert on Russia at the Berlin-based German Institute for International and Security Affairs. The peninsula is covered with countless rivers and lakes, completely impassible in the summer, and its coastlines are surrounded by shifting masses of pack ice that sometimes tear meter-deep gashes into the ocean floor, making it difficult, if not impossible, to lay pipelines.

Dashed lines representing the pipeline through the Kara Sea that the Russians hope to install within the next few years -- despite doubts from within the industry -- have been shown on maps for some time. But at a meeting on July 19, 2005, the Russian union of oil and gas pipeline builders argued that there are no known "engineering solutions" for the problems associated with building the pipeline.

Another danger, according to Götz, is that the peninsula, which is barely above sea level today, could "sink during the course of gas production and become completely submerged." Gazprom's prospecting creed of preserving the untouched natural environment on the Yamal Peninsula "for future generations" would sink along with it.

But the energy giant brushes off environmental and technological concerns. Within four years, says Gazprom spokesman Sergei Kupriyanov, the company will be pumping natural gas from the Bovanenkovo field on the Yamal Peninsula and shipping it through pipelines. Two years later, the company plans to follow suit in the offshore Shtokman field in the Barents Sea northeast of Murmansk.

Gazprom is also convinced that other reserves in the ice-covered sea off Yamal can be tapped. "Gazprom has such technologies and we don't expect any surprises," Kupriyanov says tersely.

Skeptics are not welcome in the natural gas emirates along the Arctic Circle. The region's wealth of natural resources has created a standard of living well above the national average: A mechanic working in a gas field makes a better living than many a university professor in Moscow.

Within three decades, a medium-sized city developed out of nothing in this icy wasteland. Today more than 100,000 people live in Novy Urengoy, a collection of drab tower blocks. One in two residents owns a car. Supermarkets sell tropical fruit and California wine, and the city boasts recreation centers, cinemas and theaters -- and almost everything belongs to the benevolent Gazprom.

Officials proudly take visitors on a tour of the company-owned luxury kindergarten -- complete with a swimming pool and an assembly hall. Well-behaved children in native dress sing songs that sound disconcerting coming from the mouths of five-year-olds, songs about full tanks of gasoline, warm living rooms and the many blessings of an invisible fuel: "The cold is bitter, it bites us on the nose -- but we are not afraid, because we have natural gas."

Elsewhere, economists specializing in natural resources are already conjuring up scenarios of potential shortages. Russia expert Götz, for example, analyzed what would happen if the start of production at the Shtokman and Yamal fields was delayed by a mere five years.

The consequences of this small delay, says Götz, would already be significant. "The natural gas supply in the regions that supply Europe would stagnate at 2005 levels until 2025 at least," he says. But who will have to do without gas in a world in which everyone wants economic growth?

For Götz, the answer is obvious. "A supply bottleneck will affect Russia first," he says. "Export is much more lucrative for Gazprom."

Translated from the German by Christopher Sultan

Russia, Iran tighten the energy noose
By M K Bhadrakumar

Foreign ministers are busy people - especially energetic, creative diplomats like Russia's Sergei Lavrov and Iran's Manouchehr Mottaki, representing capitals that by tradition place great store on international diplomacy.

Therefore, the very fact that Lavrov and Mottaki have met no less than four times in as many months suggests a great deal about the high importance attached by the two capitals to their mutual understanding at the bilateral and regional level.

Moscow and Tehran have worked hard in recent months to successfully put behind them their squabble over the construction schedule of the Bushehr nuclear power plant in Iran. The first consignment of nuclear fuel for Bushehr from Russia under the International Atomic Energy Agency safeguards finally arrived in Tehran on Monday. "We have agreed with our Iranian colleagues a timeframe for completing the plant and we will make an announcement at the end of December," said Sergei Shmatko, president of Atomstroiexport, which is building Bushehr.

At a minimum, the gateway opens for Russia's deeper involvement in Iran's ambitious program for civil nuclear energy. But nuclear energy is not the be-all and end-all of Russo-Iranian cooperation. Iran is a crucially important interlocutor for Russia in the field of energy. The Bushehr settlement is a necessary prerequisite if the trust and mutual confidence essential for fuller Russo-Iranian cooperation is to become reality. Evidently, Moscow is hastily positioning itself for the big event on the energy scene in 2008 - Iran's entry as a gas-exporting country.

Russia consolidates in 2007
In fact, how Moscow proceeds with the reconfiguration of Russo-Iranian relations could well form the centerpiece of the geopolitics of energy security in Eurasia during 2008. The dynamics on this front will doubtless play out on a vast theater stretching well beyond the Eurasian space, all the way to China and Japan in the east and to the very heart of Europe in the west where the Rhine River flows.

What places Russia in an early lead in the upcoming scramble is its fantastic win in the Eurasian energy sweepstakes in 2007. But 2007 as such began on an acrimonious note for Moscow when two minutes before the clock struck midnight on December 31, Russia signed a gas deal with Belarus whereby the latter would have to pay for Russian gas supplies at full market prices on a graduated scale stretched over the next five-year period. President Vladimir Putin's critics seized the moment with alacrity to portray him as a whimsical megalomaniac.

Moscow-based critic Pavel Felgenhauer rushed to condemn Putin's "highly aggressive, unscrupulous and revengeful" mindset as a dictator, and prophesied that the "pressure on Belarus will most likely misfire ... This may undermine the Kremlin's authority ... and provoke internal high-level acrimony [within the Kremlin]". Other Western critics warned European countries not to count on Russia's dependability as an energy supplier.

Much of the vicious criticism might seem in retrospect to be either prejudiced and self-interested, or downright laughable, but that didn't prevent the acrimony from setting the tone for the geopolitics of energy during 2007. Prima facie, Russia was making a transition to market prices for its energy exports, which was quite the proper thing to do if it were to integrate with the world economy in a manner consistent with the broad orientations of its liberal economic policies.

Indeed, the Kremlin had no reason to continue with the Soviet-era subsidies to former Soviet republics like the Ukraine or Belarus. Efficiency demanded that Russia allowed market forces to prevail. Actually, that was also the capitalist world's advice to the Kremlin.

What incensed Western critics was that combined with the state control of oil and gas (and indeed the pipelines), the Kremlin was also maneuvering its way to a commanding position on the energy map of Europe. From its own viewpoint, Russia could claim it was merely pursuing a coordinated strategy aimed at integrating itself with European economies.

But the United States viewed the implications of the Russian strategy to be very severe for trans-Atlantic relations on the whole, as it cast a shadow on the entire range of goals, strategic objectives and security policies that Washington has been pushing within the framework of the Euro-Atlantic alliance in the post-Cold War years. Plainly put, Washington fears that Europe's strategic drift may become a reality unless Russia is stopped in its tracks.

Europe's dependence on Russian energy
After much US prodding for a coordinated European energy security policy, European Union (EU) members adopted at their spring summit in Brussels an action plan for energy security for 2007-2009, which emphasized the need to diversify Europe's energy sources and transport routes. But the ground reality continues to be that Europe's dependence on Russian energy supplies is growing. In 2006, Europe imported from Russia 290.8 million tonnes of oil and 130 billion cubic meters of gas.

With Europe's energy consumption rapidly rising, its import dependency on Russia is also set to increase. Europe, which imported around 330 billion cubic meters of gas in 2005, will require an additional 200 billion cubic meters per year by 2015. And Russia has the world's largest natural gas reserves, estimated to be 1,688 trillion cubic feet, apart from the seventh largest proven oil reserves, exceeding 70 billion barrels (while vast regions of eastern Siberia and the Arctic remain unexplored).

On the other hand, Europe's self-sufficiency in energy is sharply declining. By 2030, the production of oil and gas is expected to decline by 73% and 59% respectively. The result is that by 2030, two-thirds of Europe's energy requirements will have to be met through imports. In Europe's energy mix, the dependence on oil imports by 2030 will be as high as 94% of its needs, and on natural gas as high as 84%.

As supply becomes concentrated in Russian hands, the Kremlin will find itself in a position to dictate oil and gas prices. There is also the possibility that the supply and demand situation itself might become less elastic - Russia's own demand for gas, for instance, is growing by over 2% annually.

Clearly, the economics of energy supply to Europe are getting highly politicized. Ariel Cohen, a prominent Russia specialist at the US think-tank, Heritage Foundation, who is closely connected with the George W Bush administration, wrote recently, "It is in the US's strategic interests to mitigate Europe's dependence on Russian energy. The Kremlin will likely use Europe's dependence to promote its largely anti-American foreign policy agenda. This would significantly limit the maneuvering space available to America's European allies, forcing them to choose between an affordable and stable energy supply and siding with the US on some key issues."

Cohen warned, "If current trends prevail, the Kremlin could translate its energy monopoly into untenable foreign and security policy influence in Europe to the detriment of European-American relations. In particular, Russia is seeking recognition of its predominant role in the post-Soviet space and Eastern Europe ... This will affect the geopolitical issues important to the US, such as NATO [North Atlantic Treaty Organization] expansion to Ukraine and Georgia, ballistic missile defense, Kosovo, and US and European influence in the post-Soviet space."

US-Russia rivalries escalate
Thus, through the past 12-month period, the Bush administration has been pressing for the development of new energy transit lines from the Caspian and Central Asia that bypass Russia. Washington has robustly worked for advancing its proposals for the construction of oil and gas pipelines linking Kazakhstan and Turkmenistan to Europe across the Caspian Sea; new pipelines that would connect the Baku-Tbilisi-Ceyhan oil pipeline with the Baku-Erzurum gas pipeline (making Turkey an energy hub for Europe); and the so-called Nabucco pipeline that proposes to link Azerbaijan and Central Asian countries with southern European markets.

However, as the year draws to a close, it becomes clear that the Kremlin has either nipped in the bud or frustrated one way or another the various US attempts to bypass Russia's role as the key energy supplier for Europe. Indeed, Moscow's counter-strategy aims at augmenting even further Russia's profile and capacity to be Europe's dependable energy supplier and thereby forcing the European consumer countries to negotiate with Russia as a partner with shared or equal interests.

The month of May stood out as the watershed when the geopolitics of energy in Eurasia decisively turned in Russia's favor. At a tripartite summit meeting in the city of Turkemenbashi (Turkmenistan) on May 12, Putin and his Kazakh and Turkmen counterparts signed a declaration of intent for upgrading and expanding gas pipelines from Kazakhstan and Turkmenistan along the Caspian Sea coast directly to Russia. The president of Uzbekistan, Islam Karimov, also signed up separately on May 9 for a modernization of the Turkmenistan-Uzbekistan-Kazakhstan-Russia pipeline. Both pipelines are components of the Soviet-era Central Asia-Center pipeline system bound for Russia. The quadripartite project essentially aims at the transportation of Turkmenistan's gas output, which almost in its entirety would be bought up by Russia for a 25-year period.

Subsequently, the US and EU have made herculean efforts to get Ashgabat to resile from the commitment to the project with Russia, but have failed. During the past year, 16 high-level delegations from Washington visited Ashgabat in this regard. Thus, when Russian Prime Minister Viktor Zubkov finally signed the agreement relating to the Caspian littoral pipeline on December 12 with his Kazakh and Turkmen counterparts, the curtain came down on one of the grimmest struggles of the great game in the post-Soviet era. Moscow came out the winner by far, reasserting its pre-eminent position in the Caspian.

The commitment of Turkmen gas to Russia has broader implications. For one thing, the fate of the US-supported proposals for a trans-Caspian pipeline and the Nabucco pipeline depended significantly on the availability of Turkmen and Kazakh gas. Their future is now up in the air. That, in turn, means Europe is increasingly left with only one serious option for diversifying its gas imports - Iran.

In May, Putin struck a second time when he visited Vienna and in a dramatic breakthrough drew Austria into a key energy partnership, placing that country as a base for Gazprom's future expansion into EU territory. The agreements signed in Vienna on May 23 outlined Gazprom's plans to build a Central European gas hub and gas transit management center, the largest in continental Europe, at Baumgarten near Vienna; expansion of Gazprom's market share in Austria; delivery of gas directly by Gazprom to Austrian consumers - for the first time in Europe; and plans to use Austria as a transit corridor for Russian gas exports aspiring to capture new EU markets.

Austria's "defection" to the Russian camp virtually dealt a coup de grace to Washington's strategy to cut Russia's share of Europe's growing need for gas. But Moscow pressed ahead. On June 25, Gazprom signed with Italy's Eni a memorandum of understanding (which on November 22 was finalized as an agreement) on a US$5.5 billion project for building a 900-kilometer gas pipeline ("South Stream") with an aggregate annual capacity of 30 billion cubic meters. The pipeline will run from Russia's Beregovaya on the Black Sea to Bulgaria, where it will split, with the two branches fanning out to reach southern Italy, Greece, Austria, Slovenia, Bulgaria, Romania and Hungary.

A Gazprom statement highlighted the deep implications of the South Stream project when it said in a studied undertone, "This is another real step in the implementation of Gazprom's strategy to diversify routes of Russian natural gas supplies to European countries and a considerable contribution to the energy security of Europe."

What was unfolding was indeed a spectacular string of successes by Russia, running ahead on the one hand in the transit and downstream races of the great game over Caspian energy, while running way ahead in the upstream race for Central Asian gas to feed these projects.

But that wasn't all. It was very obvious that the Kremlin strategy was not just about energy, but kept in view the overall agenda of integrating Russian business and industry with important western European partners. Commenting on the South Stream project, The Wall Street Journal noted:

Nothing could have brought home the shift in the geopolitical templates more dramatically than the first energy summit of the Balkan countries - a region where the US consistently sought to exorcise Russia's historical influence - at Zagreb on June 24. Putin was invited as a special guest. Addressing the summit, Putin outlined the Russian objectives in energy cooperation with Europe. He said cooperation should be based on a "balance of interests"; "equal responsibility of suppliers, transit countries and energy consumers"; "transparent and fair business relations"; and "long-term relations". He virtually gave notice that mutuality of interests must involve Europe dismantling its discriminatory regimes directed against Russian companies in trade and investment.

The Russian daily Izvestia reported that in 2006 European governments blocked deals worth a total of $80 billion involving Russian companies. In its commentary in July, the daily noted, "The relations between the European Union and Russian investors are coming to resemble armed combat ... The European Parliament maintains that foreign companies have no right to acquire Europe's gas and electricity distribution networks. Europe is increasingly fearful about being bought up by foreigners: the prospect of Dutch consumers receiving gas and electricity bills bearing Gazprom's logo; gas stations in Switzerland painted in LUKoil's colors, red and black; and kitchenware in Greece marked 'Made by Russian Aluminum'."

Indeed, Russian strategy also correspondingly hardened. Russia presented yet another project when it proposed the construction of a Burgas-Alexandropolis oil pipeline. The proposed pipeline would start at Russia's Novorossiysk port on the Black Sea; it would cross over to Bulgaria's Burgas and then proceed to the Greek port of Alexandropolis. It is in essence a rival to the trans-Caspian pipeline (CPC) that Washington has been pushing for almost a decade. The capacity of the Russian pipeline will be 15 million tonnes annually in the first stage and 35 million tonnes in the second stage. The great irony is that it is a carbon copy of the CPC insofar as it is also predicated on growing volumes of Kazakh oil being extracted by Western companies.

In other words, Moscow is planning that the volumes of oil coming on stream (thanks to massive investment by American oil majors Chevron, ConocoPhillips and Exxon Mobil) in some of Kazakhstan's richest fields (Tengiz oil field, Karachaganak oil, gas and condensate field, Kashagan oil field, etc) would be absorbed into the Russian-controlled transit route for marketing in Europe. An American specialist wrote bitterly, "This could defraud the [American] companies and their shareholders, reinforce Russia's quasi-monopoly on the transit of oil from Kazakhstan, defeat the US-promoted east-west Caspian energy corridor, and create instead a Russian-controlled oil export axis stretching from Kazakhstan to Greece and further afield."

Meanwhile, a struggle is shaping up for control of the Kashagan field, which is billed as the world's largest discovery in the past 30 years. Kazakhstan wants to increase its share in Kashagan at the cost of the Western companies. The renegotiation of the Kashagan concession's production-sharing agreement might well lead to Russia replacing some of Kazakhstan's western partners, even though reports indicate ExxonMobil of the US is furiously lobbying to retain its stake of 18.5% as the field's operator. The stakes are obviously high. Kashagan has proven reserves of 35 billion barrels of oil and potential reserves estimated to be as high as 70 billion barrels. When the project commences production, its daily output will be at least half a million barrels.

The Kashagan struggle highlights that the huge lead Russia has established in the past 12-month period for the control of Caspian and Central Asian energy was possible only by Russian companies investing heavily in a way that competing American oil majors would have rarely encountered in foreign operations.

The US's last big hope in 2007 was Turkmenistan. But the December 12 agreement signals that for the foreseeable future, Ashgabat has decided on Moscow as its preferred partner for its gas exports. The deepening Russian-Turkmen ties comes as a major blow to US oil majors.

All in all, therefore, the year 2007 is ending on a sour note for Washington. In all likelihood, the US will carry forward into the New Year its sense of bitterness. Clearly, Europe is not ready to coordinate its energy strategy with the US. Former German chancellor Gerhard Schroeder recently blasted Washington's contention that Russia is an unreliable energy partner. He said, "Experience has certainly shown that Germany has never had a problem with the supply and integrity with the energy imported into Germany from Russia, not during all of the fickle times of the Cold War, not right now, and I personally don't see them in the future."

Schroeder pointed out that energy rivalries lie at the core of the US policy of encirclement of Russia and behind Washington's persistent attempts to denigrate and isolate Moscow. He warned of dire consequences if Washington persisted with such a course, as Moscow is "certainly not happy about it".

Iran factor becomes important
In such an overall context, during the months ahead Moscow can be expected to make robust efforts to coordinate with Iran over its oil and gas output and exports. The rationale for such a coordinated strategy involving Iran is very obvious. First, Moscow is intensely conscious of the Western awareness of Iran's enormous untapped hydrocarbon reserves as an alternative to Russian supplies. Russia will strive to stay ahead of the European, and eventually American, overtures to Iran.

Second, the hydrocarbon sector in Iran is firmly under state control and Moscow and Tehran are in harmony in this regard. Third, the two countries will be coordinating their energy policies for wider geopolitical purposes within the broad framework of their strategic cooperation. Furthermore, market forces dictate the rationale of Russia-Iran cooperation. Moscow would simply like to avoid competing with Iran, and vice versa. Russia and Iran control roughly 20% of world's oil reserves and close to half of the world's gas reserves, and it makes good sense to accommodate each other.

Iran is indeed an important energy partner for Russia for many reasons. Russian oil companies, flush with funds, are keen to invest abroad. The Iranian upstream oil and gas sector and Iran's energy ventures, such as pipeline projects, offer an attractive proposition for Russian investment. Again, Iran's geographical location is ideal as an export outlet for expanding Russian energy exports, especially its ambitious developing liquefied natural gas (LNG) industry. Besides, Iran is an influential member of the Organization of Petroleum Exporting Countries, whose decisions have bearing on price stability and Russian export volumes.

But the most important consideration for Russia will be that Iran's energy policy should not come into conflict with Russian interests. Once the US's engagement of Iran commences, Tehran will have plenty of choice while accessing foreign capital and advanced upstream oil and gas technology. Iran is bound to probe gas markets such as Turkey, the Balkans and central and east Europe. Also, Iran is keen to develop a new LNG industry. Over and above, Iran could well end up competing with Russia as a major oil and gas route connecting the Caspian and Central Asian energy producing countries.

Cooperation with Iran is no less important for Russia in terms of Caspian Sea issues. True, the two countries have divergent views on how the Caspian Sea should be divided. Russia prefers a median line solution, whereas Iran has insisted on an equal share (20%) solution for each littoral state regardless of the length of coastline. All the same, Russia and Iran are in profound agreement in their opposition to the US-led trans-Caspian pipeline projects.

Russia's number one priority in energy cooperation with Iran will be for upstream participation by Russian companies. Gazprom has had some limited participation so far in the early phases of Iran's massive South Pars gas fields with an estimated aggregate cumulative production range of a stunning 13 trillion cubic meters. Moscow will be keen to promote greater involvement. Gazprom has shown interest in the Iran-Pakistan-India pipeline project not only as a contractor but also as an investor.

But the big-ticket item will be the future development phases of South Pars, which Tehran has earmarked as feedstock for producing and exporting LNG for the European and Asian markets. Without doubt, Moscow will be keen to develop a role in Iran's nascent LNG industry so that it doesn't end up competing with Russia's own LNG industry.

Following his talks with Lavrov in Moscow last week, Mottaki stressed that the unfolding expansion of relations between Iran and Russia stems from a highly strategic decision taken by the leadership in Tehran. Specifically, Mottaki proposed the setting up of a joint gas company with Russia. Moscow would be favorably inclined towards the Iranian proposal, as it broadly aims at eliminating the possibility of the two countries competing with each other in the range of activities related to gas exports such as production, transportation, sales and prices.

Over and above, Moscow would be pleased at the present orientation of Iranian energy exports toward the Asian market. On the one hand, this would ease the competition from China for gaining access to Central Asian energy producers and on the other, it reduces the likelihood of Iranian energy flows to Europe, which may otherwise cut into Russia's market share.

Equally, Russia would actively promote an Iranian gas pipeline to China via Pakistan and India. But the project is stalled due to US pressure on India. Konstantin Simonov, the chief of Russia's National Energy Security Fund, alleged recently that by opposing the Iran-Pakistan-India gas pipeline, the US is principally trying to deny China easy access to Iranian energy reserves.

To be sure, Moscow began anticipating several months ago that with the inevitable collapse of the United States' policy of containment of Iran and with Iran's ensuing arrival as a gas exporting country, an altogether new scenario would shape up on Eurasia's energy map. Moscow would also have taken stock of the 1979 Iranian revolution's ideological struggle between "black Shi'ism" and "red Shi'ism", which has, significantly enough, resumed lately. The West has always been an interested party in the outcome of this struggle.

Two former Western-oriented Iranian presidents - Hashemi Rafsanjani and Mohammed Khatami - have joined hands in an unlikely alliance of conservatives and liberals. A regime change in Tehran holds out the possibility that the two energy superstars - Russia and Iran - could find themselves being set against each other by the West, or end up treading on each other's toes.

Thus, Putin's historic visit to Tehran on October 16, the first-ever bilateral visit by a Russian leader - Tsarist or Bolshevik - falls into perspective as a landmark event in the geopolitics of energy in the coming period. On whichever turf he has so far touched on energy security, Putin has left his unique personal stamp - that of the keen anticipation of a chess player blending with his swiftness as a black belt in judo. But the Persian chessboard is no easy turf. Putin's moves will therefore be an absorbing sight to watch. Perhaps they are destined to form yet another of his fine legacies in post-Soviet Russia's historic transformation as a great power in the 21st century.

________________________________
M K Bhadrakumar served as a career diplomat in the Indian Foreign Service for over 29 years, with postings including India's ambassador to Uzbekistan (1995-1998) and to Turkey (1998-2001).
(Copyright 2007 Asia Times Online Ltd.)

$200/B by July 2008

Japan Mines `Flammable Ice'
By Shigeru Sato

Dec. 26 (Bloomberg) -- Fifty-five million years ago the world's climate was catastrophically changed when volcanoes melted natural gas frozen in the seabed. Now Japan plans to drill for the same icy crystals to end its reliance on imported energy.

Billions of tons of methane hydrate, frozen chunks of chemical-laced water buried in sediment some 3,000 feet under the Pacific Ocean floor, may help Japan win energy independence from the Middle East and Indonesia. Japanese engineers have found enough ``flammable ice'' to meet its gas use demands for 14 years. The trick is extracting it without damaging the environment.

Japan is joining the U.S. and Canada in test drilling for methane even as scientists express concerns about any uncontrolled release of the frozen chemical. Some researchers blame the greenhouse gas for triggering a global firestorm that helped wipe out the dinosaurs.

``Methane hydrate was a key cause of the global warming that led to one of the largest extinctions in the earth's history,'' says Ryo Matsumoto, a University of Tokyo scientist who has studied frozen gas since 1987. ``By making the best use of our wisdom, knowledge and technology, we should be able to utilize this wisely as a new energy.''

If successful, the gas drilling project could help Japan reduce a liquefied natural gas import bill that last year was 2.66 trillion yen ($23.3 billion). The country's LNG imports totaled 62.2 million metric tons, equivalent to 3.03 trillion cubic feet, according to the Ministry of Finance's trade report.

``We are closely watching the government's methane hydrate project, expecting some day to start receiving gas via pipelines from the continental shelf,'' says Toshiharu Okui, deputy general manager of gas resources at Tokyo Gas Co., the country's largest distributor of natural gas.

500 Meters Thick
Trapped within sheets of ice up to 500 meters (1,640 feet) thick is an estimated 40 trillion cubic feet of crystalline methane encased in an ocean trench called the Nankai Trough, 30 miles (50 kilometers) off the coast of the main Honshu Island.

``Reserves aren't as much as Saudi Arabia's or Russia's, but they will contribute to us cutting our heavy dependence on imports,'' says Yoshifumi Hashiba, deputy director of the trade ministry's petroleum and natural gas division.

Exploiting the Nankai Trough depends on developing technical know-how through a test project in Canada's frozen north, says Kenichi Yokoi, team leader of the methane hydrate research project at state-controlled Japan Oil, Gas and Metals National Corp., known as Jogmec.

``Test production in Canada's permafrost is the key to provide clues and determine how methane hydrate can be tapped for mass production,'' says Yokoi. ``Conventional drilling technologies won't be applied for methane hydrate exploitation.''

Test Drilling Results
The most efficient method has proved ``depressurizing,'' which requires deep bore holes being drilled into the ice sheets. Pressure within the chamber is reduced by a pump, causing gaseous methane to separate from the water and ascend to the well head.

A first round of drilling was completed in April by Jogmec and the Canadian government and a second set of tests are scheduled for early 2008. The two governments won't disclose results due to a confidentiality agreement, Jogmec's Yokoi says.

Commercial exploitation of methane hydrate is economically viable when oil trades above $54 a barrel, Japan's government estimated two years ago. The trade ministry is targeting 2016 to start production, corresponding with the scheduled completion of the 16-year government-led test project.

While governments are attracted to an abundant clean fuel, drilling risks disturbing the seabed and triggering an uncontrolled release, says Matsumoto of the University of Tokyo.

``A mass release of methane into the sea and the atmosphere is a risk for global warming,'' he says. ``Massive landslides at the ocean floor must be avoided when drilling at the Nankai Trough.''

Undersea Landslides
Undersea landsides triggered by volcanoes that occurred more than fifty million years ago resulted in the release of methane hydrate, contributing to global warming that lasted tens of thousands of years, says Matsumoto.

Japan's government is promising rigorous environmental controls with gas-leakage detectors and monitoring systems in place before the scheduled test drilling in as early as 2009.

``Energy security and environment protection cannot be apart from each other,'' says the trade ministry's Hashiba. ``We need a comprehensive assessment.''

Among other concerns are that the separation of sea water and colder fresh water will cause ocean temperatures in the Nankai Trough to fall, says Hashiba. The area is a habitat for red sea bream, a fish delicacy.

Fishing Bank Threat
``We're worried that drilling work might harm our fishing banks out there and eventually reduce our catches of red sea bream,'' says Hironori Watanabe at the Katsuura City fishery association.

A bigger worry is evidence that the undersea ice may already be melting. In September, Matsumoto joined a research party in the Sea of Japan to follow up on a 2006 discovery by his university colleagues of methane gas bubbles rising from the ocean floor.

``It's ironically recurring,'' Matsumoto says. ``Extinction of living organisms has repeatedly taken place in the earth's history, and dead bodies were accumulated in soil and under the sea bed, and turned to oil and natural gas.''

US MMS Announces Chukchi Sea Oil, Gas Lease Sale for Feb 6
by Ian Talley
Thu, Jan 3, 2008 12:29 GMT

WASHINGTON - The U.S. Minerals Management Service announced Wednesday the final notice for an oil and gas lease sale in the Chukchi Sea off the northwestern Alaskan coast.

The Chukchi Sea - considered one of the last frontiers of oil and gas exploration provinces in the U.S. - is estimated to hold 15 billion barrels of recoverable oil resources. The lease sale - to be held Feb. 6 - is the first in more than two decades in the sea, and includes royalty suspensions on production subject to price thresholds.

Conservation groups have condemned the lease sale because of the environmental sensitivity of the region, saying exploration could disturb subsistence living by natives.

However, MMS Director Randall Luthi said the lease rules establish "a good balance, and will allow companies to explore this intriguing frontier area while still protecting the resources important to the coastal residents.

"All leases will be subject to MMS's existing regulations that include extensive requirements for safety, drilling operations, and pollution prevention, plus regulations of other agencies protecting marine mammals, endangered species and air and water quality," Luthi said in a statement.

Royal Dutch Shell PLC (RDSA), is among the petroleum majors that have expressed interest in drilling in the area.

The Chukchi Sea Sale 193 area contains about 29.7 million acres offshore Alaska from north of Point Barrow to northwest of Cape Lisburne. The sale area extends from about 25 or 50 to 200 miles offshore.

© 2008 Dow Jones Newswires.

OPEC Producing Adequate Oil, President Khelil Says
By Ahmed Rouaba and Maher Chmaytelli

Jan. 5 (Bloomberg) -- OPEC, the producer of more than 40 percent of the world's oil, is supplying the international market with enough crude and can't be blamed for record prices, the group's new president, Chakib Khelil, said.

``There is enough oil in the market,'' Khelil, the Algerian oil minister who took over OPEC's rotating presidency for 2008, told reporters today in Algiers. ``It's the problems in Nigeria, in Pakistan and the credit crisis caused by the U.S. subprime- mortgage market collapse that caused prices to increase.''

He declined to say whether the 13-member Organization of Petroleum Exporting Countries may decide to raise output to curb prices, when it meets on Feb. 1 to discuss production targets at its headquarters in Vienna. ``If we see that the U.S. economy has moved into a recession, we won't need to increase production because that will reduce demand'' for oil, he said.

``OPEC seems happy with prices as they are,'' said John Hall, managing director of U.K-based John Hall Associates energy consultants. ``Otherwise, it would be thinking of increasing output to help the global economy and to meet rising demand from China and India.''

Oil prices in New York rose to a record $100.09 on Jan. 3, as violence flared in Nigeria, Africa's largest producer, cold weather in the northern hemisphere boosted demand for fuels and investors bought commodities to hedge against inflation. Prices closed yesterday at $97.91 a barrel.

High Prices
Government reports that U.S. job growth missed forecasts and that unemployment had jumped to a two-year high of 5 percent are fueling concern that the economy is headed to a recession.

Oil prices will remain ``high'' through the first quarter of the year and they may drop in the second quarter, as winter comes to an end, said Khelil. Some non-OPEC countries can produce more crude, he said, without naming any.

OPEC members Iran, Libya and Qatar two days ago said OPEC cannot curb oil prices and that speculation and fears of supply disruption from the Middle East and Africa are fueling oil gains. Indonesia, OPEC's second-smallest producer after Ecuador, is so far the only member to publicly support increasing output.

OPEC, led by the world's top oil exporter Saudi Arabia, left production targets unchanged at its Dec. 5 meeting, ignoring U.S. and European Union calls to pump more oil.

OPEC's production ceiling now stands at 29.673 million barrels a day for 12 of its members. War-torn Iraq, which doesn't have a quota, produces about 2.3 million barrels a day.

Inadequate Capacity
Separately, Christophe de Margerie, the chief executive officer of Total SA, Europe's third-largest oil company, said he expects ``high prices for a long time.''

``There's not enough production capacity to meet demand,'' de Margerie said in an interview today on Europe 1, a Paris- based radio station. ``With strong demand like today and the inability to raise production, I don't see how prices could fall strongly and quickly.''

He said the French company will ``strongly'' increase its investment budget this year from the $16 billion in 2007, adding that it will probably be raised in 2009 and 2010 as well. He warned, however, that investment decisions taken now will have an impact on capacity in five years.

A Bloomberg survey of analysts published yesterday showed crude oil may rise because of declining U.S. inventories and a weakening dollar.

Fourteen of 27 analysts surveyed, or 52 percent, said oil prices will rise through Jan. 11. Eleven of the respondents, or 41 percent, said prices will fall, and two predicted little change. Last week, 53 percent of respondents said oil would drop this week.

U.S. crude-oil inventories fell 25.1 million barrels to 289.6 million barrels in the past seven weeks, according to the Energy Department.

Oil and the Dollar
WSJ, January 4, 2008

Oil prices finally hit $100 a barrel this week, albeit briefly, but breaking through that symbolic barrier is ominous and higher gasoline prices are sure to follow. Supply disruptions in various places and surging demand in China and India are part of the explanation for this decade's upward trend in oil prices. But perhaps the biggest factor has been largely overlooked: the decline in the value of the dollar.

Since 2001 the dollar price of oil and gold have run in almost perfect tandem (see nearby chart). The gold price has risen 239% since 2001, while the oil price has risen 267%. This means that if the dollar had remained "as good as gold" since 2001, oil today would be selling at about $30 a barrel, not $99. Gold has traditionally been a rough proxy for the price level, so the decline of the dollar against gold and oil suggests a U.S. monetary that is supplying too many dollars.

We would add that the dollar price of nearly all commodities -- from wheat to corn to copper to silver -- are also surging, a further sign of a weakening currency. On Wednesday alone the price of wheat and soybeans increased 3.4% and 2.8%, respectively. That follows a 75% increase in their price in 2007 -- which ran ahead of the oil price, which gained a mere 57% for the year. Neither OPEC nor China caused food commodity prices to rise like this. The main culprit here is a global loss of confidence in Federal Reserve policy and the dollar.

This state of affairs is all too similar to what happened in the commodity markets in the 1970s -- particularly the energy markets. Oil price spikes in that stagflationary decade were driven less by OPEC than by the weak-dollar policies pursued by the Fed. Gold in that decade broke from its traditional $35 an ounce mooring and climbed as high as $850 in 1980, before Paul Volcker began to restore the Fed's credibility.

Another way to consider the impact of the weak dollar is to examine what would have happened if the dollar had simply kept pace with the euro in this decade. What would oil cost today? Not $100, but closer to $57 a barrel. The nearby chart gives a sense of the comparative trend since 2000.

A weak dollar has been trumpeted in the business media and especially among manufacturers as a strategy to lower the trade deficit. But this strategy makes imported oil a lot more expensive. The trade figures reveal that a major contributor to the rising trade deficit over this decade has been the high cost of oil imports. We don't worry about the trade deficit -- except in so far as it inspires protectionism -- but those who do might want to consider that the weak dollar policy they are cheering is making fuel very expensive.

We aren't saying that supply problems and an increase in relative demand haven't played a role in oil's rise. Cambridge Energy Research Associates estimates that "aggregate supply disruptions" reduced oil supply by almost two million barrels a day in late 2007, which isn't helping prices. But the high price of oil is not a vindication of theorists who say we are confronting "peak oil."

A report issued this summer by the National Petroleum Council and energy experts across the spectrum concluded that "the world is not running out of energy resources," though it conceded that "there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources." Daniel Yergin of Cambridge Energy notes that in the energy markets "most of these risks are above ground, not below ground." By that he's referring to the tendency of politicians to intervene in the energy markets in any number of harmful ways. We'd offer barriers to drilling in Alaska and on the Continental Shelf as Exhibit A and B in this country.

Rising oil prices act like a tax on American consumers. With the economy slowing, the Fed is now under intense pressure to cut interest rates to stimulate the economy and provide liquidity to the banking industry. But if this causes the dollar to continue to weaken, the tax of higher commodity prices will offset much of the "stimulus" from looser money. The Fed will get a lot less bang for its easier buck.

The larger danger here, as we've been warning for some time, is that the U.S. seems to be returning to the Carter-era economic policy mix of tight fiscal policy (tax increases) and easy money. Add barriers to oil and natural gas production and you have a recipe for higher oil prices and slower growth. In a word, for stagflation. The Reagan-Volcker policy mix of the 1980s changed all that, but maybe we have to relearn the hard way every generation or so what works -- and what produces $100 oil.