Random Notes  

The Herald had a good article on our "oil addiction" today, even quoting Michael Klare.

Petrol is unique as a consumer item. Nothing else, not even house prices, attracts as much angst, and no other consumer product is as politically sensitive. This is not just an Australian phenomenon.

President Soeharto's announcement on May 4, 1998, that Indonesia's petrol prices were rising by up to 70 per cent was critical in turning political unrest into a full-blown revolution. Soeharto was forced out of power 17 days later. Even now, seven years later, the government subsidises petrol so heavily that Indonesians pay only about 30 cents a litre.

And oil, petrol's progenitor, is unique as an economic resource and a strategic commodity. In 1980, as the world struggled to overcome the oil price shock of the late 1970s, Jimmy Carter declared what would become known as the Carter Doctrine, declaring Persian Gulf oil to be a "vital interest" of the United States. He told Congress that Washington would use "any means necessary, including military force," to keep the oil flowing.

Oil has been central to each of the three major military interventions the US has made in the Middle East since. The American resources expert Michael Klare writes in his book Blood and Oil that armed US intervention "will be repeated again and again until the last barrel of oil is extracted from the Gulf's prolific but highly vulnerable reservoirs".

While the US has done its best to make sure the oil keeps flowing, even the superpower cannot hold the price of oil in check. In the years since the Carter Doctrine, the price of oil has averaged a remarkably tame $US22 ($28) a barrel. In the past two years it has climbed inexorably. Last year the world average price was $US38 a barrel. It advanced steadily to $US50, then to $US60 and then, under the power of Hurricane Katrina, which hit the Gulf of Mexico and temporarily took out of commission 13 per cent of the oil refining capacity of the US, it reached $US70 a barrel. Yesterday it was still close to this peak, trading around $US67.

What next? Can oil go higher still? Will it become even more expensive to fill your petrol tank?

There is a short-term answer and a long-term answer. And then there is what happened at the so-called "petrol summit" that the NRMA convened in Sydney yesterday.

The Rodent's murmurings at the summit of greater support for biofuels to adapt to higher oil prices is making farmers happy. But the truckers aren't, so they've started a blockade over fuel prices (via Energy Bulletin). LJ notes "This is a new development for Australia, one possibly precipitated by yesterday's ineffectual 'Petrol Summit' that oil companies didn't even bother to attend. The federal government has smelt the smoke though, see their sudden backflip on ethanol labelling and PM Howards earth-shattering plan to meet with oil co. executives to encourage biofuel production."

Petrol consumption here has fallen for the third week in a row as "record prices prompt motorists to rein in spending".

Oil Search's venture into Yemen seems to be a success thus far, and CEO Peter Botten is hinting that there may be more good news to come.

Oil Search's move into Yemen in 2000 will turn a profit by the year's end and will be a significant earner in years to come. Chief executive Peter Botten said Oil Search had spent about $US10 million ($13 million) exploring in Yemen and $US20 to $US25 million more in developing the Qishn oil deposit, which has just gone into production.

On current estimates Qishn will yield 50 to 70 million barrels of oil. Further proving work is under way, however, and Mr Botton said he expected this to reveal a "substantial upside" in reserves, probably by the end of March next year.

The experiment in Yemen arose from Oil Search's desire to spread its risks and balance its exposures in Papua New Guinea. The company, 17.6 per cent-owned by the PNG Government, controls the country's total oil output, which was 11 million barrels last year, and has proven and probable reserves in the country of 245 million barrels as well as 4.9 trillion cubic feet of gas.

So the Yemeni reserves Oil Search has exposure to already amount to 28 per cent of its PNG resource base. By the first quarter of next year, when further proving work is completed, Yemeni reserves are likely to climb significantly. Exploring in the Middle East is cheaper than in the PNG Highlands, where at times even heavy equipment has to be flown in. As a result, drilling a well in Yemen costs $US3 to $US4 million compared to $US10-$US15 million in PNG, Mr Botten said.

The Chinese are looking to invest up to $10b in Australian mines in order to secure their long term supplies of commodities.

As competition for minerals increases, steel makers and traders including Beijing Shougang and Sinosteel Corp are going to the source to ensure they have enough iron ore and coal.

Overseas investment "is a necessary and natural step for Chinese metal producers because the country is short of natural resources," said Lin Hai of Guotai Asset Management. "With these investments they can lower costs and take pre-emptive rights on the raw materials." Mr Wang said half of the proposed Chinese investments were in iron ore, 30 per cent in coal and the rest in natural gas and other metals. Australia, the world's biggest coal and iron ore supplier, had garnered $1.6 billion of investment from China by the end of 2004, Mr Wang said.

"We definitely need to invest in overseas iron ore projects so we can secure a steady raw material supply for our plants," Liu Anshan, a spokeswoman at Shougang Group's mining resources unit, said in Beijing. Chinese companies are also "very interested in getting involved in the mining of uranium", Mr Wang said. These include "state-owned enterprises involved in nuclear power generation", he said, declining to identify them.

China National Nuclear, the country's largest builder of uranium-fuelled power plants, said in June the country planned to invest 400 billion yuan ($64 billion) in nuclear power from 2005 to 2020. Australia, which has the world's biggest uranium reserves, last month started talks to export the fuel to China. China plans to boost nuclear energy fourfold by 2020.

Robert Zoellick gave a speech recently about the rise of China which looks to my cynical eye like a rather classic case of the pot calling the kettle black. Have a look through his list of concerns and see how many you think apply to the US as well.

· China should openly explain its defense spending, intentions, doctrine and military exercises to ease concerns about its rapid military buildup.

· China shows "increasing signs of mercantilism," seeking to direct markets rather than open them, and such actions must ease before its policies undercut U.S. domestic support for open markets. Zoellick said China's efforts to "lock up" energy supplies are "not a sensible path to achieving energy security."

· China should end its tolerance of "rampant theft of intellectual property and counterfeiting" if it is to be considered a "responsible major global player." China must also do "much more" to allow its currency to adjust to market rates.

· China should adjust its foreign policy to focus less on national interest and more on sustaining peaceful prosperity, including ensuring North Korea's compliance with an agreement to end its nuclear programs, supporting efforts to end Iran's nuclear programs, and pledging more money to Afghanistan and Iraq. China's dealings with Sudan, Burma and other "troublesome states indicates at best a blindness to consequences and at worst something more ominous," Zoellick said.

· China should not attempt to "maneuver toward a predominance of power" in Asia by building separate alliances in Southeast Asia and other areas.

The Swedish government announced this week that the country will seek to end its dependency upon fossil fuels by 2020.

The Prime Minister Goran Persson announced this as part of a package of boosted support for alternative energy research and development. Persson explicitly connected the plan to the advent of global warming. "We are frightened by climate change today. The mean temperature of the earth is rising, and it is rising most nearest to the poles."

The Herald also has a report on a British scientist "slamming US climate 'loonies'". That would be President Loonie he is referring to I guess.

The growing ferocity of hurricanes hitting the United States is probably caused by global warming, a leading British scientist said. Sir John Lawton, chairman of the Royal Commission on Environmental Pollution, which advises the British government, criticised what he termed US climate loonies over the issue.

"The increased intensity of these kinds of extreme storms is very likely to be due to global warming," Lawton told the newspaper in an interview. "If this makes the climate loonies in the States realise we've got a problem, some good will come out of a truly awful situation," said Lawton.

It isn't just oil rig insurance premiums that are rising in the wake of the hurricanes - general insurance rates are predicted to jump as well.

Following the arrest of their leader, the Asari are now on the warpath, with one group seizing a Chevron facility in the Niger Delta. I suspect a lot of third-world groups are going to come to understand how much money is at stake when oil supplies are interrupted in future.