Weekend Roundup  

The Rodent has declared that high petrol prices are hurting him too, as he "has friends who buy petrol". There is a lot of muttering about price gouging by oil refiners, which seems to have some validity, as petrol prices here are rising much faster than the oil price rise warrants - and having paid $80 to fill up my car this week I'm rather annoyed about it myself.

Oil refineries have been accused of taking advantage of motorists by pumping up their profit margins on petrol. The chairman of the Australian Competition and Consumer Commission, Graeme Samuel, expressed concern yesterday that "something funny is going on" with the profits being enjoyed by the companies that turn crude oil into petrol.

However, the Prime Minister, John Howard, repeated that international crude oil prices were behind price swings, and although he would "move heaven and earth" to bring prices down, an inquiry would not do it.

Mr Samuel pointed to the "abnormally high" profit margins accruing to refiners that had accompanied the recent petrol price surge. He said their margin had leapt from $US7 a barrel of crude oil to $US17 a barrel in three weeks.

Price caps and rationing have been proposed (though no one is taking this sort of thing seriously just yet). The Financial Review has a report about the Labor party demanding that action be taken to make Australia become self sufficient in oil - they don't have any suggestions as to how to make this happen, so no one is taking them seriously either.

Attendess at the week's APEC meeting have "pledged to fight high oil prices", without specifying how they plan to achieve this miracle, other than "talking to oil exporting countries". I'd suggest initiating some form of demand destruction in their own countries personally - petrol tax increases and strong pushes to encourage efficiency being the first ports of call, followed by a surge in investment in public transport and steps to encourage less car dependent urban planning.

The Californian LNG terminal saga continues to unfold in the press here, with The Herald devoting the front page of the business section to the subject - "California dreaming draws flak for BHP".

The visit was a self-described "courtesy call". But with up to $50 billion in Australian exports at stake, the minister was keen to made a good impression on behalf of liquefied natural gas producers such as BHP Billiton and Woodside Petroleum. And so, Macfarlane, California's Lieutenant-Governor, Cruz Bustamante, and a few advisers settled in for a politician-to-politician chat.

Somehow, despite the generally strong ties between Australia and the US, this conversation turned ugly. Macfarlane took a hard line against California's lagging regulatory process which was delaying BHP's plans to build an LNG import terminal just off the state's coast.

He didn't mince words when telling Bustamante that if California didn't get its act together, Australian companies would simply send the gas to terminals in Mexico, where regulations are more lax. It was a commercial reality, Macfarlane noted, having met with officials in Mexico City just days earlier.

But a fiery Bustamante shot back and accused Macfarlane of making "empty threats". After all, California, with a population of 33.8 million, would rank as the world's fifth-biggest economy as a stand-alone entity and a huge market by anyone's estimate.

After 45 minutes of heated discussion, the meeting ended badly - at least according to Bustamante's camp, which reports Macfarlane left the room "in a snit" after he didn't hear what he wanted to hear.

Woodside are having problems too, with the shutdown to the 4th LNG train at Karratha being extended by another 8 days. Elsewhere on the Australian market small cap uranium miners continue to be hot property, with new entrant Energy Metals jumping 300% on its opening day.

The Australian has a look at the local oil exploration industry called " Oil revival, but nothing to gush about". Exploration activity here has increased, but not as much as you would expect given the current oil price, with the industry struggling with high exploration costs, difficulty getting hold of rigs, lack of skilled people (even financial analysts with oil experience are hard to come by) and a low strike rate when they do get to drill a hole.

Bruce Dawes, managing director of Martin Place Securities, which is behind the Central Petroleum float, is rather more scathing than most concerning the delay between prices moving and new exploration beginning. "The issue is, there are so few oil and gas analysts around in the financial advisory business -- and some of them have virtually no experience -- that there's little credible information for investors," he says bluntly.

Apart from the Perth Basin around Geraldton and the Cooper Basin in remote north South Australia, there is limited activity in onshore exploration. Much of that is centred on unlocking the secrets of coal-seam methane beds. Even offshore, where the news this year has been about increased exploration programs in the northwest off Western Australia, and in the Otway and Gippsland Basins off Victoria, activity is not as great as forecast.

To some extent this is technical -- getting an offshore rig to Australia is difficult because of high world demand. The chances will get even slimmer in the next few months in the aftermath of Hurricane Katrina. The Ocean Patriot semi-submersible drilling rig, which arrived two weeks ago to begin work for the Anzon/Beach joint venture off Lakes Entrance, has been hired many times over. At a bare charter of more than $US200,000 ($260,000) a day before paying for exploration services, offshore drilling in Australia is not for the faint-hearted.

Onshore, it's a tad cheaper. Santos is negotiating with international drilling contractors to bring a number of onshore rigs into the country to help offset the shortage.

Belinda Robinson, who became the executive director of the industry's top lobby group, the Australian Petroleum Production and Exploration Association, earlier this year, says the exploration effort is probably a lot lower than might have been expected. Australia's oil production has declined by around 40 per cent in the past few years, leaving the country only about 64 per cent self-sufficient, she says.

Australia's exploration success rate was one well in 16, compared with one well in three off the west coast of Africa. That means explorers are more likely to go looking in Africa than here. What's more, the cost of exploration in Australia has increased by around 35 per cent in the past year or so. Equipment and labour is more expensive and rigs are just not available, Robinson says.

Santos boss John Ellice-Flint says " Australia has to find a super major field and the fiscal regime Australian explorers operate under is not conducive to finding one. Exploration is dying with Australia's double taxation regime" arguing Australia is no longer internationally competitive for offshore exploration. He says onshore, where the petroleum resource rent tax (PRRT) does not apply, is not working out either, with finds usually of the order of a million barrels of oil equivalent.

"What we need is a discovery in the 500 million to 1 billion barrels range, but there are no fiscal terms to encourage the search for this size reservoir. Without such a find it is quite likely there will be a huge collapse in Australia's oil and gas production."

The Oil Drum has a piece on the decline in production in the North Sea which isn't pretty. Rigzone also has a report about the aging workforce in the North Sea drying up (a sign of "peak oilworkers" ?), even as the number of exploration licences being granted there has surged to an all time record. Oil industry executives are still skittish about more windfall taxes being introduced. France is also consider a "special tax" for oil producers. The Independent says that the UK government is planning to ration fuel to deal with anticipated protests from truck drivers.

Reports indicate that Dick Cheney's "Operation Alberta Freedom" has been successful. The Canadians have also decided to extract tar sands at a greater rate than allowed for optimal extraction - to a certain extent this is probably a good thing - the less usable oil that comes out of the tar pits the less damage the atmosphere will suffer.

There's also been a spate of buy-ins to Canadian oil sands projects by Chinese firms, while a memorandum of understanding has been signed between Enbridge (ENB) and PetroChina International Co., a unit of PetroChina Co. Ltd. (PTR), to cooperate on Enbridge's proposed Gateway Pipeline to facilitate the supply of crude to China from Canada.

That's spurred some concerns that the U.S. will have to compete to get its hands on Canadian crude in the future. However, Melchin said that foreign investment would be welcomed by the province. "This is not something that should be opposed. Every jurisdiction should look at alternative markets, it's healthy," he said. "Attracting capital from around the world is a good thing, and there's huge economic benefits to Canadians from foreign investment."

However, Melchin admitted that he would be concerned if foreign state-owned companies took large majority ownerships in Albertan firms. "The question would arise - are these companies doing things for economic reasons, or for national ones? It would distort the playing field," he said. "We want to make sure we have structures in place that keep the field level."

Nevertheless, investments from countries like China are likely to increase in the future, Melchin said. "Chinese investments to date are clearly intended towards getting a foothold in Canada and seeing where that will go to," he said.

Despite the foreign investment rise, Canada won't neglect the U.S., Melchin said, as it's Canada's biggest and closest market, providing Albertan firms with the best netbacks for their production. "Our geography provides natural advantages for trading with the U.S.," he said.

In fact, in the wake of Hurricane Katrina Alberta has made steps to increase the amount of crude it supplies to the U.S., lifting its Maximum Rate Limitation system, a measure that normally limits the maximum rate of crude output to prolong the life spans of oil reservoirs. The move is expected to provide an extra 18,000-30,000 barrels a day of crude to the markets.

Rigzone reports that world demand is falling in the wake of Katrina. BHP has restarted production in the GOM from 3 out of 5 rigs (Mad Dog is still down though). The Economist says that Katrina could lead to one of the biggest energy shocks since the 1970s, perhaps even the biggest, quoting Daniel Yergin. The astute Michael Klare says the time has come to emphasize conservation and alternative fuels. He has another article in "The Nation" called " Katrina and the Coming World Oil Crunch" (via Energy Bulletin).

More than any other domestic disaster, Hurricane Katrina has significant implications for America's foreign and military policies. There is, of course, the obvious connection to the war in Iraq: National Guard troops that were desperately needed to conduct rescue operations in New Orleans and southern Mississippi were instead fighting a pointless war in the Middle East, and a President whose attention should have been focused on hurricane relief was instead trying to put a positive spin on the Iraqi Constitution debacle. The international coverage of the human tragedy of New Orleans has also torpedoed the Administration's just-announced campaign to enhance America's image abroad. But far more important than any of these is the impact of Katrina on the global oil supply and the resulting increase in US dependence on foreign petroleum. To appreciate the significance of all this, it is first necessary to conduct a quick review of the pre- and post-Katrina oil situation, both in this country and abroad.

Before Katrina, the United States was consuming 20.4 million barrels of oil per day; some 44 percent of this was being refined into gasoline for use by motor vehicles, while another 30 percent was used to make diesel and jet fuel. Continuing a long trend toward increased dependence on foreign oil, imports accounted for 58 percent of America's total petroleum supply in 2004. And here's the kicker: Of the 5.5 million barrels of oil produced every day in the United States, 28 percent (or 1.6 million barrels) came from Louisiana and adjacent areas of the Gulf of Mexico. One cannot underestimate the importance of the Gulf area in America's overall energy equation. While oil output is dropping everywhere else in the United States, it has been increasing in the Gulf, with new wells being drilled in ever-deeper waters. "Generally speaking," the Department of Energy reported in January, "Lower-48 onshore production, particularly in Texas, has fallen in recent years, while offshore (mainly Gulf of Mexico) production is rising." The Gulf Coast also houses approximately 10 percent of the nation's refining capacity and a significant share of its natural gas production.

Meanwhile, the global oil equation has become increasingly dire.

Asia Times has another article by Pepe Escobar on Pipelineistan once again - this time looking south at the Iranian aspect - "Iran Takes Over Pipelineistan".

Just as top officials from Azerbaijan, Georgia and Turkey were opening the much-hyped, American-supported Baku-Tbilisi-Ceyhan (BTC) pipeline, Iran started to advertise its counterpunch: an oil pipeline between Iran, Iraq and Syria. True, they are substantially different. BTC will carry Caspian Sea crude to Europe, while the Iranian route would initially carry Caspian Sea crude to Asia.

But Iran has a tremendous potential to supply Europe as well - as France's TotalFinaElf, Italy's ENI and Anglo-Dutch Royal Dutch Shell know more than anyone. The Iran-Iraq-Syria pipeline arriving at the Syrian port of Ladicia perfectly fits the bill. Iran thus can swap Caspian Sea crude to be refined in the country and then deliver the final product to the Mediterranean. The killer argument: as far as both Asian and European customers are concerned, the cost of using this pipeline route is way lower than using BTC - something that even American oil industry insiders recognized long ago.

As much as the Bush administration may recoil in horror, regarding this pipeline as an oil version of the axis of evil (or an evil version of the axis of oil), negotiations are ongoing. The pipeline was seriously discussed during Iraqi prime minister Ibrahim Jaafari's visit to former president Mohammad Khatami. And it was again seriously discussed during Syrian President Bashar Assad's recent visit to the just-elected Ahmadinejad. Iran and Iraq had been negotiating for months the construction of a pipeline between Abadan and Basra, which are practically neighbors. Now they have signed an agreement, and the pipeline is a given.

Iraq will send crude from Basra to be refined in Abadan, and in exchange will get oil derivatives. Iraq's refineries remain in a disastrous state. The country has to import $300 million of oil derivatives a month. Jaafari's government had no problems agreeing to Iran investing in its petrochemical industry. Tehran insists that despite the Iraqi chaos and the avalanche of pipeline sabotage by the Sunni Arab guerrilla movement, it is fully committed to revitalizing Iraq's petrochemical industry. An oil swap deal between them is practically inevitable: this way, Iran gets Iraqi crude in Abadan and delivers the same amount to Iraq at its oil terminal on the island of Kharg.

Caspian Pipelineistan

Iran has been swapping oil with Turkmenistan since early 2000 after the Turkmens - against cries of horror from Washington - built a small pipeline to northern Iran. The next inevitable step was to swap with Kazakhstan - negotiations had been going on for years. For this purpose, Iran built a new terminal at the Caspian port of Neka and a new pipeline to Tehran, as well as two new refineries capable of processing 500,000 barrels of Kazakh crude a day.

Pipelineistan's greatest hit in the Caspian, from Iran's point of view, starts in Kazakhstan along the eastern Caspian shore, through Turkmenistan, crossing to eastern Iran, and down to Bandar Abbas. Any official at the Petroleum Ministry or NIOC will recite the same mantra: Iran can get Caspian crude to any market at a fraction of the price of BTC. And there's absolutely nothing the Bush administration can do about it. As Mahmood Khagani, a former Iranian director for Caspian affairs used to say, "The 'golden gate' from the Caspian Sea to the Persian Gulf is now open."

Japan is asking China to stop drilling for oil and gas in the East China Sea. China has sent five naval ships to the area. The likely prospect of Koizumi being re-elected in the Japanese elections has added a further chill to Chinese-Japanese relations.



The Herald has a report about health and environmental groups noting that "Nuclear power thrust is a front for uranium mines". Duh.

Growing political support for a nuclear power industry has been labelled as nothing more than a front for uranium mining by a coalition of leading green groups and public health associations.

In a 132-page report, the group has slammed nuclear power on environmental, financial, security and climate change grounds, saying it was too costly, too dangerous and would do little to reduce the amount of greenhouse gases in the atmosphere.

"A doubling of global nuclear power output by 2050 would reduce greenhouse gas emissions by just 5 per cent - less than one tenth of the reduction required," said Dr Jim Green, author of the report and national nuclear campaigner for Friends of the Earth.

The coalition - FOE, Greenpeace, the Australian Conservation Foundation, Climate Action Network, the Public Health Association of Australia and the Medical Association for the Prevention of War - said Australia's energy debate should not be about coal and uranium. Rather, it should focus on a mix of proven and safe renewable power sources such as wind, solar and wave power, and on energy efficiency.

The report comes in the wake of calls by several Federal Government ministers and Labor resources spokesman Martin Ferguson to increase uranium mining.

WorldChanging has a report on China looking to leave us behind on the move to renewables. WorldChanging also has a report on another Stirling Engine ("Steampunk solar") power plant, this time in San Diego.

The BBC has a report that warmer soils in England are also releasing greater amounts of carbon dioxide - another positive feedback effect (or vicious circle, to be more accurate) being observed.

Higher UK temperatures are causing soils to "exhale" large quantities of carbon dioxide, probably accelerating global warming, scientists report.

They base their assessment on a huge analysis of soil samples gathered from across England and Wales over 25 years.

The team says its findings, if extended to the whole of the UK, suggest some 13 million tonnes of carbon are being lost from British soils each year.

Finally, the movie "Oil Storm" was on TV here tonight, just to give the punters something to worry about (my wife couldn't believe it had been made well before Katrina appeared). I thought it was hopeless, especially the deus-ex-machina ending...