America can't afford not drill in the Gulf.

America can't afford not to drill in gulfRead more: http://www.kentucky.com/2010/05/27/1281994/america-cant-afford-not-to-drill.html#ixzz0p9bbLYUh
By MARK J. PERRY WASHINGTON

Those who disparage offshore drilling - and seem eager to ban it - ignore that the Gulf of Mexico accounts for one-third of U.S. oil production. Without domestic production, we would be spending even more on imported oil - which is already running $1.5 billion a day.

Any sensible response to the explosion on the Deepwater Horizon oil rig - and the huge oil spill that's fouling gulf waters - needs to recognize two facts. First, the demand for oil is expected to increase. Second, America cannot suddenly stop offshore drilling.

The best place in the United States to find new oil is in the gulf's untapped deepwater areas, in the Atlantic, and off Alaska. These three drilling areas combined hold as much as 22 billion barrels of oil, which is more than our current total estimated reserves. This oil would help meet U.S. energy needs for decades.

But if these areas are closed to oil production, we would need to import more oil from overseas, probably from countries that are nationalistic and, in some cases, hostile. Some of the countries are run by despots like Venezuela's Hugo Chavez.

The reality is that the cards are stacked against us. U.S. investor-owned oil companies hold only 6 percent of the world's petroleum reserves, while state-owned national oil companies in Venezuela, Iran, China, Nigeria, India, Russia, Saudi Arabia and other countries control 80 percent of the reserves. Coincidentally, even some of these countries are drilling for oil in Cuban waters just 50 miles from Florida.

The Gulf of Mexico is among the best areas to which U.S. companies still have access. Drilling for oil in the gulf is an opportunity we cannot afford to squander. Our energy security and economic growth depend on it.

Producing oil safely is essential. The offshore rig explosion that cost the lives of 11 men and now threatens the gulf shores was such a shock that it has restarted a national debate on safety.

To its credit, the Obama administration has mounted a coordinated response to the accident. One is to break up the federal Minerals Management Service, the agency responsible for both regulating safety and raising revenue from offshore drilling. Creating a separate entity to oversee safety and environmental responsibilities is sensible.

Meanwhile, the oil industry has established two task forces to examine its own safety standards and procedures. We can expect oil firms to learn useful lessons from the accident, keeping in mind that any form of energy development poses safety and environmental challenges that must be faced, resolved and overcome. How to maintain stable energy production amid sweeping technological change is a problem our government is only beginning to appreciate.

It's an unfortunate fact that no energy source is perfect.

Imposing a ban on offshore oil development would be a mistake of historic proportions.

The fact is, before the Deepwater Horizon capsized there had not been a large oil spill from an offshore drilling rig in 40 years. The National Research Council reports that offshore drilling accounts for only 1 percent of the oil in U.S. waters, and tankers and pipelines only 4 percent.

By way of comparison, one-third of the oil in U.S. waters comes from other shipping, and 62 percent from natural seepage through the ocean floor.

Nevertheless, some politicians will be tempted to call for a moratorium on offshore drilling. A more measured, less politically galvanizing response would achieve the best results. The question isn't whether to drill offshore, but how to do it more safely.

There is a simple relationship that ties a nation's economic prosperity to its energy availability, and that's why government should not prevent the development of our energy resources. The oil industry accounts for a whopping 7.2 percent of GDP and 9.2 million American jobs - something we should keep in mind as we debate the future of offshore drilling.

ABOUT THE WRITER

Mark J. Perry is professor of finance and business economics at the University of Michigan's Flint campus and a visiting scholar at the American Enterprise Institute in Washington. Readers may write to him at UM Flint, 4173 WSW Building, Flint, Mich. 48502.; e-mail: Mark.Perry@aei.org.

Left Must FineTune Its Position on Cuba Embargo in Light of Oil Spill

http://blog.buzzflash.com/contributors/3229

NIKOLAS KOZLOFF FOR BUZZFLASH

With no end in sight to the environmental catastrophe in the Gulf of Mexico, some may wonder whether BP’s spill could become truly international in scope. That, at least, is the fear in Cuba where people are worried that strong currents could carry the slick to pristine white beaches along the island’s northern coast. In a rare moment of cooperation underscoring the grave seriousness posed by the BP spill, the U.S. and Cuban governments have been holding talks on the matter.

In the event of landfall, the spill could bring not only ecological devastation but also economic havoc: Cuba’s cash-strapped economy relies on tourists flocking to Varadero beach and any financial loss would add to the damage already unleashed by three 2008 hurricanes as well as the global economic slowdown. Ailing Fidel Castro has used the crisis in the Gulf to score some political points. In an opinion piece, the former Cuban leader decried the environmental catastrophe, claiming the spill underscored how capitalist governments were in league with big corporations.

Castro is right on the money in his criticisms. However, the fact is that Cuba, just like Venezuela, is also in thrall to unsustainable oil which places the Gulf of Mexico in environmental peril. Heavily energy dependent on other countries, Cuba has unfortunately sought to lure foreign investment to develop offshore oil deposits. Such investment could add to the region’s already worrying ecological profile. At this point, the last thing the region needs is more offshore oil operations going up just 50 miles off the Florida coast.

Currently, Cuba produces approximately half its energy needs from onshore wells while receiving the remainder from Venezuela at favorable prices. Naturally, Cuba would like to develop more energy sovereignty and sees offshore development as crucial towards that effort. Indeed, according to a recent report issued by the U.S. Energy Information Administration (E.I.A.), “There has been considerable interest in exploration activities in Cuba's offshore basins, especially in the Gulf of Mexico.”

Cuba’s authorities estimate that its offshore basins could contain more than 20 billion barrels of undiscovered reserves, though that figure is somewhat disputed. The deposits are reportedly located in Cuba’s part of the Gulf of Mexico, which abuts the U.S. and Mexican areas of the gulf. “However,” remarks the E.I.A. report, “actual exploratory drilling in the area has been, to date, quite limited.”

That scenario looks likely to change. Just this month, Reuters reported that Spanish oil giant Repsol YPF had contracted an Italian firm to construct an oil rig which could be bound for Cuban offshore oil operations. Back in 2004, Repsol drilled the only exploration well in Cuban waters and subsequently declared that it had found hydrocarbons. Later, other foreign oil companies joined the fray with Norwegian Statoil and a unit of India’s Oil and Natural Gas Corp establishing a partnership with Repsol.

Ever since that first well was drilled, the oil industry has been chafing at the bit to enter Cuban waters full force. Reportedly, Repsol is moving ahead at long last towards drilling a second and maybe even a third exploration well. The work could start as early as the fall, and one source close to the project told Reuters “Things are moving forward, there will be no more delays.”

If Repsol drills that second well it could unleash an ominous Pandora’s Box. In the event the company is successful, Reuters writes that it “will open the door to full-scale exploitation of Cuba's offshore.” Already, Cuba’s section of the Gulf of Mexico has been divided up into 59 blocks and 17 of those have been leased to Repsol and its partners.

One of those partners is Venezuela’s state-owned oil company PdVSA. President Hugo Chávez says he is horrified by BP’s mess and recently declared he would send oil experts to Cuba to advise the island nation on how best to handle the spill. “This is very, very bad,” Chávez said. On the other hand, Venezuela hardly inspires confidence: earlier this month the country had its own rig accident when a natural gas exploration rig leased by PdVSA nearly sank.

Hopefully, the BP disaster will lead Cuba to permanently and irrevocably shelve its plans for offshore oil development. Yet, in order to do so the island nation will have to drastically reverse course from the past few years. In addition to Venezuela, Norway and India there are other significant players who have inked offshore oil agreements including big Russian and Brazilian energy companies.

In the event that Cuba fails to heed the warning of the BP spill and goes ahead with offshore oil exploration in the long-term, it could be years before new wells are developed and significant oil is recovered. Simply put, the island nation lacks needed oil infrastructure, technology and skilled labor. That could be a boon to the environment, but don’t count Cuba out just yet: the authorities are already planning a deep-sea terminal for supertankers in the northern port of Matanzas and seek to upgrade a long pipeline which stretches across the island to an old, Soviet-built refinery.

From an environmental point of view, the prospect of offshore oil development going forward is not something to be taken lightly. Cuba is the most biologically diverse of all Caribbean islands and sports spectacular white sand beaches, vast coral reefs, and a wide range of fish populations. Cuba’s coastline and mangroves serve as breeding grounds for hundreds of species of fish as well as other marine organisms. Ocean currents carry important fish larvae from Cuba into U.S. waters, which in turn help to replenish ailing American fisheries.

The U.S. and Cuba share an ancient deepwater coral system stretching all the way up to North Carolina. In addition, Cuba has more than 4,000 islets which support important reef fish such as grouper. The islets also support sea turtles, dolphins and manatees [the latter already in danger as a result of BP’s oil spill as I recently pointed out]. Crucially important, the islets serve as refuges for endangered species.

If that was not enough reason to press the pause button on offshore oil, consider the plight of Caribbean birds. In recent days, the U.S. public has been subjected to the tragic spectacle of oiled pelicans in the Gulf. If oil production reaches Cuba we could have further disasters since important populations of North American migratory birds spend much of the year on the Caribbean island.

The prospect of Venezuela and others drilling for petroleum in Cuban waters is bad enough. But, what if U.S. oil companies joined the oily mix? Currently that’s impossible since the U.S. continues to maintain an economic embargo on Cuba. Yet, some would like to see a change in policy.

In recent years, some Capitol Hill legislators have proposed that oil companies be exempt from the embargo. In 2006, Jeff Flake, a Republican Congressman from Arizona, and GOP Senator Larry Craig of Idaho introduced twin bills to the House of Representatives and Senate which would have allowed U.S. firms to sell their services to corporations drilling on behalf of Cuba or alternatively to simply drill on their own. In a rebuke to his party, Flake described the embargo as “archaic policy.” “If there are going to be oil rigs within 50 miles of Florida … I'd rather see U.S. oil rigs than Chinese oil rigs, given technological and safety considerations,” Flake said. For his part, Craig remarked, “Red China should not be left to drill for oil within spitting distance of our shores without competition from U.S. industries.”

Since the GOP usually can be counted on to press for the embargo, Craig and Flake’s resolutions on Cuba came as a somewhat bizarre and incongruous development. Concerned about the environmental implications of offshore Cuban oil development Florida Democrats Senator Bill Nelson and Congressman Jim Davis authored their own legislation which would have denied U.S. visas to the executives of foreign oil firms drilling in Cuban waters.

“At risk are the Florida Keys and the state's tourism economy, not to mention the $8bn that Congress is investing to restore the Everglades,” Nelson remarked. In a rebuke to Craig and Flake, Nelson proposed legislation which would have prevented the Bush administration from renewing a 1977 international agreement permitting Cuba from conducting commercial activity near the Florida Keys.

Hopefully, the BP disaster will put a break on the oil lobby and its supporters on Capitol Hill. Yet, other important players have been broadly supportive of offshore oil. For its part, Havana has said it would welcome U.S. investment. Recently, a U.S.-Cuba Energy Summit attracted Exxon officials and others to a meeting in Mexico City. Participants viewed PowerPoint presentations from Cuban government ministries including state-owned oil company Cupet which sought to involve U.S. companies in the exploitation of oil and gas fields. “U.S. oil companies would love to do business there as soon as this thing opens up,” remarked Ron Harper, an energy analyst in Houston. “They're looking at it quietly. They'd be short-sighted not to.”

The debate over Cuban offshore oil puts the political left in a quandary. For years, it’s been an article of faith amongst progressives that the U.S. ought to scrap the embargo. To be sure, economic sanctions have resulted in horrible economic distress for ordinary Cubans. Yet, does the left want to lift sanctions and open the door to yet more destructive offshore petroleum, thereby adding to environmental woes already unleashed by the BP spill? In light of our dire ecological straits, I believe the left must rethink its position on this vital issue and articulate a more broad-based vision for the Gulf which would realistically address both economic and environmental concerns.

Creative solutions must come from other quarters as well. Maybe it’s time for Fidel Castro and Hugo Chávez to stop complaining about evil U.S. corporations, take a hard look at their own wasteful energy priorities and come up with a viable plan to save the Gulf of Mexico. Efforts to support alternative energy on Cuba, including the island’s incipient wind-power industry, should be ramped up.

Realistically, however, neither Cuba nor Venezuela have the necessary technological, economic or logistical know-how which could move us away from the fossil-fuel paradigm. Only the U.S. can achieve such a dramatic revolution, but up until now the political will has been sorely lacking.

In my book No Rain in the Amazon: How South America’s Climate Change Affects the Entire Planet, now hot off the press with Palgrave-Macmillan, I argue that the U.S. needs to increase clean technology transfer to South American countries in order to save the Amazon rainforest from hydropower and oil development. If anything, the BP spill demonstrates the need for even greater U.S. engagement on this issue. We are in the midst of a hemisphere-wide environmental quandary, and Washington needs to expand clean energy transfer not just toward South American countries but also toward all nations bordering the Gulf of Mexico.

Nikolas Kozloff is the author of No Rain in the Amazon: How South America’s Climate Change Affects the Entire Planet (Palgrave, 2010). Visit his website, http://www.nikolaskozloff.com/

NIKOLAS KOZLOFF FOR BUZZFLASH

A Warning to Oil Producing Countries

Oil Exports by country (source: CIA factbook)

http://www.payvand.com/news/10/may/1295.html
Oil prices and the world economy have broadly been correlated for the past few years. When worldwide economic growth accelerates, it is often coupled with higher oil prices and vice versa. The recent financial crisis threw oil prices on a rollercoaster ride. The prices ended their nine year rally in July of 2008 when they peaked near $150 a barrel. Then, they began to decline until December of 2008 when the prices bottomed out at around $34 a barrel. The prices resumed their advance since then. However, a new fundamental and speculative analysis points to a fresh weakening due to the sovereign debt crisis in Europe and overheating of China's economy. If these events become more acute, they will enforce a major burden to the global economic recovery at best or a worldwide double-dip recession at worst. For crude, the outlook for economic activity has long run below the premium that current price would suggest. This is something that oil producing countries need to be worried; in particular those with budgets that closely depend on oil revenues.

The recent looming European debt crisis has sent shivers to equity and commodity markets around the globe. The crisis in Portugal, Ireland, Italy, Greece and Spain (PIIGS) has severed confidence in the euro and the economic position of many European countries. It is highly probable that some of these European economies stumble into a double-dip recession. Even a global double-dip recession cannot be ruled out. Overall, there is no doubt that the European debt crisis will weight on the world economic recovery due to the globalized nature of world economies and a serious structural problem in Euro zone's economy. Many experts are growingly becoming concerned with the outlook for the Euro zone, and broader global macro economy. The general consensus is that the crisis in the private sector has now only swung to a government debt crisis, with government bond purchases and fiscal spending reductions only seen exacerbating the situation. ECB President Trichet just recently mentioned that the markets are in the worst predicament since WWI, and has appealed for a "quantum leap" of fiscal governance.

The debt crisis in Europe has reminded heads of states that governments will need to make deep cuts in expenditure in order to counterbalance budget deficits that were incurred to rescue their economies from the credit crisis. Investors remain worried that Greece, Portugal and Spain among others will need to ratify painful budget cuts to reduce their debts. These budget cuts, which may also include those of healthier European economies, will certainly delay worldwide growth. Furthermore, a comprehensive structural reform is urgently needed for Euro zone's economy; otherwise any aid packages will not be effective. The root cause of this structural problem can be sought in the fact that with a single monetary policy a broad spectrum of weak to strong economies cannot be managed at the same time. The present uncertainty towards the future of the European Union has made the future of the global economic recovery questionable.

In a parallel development, it seems that China's economy is overheating. This could be a sign of mandatory slowdown. Its equity market has already lost more than 20% of its value from its peak.1 As equity markets are usually a leading indicator of economic growth, the decline in the Chinese equity market points to a slower expansion in the near future. In addition, recent inflation data depicted that inflation is on the rise, which implies future interest rate hikes. Any rate hike is a break on economic growth. Just recently, China's economic planning agency predicted, due to higher inflation, the central bank will lift interest rates for the first time since 2007.

Furthermore, China strategist David Roche said China's economy is teetering on the edge of a major slowdown, though it's not a shakeout in the property market that's about the spark in the distress. Roche, an economic and political analyst, says the world's third-largest economy is now on the brink, faced with the inevitable reckoning that follows an extended bank-lending binge. "We've got the beginnings of a credit-bubble collapse in China" said Roche, predicting the economy will likely cool from its stellar double-digit growth rate to a 6% annual expansion as a result.2

The recent China's shift towards further dependence upon Europe as an export market is another area of concern for China's economy due the recent debt crisis in Europe. Other regional economies were paring back shipments to the EU as an overall percentage of global trade. Of China's global exports, the EU accounts for 21% stake today, up from 16.5% in 1999.3 Therefore, China is heavily exposed to any further slowdowns in the European economy amid a spreading debt crisis. In addition, considering the yuan/US dollar peg, the plummeting of the euro against the US dollar, and higher dependence of China's economy on Europe will certainly lower China's positive trade balance. Furthermore, if China goes ahead with appreciating its currency against the US dollar, the situation will become even worse for China's trade balance and hence for its economy.

Another subject that is worth noticing is the potential real estate bubble in some of China's major metropolitan areas.4 The popping of current real estate bubble could also send jitters to the global economy, since China is one of the major leaders of global growth. In the midst of the financial crisis, the Chinese government injected a massive amount of liquidity to prop up real estate lending and development to promote economic growth. No doubt that the stimulus package encouraged tremendous construction, lending, and speculative buying. Hence, if at some point China's real estate sector runs out of steam, the worldwide growth may be seriously threatened.

Since Greece's troubles seem to be turned into a European Union crisis (which may further be developing global implications), the crude prices have fallen as much as 20 percent from the 18-month highs set earlier this year. There is conviction in winding down risky positions across all the major asset classes. The pressing concern now is that the EU situation is deteriorating to an inexorable position that could tip the world's financial and credit markets back into turmoil.

Many economists are even more pessimistic. They have begun to lose confidence in European leaders' ability to contain the debt chaos. Their greater concern is that the Economic Union and its single currency could break apart has started to accelerate losses. The likelihood for the issues to develop into a wider contamination has started to generate discomfort among investors, which has begun to drag equity and commodity markets lower. Although there are some strong fundamentals in the overall European economy such as Germany for faster recovery, this issue has been overlooked with the developments in Greece dominating headlines. However, the debt crisis poses a threat to world economies as trade shrinks and banks may incur losses on European investments. Practically, all governments of advanced economies have to curb spending and raise taxes to reduce their budget deficits that will effectively dampen global economic growth.

Overall, the current situation could be an alarm ring for oil producing countries. The global financial slowdown will depress oil producing economies. Falling oil prices will be an unwelcoming event for them. With the exception of a handful of oil producing countries, the rest are heavily dependent on their oil revenues to finance their fiscal budgets. For the ones with large currency reserves in their sovereign wealth funds, bypassing lower revenues can be offset by using the cash they have accumulated in their funds. But for the ones with low cash reserves the situation can become very grim. Rising oil supplies and the prospect of slower growth as governments reign in spending may send crude prices further down.

Iran and Venezuela, among the major oil producing countries, have a unique situation. Both countries have squandered the windfall oil revenues they earned when crude prices soared in the first half of 2008, leaving them more vulnerable to lower prices. Both countries went on a massive spending spree. The substantial inflow of petrodollars into their accounts coupled with the faulty assumption that the oil prices would continue to rise triggered both countries to infuse billions of dollars into their economies. Both governments have frantically been openhanded in exhausting petro earnings and lowering interest rates that led to higher inflation and asset prices. And now both states need higher crude prices than in the past in order to break even as spending at home rises.

Neither country has substantial room for using the surpluses accumulated during the oil boom to support economic activity in the event of continued weakness. The majority of oil revenues have been spent on subsidized lending, massive bank credits, imprudent social spending, substantial imports, aids to other countries, and huge energy and food subsidies. Both countries need oil prices about $80 to $90 per barrel to fiscally break even. Knowing that the average petro price is less than $80 per barrel in 2010 so far, both countries are dealing with large budget shortages. In average, oil revenues are 80% to 90% of both countries' export earnings and about 50% of their federal budgets. As two of the biggest oil producing countries, Iran and Venezuela have become growingly dependent on oil earnings since the inaugurations of Ahmadinejad in Iran and Chaves in Venezuela. Therefore, if the existing condition persists, it is broadly expected that both governments will face serious economic challenges in the future.

The government of Iran has already moved on to reduce massive subsidies amid the ongoing political turmoil of the last year. There could only be one reason for doing so in this critical situation. Simply the government cannot afford to be as generous as before anymore. These subsidies have already crippled economic growth and made the economy very ill and vulnerable. Even though cutting these subsidies is a right pace in the right direction, considering its huge amount, which is close to $80 billion per fiscal year, may trigger temporarily high inflation and price instability. This is an extraordinary risk that the government has to take. Perhaps it has no choice. This is the price that the government and unfortunately the people have to pay for not paying attention to many warnings the government received from economic pundits.

Venezuela is not in better shape either. The inflation rate has already surged to more than 30% due to a surge in government spending, minimum wage hikes and easy access to credit.5 Any decline in oil income in the future will further undermine the government's ability to continue its lavish spending. Chavez has continued his efforts to tighten his grip on the economy by nationalizing many industries. He also just announced a dual exchange rate and started to crack down on brokerage houses for breaching the fixed exchange rates he established. In his latest move he announced that he would increase oil production at the end of 2010 perhaps because of fiscal shortages. These are all signs of desperation. This is a clear indication of future economic trouble for this socialist government. It seems that all of his economic policies have failed.

Considering the unfolding worldwide economic events, a possible global economic weakness, and lower commodity prices, it remains to be seen how these countries will cope with their troubled economies.

References:

1. Bloomberg.com, http://www.bloomberg.com.

2. Market Watch, "China analyst sees beginnings of unfolding credit bust," May 11, 2010, .
3. Market Watch, "China reports surprise $1.68 billion trade surplus in April," May 10, 2010, .

4. Time, "China's Property: Bubble, Bubble, Toil and Trouble," March 22, 2010, .

5. Yahoo.com, "Venezuela currency crackdown may worsen economy: analysts," May 21, 2010, .

About the Author: Amir Naghshineh-Pour (MBA) is the founder of Vesta Capital, LLC, a boutique capital management firm, in San Diego, CA USA. He can be reached via abibis@msn.com.

TOP Oil Market News: Oil Rises; Fuel Oil Shipments to Singapore

http://www.businessweek.com/news/2010-05-27/top-oil-market-news-oil-rises-fuel-oil-shipments-to-singapore.html

By Clyde Russell

May 27 (Bloomberg) -- The following is a selection of the most important news affecting the oil market.

Oil Rises a Second Day as Dollar Decline Boosts Investor Demand

Crude oil rose for a second day in New York as the dollar snapped a three-day rally against the euro, bolstering the investment appeal of commodities.

TOP OIL STORIES

Fuel Oil Shipments to Singapore May Rise 10%: Energy Markets

Fuel oil shipments to Singapore may increase as much as 10 percent next month as prices rise in Asia, encouraging exports from Western Europe, Russia and the U.S. Gulf of Mexico.

BP ‘Top Kill’ Bid at Oil Well Going to Plan, CEO Says (Update1)

BP Plc’s latest attempt to plug a leaking well that’s been spewing oil into the Gulf of Mexico for more than a month is “proceeding to plan,” said Chief Executive Officer Tony Hayward.

Asia Fuel Oil Refining Margins Fall Most Among Products: Wrap

Fuel oil refining margins dropped the most among oil products after crude oil pared losses to trade near $71 a barrel in New York and as shipments of marine fuel to Asia are expected to rise next month.

Rosneft Sells 700,000 Metric Tons of July-August ESPO Crude Oil

Rosneft Oil Co. sold 700,000 metric tons of East Siberian Pacific Ocean pipeline oil, or ESPO, for loading from July to early August to BP Plc, Mitsui & Co., ConocoPhillips, Vitol Group and Gunvor International Ltd., said three traders who participate in the market.

Deepwater Horizon Rig Probes Find Deficiencies, Disagreements

BP Plc and Transocean Ltd. managers disagreed on how to proceed with work hours before the Deepwater Horizon rig exploded, and a review in 2007 found staff-training deficiencies, according to testimony at a Louisiana hearing.

Obama Outraged Over BP, Federal Oil Regulators, Axelrod Says

President Barack Obama’s outrage over the Gulf of Mexico oil spill has reached “the upper scale” and is directed at both BP Plc and federal regulators, senior White House adviser David Axelrod said.

China May See Fuel Surplus Next Year, PetroChina Says (Update1)

China, the world’s second-biggest energy user, may face a surplus of fuel including diesel next year as refiners add oil- processing capacity.

Ethanol Gains Most in Three Weeks as Corn Rises on Chinese Use

Ethanol futures rose the most in Chicago in three weeks as corn gained on speculation China will buy more of the grain from the U.S.

Obama Says U.S. Can’t Lag Behind on Energy Technology (Update2)

President Barack Obama said the “heartbreaking” oil spill in the Gulf of Mexico, which has fouled wetlands and closed fishing grounds, underscores the need for the U.S. to rapidly develop alternative energy sources.

U.S. DOE Weekly Petroleum Status Report for May 21 (Text)

Following is the text of the weekly Petroleum Status Report from the U.S. Department of Energy:

U.S. Oil Supply: Comparison of Weekly API, DOE Figures (Table)

The following table provides a comparison between the U.S. Department of Energy’s crude-oil statistics for the week ended May 21 and the data from the American Petroleum Institute, an industry-funded group.

OPEC

Oil at $65 Will Draw OPEC’s ‘Attention,’ Kuwait Says (Update1)

Oil’s price slide to $65 a barrel might raise concern among OPEC members that crude is too cheap, Kuwait’s oil minister said, declining to comment on any action that the group might take to buttress prices.

REFINERIES Map global refinery outages

Valero Shuts Unit at Corpus Christi East Plant for Maintenance

Valero Energy Corp. will shut a crude and vacuum unit at its Corpus Christi East refinery in Texas for maintenance starting today, the company said in a filing with state regulators. Maintenance work will last until tomorrow, the filing showed.

JX Holdings May Move Capacity Cuts Ahead by Year, Reuters Says

JX Holdings Inc. may move forward by another year to March 2013 a plan to reduce oil refining capacity by 600,000 barrels a day if domestic fuel demand falls at a much faster rate than expected, Reuters reported, citing the company’s president Mitsunori Takahagi.

Reliance Jamnagar Refinery Unit to Complete Maintenance May 28

Reliance Industries Ltd. is set to finish maintenance work on a 100,000 barrel-a-day vacuum gasoil unit at Jamnagar on May 28, said a person with knowledge of the matter, asking not to be identified because the information isn’t public.

Trans-Alaska Oil Pipeline Prepares to Restart Pumps (Update1)

Alyeska Pipeline Service Co., whose biggest shareholder is BP Plc, is completing risk assessments as it prepares to restart pumps at a station where “several thousand barrels” of oil leaked yesterday after a valve failed.

Exxon Louisiana Plant Operations ‘Normal’ After Work (Update1)

Exxon Mobil Corp. said operations are “normal” after it shut a unit at its Baton Rouge, Louisiana, refinery for repairs.

PDVSA to Restart Catalytic Unit for Gasoline at Palito Refinery

Petroleos de Venezuela SA, the state oil company, will restart a catalytic cracker unit to produce gasoline tomorrow at the Palito refinery in Carabobo state, according to an e-mailed statement.

California Gasoline Soars on BP Plant Issues, Inventory Drop

Spot gasoline in California soared after BP Plc reported a disruption at its Carson, California, refinery and after a government report showed supplies of gasoline stored along the West Coast fell.

Exxon Mobil’s Baton Rouge, Louisiana, Plant Has Gas Line Leak

A gas line leaked at Exxon Mobil Corp.’s Baton Rouge, Louisiana, refinery, according to Jean Kelly, a spokeswoman at the Louisiana Department of Environmental Quality.

OTHER OIL MARKET NEWS

Oil Product Shipping Costs to Japan Are Unchanged

The cost of shipping a gallon of gasoline, jet fuel or other so-called clean petroleum products from the Middle East to Japan was unchanged at 8.10 U.S. cents yesterday, according to data compiled by Bloomberg. The cost is based on a cargo of 55,000 metric tons.

Crude-Oil Shipping Costs Have Longest Decline in Seven Weeks

Crude-oil shipping costs fell for a fourth session in London, the longest slide in seven weeks, on lower European charter rates and on speculation that slumping oil prices will undermine confidence.

Total Bids for Forties Crude Cargo; Shell Offers Brent Blend

Total SA sought to buy a shipment of North Sea Forties crude oil without finding a seller. Royal Dutch Shell Plc offered a Brent blend cargo without selling.

TOP ENERGY STORIES

EDP Expects 10% Annual Brazil Growth With Thermal, Wind Plants

EDP-Energias de Portugal SA, the European nation’s largest power company, expects its Brazilian earnings to grow about 10 percent in each of the next three years as it invests in thermal, wind and hydro power projects.

7-Eleven Australia Buys Exxon Mobil Filling Stations (Update1)

7-Eleven Stores Pty Ltd., a closely held convenience store operator, agreed to buy 295 Australian gasoline filling stations from Exxon Mobil Corp., elevating the company to the nation’s largest independent fuel retailer.

Siemens Canada Plans New Wind Turbine Plant, CEO Aurich Says

Siemens Canada Ltd. Chief Executive Officer Roland Aurich says his company plans to build a new wind turbine plant, likely in Ontario, to take advantage of demand for renewable energy as the country recovers from recession.

Shell Arctic Drilling Leases to Be Reviewed by U.S. (Update2)

The U.S. will review Royal Dutch Shell Plc’s plans to explore for oil and natural gas off Alaska’s coast and take steps to increase safety on all offshore rigs, Interior Secretary Ken Salazar said today.

OTHER MARKETS

Asian Stocks Gain as Sell-Off Eases; Kiwi, Won Rise Against Yen

Asian shares climbed and the New Zealand dollar and South Korean won strengthened against the yen as markets stabilized from a plunge that has depressed the region’s benchmark stock index by 12 percent this month.

Yen Falls as Asia-Pacific Recovery Signs Reduce Safety Demand

The yen fell against the euro, ending a three-day rally, as signs Asia-Pacific economies are gathering momentum damped demand for safer assets.

Mobius Buys BRIC Stocks, Sees Bull Market Continuing (Update1)

Templeton Asset Management Ltd.’s Mark Mobius said he’s been buying stocks in Brazil, Russia, India and China in the past month and called the slump in emerging-economy shares a “correction” in a bull market.

Copper, Aluminum, Zinc Gain on Signs Economic Recovery on Track

Copper and zinc climbed for a second day, and aluminum advanced, as financial markets stabilized and the dollar fell on signs that the global economic recovery was gaining momentum.

Gold May Climb for Fourth Day as Buyers Seek Haven From Europe

Gold, trading within 3 percent of a record, may gain for a fourth day as investors seek a haven for their assets on concern that the European debt crisis may worsen, hurting stock prices and slowing economic growth.

--Editor: Ang Bee Lin.

To contact the editor responsible for this story: Clyde Russell in Singapore at crussell7@bloomberg.net

Despite Current Lows, High Production Costs Will Force Rising Oil Prices in Years Ahead

http://www.heatingoil.com/blog/despite-currently-lows-high-production-costs-will-force-rising-oil-prices-in-years-ahead526/

Oil prices have fallen steeply in the month of May and prompted analysts to reassess their expectations for oil prices and oil demand in the rest of 2010. Yet prices for more distant crude oil futures contracts have barely budged, signaling that short-term volatility has little impact on the long-term trend of higher oil prices, reports Bloomberg Businessweek.

The spot price for crude oil dropped 10 percent in the last three months (and nearly 20 percent from its May 3 high above $87 a barrel), but crude oil futures for December 2018 stayed above $90. Investors pointed to the high price of drilling and processing the large potential reserves outside of OPEC—deepwater reserves in the Gulf of Mexico and off Brazil’s shores, and the oil sands in Canada and Venezuela—as a fundamental driver of higher oil prices. Those reserves will be needed to cover growth in global oil demand, but won’t be tapped unless oil prices are high enough to make it profitable.

The fact of high production costs puts a floor under the price of oil in the coming decade, and the causes behind oil’s recent slump do nothing to change that, said Mike Wittner, head of oil market research for Societe Generale SA:

Concerns over a Eurozone-centered debt crisis, and the Chinese economy, and U.S. financial regulations, have no impact on full-cycle production costs or on the medium-term view…. And the medium-term view is one of global oil demand growth bumping into a mature supply base.

Forecasts from the Energy Information Administration (EIA) and Bank of America Merrill Lynch this week supported Wittner’s position. Bank of America cut their forecast for the average price of crude oil in 2010 from $92 to $78 a barrel after factoring in the plunge in oil prices during the last three weeks, but left its oil price forecast for 2011 untouched. The EIA looked ahead to 2020 and 2035 and predicted average crude oil prices of $108 and $133 a barrel, respectively. A growing global population, growing energy demand in emerging economies, and the difficulty of finding substitutes for oil make it hard to envision a future in which the price of oil declines.

Barring a dramatic shift in the world’s energy use, oil prices will march relentlessly upward as more expensive sources of oil are exploited. From this perspective, the heating oil industry’s turn to biodiesel is not just an environmentally friendly decision; it’s an economic necessity. Biodiesel feedstock can come from a variety of sources—soybeans, waste cooking oil, algae, and others—that are renewable and that get less expensive, not more, as producers develop more efficient methods of collecting the feedstock and processing it into biodiesel.

With all signs pointing to higher oil prices in the next decade, if not sooner, why not turn to a heating fuel that’s not just cleaner-burning and more efficient, but getting cheaper with every advance in technology?

Ecuador Oil Contamination Spawns Turmoil at Chevron Annual Meeting

http://www.ens-newswire.com/ens/may2010/2010-05-26-092.html

HOUSTON, Texas,

At Chevron's annual shareholder meeting here today Mariana Jimenez, 71, from Ecuador told company officials and board members that oil contamination by Texaco, now a Chevron company, is destroying her community in the Amazon rainforest.

"In 1976, I lost two young children. In 1979, one of my daughters became very sick with an unknown illness on her throat and lost her voice for three months. People are still getting sick every day. There are children born with birth defects," Jimenez said.

She called for Chevron CEO John Watson "to take responsibility for the crime that his company committed in my country."

From 1964 to 1992 Texaco, now owned by Chevron, was part of consortium that built and operated oil exploration and production facilities in the northern region of the Ecuadorian Amazon.
In 1993, a lawsuit was filed by 48 Ecuadorian Indians and farmers representing tens of thousands of people in the region who claim to have suffered illnesses and ecological damage to their land caused by oil contamination. The lawsuit, now underway in Lago Agrio, Ecuador, alleges that from 1964 to 1990, Texaco deliberately dumped more than 18 billion gallons of toxic oil production process waste into unlined pits in the rainforest rather than injecting it underground.

A report by a court-appointed team in 2008 concluded that pollution caused mainly by Texaco's Ecuadoran affiliate, Texaco Petroleum, had led to 1,401 cancer deaths in the region. Team leader, Ecuadoran geologist Richard Cabrera, reported high levels of toxins in soil and water samples near Texaco's production sites and assessed damages at up to $27.3 billion.

At the shareholder meeting today, Chevron's new CEO John Watson replied to Jimenez by saying, "My predecessor [former CEO David O'Reilly] showed great empathy and I will do the same."

"We don't need empathy from Chevron, we need them to accept full responsibility for the pain and suffering they have caused our people and clean up Ecuador now," said Guillermo Grafa, an indigenous leader from Ecuador, who was denied access to Chevron's shareholder meeting after traveling from his rainforest home.

Concerned community leaders from several nations, including Ecuador and Nigeria, traveled from around the world yet were refused entry to Chevron's annual meeting.
Houston Police arrest Juan Parras, executive director of Texas Environmental Justice Advocacy Services outside the Chevron building. (Photo by Liana Lopez courtesy Rainforest Action Network)
Outside the Chevron building on Louisiana Street, demonstrators made speeches and displayed banners with slogans such as, "Chevron Energy Costs Lives. Clean Up Ecuador."

Houston police arrested four shareholders and proxy representatives who refused to leave Chevron property after they were denied access to the meeting.

The people arrested were Han Shan and Mitchell Anderson of Amazon Watch; Juan Parras of Texas Environmental Justice Advocacy Services in Houston; and Reverend Ken Davis from Richmond, California. Shan and Anderson participated in a sit-in demonstration before their arrests.

Antonia Juhasz of the True Cost of Chevron coalition was arrested while trying to make a statement inside the shareholder meeting after being admitted with a valid proxy. None of the arrested has yet been released.

"More than 20,000 proxy shareholders have been barred from the meeting for no valid, legal or legitimate reason, but simply because they come from communities in Ecuador, in Burma, in Nigeria, in Richmond, California, like Reverend Davis here. And they want to deny those people speaking out about their concerns. It's appalling," said Shan.

Shelley Alpern, vice-president at Trillium Asset Management Corporation said, "I attend several shareholder meetings every year and I have never seen a company deny entry to legal proxy holders. This is outrageous and reflects very poorly on our company's respect for the laws that govern our proxy process. The shareholders in attendance today should stand forewarned not to say anything critical or it could be you next year."

Inside the shareholders' meeting, Watson emphasized the company's safety record, saying, "If employees see a situation that could harm people or the environment, they not only have the authority to stop operations, we expect them to stop or trigger a stop to operations."

"As in safety," said Watson, "our efforts to improve our environmental performance will never stop."

Lloyds Register, an independent auditor, validated the integrity of Chevron's health, environmental and safety reporting procedures, said Watson.

"The Carbon Disclosure Project, an independent nonprofit organization, gave us the energy sector's top score in its Leadership Index. The index ranks companies taking "best in class" actions to measure and report carbon emissions," he said. "And for the fifth consecutive year, we're in the Dow Jones Sustainability Index for North America."

In 2009, said Watson, "We earned $10.5 billion. That's a 10.6 percent return on capital employed."

Chevron stockholders voted on nine proposals and none of those regarding the environment received a majority of votes. In the vote that gathered the most shareholder support, 26 percent of the votes cast went to the stockholder proposal regarding the appointment of an independent director with environmental expertise.

Approximately nine percent of the votes cast were voted for the stockholder proposal regarding financial risks from climate change.

And only seven percent of the votes cast were voted for the stockholder proposal regarding a human rights committee.

Several times during his speech, Watson referred to the ongoing BP oil spill in the Gulf of Mexico.

"Following the incident, at Chevron we held safety briefings around the world reviewing drilling processes and procedures along with wellcontrol contingency plans. We sent subsea experts to BP's aid, joined a Coast Guard incident command team, and participated in two industry taskforces examining offshore drilling procedures," Watson said. "Last week, those task forces made draft recommendations to Interior Secretary [Ken] Salazar for improving offshore safety."

"When the investigation into the cause of the Gulf disaster is complete, there will be lessons to learn," said Watson. "Our industry will learn them."

OPEC Basket Price Still Below USD 70 Mark: At $68.21 pb

http://www.eurasiareview.com/2010/05/opec-basket-price-still-below-usd-70.html9

(KUNA) -- The price of the Organization of Petroleum Exporting Countries (OPEC) basket of crudes was up 1.37 USD per barrel (pb) on Wednesday, thus coming to USD 68.21 pb and failing to regain the USD 70 pb range, after registering 66.84 pb on Tuesday.

The annual average price thus comes to USD 76.11 pb.

The OPEC Reference Basket (ORB), introduced on 16 June 2005, is currently made up of Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE), and Merey (Venezuela).

The basket price was below the USD 70 mark for the last two weeks, and the range is considered detrimental to producers and detrimental also to interest in investment in oil production.

Despite the loss of some 20 percent of price over the last two weeks, OPEC sources indicated there are no plans for an extraordinary meeting ahead of the regular meeting in October.

Observers meanwhile believe the slump is not due to the customary supply-demand mechanism but rather to anxiety over economic growth in the EU under the pull of the Greek debt crisis.

OPEC ministers had in their meeting in March decided to extend the 24.8 million barrel per day production cap and stressed it was vital all members stick to their quotas.

As the organization failed to stem the drop in prices, it is now urging members most strongly to honor the production cut approved in late 2008.

After the Vienna meeting on October 14, the OPEC ministers are also planned to convene in Ecuador, which currently presides the organization, late in the year.