Thomko Petro Chemical Blog

Thanks to all who sent e-mail from our last post about soaring oil prices. From analysts, politicians and just about everybody weighing in, there are many opinions about the cause and ways to solve our dependency on oil. Here's my personal thoughts on some of the major causes of why oil has risen to all time highs
 . . . CT

For the past 20-25 years, this country has obviously neglected to find other sources of energy and fuel, and instead opted to stay dependent on foreign oil. Now we come to a time when as Thomas Friedman's book title "The World Is Flat" hits us squarely in the face.

This is a global economy - and the rest of the world wants what we have. We are no longer the driving force on the oil & gasoline prices worldwide. Even if we cut back on gasoline consumption - drivers in the rest of the world (China, India, etc) will continue to consume more gasoline. So the answer lies not just in finding more oil, the big pill to swallow is a real alternative energy policy.

While we have been living the "American Dream", much of the rest of the global world is catching up. They want the cars, homes and a lot of the technology we have become accustomed to. There are just not enough resources to supply the demand. Actually from my point of view they are falling into the same trap we now find ourselves - but that's another story . . .  

The facts are crude oil production has remained rather flat - while the need for oil continues to rise - especially from developing countries. The American dollar is at an all time low, and let me state once again that oil is priced worldwide in dollars.

Terrorist activity around the world can send oil souring at any time as we have seen in Nigeria, and threats remain throughout the Middle East. 

Oil speculators also have to be figured into the equation of the rising oil prices. Many institutions playing the market for their investors own far too many oil contracts - and when they announce oil price expectations - prices continue to rise. It's easy to control the price when you own most of the contracts!

And the war in Iraq has dramatically cut their pre-war production of approximately 4 million barrels per day to less than 2 million barrels per day. So in reality this war has also added to the reduction of the global oil supply - and I won't even go into what the threat of war with Iran will do to the world oil market prices.

But there's more bad news . . . Russia, the world's second largest oil exporter is having production problems. Russia's lack of investment in their infrastructure and many aging oil fields has led to their first production decline in 10 years.   

At the end of the day, it's all of us who pull up to the gas pump each week who are the losers. Obviously the elected politicians for the past two decades have not had the country or our best interests at heart. So, it's up to us to make changes in our lives, and try to ride out this economic chaos.

I certainly don't have all the answers, but I do know that we are facing a very bad economic time in this country. It's going to take sacrifice, and hopefully this time we will come out this with a new outlook on alternative energy - but it's not going to happen overnight. 

That's my take . . .

It seems like yesterday when many of us could not believe oil at $100 a barrel, but those days are long gone . . . CT

Oil surged past $140 a barrel after OPEC's president stated that prices could go well above $150!!

Just when we thought gas prices were at their highest . . . but oh no, it's gonna get worse

There are serious economic trouble ahead in the key financial markets, along with the automotive and housing industry. Today's oil surge has the Dow at the lowest point in almost two years. And we still don't know the fall-out from the mortgage crisis.

Then came the news that Libya will consider cutting oil production - and there's speculation that the Fed may not raise interest rates until later this year.

Many analysts are now in agreement that the rate cuts during the past year have further weakened the dollar - which have sent oil prices soaring since oil is priced in dollars.

We are in for a very bumpy ride folks - so we all need to try and get as much cushion as we can

In a mode that could clearly say: “I told you so”, critics of America’s involvement in Iraq are now saying that the U.S. Administration sent the troopers there for one primary reason.

To shore up a reliable source of crude oil that would keep flowing into American storage facilities, and hence into American citizens gas tanks for at least another 15 to 20 years.

With Iraqi petroleum reserves estimated to be at least 10% to total world supply, and if major American oil companies like .Exxon-Mobil and Amoco controlling the pumping of oil in most of Iraq, then it would be a win-win situation

Unfortunately,  things didn’t work out the way we wanted them to. Now that Iraqi and US forces are staging an operation against Shiite militiamen in the oil rich Iraqi city of Basra.

Maybe this explains why so many top American officials have made so many “surprise visits” to Iraq in this 2008 election year.

Ever since the invasion of March, 2003, production and exports of Iraqi crude oil have been beset by a combination of old production equipment in bad repair, as well as countless incidents of sabotage by Iraqi insurgents and foreign elements who simply do not want Iraqi oil to fall into the hands of “The Great Satan”,

Five years later and 4,000 American soldiers lay dead, this precious resource seems even more distant from American and other Western automobile gas tanks.

Israel, who once feared possible attacks from Iraq with weapons of mass destruction, called WMD’s for short, now fear another oil rich country, Iran,

Mahmoud Ahmadinejad, has often called for Israel to be “wiped off the face of the map”.

Oil is now fetching more than $100 a barrel, and the U.S. Dollar is even weaker than currencies like the Israeli Shekel.

It appears that the time has come for some serious stock-taking in regards to just why American forces went into Iraq in the first place, instead of simply letting Saddam Hussein and his cronies remain there as a possible buffer against the real world enemy – .

http://www.onejerusalem.com/2008/03/26/the-oil-war/

Iraqis face the dire prospect of losing up to $200bn of the wealth of their country if an American-inspired plan to hand over development of its oil reserves to US and British multinationals comes into force next year.

A report produced by American and British pressure groups warns Iraq will be caught in an "old colonial trap" if it allows foreign companies to take a share of its vast energy reserves

The report is certain to reawaken fears that the real purpose of the 2003 war on Iraq was to ensure its oil came under Western control.

The Iraqi government has announced plans to seek foreign investment to exploit its oil reserves after the general election, which will be held this month. Iraq has 115 billion barrels of proved oil reserves, the third largest in the world.

According to the report, from groups including War on Want and the New Economics Foundation (NEF), the new Iraqi constitution opened the way for greater foreign investment.

Negotiations with oil companies are already under way ahead of this month's election and before legislation is passed.

Source:
http://www.independent.co.uk/news/world/middle-east/iraqs-oil-the-spoils-of-war-516400.html
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This Friday, Feb 22, marks one year since the U.S. managed to pressure the Iraqi cabinet to pass an oil law that the U.S. concocted to allow foreign multinational oil corporations unprecedented and undue control over Iraqi oil for the next 30 years.

With international support, and with the Iraq Federation of Oil Unions leading the way, the parliament has so far resisted passing the law.

Workers in Iraq still have no labor law and unions are illegal. The government has used this fact to tell the Oil Workers Union they do not exist and they will not recognize their leadership in the protest against the oil law. Worse, Iraqi union leaders have been killed and threatened with arrest in their fight for labor rights and to keep their oil under their control.

In Iraq, the on-going war and occupation has led to hundreds of thousands of Iraqi deaths, widespread devastation, relentless insecurity and crippling poverty. Foreign oil companies are scrambling to use this opportunity to secure access to massive profits from Iraq’s large untapped oil reserves at the expense of the Iraqi people.

The occupation of Iraq serves to protect these interests while U.S. military bases are built nearby to guard the oil fields. As well, the Bush Administration has tried to push the Iraqi Parliament to pass a law that would give foreign oil companies unprecedented control over Iraq’s oil resources.

The Iraqi cabinet, under pressure from the US, passed this law one year ago on February 23, 2007. The Iraqi Parliament has so far resisted pressure to pass this oil law, but the pressure is by no means over.

The U.S. should have no role in pressuring Iraqis to privatize control of their oil while occupying their country. The Iraqi people are held in a military occupation by over 160,000 foreign troops. We support the Iraqis in their call for resisting the oil law and foreign contracts while under occupation!

Endorsing Organizations: Oil Change International, US Labor Against the War, No War No Warming, Code Pink, VotersForPeace, After Downing Street, Grassroots America, Hands Off Iraqi Oil, War on Want, Platform, and ConsumersForPeace.

I fully agree with this article. It is a serious conflict of interest for this country, and big oil to go about the business of privatizing Iraqi Oil while occupying the country. Iraqi oil should be for the benefit of the Iraqi People - CT
 

Source - After Downing Street

The first phase of Iran's oil stock market started its work on Kish island in the Persian Gulf, southern Iran, on Sunday presenting oil and petrochemical products.

Although Iran's oil resources were discovered more than a hundred years ago, its oil sector has so far played only a minor role in international oil markets, but the new bourse opening will pave the way for a more active presence in international crude transactions.

The stock market was inaugurated in a video conference ceremony from the capital Tehran attended by ministers of oil, finance and economic affairs as well as chairman of Iran's Stock Exchange and a number of other officials and financial experts.

One report stated that all major currencies of the world will be used in transactions, however the Islamic Republic website stated the transactions will be made in Iranian rial.

Referring to potential transactions in oil products through the oil bourse, the Oil Minister said, “Our annual petrochemical output currently stands at 20 million tons, which is expected to reach 23 million tons by the end of the current Iranian calendar year, with good prospects of increasing it to some 45 million tons by the end of next year.”

Sources: Press TV

Iraqi debt will be written off in exchange for access to oilfields

Russia has agreed to write off $900 million of Iraqi debt built up by the regime of former leader Saddam Hussein to buy military supplies.

In return, Russian companies, including oil giant Lukoil, will be given access to oil, and the outstanding debt will be repaid over a 17 year period.

Lukoil plans to develop one of the largest oil fields in West Qurna. The Russian oil giant previously had a deal to develop oil deposits in Iraq, but the cointract ended right before Saddam Hussein's government was removed from power back in 2003.

Russia said the deal was meant to help rebuild Iraq's economy following the US-led invasion, which it opposed. The deal was signed by the Russian Finance Minister, Alexei Kudrin, and the Iraqi Foreign Minister, Hoshyar Zebari, who is currently visiting Moscow.

BP is in talks with the Iraqi Government about a plan to boost oil production at the huge Rumaila field on the border with Kuwait.

Among other potential projects in Iraq, BP's interest is understood to include the Rumaila field, one of Iraq's largest, which is believed to contain about 18 billion barrels of oil.

BP undertook a study of the field for the Iraqi Government about two years ago. It already has a small Iraq team based in the Middle East and is one of a number of big oil companies discussing agreements designed to increase rapidly the country's output to 2.6 million barrels per day by the end of this year.
    
These effectively would be service contracts to provide training, expertise and equipment, for which the companies would be paid in oil. A BP spokesman said that it was too early to consider putting in expatriate staff because of the security situation.

BP,Total, Shell, ExxonMobil, Chevron and ConocoPhillips attended talks with the Iraqi Government in Amman, Jordan, last month to help to fix the terms of the contracts. Shell is interested in a gasfield in western Iraq.

BP was involved in Iraq until 1975, when the country's oil industry was nationalized.

Source: Business Times Online

Iraq will pay with oil instead of cash to oil majors that sign special technical service agreements aimed at short-term increases in oil production, according to a UPI report.

ExxonMobil, Chevron, ConocoPhillips and Shell are firms targeted for the deals, The Times of London reports. In exchange for the oil, the companies would direct training of Iraqi workers and equipment to Iraq’s largest oil and gas fields. The decision, which is politically highly charged in Iraq, would involve the oil majors taking on the role of special contractors to the Government.

The agreements would cover a variety of oil and gasfields in western, southern, central and northern Iraq.

Shell, for example, is interested in the Akkas gasfield in Anbar and another gasfield in the south of the country.

OPEC is adopting a "wait and see" approach, and ignored Bush's recent plea for a production increase.

"I don't think the world should be concerned about a lack of oil. It should be more concerned about the financial crisis we are witnessing and its impact on world growth," OPEC conference president and Algerian oil minister, Chekib Khelil, told a press conference after the output decision.

OPEC's 13 member countries decided to keep its daily production of 29.67 million barrels, and insists that the world is being supplied with enough oil.  

So while OPEC is concerned about the economic situation here in the U.S., they are not going to raise production, and any output increase will be tabled until the next meeting on March 5 in Vienna.

OPEC comprises Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

A halt in crude oil pumping along Iraq's northern pipeline to Turkey raises doubts about Baghdad's ability to meet commitments to sell more than 300,000 barrels per day, traders said yesterday.

Iraq has stopped pumping oil along the pipeline after a power cut at Kirkuk's oilfields, the Iraqi Oil Ministry announced.

The halt has reduced stocks at Turkey's Ceyhan port to between 400,000 and 500,000 barrels, according to a shipping source. "The longer it's closed the more concerned we become," said a trader whose company buys Kirkuk. It could be very difficult with stocks so low," he said, when asked whether Iraq could meet its contract volume.

A delay would hinder Iraq's efforts to boost revenue from oil exports, which have been mostly taking place from the south. With oil prices near a record high, world markets will react to the supply loss.

Baghdad allocated the Kirkuk volume in the wake of more reliable flows along the pipeline, which has been idled by sabotage and technical problems for much of the time since the US-led invasion in March 2003.

An engineer at the Kirkuk fields in northern Iraq confirmed that a power cut was to blame for the halt in pumping, while an Iraqi oil official said he expected exports to restart soon.

Some in the industry remain sceptical that Iraq will sustain a regular flow of Kirkuk. A previous attempt to do so proved short-lived due to renewed bombing of the pipeline.

Four tankers are expected to arrive at Ceyhan in the period to January 28 to take Kirkuk crude, according to shipping industry sources.

Source: Daily News

Iraq's Oil Ministry has announced that all oil companies interested in winning oil contracts need to register with the government as time gets closer to its first tenders of oil fields. Foreign oil companies have to file application forms and submit the documents before the end of January 2008.

Nothing is ever clear cut in Iraq, and it is not clear whether these fields will be open to bidding, or if the oil ministry will negotiate with some of the oil majors. Another big issues is since the supposed oil law has not been concluded, the "type" of contract has also not been specified by the oil ministry.

Now, the major oil companies have already conducted studies, along with providing training to the oil ministry staff. But many foreign companies have stayed out of Iraqi deals because of the legal uncertainty of the oil law, along with security issues.

This month end deadline announcement comes as the Iraqi government and the Kurdish Regional Government both are accusing each other of stalling the oil sector process.

The Kurdish Regional Government has its own regional oil law, and KRG has already signed approximately 20 exploration and production contracts with foreign firms. This move by the Kurds has angered Baghdad, but the Iraqi government has angered the Kurds by selling oil that is deemd to be theirs.

One such argument between the two governments in Iraq is the purchase of 730,000 of Kurdish oil by Exxon Mobil from the government of Iraq. While Exxon Mobile already pumps oil from Kirkuk under an existingt contract, at issue is the fact that Exxon Mobile and Baghdad bypassed the Kurdish Regional Government. And it appears Exxon will purchase even more oil by the end of this month.

Let's see what we have here . . . A war going on in a country with two different governments in the same country, which are at odds, and back stabbing each other. One government is oil rich and already has signed contracts with foreign firms to sell their own oil. The larger dual government plans to sell their oil, and also bypass the other to sell their oil too. Oil companies are lined up in anticipation of the filing deadline, and plan to proceed to sign fuzzy contracts under an oil law that is still being contested - But oil will be sold.

This is a complicated mess, but there are other issues. Iran is also looking at those Iraqi oil fields.

The recent confrontation between Iran's Revolutionary Guards and the U.S. Navy in the Persian Gulf last week only serves to show that these waters are crucial for oil and power. Sixty per cent of the world's reserves sit underneath its shores, and 17 million barrels of crude oil exports pass daily through the Strait of Hormuz.

In 2008 Iraq's overall strategy is to increase oil production beyond 3 million barrels per day.

Iraqi Kurds self rule their own oil-rich northern territory,and have signed at least eight oil contracts, and 20 additional contracts for oil exploration and production are expected to be signed by mid 2008.

Announcement of these new contracts bring more tension to the already tense situation as to how Iraq's oil and gas reserves should be managed. Iraq's oil minister has accused the Kurds of using military force in order to prevent Baghdad from developing oil fields in the north. The Kurds however say that there is no true to the oil minister's statement.

The new Kurdish contracts come as tension escalates in Iraq over how the country's massive oil and gas resources should be managed, with the central government - backed by the U.S. administration - pushing for more centralized control.

The Kurds enacted their own oil law last fall which controls the oil sector in the northern region - and this did not set well with the central government in Badhdad.

One of the contracts the Kurds have signed is with a Russian company (TNK BP.RS) of which BP holds a 50% interest. Iraq's oil minister calls these contracts illegal, but the Kurds say the current constitution allows them to be a federal region, and they do not need the approval of Iraq's oil minister and cabinet.  

The Kurdish government has declined to announce other contracts or release names of the oil companies, but many of the companies are smaller, rather than the big players. Once these contracts are signed, this will double the number of oil companies in the Northern Iraq, and produce approximately $10 billion in exploration and production investment. The Kurds are planning to invest some of the oil money to solve the fuel and power shortages in the region.

Chevron and ExxonMobil are trying to avoid alienating the Iraq oil minister by concentrating on lucrative oil contracts in southern Iraq, and not pursue oil contracts with the Kurds.

The larger companies are also trying to avoid the legal problems with the new hydrocarbon law, which will establish federal rules for the oil and gas industry. And any oil that will be shipped from the Kurdish region will require a permit, which raises other legal issues.

So, why are the smaller companies signing contracts with the Kurds with unknown legal issues that may be looming? Well for one, the Kurds are more willing to give foreign companies better terms than Baghdad. The Kurds maintain that their contract agreements will actually give a better rate of return. Many of the larger projects are expected to run over budget, along with schedules, and in the end may produce less profit for the country as a whole - at least that the Kurdish spin.

Currently the Kurds and the central Iraqi government are obviously at odds. Baghdad has even threatened to blacklist the companies that sign with the Kurds. So only time will tell if the Kurds win out with the smaller oil companies, or if the central government in Iraq wins out with the larger, major oil players.

Most of the oil in Iraq is concentrated in the north by the Kurds, and in the southern region controlled by the Shiites - which presents an opportunity for more violence between the Shiites and Sunni's. So it's still very much a three way fight inside Iraq for the oil, and then the U.S. is pushing Baghdad for a national reconciliation, and of course oil contracts too.   

What ever the outcome - It is about oil and profits for everyone involved.

Paying kickbacks to Saddam Hussein's former government sent 83 year old Texas oil magnate Oscar Wyatt to a year in prison.

Wyatt was sentenced for his part in paying kickbacks to Iraq to participate in the U.N.'s Oil for Food Program. He pleaded guilty to conspiracy to commit wire fraud, and had to pay the government $11 million.

Iraq, at the time was under heavy U.N. sanctions, and the oil for food program rules was for Iraq to sell its oil and use the money for humanitarian purposes. However Saddam Hussein required kickbacks for the right to buy the oil, and the funds did not go to any humanitarian efforts in the country.

Great article at the Washington Institute on the global, regional and domestic consequences of $100 oil - here are a few highlights of the article - CT

Over the next few days, oil is likely to break the $100 per barrel mark -- a price that will further raise U.S. consumer costs and conflict with economic measures such as the October 31 interest rate cut.

Ironically, good news, such as predictions of greater economic growth, is just as likely to push oil prices above $100 as bad news. In either case, the price spike means both continuing danger and new opportunities for U.S. policy in the Middle East.

The current oil situation has negatively affected several of Washington's policy interests in the region. In Iran, high prices provide a cushion against U.S.-led sanctions, leaving Tehran free to pursue its nuclear ambitions and subsidize gasoline for the citizenry.

The most effective pressure on President Mahmoud Ahmadinezhad arguably comes from his own electorate, but high oil prices have temporarily propped up the poorly administered economy. The tight oil market has also enabled Iran to find alternative customers for its resources.

Concern about oil supply is likely one of the main reasons why China, for example, is less than supportive of proposed UN Security Council measures against Iran.

Beijing is seeking to develop supply relationships and production concessions across the Middle East, but sanctions, real or threatened, disrupt these plans. High oil prices make such relationships even more valuable - and cause Beijing to be even less sympathetic to U.S. concerns.

Beyond Iran, high prices may lead other members of the Organization of the Petroleum Exporting Countries (OPEC) cartel to reduce supply. Under such a scenario, they would still be able to maintain revenue flow and balance government budgets without diminishing their valuable natural resource.

Read the entire article by Simon Henderson

Iraq, Egypt and other Arab countries have plans to supply natural gas to Europe through a pipeline by the end of next year. The gas will be pumped through Jordan, Syria and "maybe Iraq" to Turkey and then into Europe.

Iraq's Assistant Foreign Minister announced the Arab gas pipeline will be ready to pump gas to the European Union by the end of next year.

Iraq joined the Arab Gas Pipeline Agreement in 2004 but has not so far been an active member.

Syria plans to build a $3 billion oil refinery with a Kuwaiti partner, part of an effort to more than double the country's capacity and process crude oil from neighboring Iraq, according to the Syrian Oil Minister.

Noor Financial Investment, a Kuwait-based investment firm, will announce on Nov. 5 the creation of a company to build the plant in the eastern Syrian, the second new Syrian refinery announced in a week.

The new refineries will eventually allow Syria to import, process and export Iraqi crude, offsetting its own declining supply. Iraq's oil exports through Syria, which had contravened United Nations sanctions, stopped in 2003 after the U.S.-led invasion of Iraq.

Read full story at Bloomberg

During the last week in Oct, I posted about how OPEC was saying that the price of oil was so low they were not making any money. Well, that certainly doesn't extend to the Arab stock market, and as usual there is plenty $$'s to be made by major players - both Arab and a few non Arabs too - CT

Saudi Arabia’s bourse rallied to its highest close in almost a year yesterday as record oil prices, and an interest rate cut boosted the appeal of petrochemical and banking stocks.

Oil price settled at $95.93 a barrel on Friday, close to the record $96.24 hit earlier in the trading week. This improves prospects of strong future profitability among petrochemical firms, said Ibrahim Al Alwan, deputy chief executive at KSB Capital Group.

“As oil prices go up, petrochemical prices go up. This is positive news for investors,” Alwan said.

And the kingdom's biggest bank - Alrajhi Bank stock also rallied, rising almost 4%, and the Arab National Bank posted a rise of 8.5%.

Over in Dubai during the last week of October, UAE nationals, Arabs and nationals of other Gulf Arab countries were the net sellers - and the only net buyers were non-Arab investors.

In total foreign investors bought up 14.4% of the total shares purchased in the week ending November 1.