[OPE-L:8669] Report on world oil industry -- "US Intentions"

From: gerald_a_levy (gerald_a_levy@msn.com)
Date: Tue Mar 25 2003 - 07:21:27 EST


> - A Sobering Look at the Oil Numbers Behind the U.S. Panic
> to Invade Iraq
> - Bush Knew of Peak Oil Before Taking Office
> - Natural Gas Picture Worsens
> by Dale Allen Pfeiffer
> (c) Copyright 2003, From The Wilderness Publications,
> www.copvcia.com. All Rights Reserved. May be reprinted,
> distributed or posted on an Internet web site for
> non-profit purposes only.
> Mar. 7, 2003, 1400 PST (FTW) -Journalist Julian Darley has
> a very good website, www.globalpublicmedia.com, featuring
> video interviews with notables such as Colin Campbell and
> Matthew Simmons. Matthew Simmons is the president of
> Simmons & Co. International, a company which specializes in
> investment banking to the energy industry. The Campbell
> interview1 is a very informative chat at the petroleum
> geologist's home in County Cork, Ireland. It is well worth
> perusal. The Matthew Simmons interview2 was recorded in an
> office of his business suite, and is also very
> informative-though it is disappointing to see a person so
> perceptive standing firmly behind George W. Bush. However,
> in his interview, Matthew Simmons made two very big
> revelations.
> In the first instance, Mr. Simmons was discussing his email
> correspondence with a senior assistant to former secretary
> of energy Bill Richardson. The senior assistant informed
> Mr. Simmons in 1999 that she was accompanying Secretary
> Richardson on a visit to every OPEC country. Mr. Simmons
> told her that if he was undertaking such a tour, he would
> ask each country what was their spare oil capacity. Upon
> returning to the United States, the senior assistant called
> Mr. Simmons and told him that she was quite shocked by the
> responses to this question. In country after country, she
> was told that they were already pumping at or near
> capacity. For practical purposes, OPEC has no spare
> capacity.
> Several of my associates have suspected as much. But in
> this interview, Matthew Simmons verifies the fact that OPEC
> is already pumping at or very close to full capacity. This
> means that to meet growing demand, oil must be found
> somewhere else. And OPEC most probably cannot increase
> output to cover a crisis such as the Venezuelan strike, or
> the disruption of Iraqi oil production in the event of
> another Gulf War. In fact, it was only a year after
> Secretary Richardson made his OPEC tour that world oil
> production appeared to peak, beginning the cycle of rising
> oil prices and tanking economies which we have been in
> since. Though Matthew Simmons did not spell it out, this is
> the clearest indication to date that we are at peak oil
> production.
> The second revelation was more political than technical.
> Matthew Simmons states in this interview that he advised
> the Bush campaign and the subsequent Bush administration of
> the energy situation. This admission makes it very clear
> that George W. Bush and his administration knew about the
> approaching energy crisis before even stepping into the
> White House. Thus, as we have said at FTW, oil depletion
> has loomed in the background of every decision made by this
> administration and every action undertaken.
> In his recently released book, The Party's Over3, Richard
> Heinberg backs up this assertion and goes on to say that
> the CIA has monitored the oil business for some time.
> Indeed, the CIA subscribes to the yearly report of oil
> analysts Petroconsultants, and so must have seen the 1995
> report The World's Oil Supply. This publication, at a cost
> of $35,000 per copy, predicted that global oil production
> would peak in the first decade after the turn of the
> century.4
> As we have stated before, Bush needed some catastrophe such
> as 9-11 to justify an endless war on multiple fronts. He
> needed it to provide cover for an oil grab. Of course, a
> superpower such as the United States always acts on a nexus
> of reasons and in pursuit of multiple goals, but greed for
> oil has been a major impetus behind pretty much everything
> this administration has done since taking office. Could oil
> really lie behind Bush's push to unseat Saddam Hussein?
> Perhaps we should rephrase this question: How could oil not
> lie behind Bush's push for the conquest of Iraq?
> Iraq
> Even unnamed senior US defense officials are stating that
> the plan is to take the oil fields as quickly as possible,
> supposedly to protect them from Saddam.5 British troops
> will be used to seize the oil fields so as to thwart the
> appearance of a US oil grab. However, ExxonMobil is in the
> lead position for rehabilitating the Iraqi oil fields. Oil
> executives are quoted as saying there is a desperate need
> to find another 80 million barrels per day to meet growing
> oil demand.6 Might we add that this growing demand cannot
> be met elsewhere because of the abovementioned lack of
> spare capacity.
> Even after seizing Iraq's oil fields and quelling unrest
> throughout the country, the oil majors will find it very
> difficult to increase Iraqi oil production in the short
> term. They may even have to cut production from its current
> level, as Iraq has been using unsound methods to pump the
> amount of oil which they are currently generating. Before
> the 1991 Gulf War and the decade long Iraq-Iran War, Iraq
> was pumping an average of 3.5 million barrels per day
> (b/d). 7 In 2001, Iraq averaged 2.45 million b/d, and
> experts say their current sustainable production capacity
> could go no higher than 2.8-3.0 million b/d.8
> Most of Iraq's current oil production is centered around
> three large fields, the Kirkuk field in the north of Iraq
> (10+ billion barrels), the East Baghdad field in the
> central part of the country (11+ billion barrels), and the
> Rumailah fields in the south of Iraq (10+ billion
> barrels).9 There are two other very large fields in
> southern Iraq which are basically untapped to date: the
> Majnoon field near the Iranian border (20+ billion barrels,
> possible as much as 30 billion barrels), and the West Kuma
> field closely associated with the Rumailah field (15+
> billion barrels).10 Other notable fields are Nahr bin Umar
> (6+ billion barrels), Rattawi (3.1 billion barrels),
> Halfaya (2.5-4.6 billion barrels), Zubair (4 billion
> barrels), Nassiriya (2-2.6 billion barrels), Suba-Luhais
> (2.2 billion barrels), Bai Hassan (2 billion barrels),
> Buzurgan (2 billion barrels), Khabboz (2 billion barrels),
> Abu Ghirab (1.5 billion barrels), Khormala (1.5 billion
> barrels), Tuba (1.5 billion barrels), Gharraf (1.0-1.1
> billion barrels). All told, including a number of smaller
> fields not mentioned here, Iraq holds proven assets of 112
> billion barrels of oil. The unexplored regions of the
> Western Desert could add as much as another 100 billion
> barrels to this total. The area is known to contain
> oil-bearing Jurassic, Triassic and Paleozoic formations,
> though they are buried much deeper than the eastern
> formations and so might provide more natural gas than oil.11
> Much of Iraq's oil industry was damaged during the 1991
> Gulf War. Completely destroyed were the gathering centers
> and compression/degassing stations at Rumailah, storage
> facilities, and pumping stations along the Iraqi Strategic
> (North-South) Pipeline.12 Many sizable fields were damaged
> and have remained unrepaired. Sixty percent of Northern Oil
> Company's facilities in northern and central Iraq were
> damaged during the Gulf War.13 Iraq's oil export
> infrastructure was also severely damaged during both the
> Iraq-Iran War and the 1991 Gulf War. Pipelines, ports and
> pumping stations have all been affected. And Iraq's two
> main Persian Gulf tanker terminals, Mina al-Bakr and Khor
> al-Amaya, were heavily damaged during the Gulf War. Damage
> to Mina al-Bakr appears to have been largely repaired over
> the past decade. Khor al-Amaya, on the other hand, was
> severely damaged during the Iraq-Iran War and then
> completely destroyed during Operation Desert Storm.14
> During the decade of sanctions following the 1991 Gulf War,
> Iraq tried to maintain production at existing fields
> despite an embargo on spare parts and oilfield equipment.
> Many of the reservoirs in production have been damaged
> through mismanagement and the use of questionable
> techniques in an effort to increase current production at
> the price of future production. In addition to the
> naturally occurring problem of water cut in Iraq's southern
> wells (the damaging intrusion of water into oil
> reservoirs), many fields have been damaged by the practice
> known as water flooding in order to boost current
> production. Iraq's oil minister stated that in 2002 only 24
> of 73 Iraqi oil fields were producing. Oil consulting firm
> Saybolt International has pointed out the risk of a 5% to
> 15% annual production decline at damaged Iraqi oil fields.
> A U.N. report in June 2001 said that Iraqi oil production
> capacity would fall sharply unless technical and
> infrastructure problems were addressed. And U.N. Secretary
> General Kofi Annan has warned of a possible "major
> breakdown" in Iraq's oil industry if spare parts and
> equipment are not forthcoming. The United States has
> resisted any efforts for a long term solution to the
> problems, insisting on only short-term improvements to the
> oil industry. According to the head of the UN Iraq program,
> Benon Sevan, the number of holds placed on contracts for
> oil field equipment threatens the entire program with
> paralysis. Sevan stated in January 2002 that the United
> States placed over 80% of the holds, which affect nearly
> 2,000 contracts worth approximately $5 billion.15
> Solving these problems will require major investment from a
> consortium of international oil companies. It will take at
> least a decade to double output, providing there is no
> further damage done. It will take at least $7 billion worth
> of investment to bring Iraq back to its 3.5 million b/d
> production level. Pushing past that level to 5.5 million
> b/d will require at least $20 billion of investment.
> Analysts say Iraq has the capacity to produce double that
> amount, albeit at an extraordinary cost over an extended
> period of time.16 Many international companies have stepped
> up to offer the needed investment. Iraq has signed
> multi-billion dollar deals with companies from China,
> France and Russia. And in recent months Iraq has signed a
> number of deals with companies from Italy (Eni), Spain
> (Repsol YPF), Russia (Tatneft), France (TotalFinaElf),
> China, India, Turkey, and others.17 However, none of these
> deals can move forward until they are okayed by the U.N.
> Security Council.
> Could all of this go toward explaining why it has become so
> urgent for the United States to make war on Iraq and take
> over control of Iraqi oil fields? For over a decade, the
> U.S. has blocked any reparations or new development of
> Iraqi oil resources. In 2001, reports finally came out
> announcing that without increased access to spare parts,
> repairs and new technology, Iraqi oil fields could be
> damaged permanently. Pressure is building in the U.N. to
> allow this remediation and modernization of Iraqi oil
> infrastructure. Iraq is awarding contracts to major oil
> companies from various countries, excluding U.S. and
> British companies. And all of this is being blocked largely
> by the U.S., while U.S. and British oil companies line up
> for a piece of the action in the aftermath of an Iraqi
> conquest.
> Let's see, are there any pieces of the picture which we are
> missing? Oh yes, the U.S. is studying international law to
> determine oil field rights in the event of a U.S. & British
> conquest of Iraq. And they believe that international law
> would give them considerable leeway in managing Iraq's oil
> fields (for the benefit of the Iraqi people, of course).18
> And now, to round out this picture, let's look at Iraqi oil
> exports as compared to US imports. As of July 2002, Iraq
> was producing 1.99 million b/d (oil production was 2.45
> million b/d in 2001). Of this, they export 1.5 million b/d,
> over one-third of that, 566,000 b/d to the U.S. This is
> down from 795,000 b/d (or 53%) in 2001. The route to the
> U.S. is very circuitous, as the oil is first purchased by
> companies from many countries, including Cyprus, Sudan,
> Pakistan, China, Vietnam, Egypt, Italy, Ukraine, and others
> and then is resold to U.S. importers, including ExxonMobil,
> Chevron, Citgo, BP, Marathon, Coastal, Valero, Koch, and
> Premcor.19 There is also an unknown amount of oil being
> smuggled out through Syria and other countries. It is
> difficult to say how much of this, if any, is making its
> way to the U.S.
> Now let's look at the U.S. side of this equation. The U.S.
> imported an average of 10.3 million b/d as of September
> 2002. Of this, Iraqi oil would only amount to 6% of U.S.
> imports (8% in 2001). However, the U.S. derives around 26%
> of its daily oil imports from the Middle East-that is 2.3
> million b/d as of August 2002. So Iraqi oil accounts for
> about one-quarter of our Middle East imports. Comparing
> Iraqi imports to our top sources of imports, Saudi Arabia
> exports 1.49 million b/d to the U.S. (14% of total
> imports), Mexico exports 1.46 million b/d (also 14% of
> total U.S. imports), Canada exports 1.37 million b/d to the
> U.S. (13% of the total), and Venezuela-prior to the oil
> strike-exported 1.14 million b/d (11% of the total).20 If
> this ranking of major oil imports was continued, Iraq would
> probably rank in the top ten. However, were the sanctions
> removed and the oil infrastructure repaired, Iraq would
> undoubtedly rival Saudi Arabia for the number one position;
> especially under a US military protectorate with US and
> British companies running the oil business. Beyond this,
> the conquest of Iraq-if successful-would allow us to add
> badly needed spare capacity to world oil production and it
> might stop the flight of oil countries from the petrodollar
> to the euro.
> Other Oil News
> Venezuela is still recovering from the oil strike. The EIA
> now states that Venezuelan oil production gradually rose to
> 1.2 million b/d in February.21 The EIA's current short-term
> energy outlook assumes that the Venezuelan oil crisis will
> be over by March.22 However, they warn that Venezuelan
> supplies will not approach pre-crisis levels for another
> several months. Furthermore, it is possible that around
> 700,000 b/d of production may be permanently lost due to
> the strike.23 The EIA warns that OPEC efforts to increase
> output to make up for lower Venezuelan exports has reduced
> global spare capacity to only 2 million b/d-this spare
> capacity coming almost entirely from Saudi Arabia. There is
> very little room remaining to make up for unexpected supply
> drops or demand increases.24
> On top of this, Nigeria's white collar union began an oil
> export strike on Saturday, February 15th. Nigeria is the
> seventh largest oil exporter in the world. Royal
> Dutch/Shell, the country's biggest producer, pumps an
> average 900,000 b/d. The oil companies expect to replace
> strikers with senior staff, and point out that previous
> strikes had little impact on exports. However, fear of the
> strike caused oil prices to temporarily jump by 16 cents
> per barrel.25 It is evident that the market is now so tight
> and the world economy so gun-shy that it is to be wondered
> how the world will survive an invasion of Iraq.
> On top of all this, there was a small item in the
> Australian newspaper The Courier Mail stating that leftist
> rebels in Colombia have blown up a large section of that
> country's most important pipeline. Operated by Occidental
> Petroleum, the pipeline carried 105,000 b/d.26 Little more
> is to be found about this story on the various news wires.
> The Bush administration has been bolstering military aid to
> Colombia, including increasing numbers of advisors. They
> have impressed upon the Colombian military that it is of
> primary importance to protect the oil pipelines, and they
> have labeled the rebels as international terrorists. What
> response there will be on the part of the U.S. to this
> latest strike at U.S. oil interests is hard to say.
> Finally, in the EIA weekly petroleum updates, we find that
> for the week ending February 7th, crude oil imports
> declined by another 1.2 million barrels from the previous
> week. U.S. commercial crude inventories for that week sank
> to 269.8 million barrels, just crossing the Lower
> Operational Inventory Level (LOIL). This is the lowest
> inventory level since October 1975. However, in the week
> ending February 14th, crude oil imports rose to nearly 8.8
> million b/d, the largest weekly average since December
> 20th. U.S. commercial crude inventories increased by 3.1
> million barrels to 272.9 million barrels. This was back
> above the LOIL, but still 50.4 million barrels below the
> level of a year ago.27
> Natural Gas
> The picture for natural gas (NG) is even worse. As of
> February 14th, NG storage stood at 1,168 billion cubic feet
> (Bcf), down by 203 Bcf from the week previous. This was 868
> Bcf less that a year ago and 436 Bcf below the 5-year
> average of 1,604 Bcf.28 In an article in The Oklahoman,
> Tony Say, president of gas marketing company Clearwater
> Enterprises said he expects NG reserves to reach an
> all-time low of 600 Bcf by the end of the season. Bruce
> Bell, Chairman of the Mid-Continent Oil & Gas Association's
> Oklahoma Division, warned that once you get down to 700 Bcf
> there are serious doubts as to how much gas can be
> withdrawn. The nation's gas reserves are stored in
> underground caverns, where there must be a certain amount
> of gas to create enough pressure to force the reserves
> out.29
> Raymond James & Associates, in a recent report on natural
> gas, points out that NG production will continue to fall by
> 1.0 -1.5% per quarter for the foreseeable future. They warn
> that even if production returned to the feverish pitch of
> 2001, it would take three to six months before the new
> production would begin to slow down the natural declines in
> existing wells.30 Yet the NG rig total has hovered between
> 800 and 900 for the past year; at least 100 less than the
> number needed to meet national demand, according to Bruce
> Bell. Despite rising NG prices for the last couple months,
> work has begun on only 15 new wells.31
> And according the Lehman Brothers, Canadian gas production
> is continuing to fall by as much as 4%. And this drop will
> coincide with a 500 million cubic feet per day decrease in
> NG exports to the U.S. Canadian NG demand rose in 2002 by 2
> to 3% from the previous year. Net exports to the U.S. are
> expected to fall by 5% in 2003.32
> Based on all of this data, the NG crunch of this year could
> lead to an NG crisis a year from now.
> 1 Colin Campbell Discussing Oil Depletion, Julian Darley.
> Global Public Media, 12/18/2002.
> http://globalpublicmedia.com/INTERVIEWS/COLIN.CAMPBELL/
> 2Matt Simmons discussing oil peak; natural gas; what the
> President knows; hydrogen; and Iraq, Julian Darley. Global
> Public Media, 2/10/2003.
> http://globalpublicmedia.com/INTERVIEWS/MATT.SIMMONS/
> 3 The Party's Over: Oil, War, and the Fate of Industrial
> Societies, Richard Heinberg. New Society Publishers, April
> 2003.
> 002-4461621-4414410?v=glance&s=books
> 4 Ibid. Page 86.
> 5 US Admits Plan to Snatch Iraqi Oil Fields, Mark Ellis &
> Gary Jones. The Daily Mirror, 1/25/2003.
> http://www.mirror.co.uk/news/allnews/page.cfm?
> objectid=12568779&method=full&siteid=50143
> 6 Ibid.
> 7 Iraqi Oilfields, Dev George. Oil & Gas International,
> 1/22/03. http://www.oilandgasinternational.com/departments/
> regional_spotlight/jan03_iraq.html
> 8 Iraq Country Analysis Brief. EIA, October 2002.
> http://www.eia.doe.gov/emeu/cabs/iraq.html
> 9 Ibid.
> 10 Op.Cit. See note 7.
> 11 Op. Cit. See notes 7 & 8. Oil & Gas International, and
> EIA.
> 12 Op. Cit. See note 8.
> 13 Ibid.
> 14 Ibid.
> 15 Ibid.
> 16 Op. Cit. See note 7.
> 17 Op. Cit. See note 8.
> 18 US Studying International Law to Determine Oil Field
> Rights in Event of War with Iraq. Drudge Reports,
> 1/29/2003. Citing the Wall Street Journal.
> http://www.drudgereportarchives.com/data/
> 2003/01/30/20030130_061815_flash.htm
> 19 Op. Cit. See note 8.
> 20 United States Country Analysis Brief. EIA, November
> 2002. http://www.eia.doe.gov/emeu/cabs/usa.html
> 21 OPEC Brief. EIA, 2/7/2003.
> http://www.eia.doe.gov/emeu/cabs/opec.html
> 22 Short-Term Energy Outlook-February 2003. EIA, 2/7/2003.
> http://www.eia.doe.gov/emeu/steo/pub/steo.html
> 23 Op. Cit. See note 21.
> 24 Op. Cit. See note 22.
> 25 Nigerian Oil Export Strike Starts Saturday -Union, Dino
> Mahtani. Reuters, 2/14/2003.
> http://story.news.yahoo.com/news?tmpl=story&u=/>
> nm/20030214/wl_nm/energy_nigeria_strike_dc_2
> 26 Rebels Blow up Key Oil Pipeline. The Courier Mail,
> 2/6/2003.
> http://www.thecouriermail.news.com.au/common/story_page/
> 0,5936,5944948%255E401,00.html
> 27 Summary of Weekly Petroleum Data. EIA, 2/14/2003.
> http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/
> weekly_petroleum_status_report/current/txt/wpsr.txt
> 28 Weekly Natural Gas Storage Report. EIA, 2/20/2003.
> http://tonto.eia.doe.gov/oog/info/ngs/ngs.html
> 29 Cold snap gives boost to gas prices, Adam Wilmoth. The
> Oklahoman, 2/8/2003.
> http://newsok.com/cgi-bin/show_article?ID=984108&pic=none&TP=getbusiness>
> 30 Energy "Stat of the Week" January 21, 2003. Raymond
> James & Associates.
> 31 Op. Cit. See note 29.
> 32 Canada Gas Production Seen Falling 2%-4% - Lehman Bros.
> The Morning Star, sourcing Dow Jones, 2/12/2003.
> http://news.morningstar.com/news/DJ/M02/D12/1045083663075.html

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