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  1. #1
    Join Date
    Feb 2005

    Iraq, Branson two of the keys to cheaper fuel

    Iraq, Branson two of the keys to cheaper fuel
    Robert Gottliebsen


    January 31, 2006
    THERE was a clear message on energy from Davos - supply lines are stretched and the world's energy consumers are vulnerable to sudden supply shocks. For many hedge funds, oil therefore represents a perfect way to make money and vast sums are pouring into oil futures supporting the current $US60-plus a barrel prices.

    Normally when the price rises, big oil companies such as Shell and Exxon pledge large sums for many big new projects. But this time around, they have been tardy, and behind that hesitation is a series of forces that show oil prices could fall in the longer term.

    For "big oil" it is not just the fear of a price fall that holds them back. The new oil fields are in areas of Africa, Central Asia, Latin America and Russia, where big oil companies are often not welcome or find the political risks too high. They feel a lot safer in Southeast Asia.

    Conversely, the Chinese are moving into the more risky areas of Africa and Latin America, doing exactly what the more adventurous predecessors of current big oil chief executives would have done. But the big oil companies, having shed so much talent in the tough times, often don't have the management and technical skills to go into difficult places.

    How could oil fall in price?

    At the World Economic Forum I met many people from Iraq and discovered they hold a key to the oil outlook. And Saudi Arabia also has major plans to overcome the problem, while the high price is attracting entrepreneurs such as Richard Branson trying to benefit from the oil shortages with the flair he showed in airlines and mobile phones. One of his energy plunges could be in Australia. Like everyone else, I went to Davos expecting to confirm my belief that Iraq was a basket case with no hope. But after talking with Sunni, Shi'ite and Kurd leaders I can see there is a real chance that an effective national unity government can be formed.

    At last, Shi'ite and Kurds are listening to the Sunni leaders who pointed out that when the US "sacked" the old Iraqi army, the soldiers could not feed their families, so let off bombs for $US200 a time because they were desperate. Many of these soldiers are now being recruited to the Iraq army, vastly improving its power and splitting the terrorist ranks.

    If a national unity government can be formed in the next couple of months - it won't be easy - then the most obvious task is to modernise the old, inefficient Iraq oil fields that currently produce about one million barrels a day. Iraqi leaders say that with an outlay of $US30 billion over two years (I suspect more will be required) they could produce six million barrels a day. Saudis are producing 10 million barrels a day. The world supply shortfall would be overcome.

    The Saudis are adamant there is no long-term shortage of oil, and are planning to lift production from 10 million barrels a day to 12 million by 2009.

    The Saudis say there is more than 40 years of oil available, although those who doubt them say that if there was that much oil they would expand much further.

    New oil is also being developed in Nigeria despite the political problems created when the Government clamped down on those stealing oil.

    India is discovering new oil and gas deposits, but most of it will not go on the open market because India wants to be self-sufficient.

    One of the biggest problems is that large lumps of the oil refining industry were sold to independent producers who run the plants as "cash cows" and do not want to start new ones.

    Saudi Arabia is building two major refineries in the Middle East and two are being planned in China to overcome the lack of capacity to refine heavy Middle Eastern crudes.

    These are all good developments

    But potentially there is more. A $US60 a barrel oil price makes the vast oil and tar sands plus many other non-conventional oil projects economic.

    Virgin founder Richard Branson told me that at $US60 a barrel he could build an ethanol plant in sugar-producing areas and make a 60 per cent return. At $US40 a barrel the return is between 20 and 25 per cent - still healthy.

    Ethanol plans would help transform the Australian sugar industry, but the anti-ethanol campaign of a few years ago has caused Branson not to put Australia at the top of his list. Branson says 10 per cent ethanol can be used in petrol with current car technology. But if fuel lines are adjusted then it could be as high as 90 per cent. Ethanol delivers great greenhouse benefits.

    There is abundant oil available but it requires capital and risk-taking to tap it. Our current problem comes about because the former great companies have been caught up in short-termism and we must wait for the Bransons, the Chinese and other entrepreneurs to step in. And if Iraq delivers - and quote your own odds - then $US60 oil will be a memory. But it could easily go to $US100 in the interim.

  2. #2
    Join Date
    Feb 2005

    Re: Iraq, Branson two of the keys to cheaper fuel

    Oil pushes over $US68 as Iran talks overshadow Opec
    31 January 2006


    SINGAPORE: Oil prices climbed half a dollar to above $US68 ($NZ100) a barrel yesterday, shrugging off a likely rollover in Opec production to focus on key talks on Iran's nuclear programme and renewed threats to Nigeria's output.

    US light crude rose 49 cents to $US68.25 a barrel after soaring $US1.50 a barrel on Friday. Prices are up more than $US7 this year and touched $US69.20 a barrel a week ago, the highest since Hurricane Katrina hit the US Gulf Coast last summer.

    London Brent crude climbed 46 cents to $US66.70.

    Opec's meeting in Vienna today is being overshadowed this week by talks on Iran, with the United States and European Union powers gathering later on Monday in an effort to convince Russia and China to back tough diplomatic action they hope will prevent Tehran from continuing with its nuclear activity.

    On Thursday, the UN's International Atomic Energy Agency will hold an emergency session at which the board could decide to refer Iran to the UN Security Council, a move traders fear could prompt Tehran to consider using its oil as a political weapon.

    "The market has the same buy factors - Iran and Nigeria - and now increasing tension ahead of the IAEA meeting could drive the market higher," said Naohiro Niimura, vice president of the derivatives unit at Mizuho Corporate Bank in Tokyo.

    Concerns over supplies from the world's fourth-largest exporter, as well as lost output from Nigeria, have added fuel to a market ignited by a new flood of fund money into the commodities complex, which has performed strongly for two years.

    The rally continued despite last week's robust US inventory levels, a pledge from Saudi Arabia to fill supply gaps and the promise of an emergency release from Western government stockpiles if Iran or Nigeria halted exports.

    Although Opec producers remain concerned over the seasonal dip in second quarter demand, most agree the Organisation of the Petroleum Exporting Countries has little choice but to keep output steady near a 25-year high when it meets on Tuesday.

    "I think we should leave things as they are," Algerian Energy and Mining Minister Chakib Khelil told reporters in Vienna on Sunday. "We will look again in March."

    Saudi Oil Minister Ali al-Naimi went a step further, saying he saw no reason to cut production at any time this year, although the oil minister of price hawk Venezuela said Opec should be prepared to trim output, possibly on Tuesday.

    "We have to be ready...to cut," he told reporters in Vienna.

    In Nigeria, major producer Royal Dutch Shell partially restarted output at its 115,000 barrel per day EA field, oil industry sources said shortly after news that four foreign oil workers held captive for 19 days had been released.

    But the Nigerian militants who had abducted the workers said in an email that they would continue with their attacks with the aim of reducing exports by 30 per cent next month. In January the attacks had cut production by about a tenth, or 220,000 bpd.

    Industry sources said Shell has no immediate plans to resume repairs on the damaged onshore pipeline that had cut the other 106,000 bpd of its production.

    Disruptions to Russia's natural gas supplies to Europe and some of its former Soviet neighbours have also unsettled traders and lifted oil demand. Exports to Georgia began flowing again on Sunday, a week after pipeline explosions cut supplies, while supplies to Italy improved over the weekend.

    Norway, the world's third-biggest oil exporter, joined the list of supply concerns after a small oil workers' union said on Friday it would consider a strike to halt production at the Oseberg field if talks on a wage deal failed.

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