Oil, Ever More Difficult 
Carlos A. Sánchez (2008)

Havana, Jan 1 (Prensa Latina) How long will the rise in oil prices last? The answer is that it will last until the reserves run dry. The thing is this crisis caused by new factors points to having more lasting and deeper effects than expected.

This time it is not a passing crisis like the three-month embargo declared by Arab countries on fuel exports to the United States, as main ally of Israel in the Ramadan or Yom Kippur war in 1973, or the Revolution in Iran that overthrew the Sha (1979-1980) or the outbreak of the Iraq-Iran war in 1980, or the Desert Storm when Iraq was invaded by a coalition led by the United States in 1991.

Prices hiked during those conflicts, but just at the beginning of the Iraq-Iran war did they reach 40 dollars per barrel, a terrifying figure for that time, but it just lasted a few months. Now studies and assessments of specialized institutions and an increasing number of experts in energy affairs, indicated the soaring heights in oil prices originates in several more extended factors.

Oil became in the 20th Century and still is, the most abundant, cheap, easy to extract and transport, more massive and most used fuel to generate electric and automotive energy, besides providing all the asphalt needed for roads and highways, and number one raw material for innumerable products of the petrochemical industry.

Now, at the beginning of the 21st Century, prices have soared from 24-25 dollars a barrel in 2002 up to 87-97 dollar-range in November, 2007 and they keep rising.

During the exchange session of November 7, the barrel of crude for delivery in January, 2008 reached 98.62 dollars for the West Texas Intermediate (WTI) marker for the US market.

On the 20th of that month, this type of crude jumped again to 98.30 dollars. The following day, at midday, it touched the 99 dollar mark, although in those days at market closing time, prices fell slightly.

Something similar occurred at the London exchange with the Brent variety, whose price determines the European market operations. The Brent reached 97.53 dollars on the 7th and 95.74 dollars on the 20th.

We are speaking of record levels in quotations for both crude types in November, month when all the world and not only stock operators and analysts expected the barrel to reach and surpass the 100 dollar-mark. And after that, what is going to happen?

Well, nothing. Oil prices will creep upward, testing market resistance.. And it is very difficult to know what the resistance level will be. There is no lack of supplies in the market due to a whim of the Organization of Petroleum Exporting Countries (OPEC) in sending more oil to the market. This entity affirms the market is balanced where offer and demand are concerned.

And they are probably right. Prices rose to 99 dollars a barrel of 159 liters in the New York market, but for a short while on November 21, but in the following days they descended to 88 dollars. That means prices had risen due to an intense speculative activity, more than to a sharp lack of oil in the market.

The International Energy Agency, which represents the most powerful oil importing economies, was pressing OPEC for months in 2007 so it would substantially increase its offer of fuel, but the Organization attributed the soaring fever to deficit in refining, as well as to tensions generated by US warmongering against Iran for reasons recognized as false at the beginning of December, 2007.

Bush administration s aggressiveness against Iran for the alleged intention of developing nuclear weapons, was and still might be, the cause for not clearly abandon plans of attack, the second war in less than five years against a big oil exporter, in spite of the disastrous outcome observed in occupied Iraq, not only in the political, social but also economic and military sense.

A situation very near chaos, where everybody loses and the US does not manage to restore oil wealth exploitation in that country to pre-war levels.

Even though other factors may concur, the main detonador of the current hike in prices was the US war on Iraq begun in 2003, only then price levels shot up until almost 100 dollars a barrel.

Causes of Price Hikes

Among them we could cite like many analysts are doing, the dollar weakness, currency in which market operations of oil are done worldwide, factor harming everyone except the United States.

On November 20 precisely, the euro was quoted at 1.4822 dollars, less than one cent below the revaluation record reached by that currency during that month against the US dollar.

For oil exporting countries this is no joke, to receive a currency whose value goes up in smoke almost every day in exchange for its increasingly valuable and demanded crude.

That s why in the recent 3rd OPEC summit meeting in Ryadh, Saudi Arabia (Nov.9-11) some heads of state of the 13 member countries -particularly Iran and Venezuela- proposed to substitute the dollar as base currency for international oil trade, to which the host nation s leader voiced his opposition, as his government is very close politically, economically and militarily to Washington.

Nevertheless, on December 8, high officials of the Tehran government told reporters that Iran was abandoning the US dollar in its oil exporting operations, substituting it for euros and also yens.

Other factors causing the upward trend in prices, are the entrance of China and India to the club of big oil importers to maintain their impressive growth rates of their economies.

The oil peak is another factor for the soaring prices, not to be taken lightly. Many analysts and politicians consider it could be the most important factor, reasoning that remains polemic all the same.

We are sure many readers have thought or read that oil will disappear some day, but instinctively we tend to elude the issue and forget a little about fuel because this immediately presents very severe uncertainties leading to changes in a world without gas and fuel for power plants.

In general, there is little information for the average citizen on production, consumption and for how many years is there oil left.

Many thought this would be a topic to worry about in 30-40 years time.

On the other hand, serious evaluations are a difficult and expensive task because they demand field studies, its characteristics, depth, crude type.

The World Oil Outlook of the Organization of Petroleum Exporting Countries (OPEC) for 2006 indicated that no less than the Royal Dutch Shell company had downsized its declared reserves by 30 per cent after a re-evaluation of the real volumen of crude in fields under its control in Nigeria.

We don t think it is the only enterprise among the giants which have given overvalued figures of its reserves "proven" and "probable", above all the latter because they are more difficult to check and can be deliberately manipulated.

But then come times like the present and companies have to, in their own interest, tell the truth as the moment has come to use those reserves and stockholders and governments will be very severe with business people who have released unreal reserve figures.

And severe they will be because the situation will not tolerate tricks like blowing up reserve figures to give an image of solidity and confidence to their stockholders and the energy market in general.

Apart from cheats by US and anglosaxon executives, lets go back to the oil peak.

There are really several peaks: that of each field, each country and that of the world. Geophysicist M. King Hubbert developed the method to calculate when the oil peak is reached by a well, a field, a country or the world.

His professional authority was consolidated when back in 1956 he correctly forecast that the US would reach peak production in 1970.

The reduction of hydrocarbon resources follows a curve similar to the profile of a bell. When the curve (called since then the Hubbert Curve), it indicates that half of the crude in a field has been consumed.

Production will be maintained for a time at the level reached but it will not go up further and after that, it will begin declining, slowly at first and later at a faster rate.

Last October 21st , British daily The Guardian published a report (1) of the Energy Watch Group (EWG), an entity based in Germany that predicts world oil peak was reached in 2006.

If that is so, it would mean that half the oil inherited by humankind from remote geological eras, was already consumed. After that we entered a statistical plateau when the highest level is maintained, but not exceeded.

The plateau differs in extension according to the type of exploitation of each field and its size. Thus, after some time, production will decline by several percentage points and later go into a sharper fall.

The EWG affirms that yearly decline will be of several percentage points by 2020 and even more by 2030, year when supplies will be dramatically lower and a gap between offer and demand will hardly be filled in by the contribution, although increasing, of other fossil fuels, nuclear source or alternative energy sources in the period remaining until the 20s and 30s.

The German entity adds in its conclusions: "The world is at the threshhold of structural change in its economic system. This change will be unchained by declining supplies of fossil energy sources and will influence almost all the aspects of daily life." In its final paragraph, the EWG report says: "Until recently, the International Energy Agency (IEA) denied the possibility that this fundamental change would happen in the short or middle term.

The IEA message, exactly where it says that business will go on as usual in the future, also sends a false signal to politicians, to industry and consumers, without excluding the media." We liked the report because it implies a solid call to the world to take saving measures and be rational in consuming energy as soon as possible, in order to avoid the more nasty aspects of its future depletion in 20 or 30 years time and it occurs when, except for the United States, all world governments have just recognized the urgency of these measures to stop global warming caused by excessive use of fossil fuel, oil among the first, as emitters of greenhouse-effect gases.

Likewise, we can appreciate its criticism to the indulgence of IEA, which represents the interest of 20-odd more developed countries, the biggest energy squanderers and most contaminating economies of the environment.

We also liked the EWG report because in production figures and not in reserves more prone to manipulation as we have seen.

At the beginning we did not like the report for its dramatic air, excessively alarming and because that tone would justify many other things like frenzied market speculation -and speculators don t need much to do business out of public worry and restlessness.

On the other hand, it made us recall the declaration of neoliberal and global capitalism ideologues: the US reserves itself the right to access energy sources in case of risk to its national security and this too was justified even without consent of other countries.

Some days after reading some US and European media analyses, the idea emerged in different tones: in the face of decreasing oil supplies, the irrational and absurd George W. Bush s foreign policy becomes coherent.

That is, Bush s apparent desperation to attack oil producing countries is understandable and is only criticized for not being efficient enough in so doing.

It doesn t matter that is done at the cost of thousands of lives and the destruction of whole economies and the violation of energy resources of others.

Bush and the false critics threaten to defend the undefendable: preservation of a lifestyle demanding an enourmous and infinite supply of cheap energy (25-30 dollars per barrel at the most, those prevailing until before 2003).

It is also evident that Nature already said no to that option, even though it may cause a psychological shock to the average US or European citizen and those of other countries.

(1) Energy Watch Group. Crude Oil-The Supply Outlook.

Some were aware of all this Vice President Dick Cheney, in a speech in 1999, when he was still Vice President of Halliburton, said: "Some estimates indicate there will be average annual growth of 2 percent in global demand of oil over the next few years, together with conservatively speaking, a decvline of 3 percent in existing reserves. This means that by 2010, we will need an extra 50 million barrels per day", according to the quote published by Europe3an media through Internet.

Cheney s estimate was supported by calculations made by several scientists and politicians who believe global oil production will reach its peak and will begin declining in the next five years, according to this source and adds: Some geologists suppose that 2005 was the last year of bonanza for cheap oil, while estimates from the intimate circles of oil indicate "an apparently impassable gap between offer and demand as of 2007" which will lead to important deficits of fuel and increasing energy cuts beginning about 2008-2012.

Others like the former US Secretary of State, James Baker III, in his "Strategy to Handle the Energy Challenges in the 21st Century", presented in April, 2001, proposed a drastic redesign of US policy toward Iraq, then its sixth supplier with 800 thousand barrels per day.

Measures had to be so strong as to overcome all obstacles to ease and facilitate investment laws in the US oil industry.

And that is the real mission accomplished by Iraq invading troops in 2003, although later on Iraqi resistance complicated things.

Other public figure that referred long ago to another key angle of oil energy was British member of parliament Colin Campbell, who in 1999, before the House of Commons forecast the imminent peak in production due to the fall in discoveries of new oil fields.

"Discoveries reached a "peak" in 1960. Now we find a barrel for every four we consume...and in a period of time, the discovery curve controls the curve in production." The Bushes, father and son, their Saudi and European friends know about this imminent decline in supplies, but they did or do nothing to enforce a policy to economize mineral fuel consumption.

Deeper and More Bitter The era of giant oil fields, relatively near the surface and with sweet and light crudes, ideal to produce gasolina, is virtually over.

Now most of the new discoveries -giant, medium or small- will have to be made in zones until now not sufficiently explored or discarded for their low oil probabilities.

However, most discoveries will have to be made with deeper drilling. It also should be expected that oil found will be more dense and with a high sulphur content.

This will leave this metalloid as a byproduct of extraction. The costs in all cases will be greater than current ones and this will boost prices up.

Of course, for all these reasons, the search for a new technique that will cheapen tar sand exploitation in Athabasca, Canada and the Orinoco oil belt in Venezuela, will be boosted.

The Alaska crudes, rumours about hydrocarbon-rich potential zones surrounding the Falkland Islands, Vietnam, as well as the marine platforms of Brazil, Angola and the Caribbean are among those which the EWG concedes development perspectives. These and other new places will be subject to renewed interest.

Only a few weeks after the appearance of the EWG report, Brazil announced the discovery of a giant field called Tupi, about 40 miles facing the Sao Paulo coast and about 4.3 miles under the seabed, holding about 5 to 8 billion barrels of crude which will require an investment of 100 billion dollars, but which will turn the South American giant into an oil exporter.

One could agree with the German group or not, but it would be an error to underestimate it for some of its conclusions.

Reality points to an imminent decline in supplies, unless a chain of big oil discoveries are made in the following 5 to 10 years.

The US government, country with only three percent of world oil resources but consumer of 28 percent of these, has only come up with the strange idea to grab food like corn, wheat, sugar cane and others as raw material to make ethanol, an energy product which mixed with gasoline, can increase the volume of energy supplies.

With this plan, not even millions of persons owning an automobile, or air conditioning, or electricity or gas, including running water, now are threatened with taking away or making more expensive their already lean daily diet so that people who have all those goods and services have a little more fuel to feed their cars.

President Bush says his country will reduce its "oil addiction" by 20 percent over the next 10 years partly by adopting the etanol-leum." OPEC General Secretary, Abdalla El Badri said last June that the turn to biofuels could make members of that organization to abstain from investing in exploration of new oil fields or reduce current investments.

To cut investment in exploration to find new oil will only result in the continued hike of hydrocarbon prices over the current historical levels.

Already in June, 2006, FAO in its Food Outlook said that if the United States wanted to cover 10 percent of its energy needs with ethanol, it would have to use 30 percent of its agricultural land only to crops destined to manufacture ethanol.

The European Union, in order to cover a similar percentage of its energy consumption with biofuels, would have to use 70 percent of its land.

El Badri warned that biofuel production could become unsustainable in the médium term, as it competes with food production.

He sentenced: "They will find themselves without new oil and without ethanol." hr ef casf.

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