After meeting in Caracas on Saturday with Chinese National Petroleum Company President Jiang Jiemin, Venezuelan President Hugo Chavez said several major deals are in the works.
http://www.washingtonpost.com/wp-dyn/content/article/2007/03/24/AR.2007032400548.html.
He crowed, "The United States as a power is on the way down. China is on the way up. China is the market of the future."
CNPC will invest billions of dollars for a 40% share in developing Venezuela's Orinoco Belt heavy crude, and partner in building three refineries in China and a "super-fleet" of tankers to move the crude. China is the world's second largest oil consumer (after the US); Venezuela is the fifth largest exporter of oil to the US (despite Chavez' rhetoric). Venezuela will ship one million barrels per day to China by 2012 and do more business with Russia and Iran as it seeks to cut its reliance on the US as its primary market. (Chavez nationalizing Venezuela's oil industry, forcing out ExxonMobil, ConocoPhillips and Chevron and others.)
Rhetoric aside, oil is bought and sold on the world market. New oil, even if tied up in exclusive deals, adds to world supply. Chavez is preening, and nationalizing the US companies out is a negative, but they will find other places to invest. The overall impact on world price and supply should be positive. Read more!
http://www.washingtonpost.com/wp-dyn/content/article/2007/03/24/AR.2007032400548.html.
He crowed, "The United States as a power is on the way down. China is on the way up. China is the market of the future."
CNPC will invest billions of dollars for a 40% share in developing Venezuela's Orinoco Belt heavy crude, and partner in building three refineries in China and a "super-fleet" of tankers to move the crude. China is the world's second largest oil consumer (after the US); Venezuela is the fifth largest exporter of oil to the US (despite Chavez' rhetoric). Venezuela will ship one million barrels per day to China by 2012 and do more business with Russia and Iran as it seeks to cut its reliance on the US as its primary market. (Chavez nationalizing Venezuela's oil industry, forcing out ExxonMobil, ConocoPhillips and Chevron and others.)
Rhetoric aside, oil is bought and sold on the world market. New oil, even if tied up in exclusive deals, adds to world supply. Chavez is preening, and nationalizing the US companies out is a negative, but they will find other places to invest. The overall impact on world price and supply should be positive. Read more!
Friday, March 9, 2007
Recurring conspiracy theories
Gasoline prices are rising. Soon customers, reporters and politicians will shout "conspiracy." It happens every year; every year the price rise is explained, and every year conspiracy theorists need another explanation. Here it is:
Environmental law requires different (less volatile) "summer gasoline" to keep emissions down.
That must be the only gasoline in every service station by the end of April, so production, pipelining, tankage and shipping must all contain only that formulation by the deadline.
To shift from winter gasoline, refineries are recalibrated to work differently, and use different combinations of additives, etc; that process begins in March.
By the deadline, all service station tanks hold pure summer gasoline (government tested and certified).
The end of the winter fuel season eases the refinery recalibratons; inventories are sold off as production and prices go down.
When stocks are lower and demand is higher, prices go up (good old supply and demand) for gasoline; they continue to drop for heating fuel as demand drops.
Harder-to-make (more expensive) summer gasoline fills refinery and service station tanks as there is more and more driving in the US.
Gasoline demand rises until late August or September; gasoline prices peak as demand peaks, then both begin to fall (cause and effect).
Then it's time to reverse the cycle; as summer driving wanes, winter heating fuel demand becomes greater and winter gasoline must be made (to avoid freeze-up problems in many areas), and refineries are recalibrated to do all these things.
Gasoline prices go down; winter gasoline is cheaper to make and ship; heating fuel prices, of course, go up to meet demand and ensure that there are no shortages.
There are other reasons for prices that are higher: booming world demand sustains higher prices to attract supply; so OPEC has set a higher price; the war and other international events add some uncertainty about supply; the possibility of international supply interruptions, speculators, etc.
Any refinery glitch, major pipeline damage, or even slower Mississippi or Ohio River navigation due to late ice can create local or widespread supply problems; it happened on a huge scale with Hurricane Katrina. When those things happen, prices rise to attract supply in response to local shortages, and there are no lines at service stations nor shortages of fuel.
It works, because government is not setting prices or dictating supplier-customer relations and quantities to be delivered to which stations. They do that in centrally-planned economies and they did it in this country in the 1970s. Without that interference we had higher prices, but no lines after Katrina nor after other recent pipeline or refinery problems.
We will probably hear calls from Congress about investigations and cries from self-proclaimed consumer advocates who want investigations and price controls. But in the 1970s we were the only nation in the world with gasoline lines. Let's remember Economics 101 and our own history and reject the folly of such government behavior. It does not lead to unexpected consequences; it leads to economic consequences. It's no conspiracy; it's Economics 101. Read more!
Environmental law requires different (less volatile) "summer gasoline" to keep emissions down.
That must be the only gasoline in every service station by the end of April, so production, pipelining, tankage and shipping must all contain only that formulation by the deadline.
To shift from winter gasoline, refineries are recalibrated to work differently, and use different combinations of additives, etc; that process begins in March.
By the deadline, all service station tanks hold pure summer gasoline (government tested and certified).
The end of the winter fuel season eases the refinery recalibratons; inventories are sold off as production and prices go down.
When stocks are lower and demand is higher, prices go up (good old supply and demand) for gasoline; they continue to drop for heating fuel as demand drops.
Harder-to-make (more expensive) summer gasoline fills refinery and service station tanks as there is more and more driving in the US.
Gasoline demand rises until late August or September; gasoline prices peak as demand peaks, then both begin to fall (cause and effect).
Then it's time to reverse the cycle; as summer driving wanes, winter heating fuel demand becomes greater and winter gasoline must be made (to avoid freeze-up problems in many areas), and refineries are recalibrated to do all these things.
Gasoline prices go down; winter gasoline is cheaper to make and ship; heating fuel prices, of course, go up to meet demand and ensure that there are no shortages.
There are other reasons for prices that are higher: booming world demand sustains higher prices to attract supply; so OPEC has set a higher price; the war and other international events add some uncertainty about supply; the possibility of international supply interruptions, speculators, etc.
Any refinery glitch, major pipeline damage, or even slower Mississippi or Ohio River navigation due to late ice can create local or widespread supply problems; it happened on a huge scale with Hurricane Katrina. When those things happen, prices rise to attract supply in response to local shortages, and there are no lines at service stations nor shortages of fuel.
It works, because government is not setting prices or dictating supplier-customer relations and quantities to be delivered to which stations. They do that in centrally-planned economies and they did it in this country in the 1970s. Without that interference we had higher prices, but no lines after Katrina nor after other recent pipeline or refinery problems.
We will probably hear calls from Congress about investigations and cries from self-proclaimed consumer advocates who want investigations and price controls. But in the 1970s we were the only nation in the world with gasoline lines. Let's remember Economics 101 and our own history and reject the folly of such government behavior. It does not lead to unexpected consequences; it leads to economic consequences. It's no conspiracy; it's Economics 101. Read more!
Wednesday, March 7, 2007
Oil, Gas and Stability and Prosperity in Iraq
Zal Khalilzad, the US Ambassador to Iraq (soon to be Ambassador to the UN), did a recent (3/3/07, p.A15) Washington Post op-ed on Iraq's Council of Ministers approval of an Oil and Natural Gas Law. He praised their achievement and said, "oil will serve as a vehicle to unify Iraq and will give all Iraqis a shared state in their country's future." The law must passed the Council of Representatives, but the outlook is very good.
The law makes clear that all Iraqis own the oil and natural gas resources; it creates an account so that the revenues will be shared by all Iraqis, sets up a federal policy making body, assigns the regulatory role to the Oil Ministry, lays out international standards for transparency -- and the legal framework to attract international oil companies and investors to Iraq.
The key is a Production Sharing Agreement (PSA). PSAs have been in use since Unocal and the Government of Indonesia signed the first one in 1960. In Indonesia then, as in Iraq today, there would be almost no oil or gas exploration, development, infrastructure repair and extension, and no facility repairs or construction if the government had to pay. With a PSA, a country that cannot afford such investments can have them made by international oil companies -- at no cost to the government! Further, the nation retains ownership (and ultimately complete control of) the oil and gas fields, infrastructure and refineries, having shared in the revenues as soon as the oil or gas begins to flow.
In return for an exclusive right over a specified period (usually 20-25 years), companies invest billions of dollars to explore, develop and bring to market through new pipelines and infrastructure, the oil and gas in a specified area. The companies get 75%-85% of the revenues at the outset to recoup their investment and to make a profit; the government gets the rest. As the company recoups its investment, its revenue share declines and that of the host government rises; by the mid-term of the contract, the government receives more than half, and its share continues to rise. By the end of the contract term, the company and the government have taken out about the same amount of money, and the government takes over the oil or gas field, pipelines and other infrastructure; the company either enters into a different form of contract or walks away from the project.
In the interim, the company and the government may have entered into PSAs for other work in other areas. It's a win-win agreement that will help Iraq develop its resources while maintaining control and ownership.
Look for companies to begin negotiations almost as soon as (or perhaps before) the law is enacted. This will attract investment and help create jobs and stability, and will do so more quickly than many people might expect. Read more!
The law makes clear that all Iraqis own the oil and natural gas resources; it creates an account so that the revenues will be shared by all Iraqis, sets up a federal policy making body, assigns the regulatory role to the Oil Ministry, lays out international standards for transparency -- and the legal framework to attract international oil companies and investors to Iraq.
The key is a Production Sharing Agreement (PSA). PSAs have been in use since Unocal and the Government of Indonesia signed the first one in 1960. In Indonesia then, as in Iraq today, there would be almost no oil or gas exploration, development, infrastructure repair and extension, and no facility repairs or construction if the government had to pay. With a PSA, a country that cannot afford such investments can have them made by international oil companies -- at no cost to the government! Further, the nation retains ownership (and ultimately complete control of) the oil and gas fields, infrastructure and refineries, having shared in the revenues as soon as the oil or gas begins to flow.
In return for an exclusive right over a specified period (usually 20-25 years), companies invest billions of dollars to explore, develop and bring to market through new pipelines and infrastructure, the oil and gas in a specified area. The companies get 75%-85% of the revenues at the outset to recoup their investment and to make a profit; the government gets the rest. As the company recoups its investment, its revenue share declines and that of the host government rises; by the mid-term of the contract, the government receives more than half, and its share continues to rise. By the end of the contract term, the company and the government have taken out about the same amount of money, and the government takes over the oil or gas field, pipelines and other infrastructure; the company either enters into a different form of contract or walks away from the project.
In the interim, the company and the government may have entered into PSAs for other work in other areas. It's a win-win agreement that will help Iraq develop its resources while maintaining control and ownership.
Look for companies to begin negotiations almost as soon as (or perhaps before) the law is enacted. This will attract investment and help create jobs and stability, and will do so more quickly than many people might expect. Read more!
Thursday, March 1, 2007
Congress and Dubai Ports World -- Again
In an astounding show of unity, the House of Representatives has passed (423-0) a bill to strengthen procedures by the Committee on Foreign Investment in the US (CFIUS). http://www.washingtonpost.com/ac2/wp-dyn/NewsSearch?st=Dubai+Ports+World+&fn=&sfn=&sa=ns&cp=&hl=false&sb=-1&sd=&ed=&blt=&x=14&y=14. The bill was necessary because of a shameful stampede last summer to block Dubai Ports World's purchase of terminal-operations rights in six major US ports (Dubai Ports World & US National Security, 12/13/06, this site). CFIUS, an interagency committee, had granted approval after non-political analysis and evaluation of security. And in fact, the transaction would actually have improved US port security.
The new legislation, which nows move to the Senate, expands the definition of transactions for CFIUS review, calls for higher-level Executive Branch review and information to Congress, and adds a 45-day investigation after the 30-day review of deals if the companies are controlled by foreign governments. The outlook in the Senate is unclear and the Administration has some concern that the additional 45-day delay could "discourage foreign investment..."
But as Todd Malan, president of the Organization for International Investment, put it, "it doesn't screw anything up." That may be the best we can hope for, given that there was no need for any bill except for the previous screwup. Read more!
The new legislation, which nows move to the Senate, expands the definition of transactions for CFIUS review, calls for higher-level Executive Branch review and information to Congress, and adds a 45-day investigation after the 30-day review of deals if the companies are controlled by foreign governments. The outlook in the Senate is unclear and the Administration has some concern that the additional 45-day delay could "discourage foreign investment..."
But as Todd Malan, president of the Organization for International Investment, put it, "it doesn't screw anything up." That may be the best we can hope for, given that there was no need for any bill except for the previous screwup. Read more!
Archives