Political sensitivities

Courtesy of Salon I see that Chinese imports of oil are now running about 4.8% above last year at about 2.65 mbd.   The story also, relative to my previous post, includes the following:
U.S. lawmakers on Thursday urged the Bush administration to open an area of the eastern Gulf of Mexico to natural gas development, arguing that just an announcement of this new supply of gas might help stabilize or reduce natural gas prices.

But the U.S. Interior Department has told Florida it would not consider a lease sale in the area until at least 2007. Florida opposes development of the area because some of it is within 100 miles of the state's Panhandle region.

Incidentally the Chinese would like you to know that it is not their demand that is causing oil prices to go up.  
As a matter of fact, big energy consuming countries such as China, the United States, Japan, Germany, the Republic of Korea (ROK) and India are all contributing to rising oil prices. But in terms of total volume, the rate of increase or the energy sector per se, laying the blame at China's doorstep is not a compelling position.

First, let us look at total volume. According to BP's Statistical Review of World Energy 2005, China consumed 310 million tons of oil in 2004, accounting for 8 per cent of the world total, whereas the United States guzzled 938 million tons - a quarter of the global total and three times China's consumption.

 While the story does not convey many new facts, it does suggest that the Chinese are not amused by being an object of blame.

Bigfootvegan added a story, originally from the IHT which reinforces some of the concerns about the rising costs for the industry.  I have brought parts of it forward, since it reiterates some of the points that have been made here.

One problem common to most companies is finding new engineers and geologists to fill the shoes of an aging work force that is mostly expected to retire over the next decade.
  In the United States, half of workers in the oil and gas industry are between the ages of 50 and 60 and will retire over the coming decade; only 15 percent are in their early 20s to mid-30s; the average age in the industry is 48.
  "The industry is going to have a lot of challenges replacing all the graying people leaving in the next few years," said Mark Rubin, the executive director of the Society of Petroleum Engineers. The average age for oil engineers is 51.

 Students have been scared away from petroleum engineering and geology studies by the oil industry's brutal layoffs and negative image, analysts said.

 After reaching a peak of 11,000 in 1983, the number of students enrolled in petroleum engineering in the United States has dropped to 1,700, while the number of universities offering these programs halved to 17 over the same period, according to figures compiled by Lloyd Heinze, a professor at Texas Tech. Enrollment hit a low of 1,300 students in 1997.

 According to the American Petroleum Institute, oil companies will need to hire more than 5,000 engineers and 1,300 geoscientists to meet their needs. Getting them will be challenging.

 "The availability of talent across the globe is shrinking," said Navjot Singh, the global marketing manager for recruitment at Royal Dutch Shell, whose company said this year that it plans to recruit 1,000 petroleum engineers.

 And not only talent, with the damage done to rigs in the Gulf and the industry already using most of what was available.  The price for renting rigs is way up, the article says the following
Meanwhile, the crunch has pushed up prices, for example, with the day rate for renting a 1,000 horsepower drilling rig in the United States jumping to $15,000 from about $9,000 a year ago, according to Richard Mason, the Lubbock, Texas-based publisher of The Land Rig Newsletter.

 For deepwater drillships, the jump has been even more substantial, jumping by more than a third to as much as $300,000 a day.

 "The last time drilling was profitable like this was in 1981, making this a stars-are-aligned, once-in-a-generation moment," said Mason.

We heard the following,  from a friendly correspondent
Just got our newest contract bids in. Drilling rig rates are up another 20-30% as of this week. That's your basic rig from 2004 moving from $35,000 per day to $95,000 per day, or a 170% increase...

Steel products (pipe, wellheads, etc.) are on 6-12 month backorder and their prices are up over 300% from 2004. Our cement costs have doubled as well.

Funny that in discussing all the nice money that the oil companies are making, it was hard to find mention of any major investment in new technology development - supposedly our savior for the future.
Re: "Funny that in discussing all the nice money that the oil companies are making...."

Yes, that is a little odd. Everyone is paying ever higher prices for existing technology for oil extraction. I'm a bit puzzled by the fact that looking over what's available on the web, I have yet to see, in the entire time I've been posting here at TOD, a story about major investment in some new, promising technology for use in EOR in existing land-based fields, deepwater, etc. I've just never seen one beyond the usual suspects.... You can do some horizontal drilling, you can insert some water or CO2, you can .... whatever. Where's that miracle technological breakthrough I've been waiting for with baited breath? You know the one I want, it's the technology that just sucks up all the oil out of these sedimentary rock reservoirs regardless of their geological properties. Just like a straw and no creaming curve.
The link to the Chinese press was very helpful.  They challenge the accusation that China is destabilising oil markets.

The 'China Daily' says BP's figures show China consumed only 8 per cent of the world total in 2004; however the United States consumed a quarter of the total. Secondly, CD suggests China produced domestically 60% of its consumption; the US produced 40%.

Nevertheless, the competition for the vital and finite reserves is getting intense.  Is the World Trade Organisation Ministerial in December the best forum to discuss, officially, this crisis?

China is also eight times less efficient in producing a dollar of GDP than Japan, in terms of oil. And the fact that the Chinese use a lot of coal explains why 60% of the air pollution in Japan is of Chinese origen.

I always get a bit tired when people try to point the finger at somebody else. Let's fix your own problems first.

It takes more oil to build basic infrastructure then to make services and electronic toys that people pay a lot for.

Som of the difference is due to the need to build things the Japanese have already built. Not all of it is for running inefficient industrial processes or for producing things to exchange for papers with dollar signs.

I think the Chinese have reason to be annoyed at being scapegoated for energy supply pinches. They are using data and citing sources to make their arguments. They are also introducing taxes and other measures to control waste of oil products. I don't see the Bush regime increases gas taxes in the US to control waste and reduce pollution.
And by the way, someone wrote that the Chinese create 60% of Japan's air pollution. I wonder if there is any credible proof of that.
Which begs the question, does North America only have a 9 year supply of NG, given current consumption rates??
Somebody have a pointer to the numbers underlying this assertion?

Presumably that factiod was a key talking point in  why the LNG terminal industry deserved the get out of jail free card regarding permits to build that was included in the energy bill.

Some semi-related observations:

The notion that the US or any country will willingly pass on extracting any fnown, economically viable, deposits of oil, NG, or even coal of any significance is laughable.  As we near the oil and then NG peak, we will exploit whatever resources we can.  All the political wrangling and fights between the pro-production and the environmental camps (just to pick one pair of combatants) will evaporate in the face of genuine need.

Similarly, this question we see pop up from time to time about whether Bush or any other head of state knows about PO is silly.  Of course they know.  Even politicians are smart enough to understand the concept that a finite resource used at a horrific rate can't last forever.  They might not talk about it publicly, but they sure as hell know about it.

Expect to see the jingoism in the US ratchet up a few notches in the coming years, particularly with respect to China.  We'll hear more than a few ugly things coming from the extreme right wing of the US political spectrum.

Are oil companies making excessive profits?  Yes.  Will anyone in the US gov't do anything meaningful about it?  No.  Is this actually a good thing, to have prices run up pre-peak and spur more conservation?  Yes.  Does it piss me off every time I fill up my gas tank to know that I'm adding to those billions that the oil companies are making?  A little, but I'm far more concerned about the people who can't afford current gas prices, and what will happen to them in 3 or 4 years.

<< Does it piss me off every time I fill up my gas tank to know that I'm adding to those billions that the oil companies are making?>>

It seems to me that the oil companies are owned by shareholders who, when they purchased shares, paid a price which reflected the anticipated future profits or cash flows of the underlying company.  Those who have bought shares in Exxon over the last year have paid quite a high price for those shares and those future cash flows.

Now for politicians to arbitrarily change the rules and tax, or take away part of those cash flows has not even a sniff of fairness about it.

As another poster pointed out, much of the so called "windfall" cash flow is going to exploration, as well as dividends and stock buy backs to those who invested in these companies in the first place.

Normally, I would agree with you.  But with Exxon-Mobile posting $100 billion dollars in profit, I think there has to be a little bit of a change in this thinking.  

I'm still slightly iffy on the winfall profits tax.  If I knew for certain that that money would be spent reducing the debt, or paying for research on next generation, I'd be all for it.  However, the overwhelming feeling I'm getting is that the government would just use those profits for more of the same; stupid taxcuts, stupid programs, waste of money in general.  But, I do not support the oil companies efforts for new exploration.  That's not going to yield anything, and exploration over the last few years has been an investment loss anyway for the companies.  

I mean.. where is the responsible place to put this money?  I can't honestly think of anything on either the government side or the business side that warrants it.  

Sorry for the poor quality of the post, btw.  I'm at work, and trying to get it in during a break.  

"But with Exxon-Mobile posting $100 billion dollars in profit..."

Not true, Exxon posted $100 billion in SALES in the quarter ending 30Sep2005, and $9 billion in profits.  

Why do I give a rat's ass about the investors in any particular oil company, or what assumptions they may or may not have made?  Maybe they made bad a choice.  Whoever said returns were guaranteed?  Should Enron have been allowed to continue breaking the law just because a lot of people were going to lose their investments?  What if I bought a gas guzzler because I believed gas prices would not go up - why is the risk of the man who buys stock more protected than the risk of the man who buys a car?  

For that matter, what about the man who invests in GM stock - we allow Exxon to run up prices and profits on a captive market, and drive GM stock into the toilet.  I guess it's GM's fault for failing to get a bunch of auto industry whores into the Whitehouse.  Free market my ass.

Enron broke the law. How are the oil companies breaking the law? I welcome higher prices. Will it be painful? You are darned right it will! And pain and high price are still the best levers to exert change on people in this country.

What do you want? A return to 18 cent a gallon oil while it's running out? This is exactly what peak oil predicted - rising prices, volatility in markets, all of which give openings to alternative energy sources. The key is less about what big oil will do but what will people do to get out from under big oil?

And given that so many people still drive gas guzzler SUVs and commute 50 miles to work, I don't feel particularly sorry for them yet. Those are choices that they can change very quickly if they choose to do so. If everyone was driving fuel efficient hybrids, living close to where they work, and we moved far more goods by rail than truck, maybe I'd feel differently but I don't think so.

High prices are part of the cure. Consider this as chemotherapy to get rid of the oil cancer. It will hurt like hell but the alternative is worse.

I have wanted higher fuel prices for decades, with the revenue funneled into non fossil fuel R&D and infrastructure.  If we had done this years ago we would not be in such a pickle now.  The oil companies would have fought this tooth and nail as bad for profits.  Now suddenly higher fuel prices are great, as long as they get to keep the money.  Oil is an industry that is supported and protected by my tax dollars, so no they don't have a right to rip me off with the product they supply.  It is not functioning as a free market, and they are not entitled to unlimited profit from a captive customer base.
slightly off topic but just saw this on the front page of our business paper in the uk.

http://www.thebusinessonline.com/Stories.aspx?General%20Motors%20in%20crisis%20as%20its%20car%20sale s%20plummet&StoryID=348B4CED-FEFC-49EA-8686-AB110C1F75F2&SectionID=F3B76EF0-7991-4389-B72E-D 07EB5AA1CEE

GENERAL Motors will this week reveal that sales collapsed in October, taking its US market share to a 25-year low and fuelling fresh fears that the world's largest carmaker is heading towards bankruptcy. Its US sales dropped 26% compared with the same month last year, according to early estimates, putting its monthly US market share at 20.5% - the lowest since at least 1980.

On a totally seperate note, I have been regularly typing in "peak oil" into google, when I started 3 months ago it was 1.7 million hits,it slowly whent up to 2.1million by last week. today its gone down to 1.7million is it a sunday thing? or something more sinister?

* On Saturday, GM signed a memorandum of understanding with Chinese carmaker SAIC to explore opportunities for energy efficient and environmentally friendly hybrid cars in China.
...in discussing all the nice money that the oil companies are making, it was hard to find mention of any major investment in new technology development - supposedly our savior for the future...

The media can't tell a story with such a nuanced manner; and if they tried it would get reframed into the he-said/she-said frame.

But, more seriously, it is not relevant.  These are capital investments.  Profitable public companies have unlimited access to capital.  Since get to depreciate the cost of capital investments to such a degree that even failed investment is a source of profit.  Right?

Funny that in discussing all the nice money that the oil companies are making, it was hard to find mention of any major investment in new technology - supposedly our savior for the future.

It's worse than that.
There is "mention" of cut backs in science R&D (America is Pulling the Plug on Science):

At the Department of Energy, the Office of Science faces a second year of cuts, affecting programs ranging from energy research to high-energy physics.

from: http://www.csmonitor.com/2005/0414/p14s01-stss.html


Well I hope this answers alot of questions out there on the priorities of oil companies..

Alternate energy not in cards at ExxonMobil

ExxonMobil, which stunned Americans on Thursday by reporting nearly $10 billion in profit for the third quarter, says it has no plans to invest any of those earnings in developing alternative or renewable energy -- something other oil companies do.


on the priorities of oil companies

The trick-or-treat word of the day is "company" and not "oil".

Essentially all for-profit "companies" are devout followers of the Adam Smith religion.

In order to have an "after life" in the next quarter , they must demonstrate good works by way of booking the right "numbers".

As the Bubba master correctly notes eleswhere in these drum rolls, them who hold on to the last squeezable vestages of the black gold will be deemed "wealthy" while those without will fail to make their numbers (in the next quarter).

The board of directors at the Axe-On corporation believe in "staying the course" ---even if it takes our herd over the edge of the ledge.

There is nothing holier than Entry of Good Numbers in the General Ledger (a joke for edge-walking priests of the accounting sect, ha ha)

all the talk of oil company profits is a waste of time. they happened to be in the right place at the right time. let them have it....who cares?...higher prices will only create the necessary pain to force people to change, as has been said again and again here...do you think a jimmy carter reprise will change peoples minds?....heck no!....only the pocketbook, baby...that's what this country is about...it's all about the money,honey.
Prices ALMOST acceptable to OPEC. Which means
 "we are pumping falt out, IEA is releasing like crazy and this is the best we can get. Oh yes we have 2
 million of super heavy super sour crude any takers?

http://ca.today.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2005-10-29T210347Z_0 1_SCH974800_RTRIDST_0_BUSINESS-ENERGY-OPEC-CHIEF-COL.XML

We produce plenty of nitrogen fertilizers in this country, but we also import it. We have enough mothballed capacity to produce our entire consumption of nitrate fertilizers if we diverted some natural gas from house heating.
The following link from peakoil.com shows yoy Chinese oil consumption 5.6% higher, and 10.6% higher imports, for the first nine months. Consumption growth is down 14%, possibly a response to higher prices but also possibly a response to prices too low - product price controls did not allow refiners to break even, so being allowed to export product they produced less for the home market.  Local product prices are now climbing to world prices, and consumption is rising again.


The statement consumption growth down 14%, copied from the story, is misleading. In the prior period consumption growth was over 19%, the more recent period growth is 5.6%. However, I think this report, which also shows imports up 260k barrels/day over the nine months, understates what is happening right now. Reports from 1Q05 indicated very slow Chinese demand growth, 2-3%. Current import growth is clearly higher than the avg, maybe 500k/day. And, allowing local product prices to climb takes off the choke on refinery output to the home market; I expect demand to quickly match GDP 9%+ growth, meaning crude import growth of around 1mb/day/year.

GOM down 1mb/d, Iraq exports down 1mb/d+, China imports up 1mb/d, modest demand* to refill US and European SPR's while China might start filling theirs, and US increased imports, both on account of less US mainland production and a little higher consumption. All of this adds up to 3-4mb/d. Meanwhile large GOM projects scheduled to come on line between now and at least mid-2006 are delayed.  It seems that significant demand destruction elsewhere on account of higher prices is on order. How much higher?

* If overall US and European drawdown was 30mb, and if filling is delayed until April to avoid extra demand in the winter season, but everybody wants to fill before next hurricane season begins in August, then demand for this purpose during the April-July period would be .33mb/d.