Thomko Petro Chemical Blog

Thanks to all who sent e-mail from our last post about soaring oil prices. From analysts, politicians and just about everybody weighing in, there are many opinions about the cause and ways to solve our dependency on oil. Here's my personal thoughts on some of the major causes of why oil has risen to all time highs
 . . . CT

For the past 20-25 years, this country has obviously neglected to find other sources of energy and fuel, and instead opted to stay dependent on foreign oil. Now we come to a time when as Thomas Friedman's book title "The World Is Flat" hits us squarely in the face.

This is a global economy - and the rest of the world wants what we have. We are no longer the driving force on the oil & gasoline prices worldwide. Even if we cut back on gasoline consumption - drivers in the rest of the world (China, India, etc) will continue to consume more gasoline. So the answer lies not just in finding more oil, the big pill to swallow is a real alternative energy policy.

While we have been living the "American Dream", much of the rest of the global world is catching up. They want the cars, homes and a lot of the technology we have become accustomed to. There are just not enough resources to supply the demand. Actually from my point of view they are falling into the same trap we now find ourselves - but that's another story . . .  

The facts are crude oil production has remained rather flat - while the need for oil continues to rise - especially from developing countries. The American dollar is at an all time low, and let me state once again that oil is priced worldwide in dollars.

Terrorist activity around the world can send oil souring at any time as we have seen in Nigeria, and threats remain throughout the Middle East. 

Oil speculators also have to be figured into the equation of the rising oil prices. Many institutions playing the market for their investors own far too many oil contracts - and when they announce oil price expectations - prices continue to rise. It's easy to control the price when you own most of the contracts!

And the war in Iraq has dramatically cut their pre-war production of approximately 4 million barrels per day to less than 2 million barrels per day. So in reality this war has also added to the reduction of the global oil supply - and I won't even go into what the threat of war with Iran will do to the world oil market prices.

But there's more bad news . . . Russia, the world's second largest oil exporter is having production problems. Russia's lack of investment in their infrastructure and many aging oil fields has led to their first production decline in 10 years.   

At the end of the day, it's all of us who pull up to the gas pump each week who are the losers. Obviously the elected politicians for the past two decades have not had the country or our best interests at heart. So, it's up to us to make changes in our lives, and try to ride out this economic chaos.

I certainly don't have all the answers, but I do know that we are facing a very bad economic time in this country. It's going to take sacrifice, and hopefully this time we will come out this with a new outlook on alternative energy - but it's not going to happen overnight. 

That's my take . . .

It seems like yesterday when many of us could not believe oil at $100 a barrel, but those days are long gone . . . CT

Oil surged past $140 a barrel after OPEC's president stated that prices could go well above $150!!

Just when we thought gas prices were at their highest . . . but oh no, it's gonna get worse

There are serious economic trouble ahead in the key financial markets, along with the automotive and housing industry. Today's oil surge has the Dow at the lowest point in almost two years. And we still don't know the fall-out from the mortgage crisis.

Then came the news that Libya will consider cutting oil production - and there's speculation that the Fed may not raise interest rates until later this year.

Many analysts are now in agreement that the rate cuts during the past year have further weakened the dollar - which have sent oil prices soaring since oil is priced in dollars.

We are in for a very bumpy ride folks - so we all need to try and get as much cushion as we can

Chavez Says E.U. Countries That Back Migrant Law Won't Get Oil   

Venezuelan President Hugo Chavez said he'll prohibit sales of oil to European Union countries that apply a new law approved by the E.U. parliament that allows undocumented workers to be detained. Chavez has also stated that Venezuela also won't accept foreign investment from those European countries.

Venezuela won't attend a meeting of oil producers and consumers this weekend in Saudi Arabia, and sees no need to increase crude output, the country's oil and energy.

Venezuela has no plans to increase its oil output, Minister Rafael Ramirez told reporters today in Maracaibo.  The Organization of Petroleum Exporting Countries doesn't need to meet again before its next scheduled event in September, and says that oil production levels aren't behind the increase in prices.

More news out of Venezuela . . .  

Chavez isn't content with nationalizing the countries oil - today he has formally taken control of the cement industry by decree, and has given three foreign companies 60 days to negotiate a fair price for their assets. Should they fail to reach an agreement, he stated Venezuela will start expropriating shares.

According to the decree, the government will take at least a 60% stake in the Venezuelan subsidiaries of Mexico-based Cemex SAB, Switzerland- based Holcim Ltd. and France-based Lafarge SA.

Chavez is using a windfall from oil exports to increase state control of the economy. Since the beginning of 2007, he has nationalized four crude oil ventures as well as the country's biggest telephone company and electricity provider.

Source: Bloomberg

Nigeria and Big Oil are engaged in a power struggle over profits.

The country is withholding nearly $1 billion from Shell, in a bid to re-negotiate existing profit-sharing agreements.

Shell states that 95% of profits from its joint venture go to the Nigerian federal government - but Nigeria believes that it has been shortchanged by the oil majors.

Shell also claims that the government is failing to come up with cash to deal with gas flaring from oil facilities.

Anger in local communities at the pollution caused by the gas flaring - along with the inability of local and national governments, as well as oil firms, to provide basic infrastructure in the Delta has prompted protesting youths to regularly invade and occupy vital facilities.

The latest invasion took place on Friday and disrupted production, which is running at well below capacity.

Source: Guardian UK - Shell's future in Nigeria in doubt

In a mode that could clearly say: “I told you so”, critics of America’s involvement in Iraq are now saying that the U.S. Administration sent the troopers there for one primary reason.

To shore up a reliable source of crude oil that would keep flowing into American storage facilities, and hence into American citizens gas tanks for at least another 15 to 20 years.

With Iraqi petroleum reserves estimated to be at least 10% to total world supply, and if major American oil companies like .Exxon-Mobil and Amoco controlling the pumping of oil in most of Iraq, then it would be a win-win situation

Unfortunately,  things didn’t work out the way we wanted them to. Now that Iraqi and US forces are staging an operation against Shiite militiamen in the oil rich Iraqi city of Basra.

Maybe this explains why so many top American officials have made so many “surprise visits” to Iraq in this 2008 election year.

Ever since the invasion of March, 2003, production and exports of Iraqi crude oil have been beset by a combination of old production equipment in bad repair, as well as countless incidents of sabotage by Iraqi insurgents and foreign elements who simply do not want Iraqi oil to fall into the hands of “The Great Satan”,

Five years later and 4,000 American soldiers lay dead, this precious resource seems even more distant from American and other Western automobile gas tanks.

Israel, who once feared possible attacks from Iraq with weapons of mass destruction, called WMD’s for short, now fear another oil rich country, Iran,

Mahmoud Ahmadinejad, has often called for Israel to be “wiped off the face of the map”.

Oil is now fetching more than $100 a barrel, and the U.S. Dollar is even weaker than currencies like the Israeli Shekel.

It appears that the time has come for some serious stock-taking in regards to just why American forces went into Iraq in the first place, instead of simply letting Saddam Hussein and his cronies remain there as a possible buffer against the real world enemy – .

http://www.onejerusalem.com/2008/03/26/the-oil-war/

While surfing the net, I ran across this article - which is more important sex or the economy? It seems that this week sex was more important than the economy - at least according to the news media - twisted minds - CT

Americans missed the news on Monday that the cost of crude oil hit $110 a barrel, and then fell back to $109.

How is it that this news headline was missed? Well, the news media was too obsessed with soon to be ex New York Gov. Eliot Spitzer's sex scandal with a 22 year old prostitute, and pushed the price of oil headline to the back pages.

Sex always sells in America, but we all need to keep our eye on what is really important. While Spitzer's sex life makes a great gossip item, how does that really impact our lives compared to the continued price of oil which is causing gas, food and the cost of products to continually rise each month? Spitzer is a wealthy man, but I doubt that he is paying any of our bills - so is this really the most important story in America right now? Of course not!  But we always seem to get preoccupied with matters and people that have no real impact in our lives, while letting the really important issues slide off our radar screen.

This next presidential election is one of the most important elections in American history, and let's face it - our economy is in the pits - and this obviously effects every American in some way or another.

So, I suggest the media get back on track to what is really important, and put the Spitzer story on the back pages while reserving front page for real news stories.  

Read full article at Daily News Tribune

By the way - A lot of people who don't live like most of us "average" Americans are out of touch about the price of oil and gasoline, because their pocketbooks are not affected. Like in a recent press conference the president showed his ignorance of gasoline prices when he was obviously caught off guard, and appeared to be somewhat shocked by $4.00 a gallon prices quoted by one journalists. Guess the president doesn't know about some people in Alaska paying far more than $4.00 a gallon right now. I bet they could care less about the governor's sex life. See previous posting Oil Rich Alaska Poor Struggle to Heat Homes

While Alaska has lots of oil money, residents of many remote villages are living with a cruel irony - they cannot afford to heat their homes because their fuel bills are 2 - 3 times the national average.

U.S. nationwide home heating fuel averages $3.30 a gallon, but averages $4.30 a gallon in Alaska - and in the remote villages the cost is $9 a gallon. Gasoline is now averaging just over $3 a gallon nationally, but averages $4.54 in Alaska, and jumps to $7 a gallon in the remote areas!

The cost of shipping oil to the remote areas of Alaska by plane or barge is steep - despite the state's vast oil wealth. Most of the oil must be shipped as crude to the West Coast to be refined, and then sent back to Alaska.

The state's lawmakers are looking at offering hundreds of dollars in rebates to help remote villages offset their home heating bills - but they only have a short time to address this issue before the legislative session ends - and Hugo Chavez steps in to embarrass them once again.  

It seems in the past Chavez has been far quicker to come to the aid of Alaska's remote village residents. Last year Venezuelan oil company Citgo donated $5 million of free heating oil to poor communities in Alaska.

Arctic Village is one such community where fuel has to be flown in because this remote community is hundreds of miles off the normal roadways, and this village cannot be reached by barge. The residents in these areas depend on fuel to travel by snowmobile, ATV or boat to hunt and fish.

Alaska's state revenue will benefit a surplus of $3 -$4 million this year because of high oil prices, along with a recent hike in oil taxes. But lawmakers are looking at a steady 6% drop in production at the North Slope oil fields.

So it's a choice between giving some of that money as rebates to the poor, or keeping some of the surplus which will help tide the state over until the North Slope project is finished - but that's at least 10 years away.

Tell that to Ed Littlefield, a Vietnam veteran who suffers from diabetes, lives on disability, and looks for wood to chop so he can heat his home. He's gone without fuel for days. He says, " Everybody hates Hugo Chavez, but we thank him for the fuel that lasted about 3-4 months last year".

Republican Bill Thomas represents nearly 50 small communities in the state's southeast panhandle, he suggests a $500 payout to state residents, at a cost of about $360 million that would be paid from the profits of the state's oil wealth savings account - a $38 billion Alaska Permanent Fund.

But fellow lawmakers do not want to touch the earnings fearing Alaskans would perceive it as a raid on the fund that pays them an annual dividend - $1,654 for nearly every man, woman and child last year.

Other lawmakers caution against putting money into assistance programs that will just have to be cut in the leaner years, along with giving the perception of Alaska as a free loader state with "cash giveaways" - especially after the infamous "bridge to nowhere" federal earmark.

So while the lawmakers quarrel about what to do, residents may still have to depend on Venezuela this year to help them heat their homes and provide fuel for transportation.

Source: AP

Iran Opens Oil Bourse to Sidestep U.S. Sanctions

I previously posted about the opening of Iran's kish island bourse, and awhile ago did a posting on Iran backing off the U.S. dollar reserve in favor of other currencies - particularly the euro - CT  

Iran opened an exchange for crude and petrochemicals Sunday, an effort that encourages private investment in the nation’s prominent energy sector.

The primary trade currency used by the bourse will be the euro, thereby establishing a euro-based oil marker if successful. Iran first floated the idea of trading oil in several years ago, but a weak dollar has breathed new life into the concept.

http://www.moneymorning.com/2008/02/19/iran-opens-oil-bourse-to-sidestep-us-sanctions/

Venezuelan President Hugo Chavez, who has threatened to cut off oil sales to the U.S., said reports that making such a decision would hurt his country's economy are false, and that Venezuelan oil can be sold anywhere.

Chavez denounced an editorial published this week in the Washington Post, which said the president's government would be the "first victim'' if he decided to cut off oil sales to the U.S.

"If the U.S. didn't need the oil, they would have boycotted us a long time ago,'' Chavez said last night in an interview on state television, according to an e-mailed statement from the information ministry. "Try it then. We've got more buyers than we can handle in the first place.''

Read full story at Bloomberg

The first phase of Iran's oil stock market started its work on Kish island in the Persian Gulf, southern Iran, on Sunday presenting oil and petrochemical products.

Although Iran's oil resources were discovered more than a hundred years ago, its oil sector has so far played only a minor role in international oil markets, but the new bourse opening will pave the way for a more active presence in international crude transactions.

The stock market was inaugurated in a video conference ceremony from the capital Tehran attended by ministers of oil, finance and economic affairs as well as chairman of Iran's Stock Exchange and a number of other officials and financial experts.

One report stated that all major currencies of the world will be used in transactions, however the Islamic Republic website stated the transactions will be made in Iranian rial.

Referring to potential transactions in oil products through the oil bourse, the Oil Minister said, “Our annual petrochemical output currently stands at 20 million tons, which is expected to reach 23 million tons by the end of the current Iranian calendar year, with good prospects of increasing it to some 45 million tons by the end of next year.”

Sources: Press TV

A weekly survey by MasterCard SpendingPulse found retail gasoline demand at the pump during the week ending Feb. 8 fell 3.5% compared with the previous week. Gasoline demand was down 3.1% from a year ago. This is the third straight week demand dropped.

The national average retail price for a gallon of regular fell by 2 cents. The price is down 13 cents over the past four weeks. At $2.96 per gallon, the U.S. average price is at its lowest mark since Nov. 2, but is up 35.2% over the comparable week in 2007.

"This is the largest week-to-week decline in gasoline pumped since August," said study author Michael McNamara. "Winter weather in the Mountains and Midwest helped to keep drivers off the roads in the first week of February."

McNamara said unless demand picks up significantly, there will be year-over-year declines in demand for the next several weeks. "In February 2007 the country was pumping between 65 million and 66 million barrels per week. We are well below that pace right now," he said.

SpendingPulse is a macroeconomic indicator of national retail sales based on aggregate sales activity in the MasterCard payments network, together with estimates for all other payment forms, including cash and check. MasterCard SpendingPulse does not represent MasterCard financial performance.

Source: Chron.com - Energy Sector Roundup

Iraqi debt will be written off in exchange for access to oilfields

Russia has agreed to write off $900 million of Iraqi debt built up by the regime of former leader Saddam Hussein to buy military supplies.

In return, Russian companies, including oil giant Lukoil, will be given access to oil, and the outstanding debt will be repaid over a 17 year period.

Lukoil plans to develop one of the largest oil fields in West Qurna. The Russian oil giant previously had a deal to develop oil deposits in Iraq, but the cointract ended right before Saddam Hussein's government was removed from power back in 2003.

Russia said the deal was meant to help rebuild Iraq's economy following the US-led invasion, which it opposed. The deal was signed by the Russian Finance Minister, Alexei Kudrin, and the Iraqi Foreign Minister, Hoshyar Zebari, who is currently visiting Moscow.

The U.S. government said Tuesday it sold to six energy companies 4.265 million barrels of royalty-in-kind crude oil worth $362.5 million, based on a average price of $85 a barrel.

"The crude oil will convert to more than 174 million gallons of petroleum products, including gasoline, diesel fuel, heating oil, jet fuel, heavy fuel oil, and other products," the Interior Department's Minerals Management Service said in a statement.

Read full article at Reuters 

Venezuela's state-run oil company has announced it is cutting crude sales to ExxonMobil, the largest U.S. oil company, because of Exxon's efforts to seize Venezuelan assets.

Petroleos de Venezuela said in a statement Tuesday its move is retaliation for what it calls ExxonMobil's economic harassment. ExxonMobil has not yet responded to Venezuela's decision.

British and Dutch courts last week granted ExxonMobil's demand to freeze as much as $12 billion in Venezuelan oil assets.

The company is challenging Venezuela's decision to nationalize a large oil project in which ExxonMobil had a large financial stake.

Venezuelan President Hugo Chavez has threatened to cut off oil sales to the U.S. if the court decision freezing the assets is upheld on appeal.

But a senior Venezuelan oil official said Tuesday Chavez is unlikely to carry out his threat, saying it would be costly for both countries, and the U.S. is Venezuela's biggest crude oil customer.

Source: VOA News

The world's largest oil company recently broke its own industry record for the longest "extended-reach" oil well. Such wells begin vertically on land and then curve to bore through layers of rock under the seabed to offshore reservoirs.

Exxon Mobil Corp.'s reach now stretches farther than anyone else's, more than seven miles from the frigid shores of Sakhalin Island off Russia's east coast, where the Chayvo oil field holds potentially a billion barrels of oil.

The well is 8,350 feet beneath the Sea of Okhotsk and 38,322 feet from shore to reservoir - about the length of 125 football fields. It blows past Exxon's previous record of 37,016 feet.

"It's almost an underground pipeline," said Joel Kiker, vice president of drilling for Exxon Mobil's development arm.

The 230-foot-tall Yastreb rig on the Chayvo project, operated by Houston-based Parker Drilling, also holds a title — the world's most powerful land drilling rig.

Read full story at Chron

BP is in talks with the Iraqi Government about a plan to boost oil production at the huge Rumaila field on the border with Kuwait.

Among other potential projects in Iraq, BP's interest is understood to include the Rumaila field, one of Iraq's largest, which is believed to contain about 18 billion barrels of oil.

BP undertook a study of the field for the Iraqi Government about two years ago. It already has a small Iraq team based in the Middle East and is one of a number of big oil companies discussing agreements designed to increase rapidly the country's output to 2.6 million barrels per day by the end of this year.
    
These effectively would be service contracts to provide training, expertise and equipment, for which the companies would be paid in oil. A BP spokesman said that it was too early to consider putting in expatriate staff because of the security situation.

BP,Total, Shell, ExxonMobil, Chevron and ConocoPhillips attended talks with the Iraqi Government in Amman, Jordan, last month to help to fix the terms of the contracts. Shell is interested in a gasfield in western Iraq.

BP was involved in Iraq until 1975, when the country's oil industry was nationalized.

Source: Business Times Online

A coalition of Alaska natives and conservation groups filed a lawsuit in federal court Thursday challenging oil drilling in the Chukchi Sea, which lies above the Arctic Circle between Alaska and Russia.

Thirty million acres of polar bear, walrus, and whale habitat in the Chukchi Sea are scheduled to be opened to oil and gas companies on February 6, when the U.S. Interior Department's Minerals Management Service (MMS), plans to hold bidding for drilling leases.

Read complete article at ENS

Venezuela will open a bid round for private companies to develop a block of the nation's Orinoco heavy crude belt.

This announcement comes only months after President Hugo Chavez took over four multi-billion-dollar Orinoco projects, pushing out Exxon Mobil and ConocoPhillips in the process.

Brazilian energy giant Petrobras has worked with Venezuela's state oil company PDVSA to certify the Orinoco oil reserves, which are estimated to be close to 10 billion barrels.

Venezuela has also signed a deal with France's Total to certify reserves in a block of the Junin area of the vast Orinoco reserve.

The Orinoco belt is a reserve in southeastern Venezuela that holds billions of barrels of heavy, tar-like oil that can be upgraded into lighter, more valuable crude.

Source: Reuters UK
http://uk.reuters.com/article/oilRpt/idUKN0252168620080202