The Bush/Cheney Oil Agenda

JLK · Posted: Sun Jan 02, 2005 5:23 pm Post subject: The Bush/Cheney Oil Agenda

This summer, world demand for oil pressed supply capacity to the absolute limit given current infrastructure. Unless there is a marked slowdown in world economic growth, we can expect to see demand bumping against the supply limit on a regular basis for some time, perhaps forever.

The EIA, which is part of the US Department of Energy, is known for its unreasonably optimistic projections as far as future energy supply is concerned. It has projected that by 2025 world oil production will be about 44 Mb/d greater than it was in 2001. To place this in perspective, such an increase would amount to over four times the current production of Saudi Arabia, at a time when many mature oil provinces (e.g. the continental US, the North Sea, Mexico, Prudhoe Bay) are producing less each year as a result of depletion. The Bush/Cheney energy plan essentially makes such a supply increase a strategic goal of the United States, and places very little emphasis on conservation or the development of alternative energy sources.

The only countries where added investment in infrastructure would be likely to result in material supply increases are Russia, Saudi Arabia, Iran, Kuwait and Iraq. In order to meet its goals, the US is going to have to convince each of these nations to make a substantial investment in added infrastructure (Michael Klare estimates this could be as much as US $3 trillion) in the very near term. Although it has received little publicity, the US has applied heavy pressure to Russia, Saudi Arabia, Kuwait and puppet Iraq to permit US and other international oil companies the access necessary to make these substantial investments within the next few years. The countries have resisted, however because in most of those countries the extraction infrastructure has been nationalized and is controlled by the state, and the government would like to keep things that way. This is the case in Iran as well.

Clearly, Bush/Cheney seem to think that it is in the interests of the US to build new infrastructure and get the additional oil flowing, and they were serious enough about it to invade and occupy Iraq in order to get the process started.

The real question is whether ramping up production would be in the best interests of the producers, who might benefit more with a tighter market and higher prices. Osama bin Laden has for years advocated restricting production in Saudi Arabia so that oil prices are in the $150-200 range, which would actually increase revenues for the Kingdom despite the reduced volume.

The present Saudi regime instead follows the wishes of Washington, which protects it from both external and internal threats. In recent months, the Kingdom has gone out of its way to emphasize the near bottomless extent of its reserves, and to assure the world that it will be making its own infrastructure investments to increase its supply capacity up to about 12 Mb/d. (It will need to ramp up to about 20 Mb/d to meet the EIA 2025 projections, a tough goal considering its Ghawar field is in decline). Clearly, the KSA wants to retain control of its resources and to keep the mutinationals out. It remains to be seen whether its patron will be satisfied with this compromise. For a while, maybe. Kuwait seems to have the same mindset.

In Russia, the US oil majors planned to invest in infrastructure and gain effective control of the taps via Yukos, but this was nipped in the bud by Putin. It is unlikely that Moscow will want to march to Cheney's tune in terms of future production, especially in light of the friction between the two countries elsewhere, such as the Ukraine. Putin has made it clear that Russian oil production will serve the interests of Russia.

In Iraq, the problem now is that the major oil companies will be unwilling to make the necessary investments until a long term stability is achieved. At some point, even handing over the production to French or Russian companies might start to look attractive to the US if it quells the violence. The point is to get added capacity online.

Iran has enforced tight restrictions on outside investment in its energy sector for years, although China and Japan were willing to jump through some significant hoops in order to secure future supplies there. It is unlikely that the present goverment will agree to ramp up production by very much, which is probably the main reason that the US would like to see a regime change there.

So far, Bush/Cheney has had little success in prodding the key producer nations to invest in greater supply capacity. Will they try to adopt a more forceful approach? Given their record so far, I'd say this is a concern.
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clv101 · Posted: Mon Jan 03, 2005 5:13 am Post subject: Re: The Bush/Cheney Oil Agenda

Nice post, however it only take one questionable point to cast shadow over the whole article. I didn't realise there was evidence that Ghawar was in decline!

Cash · Heavy Crude Joined: Jan 01, 2005 Posts: 136

The Ghawar comment aside, you raise some interesting points, JLK. It's well known and even acknowledged by the EIA that they based their estimate of world oil production in 2025 not on what could realistically be produced but on what EIA experts predicted would be needed. In other words, they did a straight-line projection of oil consumption trends and then divvied up that number among oil producers, without paying any attention to actual production trends. Completely unrealistic.

I'm not as optimistic that there is much room for increases in production. Saudi Arabia might be able to squeeze another million bpd, but it'll be sour heavy crude. Once Ghawar does decline there is no hope at all for SA to actually increase its numbers. I've seen some commentary over on the Yahoo Energy Resources list (highly recommended, BTW) that Russia might peak this year.

My major question, as you mention, concerning any country increasing its oil production is: Why? Looking at it from the producers' standpoint, doesn't it make more sense to limit production and make whatever resources they have last longer while getting a higher price? Why pump 4 million bpd at $40 a barrel when you can pump 3 million at $60 and get more money while extending the life of the fields? I suspect that is part of Putin's strategy with Russian oil.

And I truly don't think Bush/Cheney have a lot of manuvering room left to force changes in that pattern, short of physically seizing the assets as they've done in Iraq. Of course, having Iraq and Afghanistan does give them some major leverage in geopolitical terms, but right now the US military isn't strong enough to follow up with actual occupation. The only way that will change is if they bring back a draft.

Cash

Euric · Intermediate Crude Joined: Dec 04, 2004 Posts: 635

JLK · Posted: Mon Jan 03, 2005 5:17 pm Post subject:

Kingcoal · Posted: Mon Jan 03, 2005 5:25 pm Post subject:

A draft would definitely be Vietnam War all over again. Currently, the Military is staffed with volunteers looking for an education, job skills, etc. With a draft, you start including the silver spoon kids and those families, while fine with seeing other families sacrifice their young, are not OK with the idea of including their own kids. I think Bush knows this, however.

Euric · Intermediate Crude Joined: Dec 04, 2004 Posts: 635

mindfarkk · Heavy Crude Joined: Dec 07, 2004 Posts: 481

some of this is age and corresponding development. 18-21 and for some past this point, most young humans have little real sense of their own mortality (unless some experience forces the point home). AND for the young males, spiking testosterone. A perfect set-up for interest in working the front line.

Cash · Heavy Crude Joined: Jan 01, 2005 Posts: 136

"The Americans can and are relying on the use of their state national guard troops to occupy Iraq. They can use them to invade Iran. The National Guard is full of people who are classified as inactive. They can be activated at a moments notice."

Sorry, Euric, but the US military is already scraping the bottom of the National Guard barrel. Reserves as well. Not sure who those "inactive" members are you refer to, unless you mean retired or former members. Some retirees with special skills, especially medical, are already being recalled. Discharges and retirements have already been frozen for current active duty members, and they're even trying to call up former active-duty personnel whose paper enlistments haven't run out yet.

The fact is, the US military as its currently constituted is stretched to its very limits because of the Iraq/Afghanistan occupations. There is no way it can support an invasion of Iran at current troop levels.

"If there ever is a draft again, it will be cleverly disguised as something else."

I completely agree. One idea I've seen posted elsewhere is this: Bush announces the creation of a "national service" requirement for all 18-year-olds. The service has several levels. At the bottom would be two years of planting trees in national forests or emptying bedpans in a VA hospital. The next level, with correspondingly higher pay and benefits, would be volunteering for something like Homeland Security duty, manning security checkpoints or doing office work in a paramilitary capacity. The top level, with the highest pay and benefits, would be volunteering for a tour of duty in the military.

This allows Bush & Company to continue to claim we have a volunteer military while providing a steady stream of new members.

Of course, if the economy goes south in a big way, there'll be no shortage of men and women desperate enough to sign up in return for a steady paycheck and food and housing.

Cash