By: Boxer office
Published: Mar 31, 2006 at 07:54
U.S. Senator Barbara Boxer (D-CA) today sent a letter to the National Petrochemical and Refiners Association correcting inaccuracies in the document they submitted to the Environment and Public Works Committee regarding the oil industry's use of MTBE.
Following is the text of Senator Boxer's letter to Bob Slaughter, President of the National Petrochemical and Refiners Association:
Dear Mr. Slaughter:
I write regarding your March 28, 2006 letter to Chairman Inhofe expressing the views of your members with respect to the oversight hearing on the impact of the elimination of methyl tertiary butyl ether (MTBE) held by the Senate Environment and Public Works Committee. This letter was entered into the hearing record by the Chairman.
I supported the Chairman in his efforts to make NPRA's views known to the Committee. However, I disagree strongly with several statements in the letter related to whether the Clean Air Act Amendments of 1990 mandated the use of MTBE. The letter is not supported by the facts.
The Clean Air Act never required the use of MTBE, and courts have upheld that view. Moreover, in response to direct questioning today, Robert Meyers, Associate Assistant Administrator in the Office of Air and Radiation at the United States Environmental Protection Agency again affirmed that MTBE use was not required by the Clean Air Act. He held this view in 1995 as Counsel to the House Committee on Energy and Commerce, when he wrote with respect to the legislative history of the 1990 Clean Air Act:
“A major aspect of the debate on the 1990 Clean Air Act Amendments was the issue of 'fuel neutrality.” In essence, since various fuels and fuel constituents compete for the RFG and alternative fuels market, an effort was made to avoid dictating any particular fuel choice.”
In addition, a jury in the Tahoe case found Lyondell, Shell, Texaco, Equilon, and Tosco guilty of irresponsibly manufacturing and distributing a product they knew would contaminate water. The jury found by “clear and convincing evidence” that both Shell Oil Company and Lyondell Chemical Company acted with “malice” by failing to warn customers of the almost certain environmental dangers of MTBE water contamination.
The repeal of the oxygenate standard should not be used as justification for the resurrection of MTBE safe-harbor legislation. I oppose such legislation now, just as I did during the consideration of the Energy Policy Act of 2005, and will be actively engaged in opposing its passage should it be reintroduced this session.
United States Senator
By: Boxer office
LAGOS (AFX) – Nigerian troops engaged separatist militants in a fierce gun duel in the swamps of the Niger Delta, leaving some fighters dead, an army spokesman said.
'Our men were attacked during a patrol operation in the area. We fought back and some of the aggressors were killed. The army recorded no casualties,' army spokesman Colonel Mohammed Yussuf said.
The gunfight on Thursday erupted near Shell's Benisede oil flow station, which was destroyed in January by militants from the Movement for the Emancipation of the Niger Delta (MEND) in a battle that left 14 soldiers dead.
The fighting around Benisede in Bayelsa State was the latest between ethnic Ijaw militants and soldiers of the Joint Task Force set up to protect oil facilities in the troubled region.
Last week, three soldiers died when their boat capsized during a patrol of oil and gas plants in the region, according to a navy spokesman.
Since the start of the year, attacks by militants have forced Anglo-Dutch oil giant Shell and other foreign oil majors to cut Nigerian production by a total of 533,000 barrels per day.
A total of 13 foreign oil workers have been kidnapped and later released after weeks of negotiations with the militants.
Last Update: 11:43 AM ET Mar 31, 2006
NEW DELHI (MarketWatch) — As many as 72 international companies, including global energy majors – ExxonMobil Corp. (XOM), Chevron Corp. and Royal Dutch Shell PLC participated in a roadshow at Houston showcasing India's latest oil and natural gas exploration blocks, the Indian government said in a statement Friday.
“Response to the roadshow was upbeat and positive as many companies have already booked data at the Houston data center,” the statement said.
Some 55 oil and gas blocks are being offered by the Indian government for exploration under the sixth round of the government's New Exploration Licensing Policy, or NELP-VI.
The government is offering 24 deepwater blocks, six shallow-water blocks and 25 onshore blocks under NELP-VI. The bidding for NELP-VI blocks will close Sept. 15.
India has awarded 110 blocks through an international competitive bidding process under five previous rounds of NELP, to boost the country's oil and gas production.
India currently imports 76% of the crude oil it processes, as current domestic crude output is stagnating around 33 million metric tons a year.
Natural gas sold in the country is around 90 million cubic meters a day, which only meets around 60% of the local demand.
www.chinaview.cn 2006-03-31 20:30:39
HUIZHOU, Guangdong, March 31 (Xinhua) — China National Offshore Oil Corporation (CNOOC) announced on Friday that its huge petrochemical project, a joint venture with Royal Dutch Shell, off the South China Sea has begun formal production.
Located in Huizhou city of souch China's Guangdong Province, the project is one of the largest petrochemical projects launched in China in recent years.
CNOOC, Royal Dutch Shell and the Guangdong provincial government invested in the 4.2 billion U.S. dollar project, which is the largest joint venture in China. Royal Dutch Shell owns 50 percent, CNOOC, 45 percent and the Guangdong government, 5 percent.
The project adopted 13 patent technologies through international public bidding, including Shell's world-leading PO/SM technology, said Zhai Hongxing, Deputy Chief Executive Officer of CNOOC and Shell Petrochemicals Company Limited.
According to Zhai, as the largest PO/SM facility in the world, it could produce 550,000 tons of styrene monomer and 250,000 tons of propylene oxide each year.
It will feed the hunger for petrochemical products such as styrene monomer and proplene oxide of China's market, he said.
The core of the project is a set of ethylene cracking facilities.
With an annual production capability of 800,000 tons of ethylene and 430,000 tons of propylene, the facilities could refine not only naphtha, but heavier condensate oil as well as hydrogenation unconverted oil and depression diesel, both by products of petroleum refineries, said Simon Lam, CEO of CNOOC and Shell Petrochemicals Company Limited.
The diversity of raw materials has greatly improved the competitiveness of the project, said Lam.
According to Zhai, after being put into production, the joint venture could produce more than 2.3 million tons of petro chemicals each year mainly for the South and Southeast China markets, the most prosperous regions in the country.
Having focused on oil and natural gas exploration and production offshore, CNOOC has been trying to expand its business in oil industry over recent years and plans to establish an integrated energy company which boasts not only an upper stream business including exploration and production, but also middle and downstream businesses such as oil refining and petrochemicals by 2008.
The launching of the production of the CNOOC-Shell joint venture is another significant step for CNOOC to achieve this goal, said Zhai.
CNOOC announced the establishment of its refining subsidiary last Nov. and laid the cornerstone for its wholly invested oil refining project of an annual oil refining capacity of 12 million tons in Huizhou city, near the CNOOC-Shell project.
The project will also be a great force in enhancing the innovation ability and development level of China's petrochemical industry, said Zhai.
China's rapid economic growth has lead to a huge demand for petrochemical materials. As a result, a series of large-scale ethylene projects was launched in recent years.
Zhai said the production capability of ethylene is an important barometer of the growth of a country's petrochemical industry. But he said the development of China's ethylene industry should be keep in pace with the growth of domestic demand. Enditem
Editor: Ling Zhu
By DONNA GORDON BLANKINSHIP
ASSOCIATED PRESS WRITER
SEATTLE — The state Supreme Court ruled Thursday a trial judge overreached his authority when he restricted a man from posting information on a Web site. Paul Trummel was jailed for more than three months in 2002 in his free-speech standoff with the judge over the Web site he used as a forum for attacking the Council House, a federally subsidized retirement home where he once lived.
Trummel posted the phone numbers and addresses of Council House staff, directors and residents – something that King County Superior Court Judge James Doerty characterized as harassment.
Trummel removed the information after his release from jail, but appealed his case.
His attorney, William Crittenden, called the high court's unanimous ruling a victory for free speech.
In siding with Trummel in the online aspect of the case, the justices added that there was clear evidence of Trummel's predatory behavior toward Council House residents, staff and directors.
That behavior indicated the need to bar him from contacting them in person, by telephone, by writing or through a third person, the court said.
Trummel currently faces six charges of violating the anti-harassment order, said his criminal attorney, Brad Meryhew. Meryhew said he did not know how the justices' ruling would affect those charges.
He said all the charges concern information on Trummel's Web site or communications with relatives of Council House residents or staff.
Trummel was evicted from the home in April 2001, and Crittenden said he did not know his client's location at this time.
YUZHNO-SAKHALINSK, March 31 (Itar-Tass) — Russian shipbuilders have received an order for the first time to build vessels for work on the Sakhalin shelf.
Two moorage boats will be built at the Zvezda plant in the Primorsky Territory and two reinforced icebreaking port tugboats at the Admiralteiskiye Verfi shipyard in St. Petersburg, the press service of the Sakhalin Energy company, the Sakhalin-2 project operator, said on Friday.
All the four vessels will work in the south of Sakhalin in the Aniva bay, where the world's biggest gas liquefying plant is being built on the coast. The boats will lead giant tankers to the moorages.
The construction of four vessels in Russia is one of the terms of the 15-year contract concluded by Sakhalin Energy to charter six such boats. Russian crews will work aboard all the six vessels flying the Russian flag.
The cost of the construction contract is about 140 million dollars. The vessels will begin to work in 2007.
Mar 30, 2006
Economics Minister Laurens Jan Brinkhorst will go to Libya next week to negotiate gas and oil agreements, in the first high-level visit by a Dutch official since Colonel Moammar Gadhafi took power in 1969, the ministry said Thursday.
During the April 5-6 trip, Brinkhorst hopes to “intensify business and political relations with Libya,” and to lay the groundwork for a long-term energy deal to be signed later, spokesman Jan van Diepen said.
The Dutch determination to diversify gas sources deepened after Russia suspended supplies to Ukraine in January, Van Diepen said. The Netherlands also has its own gas fields, with reserves sufficient for domestic needs through 2030.
Brinkhorst also will visit a trade fair in Tripoli that will be attended by officials from Royal Dutch Shell and from the Dutch air carrier KLM.
Shell announced last year it had concluded a deal to explore and develop areas in Libya's Sirte Basin and expected to start drilling in 2007. Shell was active in Libya from the 1950s until 1974, and it conducted explorations there in the late 1980s.
Libya's relations with the West improved following its agreement in December 2003 to dismantle its chemical, nuclear and biological programs.
Copyright 2006 Associated Press
(BNamericas.com) – Anglo-Dutch oil company Shell (NYSE: RDS-B) will have to decide this year whether to announce commercial feasibility or hand back to Brazilian authorities the BS-4 offshore block in the Santos basin where it is operator, the company's Brazilian operations E&P VP John Haney told reporters during the Latin Upstream seminar in Rio de Janeiro.
Shell has a 40% interest in the block, Brazil's federal energy company Petrobras (NYSE: PBR) has 40% and US oil company Chevron (NYSE: CVX) the remaining 20%.
The partners have been exploring the block since 1998, when Brazil's oil sector was opened up to private investment. The block is located in water depths of 1,500 meters and estimated to contain total reserves of 1.6 million barrels (Mb) of 14-degree API heavy crude, Haney said.
“We consider this a frontier block,” he said. “We want to improve recovery levels there.” Shell also has interests in the BC-10 block in the Campos basin and in 11 exploratory blocks in Brazil.
The company plans to continue development of the BC-10 block, which it operates with a 35% stake. Its partners there are Petrobras with 35% and US oil company Exxon Mobil (NYSE: XOM) with 30%.
“We should file the development plans for the block at the hydrocarbons regulator by the end of the first half,” Haney said.
The company expects to recover as much as 400Mb of heavy crude there by 2010, he said.
At the same time Shell should drill new appraisal wells this year in the existing productive fields of Bijupira and Salema, where the company is producing some 35,000-40,000 barrels of oil a day.
Shell invested US$200mn in 2005 in its Brazilian operations, of which US$150mn went into E&P. Haney declined to say how much the company would invest in Brazil this year.
Shell also has downstream operations in the country, including interests in natural gas distribution and transport. – (BNamericas.com)
Mar 31, 2006
Crude oil prices retreated Friday as traders took profits following continuous gains over the last three sessions due to strong demand for fuel and falling U.S. gasoline inventories.
Light, sweet crude for May delivery fell 27 cents to US$66.88 a barrel in Asian electronic trading on the New York Mercantile Exchange midmorning in Singapore. The contract on Thursday gained 70 cents to settle at US$67.15 a barrel _ a two-month high.
Gasoline lost 2.57 cents to US$1.9700 a gallon (3.8 liters) while heating oil fell 0.73 cent to US$1.8770 a gallon. Natural gas declined 8.7 cents to US$7.400 per 1,000 cubic feet.
Analysts said concerns over falling U.S. gasoline stocks would continue to keep a firm floor under prices.
“Oil prices have been moving up so quickly in the past few days, so traders are just taking a slight profit now ahead of the weekend,” said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. “But gasoline demand is strong and inventories have gone down, so I think prices will keep moving strongly up.”
Gasoline futures on Thursday jumped more than 4 cents a gallon on top of a gain of nearly 7 cents in the previous session after midweek data showed U.S. gasoline stocks fell by a surprisingly large draw of 5.4 million barrels last week, their biggest weekly draw since August 2003.
After climbing to their highest level in seven years last month, U.S. gasoline stocks have fallen nearly 10 million barrels in just the past four weeks, a trend analysts expect to continue for several more weeks as refiners undergo heavy seasonal maintenance work.
Prices also were supported by persistent supply disruptions in the Gulf of Mexico and Nigeria, and a U.N. standoff with Iran over its nuclear program.
On Thursday, top officials of the five permanent U.N. Security Council nations plus Germany urged Tehran to freeze uranium enrichment, but a senior Iranian envoy defiantly rejected the call, saying his country's activities were “not reversible.”
Iran, the No. 2 oil producer in OPEC, has been referred to the U.N. Security Council over fears it may want to misuse its nuclear program to make weapons.
In the Gulf of Mexico, oil output is still down by 343,000 barrels per day because of damage that occurred during last summer's hurricanes Katrina and Rita. That is roughly 23 percent below pre-storm output levels.
Nigerian oil output also remains a concern. Royal Dutch Shell PLC, the largest foreign oil company operating in the country, has shut in nearly half of its Nigerian production and says it won't resume operations until the country is safe enough for its workers. Some 550,000 barrels per day of Nigerian production has been shut in, analysts said.
Copyright 2006 Associated Press
NATALIE OBIKO PEARSON
Mar 31, 2006
Venezuela had a blunt message this week for Exxon Mobil Corp., one of the world's most powerful oil companies: get off my crude-rich turf.
Venezuela is tightening its squeeze on the oil industry, telling oil companies to give the state a greater share of profits – or get out.
Oil Minister Rafael Ramirez on Wednesday said Exxon Mobil was one of the companies that would “prefer to leave … rather than adjust” to recent policy changes.
“We said we don't want them to be here then,” Ramirez told the state TV broadcaster Venezolana de Television, adding if “we need them, we'll call them.”
Exxon Mobil indicated Thursday it had no plans to pull out.
“Exxon Mobil de Venezuela continues to have a long-term perspective of its activities in Venezuela,” it said in an e-mail to The Associated Press.
The flap helped push the price of oil above US$67 (A55.39) a barrel on the New York Mercantile Exchange on Thursday as the market reacted to the latest sign of tighter state-control of energy around the globe.
Venezuela is taking on Big Oil at a time when rising oil prices, political instability in the Mideast and Nigeria and new buyers in Asia have put the world's fifth-largest oil exporter in a winning position.
After snubbing Exxon Mobil, Ramirez said Venezuela has other eager partners, including state companies from Russia, Iran, China, India, as well as traditional oil companies.
Speaking to supporters about the nation's oil industry on Thursday, President Hugo Chavez said his leftist government was “recovering sovereignty in the management of our oil business.”
Without specifically referring to Exxon Mobil, Chavez added, “Whoever doesn't like this business, then go somewhere else. They didn't like it? Go somewhere else.”
The new climate in the oil market has given Venezuela the flexibility to diversify “away from Western investors and incorporate state-owned companies from allied countries … more willing to abide by new, tighter terms,” said Patrick Esteruelas, analyst at the Washington-based Eurasia Group.
The government has increasingly sought projects with state-controlled oil companies in friendly countries. Last year, Venezuela granted exclusive licensing rights to certify and quantify reserves in blocks in the Orinoco tar belt to seven companies, including China's CNPC, India's ONGC and Iran's Petropars. The only western oil major included was Spanish-Argentine company Repsol YPF.
The trend is driven by Chavez's distaste for corporate multinationals, which he accuses of looting his country's oil wealth over the years. He enjoys strong support for his efforts to take more industry profits for use in social programs for the nation's poor.
Since taking office in 1999, his government has passed legislation requiring a majority government stake in all oil production projects, hiked taxes and royalties on oil companies, and begun to collect millions of dollars (euros) in what it claims are unpaid taxes from them.
On Thursday, Congress approved new guidelines to turn 32 privately run oil fields over to state-controlled joint ventures.
Among the terms faced by companies like Royal Dutch Shell PLC and France's Total SA: a minimum 60 percent stake for the state oil company Petroleos de Venezuela SA (PDVSA) in each field, PDVSA controlling the boards of the new joint ventures and a jump in income tax rates from 34 percent to 50 percent and royalties from 16.6 percent to 33.3 percent. They will also see their potential drilling acreage slashed by almost two-thirds.
Experts say, however, that fears that Chavez, a close ally of Cuba's Fidel Castro, is seeking to drive out private investment are exaggerated because Venezuela needs the technological expertise of Western oil majors to develop its vast deposits in the Orinoco belt.
Few state oil companies have the expertise to upgrade the extra-heavy oil and tar-like bitumen found in the Orinoco into lighter, marketable oils.
Notably, Exxon Mobil continues to hold a 41.7 percent stake in the 120,000-barrel-day Cerro Negro heavy oil upgrading project in the Orinoco along with partners British Petroleum PLC and PDVSA.
Copyright 2006 Associated Press
Mar 31, 2006
SYDNEY (AFX) – Woodside Petroleum Ltd said it has resolved a dispute with the Mauritanian government over amendments to four offshore production contracts operated by the company's wholly-owned subsidiary Woodside Mauritania Pty Ltd.
The company, 34 pct owned by the Royal Dutch Shell group, said an agreement in principle to settle the dispute has been reached without the need for formal arbitration.
Woodside chief executive Don Voelte said in a statement that the agreement laid the foundation for good relations between the company and the Mauritanian government.
“The Mauritanian government has worked constructively with Woodside to resolve differences between the parties,” he said.
“We are happy with this agreement and look forward to building a productive and cooperative relationship with the Mauritanian government.”
By Päivi Munter in Stockholm and Mark Odell in London
Published: March 31 2006 03:00 | Last updated: March 31 2006 03:00
Nokia yesterday significantly raised its outlook for the global mobile market, saying it would grow by 15 per cent or more this year, which would mean shipments of about 914m handsets.
The Finnish market leader's previous forecast was for growth of 10 per cent or more from about 795m handsets in 2005. Motorola, the world's number two handset maker, does not produce overall forecasts but was thought to be in line with Nokia's original numbers.
Speaking at his last annual general meeting as Nokia's chief executive yesterday, Jorma Ollila said about 80 per cent of the world's next 1bn mobile subscribers would come from emerging market countries.
In Chongqing, China, Nokia yesterday launched three new entry-level phones, aimed at customers in developing countries. First shipments of the N1112, N2310 and N2610 models are expected in the second quarter. Soren Petersen, senior vice-president, said at the launch in China: “In 2008, Nokia expects that 3bn people will be owning a mobile phone, with much of this growth coming from markets like China, India, south-east Asia and Africa, where penetration levels are still relatively low.”
Nokia has this month highlighted the growing importance of emerging markets. Yesterday's launch of the new models, all priced at below €100 ($120), followed the opening of Nokia's new plant in Chennai, India, this month, which will produce both handsets and networks.
Nokia shares surged 4.8 per cent to €17.49 in Helsinki as Mr Ollila's upgrade of Nokia's market outlook raised hopes of strong first-quarter earnings.
The acceleration of growth in the global handset market was seen to mainly benefit Nokia, the world's biggest mobile supplier.
“Nokia is the main beneficiary as it has the greatest share of the segment that is growing fastest,” said Richard Windsor, analyst at Nomura.
“It also makes a far higher return on every handset sold compared with competitors.” Confidence in Nokia's ability to tap the growth yesterday outweighed concerns about the pressure the increasing emphasis on emerging markets puts on the company's profit margins.
In the fourth quarter of last year, the average price of Nokia's handsets fell below €100 for the first time. Mr Windsor said Nokia was “clearly brimming with confidence”.
Mr Ollila's comments came as he prepares to step down as chief executive, a position he has held since 1992, when Nokia was alittle-known Finnish industrial company. Mr Ollila, who will become chairman of Royal Dutch Shell, is set to be replaced in June by Olli-Pekka Kallasvuo, currently Nokia's chief operating officer.
BYLINE: Matthew Russell Lee, Inner City Press U.N. Correspondent
UNITED NATIONS, March 30 — From Iraq's Mission to the UN, there's finally an answer to the months-old oil metering mystery. Shell has been given the contract, and it will take from one to two years to implement. How the accountability of oil flows and sales until then will be tracked has not yet been addressed, nor has why it will take two years. For an oil port in Basrah, the process will be faster, but it remains unclear which company has been awarded the work. This follows a December 2005 statement by the International Advisory and Monitoring Board for the Development Fund for Iraq that the oil metering contract had been awarded to an American firm, followed by a January 2006 IAMB statement that nothing was being done. Now named are a Dutch-based company and a “project” agreed to by the U.S. Pentagon's Project and Contracting Office, recently in the news for its dealing with Halliburton. Inner City Press has put written questions to both IAMB and Iraq's Mission to the United Nations and will report results on this site.
— Jean-Pierre Halbwachs briefing reporters on 12/28/05
In a March 22 letter provided to Inner City Press on March 30, the UN's Jean-Pierre Halbwachs was informed that – “the Iraqi Ministry of Oil has concluded an agreement with the American Project and Contracting Office (PCO) to include a project for rebuilding the metering system in the Basrah oil port of the Southern Oil State Company, as part of the other projects that are funded by the American grant to the Iraqi Ministry of Oil. This project is in progress now and is expected to be finalized by 2006. Furthermore, a preliminary agreement was reached with the Shell Group to act as a consultant to the Iraqi Ministry of Oil on matters related to metering and calibrating which would include the establishment of a measuring system for the flow of oil, gas and related products within Iraq, as well as the export and import operations. This long-term development project will be implemented in stages that may be fulfilled in one or two years.”
The term in the letter, “Southern Oil State Company,” does not result in any hits either via the Google search engine nor (Academic) Lexis. The letter is signed by Iraq's Alternate Permanent Representative to the UN Feisal Amin Al-Istrabadi, described as “an American lawyer of Iraqi origin.” Click here for his curriculum vitae, via Depaul's law school — his legal practice has been in Indiana, although the c.v. refers to hazardous chemical spills and Petroleum Marketing Marketing Act cases. Inner City Press has put written questions — for the second time — to the Iraqi mission's listed press attaché, including:
“For this [Basrah] project, to be completed by the end of this year, has a contractor been designated? PCO was in the news earlier this week with regard to their audits of Halliburton's performance (as well as Foster-Wheeler). Direct question: does the above quoted mean that Halliburton has gotten or could get this 'included' project? Secondarily, why does the nationwide oil metering contract described in the second paragraph of the letter need to take two years? And what will be done in the interim?”
The same questions have been put to the chair of IAMB, the UN's Jean-Pierre Halbwachs. Watch this space.
UN Round-up: upstairs at the UN headquarters on Thursday, Secretary-General Annan met at noon with the chairman of Turkey's Koc Holdings which holds, among other things, a joint venture with Shell and 87,000 employees, on the occasion of Koc Holdings joining the UN Global Compact. At the noon briefing, it was asked how it is decided which of the Global Compact's signatories get to meet with the Secretary-General, and whether these companies — including Koc Holdings — might take questions from the press on their adherence to the Compact's principles, including human rights, perhaps at a new Corporate Stake-Out. These questions were answered in far less than three months:
From: [ ]@un.org>
To: Matthew.Lee [at] innercitypress.com
Sent: Thu, 30 Mar 2006 14:13:44 -0500
Subject: your questions on the Global Compact
Hardly ever does the SG meet with CEOs when they sign up. Mr. Koc was one of the rare exceptions because of the significance of the company's commitment to the country as a whole (Turkey) and the broader region. Also, Koc has deep partnership relations with UN agencies in the areas of health and education. Regarding your suggestion that the CEOs signing on to the Global Compact (GC) be made available to the press… the GC’s media guy, wrote the following to me: 'I like the suggestion, but as always in these cases, I guess this is ultimately up to the CEO. I would be very open to suggest it in advance of future CEO-SG meetings. However, our experience is that these CEOs are very tightly guarded by an army of PR staff who would probably advise against it. Nevertheless, I will be more than happy to connect interested journalists with the public affairs people of the CEO prior to future meetings of this type.' If you’re still interested in talking to Mr. Koc, it's Ms. Ayse Tuba Kadiraga, Public Relations Specialist, Koç Holding A.S…. Tuba will be traveling back to Istanbul this afternoon, but can be reached tomorrow.”
To tie it all together for now, including Shell getting the oil metering contract in Iraq, Koc Holdings' oil refinery joint venture with Shell is being challenged to the EU Court of Human Rights by the union Petrol-Is. What is Koc Holdings (and Shell's and even the SG's and Global Compact's) positions on this? Questions, questions…
By THE ASSOCIATED PRESS
Published: March 30, 2006
Filed at 2:06 p.m. ET
WASHINGTON (AP) — The price of oil traded near $67 a barrel Thursday amid persistent supply disruptions in the Gulf of Mexico and Nigeria, a U.N. standoff with Iran over its nuclear program and growing demand in the U.S. despite rising energy costs.
The market was also rattled by an announcement late Wednesday from Venezuela's oil minister that Exxon Mobil Corp., the world's largest publicly traded oil company, was no longer welcome in his country — the latest sign of tighter state-control of energy around the globe.
''All of these things are adding up,'' said Antoine Halff, director of global energy at Fimat USA in New York.
Light sweet crude for May delivery rose 50 cents to $66.95 a barrel on the New York Mercantile Exchange. Brent crude for May gained 50 cents to $66.05 a barrel on London's ICE Futures exchange.
Gasoline prices rose 2.68 cents to $1.981 a gallon (3.8 liters), while heating oil futures gained 1.8 cent to $1.87 gallon. Natural gas futures climbed more than 6 cents to $7.520 per 1,000 cubic feet.
Tensions between Exxon Mobil and Venezuela boiled over because the Texas-based company resisted tax increases and contract changes that are part of a policy by President Hugo Chavez's government to ''re-nationalize'' the oil industry. Rather than submit to new terms that will turn 32 privately run oil fields over to state control, the company sold its stake in a 150,000 barrel-a-day field to its partner, Spanish-Argentine major Repsol YPF.
''Exxon Mobil … preferred to sell to Repsol, its partner in the agreement, rather than adjust,'' Oil Minister Rafael Ramirez said in an interview with the state-run TV broadcaster. ''We said we don't want them to be here then,'' Ramirez added.
On Thursday, top officials of the five permanent Security Council nations plus Germany urged Tehran to freeze uranium enrichment, but a senior Iranian envoy defiantly rejected the call, saying his country's activities were ''not reversible.''
Iran, the No. 2 oil producer in OPEC, has been referred to the U.N. Security Council over fears it may want to misuse its nuclear program to make weapons.
In the Gulf of Mexico, oil output is still down by 343,000 barrels per day because of damage that occurred during last summer's hurricanes Katrina and Rita. That is roughly 23 percent below pre-storm output levels.
Nigerian oil output also remains a concern. Royal Dutch Shell PLC, the largest foreign oil company operating in the country, has shut in nearly half of its Nigerian production and says it won't resume operations until the country is safe enough for its workers. Some 600,000 barrels per day of Nigerian production has been shut in, according to IFR Energy Services in New York.
Concern about gasoline was also affecting the market.
In its weekly petroleum report, the U.S. Energy Department said Wednesday that gasoline inventories fell by 5.4 million barrels last week to 216.2 million barrels, about even with year ago levels. The decline came as refiners conducted maintenance on their facilities ahead of summer in the Northern Hemisphere, when fuel demand peaks.
The U.S. agency also said that motor gasoline demand averaged 9.1 million barrels a day over the last four weeks, which is up 1.3 percent from a year ago. The average U.S. retail price of gasoline is $2.50 a gallon, up 34.5 cents from the year before.
Associated Press Writers Natalie Obiko Pearson in Caracas, Venezuela, and George Jahn in Vienna, Austria, contributed to this report.
By Ross Tieman
Compliance with legislation, regulations, directives and codes has never been more challenging. Though business conduct has always been constrained by law, today the volume of legislation and rules, and the pace of change, have increased so much that meeting the requirements has turned compliance into a corporate discipline in its own right.
Some company chairmen complain that compliance is distracting them from strategic management. Others shrill about the mounting costs.
This has come about because, in Europe and the US especially, legislators have taken companies to task over their behaviour. In the US the Sarbanes-Oxley Act, designed to prevent corporate scandals, has established tough new standards for company directors, while in the UK and continental Europe companies must comply with voluntary governance codes, or explain their failure to do so.
Companies operating within the European Union must also comply with a tidal wave of new pan-European directives.
All this change coincides with corporate globalisation. National industrial or services champions have been spurred by market opening into global rivalry. Today they must comply with the rules in more jurisdictions than ever before at a time when the rules almost everywhere are changing by the month.
Yet every cloud has a silver lining – for the bold. The challenge of compliance has become so great that mastering compliance has become a tool to achieve competitive advantage.
Compliance requires leadership from the top. The Combined Code on Corporate Governance, effective in the UK since 2003, gives board directors new responsibilities. The code encourages quoted companies to separate the roles of chairman and chief executive, ensure that more than half the directors are independent, and calls for committees to oversee the key functions of audit, appointments and remuneration. Its effect, increasingly, is to create a single board that combines the functions of the supervisory board and the management board common in continental Europe, obliging the freewheeling chief executive to work within a collegiate framework.
US governance laws, codified and backed by tough penalties, leave the executive chairman in charge but require the chairman and the finance director to certify a rigorous paper-trail of evidence that the company is meeting its obligations.
Can such measures deliver better corporate governance? Investors see a link between high standards of governance and corporate longevity. Think of Cadbury Schweppes, the UK chocolate and fizzy drinks company whose former chairman, Sir Adrian Cadbury, was one of the pioneers of corporate governance reform.
Shares in Shell, the Anglo-Dutch oil group, plummeted last year after it understated its oil reserves and incurred a record £17m fine from Britain’s financial and securities regulator, the Financial Services Authority. But its corporate governance reforms that followed prompted a significant re-rating by the markets.
Anthony Carey, a partner at accountant and adviser RSM Robson Rhodes responsible for board evaluation, was project director for Britain’s Turnbull working party on risk management. He says: “A strengthened selection process and improved definition by the Combined Code on Corporate Governance of the role of the non-executive director makes it easier for non-executives to constructively challenge management and also to contribute on strategic issues.”
He says boards should focus on the value that reform can deliver, and check there are key performance indicators to ensure it is achieved.
Overhauling the boards of companies takes time. Last October, the Association of British Insurers, representing many of the country’s biggest investors, analysed the annual reports of 477 UK quoted companies and found that only 46 per cent of FTSE 100 companies stated that they were fully compliant with the code.
But Peter Montagnon, the ABI’s investment director, is encouraged by that. “If companies still don’t have the right balance on the board, that doesn’t mean they aren’t seeking it,” he says.
Achieving good governance with compliance is “about strategic decision-making and management risk,” he says. “It has little to do with the mechanical implementation of a rule book.”
Directors alert to corporate governance obligations have become focused on compliance throughout their organisations.
Perhaps the biggest compliance challenge today for companies operating in Europe is to comply with the stream of directives from Brussels designed to create a single European market in financial services. The regulatory landscape has become increasingly codified and complex.
Abesh Choudhury, an associate in the London office of US law firm Cleary Gottlieb Steen & Hamilton, says: “The thrust of a lot of new regulations is to focus ultimate responsibility on senior management.”
Paul Nelson, head of the financial markets practice at law firm Linklaters, concurs. “We have seen over the past 15 years a real professionalisation of the compliance industry,” he says.
A company’s compliance director for Europe will typically be a member of its European board. And a typical European financial institution will employ 100-200 in its compliance department.
One specialist recruitment agency reckons that 2 per cent of opportunities advertised in the UK financial services industry are now in compliance. Graduates with just three years’ compliance experience are earning more than £40,000 a year, and for top posts salaries are well into six figures.
Because skilled compliance officers are in short supply, salaries soared 17 per cent last year.
No wonder that universities, working with industry, are now offering courses to fill the gap.
By Phil Manchester
The Financial Services Authority, the UK regulator, is flexing its muscles. Since 2001, when it assumed new powers under the Financial Services and Markets Act 2000, the FSA’s Enforcement Division has handed out increasingly high penalties.
In 2001-02, its first full year of operation under the new regulations, the FSA imposed fines of just over £10m. Fines rose slightly in 2002-03 and reached £12.5m in 2003-04. In 2004-05 – the latest complete year – total fines hit £22.2m and by February 2006, with two months still to go, fines for the current year stand at £16.2m.
Although the 2004-05 total was skewed by the £17m fine on oil company Shell for mis-stating its oil reserves, the trend in penalties is definitely upwards.
The increased level of fines is not, however, reflected in the number of cases the FSA has pursued.
The FSA has completed only 13 cases so far in the current year. In 2004-05, it completed 31, while in its first two years the FSA’s caseload was more than 70.
The change is the result of a deliberate policy by the FSA to pursue fewer cases – but impose higher fines. Margaret Cole, director of enforcement at the FSA, re-emphasised the change in a speech to the Securities and Investment Institute Compliance Forum in January this year.
“We will focus our enforcement activities on those areas which pose the greatest risk to our statutory objectives. We will be working very closely with the business units to ensure that our enforcement resources are deployed strategically to address cases and issues which are priorities for the FSA,” she said.
She added that this does not exclude investigation of transgressions that might lie outside the “priority strategic areas”.
The FSA has a wide brief to supervise financial dealings of companies operating in the UK, from high street financial advisers to giant corporations. Enforcement is only part of its activities, employing about 8 per cent of its 2,600 total headcount.
It is generally acknowledged that the FSA’s approach to enforcement has been successful. Headline-catching high-profile cases over the past two years such as Shell, Citigroup, Lloyds TSB and Credit Suisse First Boston International have shown the FSA to be tough on those that misbehave.
“It is certainly working – as those regulated firms and individuals who have broken the rules have found out,” says Gary Dixon, group chief executive of specialist Compliance Solutions. He goes on to say that the FSA’s broad approach to compliance means that penalties are often a last resort: “The FSA has a number of different ways of achieving its goals. If the first one does not work, then it can move on to the next one.”
Peter Bevan, a partner in the financial markets group at law firm Linklaters, says the FSA’s increased enforcement activity has led to quantifiable improvements in corporate governance:
“We have done a lot of work reviewing risk management controls and we have seen a huge amount of movement towards best practice. It is incorporating enforcement as part of its broader activities.
“Increasingly, the FSA sends in an enforcement officer as part of the team in its regular visiting programme.”
The relatively small number of penalties is, says Mr Bevan, a reflection of the industry’s positive response to compliance:
“When the FSA started in 2001, it began with a strong enforcement regime and it was assumed that it would take a lot of scalps. Although there have been some high profile cases, there have not been as many as expected.”
He goes on to say that the FSA has a unique relationship with those it supervises:
“ It is not like normal litigation because there is a continuing relationship between the FSA and the companies it supervises.”
Tim Kendal, a fraud and regulatory specialist at 2 Bedford Row, a London barristers’ chambers, agrees: “In these sort of investigations where the FSA is prosecutor and judge, they would rather deal with it administratively,” he says.
“They want to avoid legal action because, if they don’t win, the costs and the negative publicity would be destructive. There are, of course, exceptions where there could be a public interest in bringing it to court.”
Mr Kendal suggests the penalties for non-compliance could be higher – although the bad publicity is likely to be more effective in the long term.
“Although the Shell fine, for example, seems large, it’s piffling compared to those handed out in the US. Its effect on Shell is not going to amount to much. But what large corporations don’t like is the bad publicity that they are not compliant or that they may be abusing market rules.”
After only five years in its enhanced role as a “super regulator”, the FSA has shown that it can be tough on villains – whether corporate or individual.
The continued expansion of the financial sector and the prospect of further innovation in financial instruments means the FSA will face yet more challenges – and may well have to get tougher.
By Janet McBride
LONDON (Reuters) – Oil climbed further above $66 on Thursday, toward its $70 record, after Iran rejected a U.N. Security Council demand that it halt uranium enrichment.
“There's got to be a crunch point over Iran,” said Geoff Pyne, an independent oil analyst. “At the end of the day Iran is intent on uranium enrichment and the West won't allow it.”
U.S. crude (CLc1) stood at $66.58 a barrel at 1306 GMT, up 13 cents. London Brent crude (LCOc1) was up 50 cents at $66.05.
The U.N. Security Council unanimously adopted a “presidential statement” late on Wednesday calling on Iran to freeze its uranium enrichment work.
But as the five permanent Security Council members and Germany met in Berlin to discuss their next step on Thursday, Iran's ambassador to the U.N. atomic agency ruled out complying.
Oil prices touched their highest point since February 2.
In real terms oil is at levels unseen for a quarter of a century. Prices have climbed from below $20 in a four-year rally partly driven by fast-growing Chinese demand. Supply disruptions in Nigeria and Iraq have helped to fire this year's gains.
Analysts Goldman Sachs stuck to their forecast that U.S. WTI crude would average $69.50 a barrel over the rest of 2006. They noted world economic growth was on a firm footing.
“Although Goldman Sachs economists expect a slowdown in the U.S. economy in the second half of 2006, the continuing recoveries in Europe and Japan, combined with strong growth in China, should make global growth more balanced, and more sustainable into 2007,” they wrote in a research note.
NIGERIA PIPELINE RESTART
Oil has held above $60 for more than a month, partly buoyed by rebel attacks in Nigeria that have shut a quarter of oil output in the world's eighth biggest oil exporter.
Some of the lost production struggled back on Thursday when Italy's Agip (ENI.MI) lifted a force majeure on exports from its Brass terminal after repairing a sabotaged pipeline, a shipping agent said.
Attackers blew up the Tebidaba-Brass pipeline on March 17, forcing Agip to shut 75,000 barrels per day oil production and causing a spill. Some 455,000 bpd of Royal Dutch Shell (RDSa.L) production remains closed, however.
With so many question marks over supplies, the market is extremely sensitive to demand data. The United States, which uses over 40 percent of the world's gasoline, reported a sharp 5.4 million-barrel drop in weekly stocks on Wednesday.
“We continue to believe gasoline stocks will tighten further in coming weeks,” said Citigroup analysts in a note.
Analysts at BNP Paribas agreed.
“The gasoline market will still be tight over the summer. Last year refineries had to run at high rates of capacity utilisation to meet demand and a similar outcome is likely this year. This should provide support for the WTI price right through the year,” they said.
(additional reporting by Neil Chatterjee in Singapore)
This Day (Lagos)
March 30, 2006
Posted to the web March 30, 2006
As the oil spill in Kegbara Dere community in Gokana Local Government area of Rivers State continues to generate ripples, the state government has ruled out sabotage, saying Shell made frantic efforts to contain its spread.
Making the position of the state government known in an interview with newsmen yesterday, Commissioner of Environment, Dr Roselyn Konya, said the spill was as a result of aged pipes used by the multinational oil company several years ago.
According to Konya, all environmental regulatory bodies, both federal and state, have confirmed that the spill did not result from sabotage or vandalism.
The spill, which flowed between Friday and Sunday, affected Kpor, Mogho, K-Dere, B-Dere and Bara communities.
The commissioner said not less than 1,000 barrels of oil was lost to the spill, adding that the state government had ordered the owner of the pipes, Shell Petroleum Development Company (SPDC), to go to the site and start cleaning the spill.
According to her, the pipe that spilled oil had undergone repairs last year, adding, “after the repairs, we felt that there may not be any other disaster in the area.”
While expressing regrets that the spillage had caused a lot of damage to both crops and soil in the area, he said the state government has promised to send relief materials to victims of the spillage.
The state Governor, Peter Odili, visited the spill site on Monday and promised that the victims would be well compensated, and immediately ordered Ministry of Environment to get the list of those that have farmlands in the spill area.
12:42 | 30/ 03/ 2006
MOSCOW, March 30 (RIA Novosti) – Russia is expected to build four vessels to deliver oil and gas under the Sakhalin II energy project being implemented on Russia's Far Eastern island, the project operator said Thursday.
The shipyard based in St. Petersburg, Russia's second biggest city, will build two ice-breaking tankers, and a shipbuilding plant in Primorye Territory in the Far East two more vessels under a 15-year contract between Sakhalin Energy and a Russian-operating affiliate of A.P. Moller-Maersk group, which runs about 1,000 vessels and drilling platforms across the world.
Sakhalin Energy, a Dutch-British-Japanese venture that is developing two vast fields with estimated recoverable reserves of 150 million metric tons of oil and 500 billion cubic meters of gas on Sakhalin, is expected to receive six vessels from the group in 2007. They will operate under the Russian flag and cost some $140 million overall.
Sakhalin Energy, which is also building an oil terminal and a liquefied gas plant, the first one in Russia, will use the four vessels to deliver oil and liquefied gas to foreign consumers from the southern Aniva Bay.
The vessels' overall towing capacity is at least 70 metric tons. They will be fitted out with equipment to contain oil spills and fire-fighting devices. Each vessel will be operated by six-member Russian crews.
Sakhalin Energy, owned by Royal Dutch/Shell (55%) and Japan's Mitsui (25%) and Mitsubishi (20%), is working in Russia under a production sharing agreement that gives the company major tax breaks in exchange for a certain share of the output. The project, which is being implemented in difficult climatic conditions, has been complicated by environmental obstacles and repeated spending delays on the part of the Russian authorities.
Lower-than-expected oil supply figures and renewed speculation of a bid for BG pushed London's oil stocks and the FTSE 100 higher.
Strong trading in the oil majors underpinned a rise of 23.5 to 5959.2 in the blue chip index, offsetting falls for 40pc of the constituents.
BG headed the top flight throughout the day, closing up 30½ – or 4pc – at 734p. The rise followed renewed talk of a bid from Exxon Mobil at 950p a share and came despite the shares going ex-dividend. Exxon Mobil was not available for comment and BG declined to talk about the speculation.
Royal Dutch Shell, BP and Cairn Energy all responded positively, climbing 19p to £18.63, 5½ to 668½p and 25p to £21.60 respectively. The shares were also boosted by oil inventories data from the US Department of Energy showing that motor gasoline stocks had fallen by 5.4m barrels.
Angus Campbell, of spread betting firm Finspreads, said: “The rally was very much down to energy. The strengthening oil prices in the last few days has also driven the oil stocks higher.”
Elsewhere, investors welcomed better than expected, fourth-quarter figures from supermarket group J Sainsbury, showing a 5.3pc increase in like-for-like sales.
Steve Davies, of Numis, said: “In our view, Sainsbury's is very much in the sweet spot of food retailing at the moment.”
Sainsbury's shares rose 5¼ to 332¼p. Other top risers included Intercontinental Hotels Group, up 27½ to 928p, after UBS analysts upgraded the stock from “neutral” to “buy” and its target price from 930p to £11.30.
Vodafone regained some of Tuesday's losses, putting on 2½ to 122p after investors reconsidered the impact of European Commission proposals to cut roaming rates by up to 60pc.
Dresdner Kleinwort Wasserstein said Tuesday's 4pc drop in Vodafone shares showed the market “over reacted”. “We recognise the negatives of roaming regulation for operators. However, we also believe that roaming rate reductions should also lead to greater usage amongst non-business users.”
BAA rose 11½ to 838½p after a spokesman for Spain's Grupo Ferrovial SA said it was still considering all of its options with regards to acquiring the airport group.
On the downside, Scottish & Newcastle, one of a number of stocks to go ex-dividend, was the biggest blue chip faller, down 17 to 528p. Others included Amvescap, 5½ lower at 545p and BSkyB, down 2½ at 540½p.
Standard Chartered Bank said it was seeking merger and acquisition activities in Taiwan and other areas in the Asia Pacific but the news failed to help the shares, which fell a further 25 to £14.57 on fading hopes of a bid from Singapore's Temasek.
However, continued bid speculation lifted Royal Bank of Scotland 12p to £18.52 and Alliance & Leicester 11p to £11.90. Market rumours suggested Alliance & Leicester had already been approached about a bid. Spanish bank Banco Santander SA was considered as a potential suitor, along with France's Credit Agricole. Alliance & Leicester would not comment.
RBS was linked with a possible bit from Citigroup. But a source close to the situation said senior management at Citigroup had made it clear they were not in the mood for a transformational acquisition.
RBS made no comment. Citigroup was not available for comment.
Copper miner Kazakhmys shed much of its recent rise, dropping 8½ to 953½p. Analysts predicted yesterday that full-year pre-tax profits, buoyed by higher copper prices, would be 31pc better at $565m (£326m).
Troubled retailer Woolworths said like-for-like annual sales had fallen 4pc and warned of “tough trading conditions” in the year ahead. But its shares rose slightly to 35¼p.
The FTSE 250 rose 4.7 to 9820.8. Brit Insurance Holdings, the Lloyd's of London insurer, topped the mid-line risers list, adding 7p – or 8pc – to 98p after the High Court cleared plans to move £180m from the share premium account to distributable reserves.
Hikma Pharmaceuticals ticked up 18 to 408p after the Jordanian generic drug maker topped expectations with a 9pc rise in full-year profits to $64.4m pre-tax.
In other trading, Isoft, the software group, slumped 27¾ – or 16pc – to 148½p, after Accenture said it would take a $450m hit on a contract to update computer systems in the NHS, partly blaming delays in software delivery from Isoft.
Dairy Crest rose 6¾ to 481½p after it said strong sales of branded products such as Cathedral City cheese had helped it to offset oil-related cost rises.
Mar 30, 2006
Crude oil futures pulled back Thursday in early Asian trading after a 38-cent increase on the previous day on U.S. data showing a large decrease in domestic supplies of unleaded gas.
Light, sweet crude for May delivery fell 35 cents to US$66.10 a barrel on the New York Mercantile Exchange, morning in Singapore. Gasoline prices slipped less than 1 cent to US$1.9465 a gallon (3.8 liters) while heating oil futures also dropped less than 1 cent to US$1.8460 a gallon.
Last week's decline in commercial gasoline inventories in the United States was the fourth in as many weeks, and comes as refiners conduct maintenance on their facilities ahead of the Northern Hemisphere's summer driving season, when fuel demand peaks.
In its weekly petroleum report Wednesday, the U.S. Energy Department said gasoline inventories fell by 5.4 million barrels last week to 216.2 million barrels, about even with year ago levels. The agency also said that motor gasoline demand averaged 9.1 million barrels a day over the last four weeks, which is 1.3 percent above year-ago levels.
The average retail price of gasoline in the U.S. is $2.50 a gallon, up 34.5 cents from a year ago.
Inventories of distillate fuel, which include heating oil and diesel, slid by 2.5 million barrels to 124.2 million barrels, but that was 15.4 percent higher than last year. U.S. crude inventories rose by 2.1 million barrels to 340.7 million barrels, or 8.2 percent higher than last year.
Prices also continue to respond to concerns about supplies from Nigeria and the Middle East.
The outlook on Nigerian oil output remained uncertain. Royal Dutch Shell PLC, the largest foreign oil company operating in the country, has shut in nearly half of its Nigerian production and says it won't resume operations until the country is safe enough for its workers.
Iran, the No. 2 oil producer in OPEC, also remains a potential source of concern. It has been referred to the U.N. Security Council over fears it may want to misuse its nuclear program to make weapons, but the council has been at loggerheads over U.S.-led efforts to ratchet up the pressure on Tehran.
Copyright 2006 Associated Press
March 30, 2006
By JAD MOUAWAD
If Rex W. Tillerson has his way, Exxon Mobil will no longer be the oil company that environmentalists love to hate.
Since taking over as Exxon's chairman three months ago from Lee R. Raymond, his abrasive predecessor who dismissed fears of global warming and branded environmental activists “extremists,” Mr. Tillerson has gone out of his way to soften Exxon's public stance on climate change.
“We recognize that climate change is a serious issue,” Mr. Tillerson said during a 50-minute interview last week, pointing to a recent company report that acknowledged the link between the consumption of fossil fuels and rising global temperatures. “We recognize that greenhouse gas emissions are one of the factors affecting climate change.”
But despite the shift in style to a less adversarial tone, the substance of Exxon's position has not changed with the new chairman. The company said the recent report only clarified its long-held position on global warming. Indeed, Mr. Tillerson noted that he, like Mr. Raymond before him, remained convinced that there was “still significant uncertainty around all of the factors that affect climate change.”
To Fadel Gheit, a longtime industry analyst at Oppenheimer & Company in New York, Mr. Tillerson certainly presents a kinder, gentler face for Exxon. But in the end, Mr. Gheit cautioned, do not expect much difference between Mr. Tillerson and Mr. Raymond.
“It's the same old wine in a new bottle,” he said. “You can't expect a company this size to change on a dime, but you might see changes in how it projects its image to the public, to its clients.”
“Lee was impatient,” he added. “Rex is firm, but with a smile.”
Mr. Tillerson, who succeeded Mr. Raymond in January, said he saw no reason for any sharp departure in strategy. Exxon's business is about increasing oil and gas supplies to consumers, he said, not chasing alternatives that offer little prospect of replacing the fossil fuels that he views as the only realistic way to meet the world's huge and growing demand for energy.
In contrast to rivals at BP and Royal Dutch Shell, which plan to invest billions of dollars in the next decade to develop renewable energy sources like wind and solar power, Mr. Tillerson sees Exxon's future as still firmly tied to oil and natural gas.
The answer to today's high prices? “More supplies.” President Bush's reference to America's “addiction to oil”? “An unfortunate choice of words.” Exxon's role in society? “A good business, and what we do brings good things to people.”
“To say suddenly that there is something wrong about that,” he said, “I can't connect with that.”
With 30 years at Exxon, Mr. Tillerson has taken over the company at a time when the oil industry faces formidable new challenges. Not since the 1980's has there been as much talk about energy costs and the nation's dependence on oil.
After nearly two years of high energy prices, oil companies are facing public discontent at $2.50-a-gallon gasoline and political pressure over the companies' record profits. Mr. Tillerson said the situation offered him an opportunity to better explain his company's position.
“The only thing I've said to people will change, maybe, is the management style, the way I communicate,” Mr. Tillerson said. “We're all individuals. Lee Raymond is Lee Raymond. He has his style. I am Rex Tillerson and I have my style.”
Whatever Mr. Raymond's legacy on the environmental front, there's no arguing with Exxon's financial success. He pulled the company far ahead of rivals by engineering the 1999 merger with Mobil that partly recreated the original Standard Oil trust.
Exxon is now the world's largest publicly traded oil and gas producer. Last year, its net income surged to $36.1 billion, the highest for any American corporation and a 43 percent jump from the previous year. That is a legacy Mr. Tillerson is proud to defend.
But to its many critics, Exxon, based in Irving, Tex., is locked in an increasingly frustrating race for additional oil supplies and is failing to help develop alternative fuels, curb consumption and act on the real threat of global warming.
“They have to be part of the solution,” said Kert Davies, a research director at Greenpeace. “They have too much money; they are too powerful. Without Exxon pulling with the rest of the world, it will take longer to solve global warming.”
For Shawnee Hoover, the campaign director of Exxpose Exxon, a coalition of the nation's leading environmental groups, including Greenpeace and the Sierra Club, “Exxon has this prehistoric culture.”
She added: “They dig their heels in.”
But at Exxon, executives see very little reason to alter a course that has proved exceptionally profitable.
In a capital-intensive business, the company's obsession about costs has allowed it to outperform all its rivals. Its rate of return on capital employed, which the company says is the best indication of performance and cost management, reached 31 percent last year. The second-highest return among the giant oil companies, BP's, was 20 percent.
“Exxon has really been about discipline,” said Daniel L. Barcelo, an analyst at Banc of America Securities. “What Exxon brings to the table is their balance sheet, the technical expertise, and their operational management and development. That's where they shine.”
But he said the company's conservative management also had a flip side. “Others have been more willing to take risks,” Mr. Barcelo said. “Some say Exxon is actually being blind and missing out on huge opportunities for growth.”
Indeed, oil analysts argue that the company has been plowing too little money back into finding hydrocarbons while giving too much back to shareholders. Oil and gas production as well as reserves have remained mostly flat for the last five years. Last year, Exxon paid $23.2 billion in dividends and share buybacks, more than the $17.7 billion it spent on exploration and development.
A native of Wichita Falls, Tex., Mr. Tillerson, who turned 54 this month, joined Exxon in 1975 as a production engineer after graduating from the University of Texas with a degree in civil engineering. He later ran some of Exxon's American operations. In the early 1990's, he was responsible for negotiating the company's investments in Sakhalin Island in Russia, as well as in the Caspian Sea.
Since he started at Exxon, the energy business has changed radically. Easy-to-find oil has been mostly found, opportunities for new resources are scarcer, competition is rising and governments are tightening the screws on international oil companies.
But after taking over as chairman, Mr. Tillerson has already scored two major coups: gaining access to the world's fourth-largest oil field, in the United Arab Emirates, and prevailing in a five-year-old dispute over the development of Indonesia's largest untapped oil reserves.
Mr. Tillerson met with each country's leaders to break deadlocked talks or make a final pitch for his company. In Indonesia, the government fired the head of the national oil company, who opposed Exxon. His successor quickly signed a deal.
But if both agreements proved a success for Mr. Tillerson, they also mask a starker reality for oil companies: their access to the world's top hydrocarbon deposits is more limited than ever. At Exxon, the problem is magnified by the company's size. Each year, its geologists must find huge amounts of oil and gas — nearly 1.5 billion barrels — just to replace the company's production of about 4 million barrels a day.
The model for Exxon's expansion was perhaps best displayed in Qatar, a small Persian Gulf state holding the world's third-largest natural gas deposits, after Russia and Iran. In the early 1990's, Exxon approached the Qatari government with an offer to serve as a joint partner. Today, Exxon is the largest foreign investor in Qatar and the nation is on track to become the world's leading liquefied natural gas producer.
“We are looking for the large opportunities,” Mr. Tillerson said.
Referring to Qatar, Mr. Tillerson said “that approach can be replicated around the world.”
But can it? Recent setbacks in Venezuela and Russia suggest the obstacles are multiplying. After briefly welcoming foreign oil producers, Russia has now mostly shut the door to new foreign investment. In Venezuela, Exxon is battling the demands of President Hugo Chávez's nationalist government, which wants to increase royalties and other taxes on foreign investors. But rather than give in and set a precedent, the company prefers to scale back its investments or shut fields.
Still, Mr. Tillerson insisted that Exxon was not constrained by a lack of prospects or partners. “There are other opportunities,” he said, “in the Middle East, in the Caspian, in other parts of the world where we will continue to take the same approach.”
This month, at Exxon's annual session for Wall Street analysts, top executives outlined 22 major projects over the next three years, from Angola to Norway, Malaysia to the North Sea. For 2009 and beyond, they identified another 32 prospects.
To develop these projects, the company plans to increase its capital spending to $20 billion a year by the end of the decade. Exxon hopes to increase its oil and natural gas production to five million barrels a day by 2010 and lift its daily capacity by a total of two million barrels after 2015.
Dismissing the view that the world is running out of oil, Mr. Tillerson said there was still plenty more to be found to meet what Exxon expects will be a 50 percent rise in global energy demand by 2030.
At the same time, he defended Exxon's record of investing in research for alternative fuels, citing a 10-year, $100 million contribution to the Global Climate and Energy Project at Stanford, which focuses on long-term technological research. “We are going to continue to use fossil fuels,” he said. “We are looking for the fundamental changes, but that's decades away. The question is, What are we going to do in the meantime?”
Three months into the job, the changes at the helm of Exxon are mostly evident in small, impressionistic touches.
At a refiners' conference in Salt Lake City last week, for example, Mr. Tillerson urged other managers to get the industry's message out by, among other things, attending Rotary Club and PTA meetings.
And at a recent news conference, he displayed a lighter touch that one rarely associates with Exxon executives. In reply to a question about what he thought would happen to oil prices this year, for example, Mr. Tillerson offered this response: “If I knew, I'd be living on a Caribbean island with my flip-flops and a laptop, working just two hours a day.”
Praying for a miracle? By Richard Heinberg
Is gross mismanagement of the nation's energy policy an impeachable offense?
While it would be difficult to create an airtight legal case for impeaching George W. Bush based on his ignoring the very real threat posed by Peak Oil, nevertheless I believe that his actions—and inaction—in this regard constitute dereliction of duty on an unprecedented scale.
It is part of the job of leaders to foresee problems and either steer around them or prepare for them. A head of state is analogous to the captain of a ship, who is responsible not only for keeping his vessel on course but also for avoiding hazards such as storms and icebergs. Some problems are not foreseeable; others are. A ship’s captain who loses his vessel to a freak “perfect storm” may be blameless, but one who steers his passenger liner directly into a foggy ice field, having no sonar or radar, is worse than a fool: he is criminally negligent.
The argument I will make, in brief, is this:
Peak Oil is foreseeable. The consequences are also foreseeable and are likely to be ruinous. The Bush administration has been repeatedly warned. Actions could be taken to reduce the impact, but the longer those actions are delayed, the worse the impact will be. The administration, rather than taking steps to mitigate these looming catastrophic impacts, has instead done things that can only worsen them.
Let us go through these points one by one.
Is Peak Oil Foreseeable?
Peak Oil—the point at which the rate of global production of petroleum begins its inevitable historic decline—is a subject of growing public interest. The basic concept is derived from experience: during the past century-and-a-half all older oil wells have been observed to peak and decline in output. The same has been noted with entire oilfields, and with the collective oil endowment of whole nations. Indeed, most oil-producing nations have already seen their output enter terminal decline. Few informed observers doubt that the rate of oil production for the world in total will reach a maximum at some point and then slowly wane.
The science of Peak Oil was worked out in the 1950s by veteran geophysicist M. King Hubbert, who successfully used his method to predict the U.S. peak (1970). Declassified CIA documents show that by the late 1970s the Agency was using similar methods to forecast the Soviet Union’s oil peak.1
We do not know exactly when the global peak will occur, but it will almost certainly happen within the period between now and 2035.
Considering the importance of the peaking event, the range of uncertainty regarding its timing is disturbing. If the peak were to occur within the next five years, our national economy would be unable to adjust quickly enough to avert calamity (as we will discuss below), while a peak 30 years from now would present a much greater opportunity for adaptation.
Though there is continuing controversy over the question of when the peak will happen, there is strong evidence for concluding that it may come sooner rather than later, and that the world may already have entered the peaking period. Signs of a near-term peak include the fact that global rates of oil discovery have been falling since the early 1960s—as has been confirmed by ExxonMobil. Declining discovery rates represent a well-established trend and cannot be said to be the result merely of transient factors. In 2005, according to IHS Energy Inc., a total of 4.5 billion barrels of oil were discovered in new fields, while 30 billion barrels of oil were extracted and used worldwide. Thus, currently only about one barrel of oil is being discovered for every six extracted.2
Until now, the global oil industry has been able to replace depleted reserves on a yearly basis, mostly by re-estimating the size of existing fields. The Royal Swedish Academy of Sciences, in a recent publication, “Statements on Energy,” describes the situation this way:
In the last 10–15 years, two-thirds of the increases in reserves of conventional oil have been based on increased estimates of recovery from existing fields and only one-third on discovery of new fields. In this way, a balance has been achieved between growth in reserves and production. This can’t continue. 50% of the present oil production comes from giant fields and very few such fields have been found in recent years.3
The 100 or so giant and super-giant fields that are collectively responsible for about half of current world production were all discovered in the 1940s, ’50s, ’60s, and ’70s and most are now going into decline. These days, exploration turns up only much smaller fields that deplete relatively quickly.
Chris Skrebowski, editor of Petroleum Review and author of the study “Oil Field Megaprojects,” notes that “90% of known reserves are in production,” and that “as much as 70% of the world’s producing oil fields are now in decline” with decline rates averaging between four and six percent per year.4
Thus, while the U.S. Department of Energy predicts that world oil production will increase over the next 20 years from 85 million barrels per day (Mb/d) to 120 Mb/d in order to meet anticipated demand, a growing chorus of petroleum geologists and other energy analysts warns that such levels of production will never be seen.
A French report from the Economics, Industry & Finance Ministry, “The Oil Industry 2004,” took a careful look at future supply issues, forecasting a possible peak in world production as early as 2013.5
Ford Motor Company Executive Vice President Mark Fields, in his keynote address in October, 2005 at the Society of Automotive Engineers’ “Global Leadership Conference at the Greenbrier,” noted the seven most serious challenges to his industry, one of which was that “oil production is peaking.”6 Volvo motor company has for several years acknowledged in its company literature that a global oil production peak is likely by 2015.7
Legendary petroleum geologist T. Boone Pickens, who started his career in the early 1950s as a roughneck in oilfields in Oklahoma and Texas and went on to co-found Mesa Petroleum and Petroleum Exploration, told the 11th National Clean Cities conference in May, 2005 that “Global oil [production] is 84 million barrels [a day]. I don’t believe you can get it any more than 84 million barrels. . . . I think they are on decline in the biggest oil fields in the world today and I know what it’s like once you turn the corner and start declining, it’s a treadmill that you just can’t keep up with.”8
Royal Dutch Shell Chief Executive Jeroen Van Der Veer has said, “My view is that ‘easy’ oil has probably passed its peak.”9
J. Robinson West, founder and chairman of PFC Energy, one of Washington’s most influential international energy consulting firms, and a former Assistant Secretary of the Interior in the Reagan Administration, predicts that the “tipping point” when global supply of oil ceases to grow could arrive in 2015.10
Veteran petroleum geologist Henry Groppe, a Houston-based independent analyst who began his career in 1945 and who is today a consultant to global corporations as well as to nations, said in 2005 that “Total crude oil production may have peaked this year, or perhaps will peak next year.”11
Matthew Simmons, founder of Simmons & Company International energy investment bank, has been perhaps the most outspoken of oil analysts and investors regarding Peak Oil. A consultant to the Cheney Energy Policy Development Group that met in secret in 2001, he is the author if Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy (Wiley, 2005). Simmons has concluded, on the basis of his study of technical papers from the Society of Petroleum Engineers, that Saudi Arabian oil production is close to its maximum, and that world oil production is also therefore close to its peak.
On March 1, 2006 The New York Times published an editorial by Robert Semple, Associate Editor of the Editorial Page for the Times since 1998, in which he wrote, “The concept of peak oil has not been widely written about. But people are talking about it now. It deserves a careful look—largely because it is almost certainly correct.”12
In short, the science behind Peak Oil is well established, and, while there is some disagreement about exactly when the global peak will arrive, there can be no excuse at this stage for ignoring the problem.
Does the Administration Know About Peak Oil?
The New York Times knows about Peak Oil, but does the president? On this point the evidence is conclusive.
First of all, agencies within the government clearly understand the problem, and therefore relevant information must be readily available to the chief executive if he wishes to have it.
Explicit warnings of Peak Oil have started to turn up in official U.S. government literature. For example, a paper prepared for the U.S. Army Corps of Engineers titled “Energy Trends and Implications for U.S. Army Installations” (Sept., 2005) includes the following tidbit:
The supply of oil will remain fairly stable in the very near term, but oil prices will steadily increase as world production approaches its peak. The doubling of oil prices in the past couple of years is not an anomaly, but a picture of the future. Peak oil is at hand. . . .13
Then there is the following from the U.S. Department of Energy, Office of Deputy Assistant Secretary for Petroleum Reserves, Office of Naval Petroleum and Oil Shale Reserves, dated March 2004:
The disparity between increasing production and declining reserves can have only one outcome: a practical supply limit will be reached and future supply to meet conventional oil demand will not be available. The question is when peak production will occur and what will be its ramifications. Whether the peak occurs sooner or later is a matter of relative urgency. . . . In spite of projections for growth of non-OPEC supply, it appears that non-OPEC and non-Former Soviet Union countries have peaked and are currently declining. The production cycle of countries . . . and the cumulative quantities produced reasonably follow Hubbert’s model. . . . The Nation must start now to respond to peaking global oil production to offset adverse economic and national security impacts.14
And then there is the 2005 Report, “Peaking of World Oil Production: Impacts, Mitigation and Risk Management,” commissioned by the U.S. Department of Energy, about which we will have more to say below.15
If none of this is specific enough (in fairness, we cannot expect George W. Bush to spend his evenings poring over obscure Army Corps of Engineers studies), we have the fact that Representative Roscoe Bartlett, Republican from Maryland’s sixth district—who has made many speeches about Peak Oil on the floor of Congress—has spent thirty minutes in private conversation with the president explaining the science of Peak Oil and seeking to convey the enormity of the problem.16
But what if Bush wasn’t able to understand what Bartlett was telling him? After all, Bartlett has a Ph.D. in physics; perhaps he was using words that were too big, or concepts too abstruse for our president to grasp.
Even if that were the case, we have evidence that Bush’s second-in-command, vice president Cheney, understands Peak Oil; given time, Cheney could surely make the concept comprehensible to his superior. In a speech in 1999 (while he was still CEO of Halliburton Corporation, the giant oil services company) to the Petroleum Institute in London, Cheney pointed out that
By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional fifty million barrels a day.17
This is a fair statement of the depletion dilemma: 50 million barrels per day is almost five times the current output of Saudi Arabia.
Finally there is the fact that is that Bush and Cheney are themselves former oilmen: their inside knowledge of the industry should give them enhanced insight into the problem of Peak Oil. Some would say that these officials’ former ties to the petroleum industry imply a conflict of interest (they have been accused of giving perks to oil companies, even to Halliburton—perish the thought!). However, some of the most outspoken authorities on Peak Oil are retired petroleum geologists or engineers who have spent decades working for oil companies. Having former industry insiders in public office today could be good, if they used their technical knowledge to benefit the country by warning of the consequences of continued oil dependency. But, as we will see below, there is no evidence that the particular former oilmen currently occupying the highest offices in the land are doing any such thing—at least not genuinely or effectively.
In sum, while it is impossible to say whether Mr. Bush understands Peak Oil, no one could credibly argue that that he simply hasn’t heard about it.
How Serious Is the Threat?
Addressing this question requires some speculation: the peaking of global oil production is an event that has never occurred before. However, we need not speculate baselessly; for guidance we have a U.S. government-funded study that could hardly be more relevant—“The Peaking of World Oil Production: Impacts, Mitigation and Risk Management,” prepared by Science Applications International (SAIC) for the U.S. Department of Energy, released in February 2005. The project leader for the study was Robert L. Hirsch, who has had a distinguished career in formulating energy policy. The report on the study will hereinafter be referred to as “The Hirsch Report.”
The first paragraph of the Hirsch Report’s Executive Summary states:
The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.18
As the Hirsch Report explains in detail, due to our systemic dependence on oil for transportation, agriculture, and the production of plastics and chemicals, every sector of society will be impacted.
The Hirsch Report effectively undermines the standard free-market argument that oil depletion poses no serious problem, now or later, because as oil becomes scarcer the price will rise until demand is reduced commensurate with supply; meanwhile, higher prices will stimulate more exploration, the development of alternative fuels, and the more efficient use of remaining quantities. While it is true that rising prices will do all of these things, we have no assurance that the effects will be sufficient to avert severe, protracted economic, social, and political disruptions.
First, price increases may or may not stimulate more exploration, or do so sufficiently or productively. During the early 20th century, more exploration resulted in more oil being discovered. However, in recent decades, expanded exploration efforts have turned up fewer and fewer finds. It is difficult to avoid the obvious conclusion that there simply isn’t much oil left to discover.
Higher prices for oil will also no doubt spur new investment in alternative fuels. But the time required to produce substantial quantities of alternative fuels will be considerable, given the volume of our national transportation fuel consumption. Moreover the amount of investment required will be immense. And it would be unrealistic to expect most alternatives to fully or even substantially replace oil at any level of investment, and even with decades of effort, given practical, physical constraints to their development.
Higher prices will also no doubt spur efficiency measures, but the most productive of these will likewise require time and investment. For example, raising the fuel efficiency of the U.S. auto fleet would require years for industry retooling and more years for consumers to trade in their current vehicles for more-efficient replacements.
James Schlesinger, who served as CIA director in the Nixon administration, defense secretary in the Nixon and Ford administrations, and energy secretary in the Carter administration, in November, 2005 testimony before the Senate Foreign Relations Committee urged lawmakers to begin preparing for declining oil supplies and increasing prices in the coming decades. “We are faced with the possibility of a major economic shock and the political unrest that would ensue,” he said.19
Schlesinger was far from overstating the threat. In fact, it would be no exaggeration to view Peak Oil as potentially representing the economic, social, and political impact of a hundred Katrinas. And that impact will not subside in a few days’ or years’ time: once global oil production has peaked, the energy shortfalls for transportation and agriculture will be ongoing, relentless, and cumulative.
What Should the Administration Be Doing?
Responsible and competent people who have studied the problem of Peak Oil, (including Robert Hirsch and his colleagues) agree that efforts will be needed to create alternative sources of energy, to reduce demand for oil through heightened energy efficiency, and to redesign entire systems (including both cities and the rural agricultural economy) to operate with less petroleum.
The Hirsch Report’s methodology involved the examination of three scenarios:
Scenario I assumed that action is not initiated until peaking occurs.
Scenario II assumed that action is initiated 10 years before peaking.
Scenario III assumed action is initiated 20 years before peaking.
In all three scenarios, the Hirsch study assumed a “crash program” scale of effort (that is, all the resources of government and industry are marshalled to the tasks of creating supplies of alternative fuels and reducing demand through efficiency measures). The study found that, due to the time required to start efforts and the scale of mitigation required, Scenario I will result in at least 20 years of fuel shortfalls. With 10 years of preparation, a 10-year shortfall is likely. And with 20 years of advance mitigation effort, there is “the possibility” of averting fuel shortages altogether. The Report also concludes that “Early mitigation will almost certainly be less expensive than delayed mitigation.”20
In other words, if global Peak Oil is 20 years away or fewer, or we believe it might be, then we must begin immediately with a full-scale effort to address the problem.
Most Americans would understandably prefer to solve the dilemma simply by switching to alternative fuels, thus enabling them to maintain their current habits. But, as we have already noted, there are problems with that strategy.
Biofuels (ethanol, wood methanol, and biodiesel) require land area for production and are plagued by the problem of low net-energy yields. According to the calculations of Jeffrey Dukes of the University of Massachusetts, over a hundred tons of ancient plant matter are concentrated in every gallon of gasoline we use today.21 Granted, modern methods of biofuels production are more efficient than nature’s slow means of producing crude oil, but still this analysis should give us pause: trying to replace a substantial fraction of our 20 million barrels per day of national oil consumption with biofuels could potentially overwhelm an agricultural system already destroying topsoil and drawing down ancient aquifers unsustainably.
It is possible to produce liquid transportation fuels from coal and natural gas. However, natural gas is itself a problematic fuel in North America (domestic production peaked in 2001), and coal—a low-quality hydrocarbon—would present a host of environmental and practical quandaries if we tried to increase mining sufficiently to replace a significant proportion of our oil budget. In the end, coal is likewise a depleting fossil fuel: while it is often said that we have hundreds of years’ worth of the stuff, that assumes current rates of consumption and ignores variable quality; assuming dramatic increases in consumption (for oil replacement) and taking into account the fact that much coal offers a low energy yield, those centuries shrink to a very few decades.22
Which brings us to the strategies of conservation, efficiency, and curtailment. These clearly present the best opportunities, though efforts along these lines will eventually require significant changes in Americans’ habits and expectations.
Our automobiles could be made much more fuel-efficient, though this will require government leadership via higher CAFE standards. But over the long term automobiles and trucks simply aren’t good options for transportation, given their inherent energy inefficiency. Thus the nation will need a much-expanded freight and passenger rail system. Our cities, most of which have been designed for the automobile, need to be made more neighborhood-oriented and walkable, and provided with light-rail transit systems. Meanwhile agricultural production must be freed, as quickly and completely as possible, from fossil-fuel inputs. All of these efforts will require substantial investment and many years of work.
If, as the Hirsch Report tells us, the market will be incapable of shifting investment incentives quickly enough away from the old oil-based, energy-guzzling energy infrastructure and toward the new alternatives-based, super-efficient one, then government will have to lead the way through a sustained commitment of effort on a wartime scale. The estimated one to three trillion dollars consumed so far in the invasions and occupations of Afghanistan and Iraq, had they been spent instead on domestic energy security, would probably have represented an appropriate level and rate of funds allocation.
What Has the Administration Done?
Before examining what Bush and Cheney have done (and not done), we should in fairness note that previous administrations are far from blameless. During the Clinton–Gore years, imports of oil increased while CAFE standards languished. However, in a court of law the incompetence or even criminality of others is seldom a viable defense for one’s own culpable actions.
That said, in light of the threat and the needed effort, what has the current president actually accomplished?
First of all, the administration effectively buried the Hirsch Report. For many months it was available only on a high school web site, then on the Project Censored site; only toward the end of 2005 did it appear on a Department of Energy site. There has been no public mention whatever of the Report by any official in the Executive Branch. Thus the administration has sought not to respond to warnings of approaching crisis, but simply to muffle the warnings.
During the past six years, funding for renewable energy programs and for energy efficiency has not increased substantially. Meanwhile the administration has consistently sought to remove subsidies for the nation’s passenger rail system, Amtrak, while continuing to support immense subsidies for highways.
To be sure, Bush has occasionally spoken about the need for an energy policy, as in a speech to the nation in April 2005:
First, we must better use technology to become better conservers of energy. And secondly, we must find innovative and environmentally sensitive ways to make the most of our existing energy resources, including oil, natural gas, coal and safe, clean nuclear power. Third, we must develop promising new sources of energy, such as hydrogen, ethanol or bio-diesel. Fourth, we must help growing energy consumers overseas, like China and India, apply new technologies to use energy more efficiently and reduce global demand of fossil fuels.23
I would disagree with a few of these suggestions, but over all this is not a bad summary of what actually needs to happen. But talk is cheap, and talk that accomplishes next to nothing is, in this situation, a criminally negligent diversion and waste of time. The words just quoted were spoken in the context of the president’s promotion of an energy bill that actually did very little except to increase tax breaks to the fossil fuel industry.
In his 2006 State of the Union address, Bush said that the U.S. is “addicted to oil,” and put forward the goal of reducing oil imports from the Middle East. The next day his staff backpedaled, saying that this goal was only an “example.”24
Five years into the Bush administration, the nation is more dependent on imported oil than ever before. It is facing an impending energy crisis that a government-funded study says will be “unprecedented” in scope and consequences. And needed preparation efforts are nowhere to be seen.
Given all this, how will impeachment help? While it would be justified as a punishment for ineptitude or criminality, impeachment will not materially assist the nation to deal with Peak Oil unless current officials are replaced with ones who understand the problem and who are prepared to implement policies that radically shift America’s priorities in terms of energy, transportation, urban infrastructure, and agriculture. Looking out over the current political landscape in Washington, it is difficult to identify who those new officials might be. Nevertheless, it would help the nation to start now with a clean slate, and with a popular mandate for the new team of leaders to move rapidly to achieve energy security.
1. See discussion of this topic in my book Powerdown: Options and Actions for a Post Carbon World (New Society, 2004), pp. 40–41.
2. IHS discovery numbers are proprietary and costly, and so cannot be referenced directly; however this 4.5 billion-barrel figure was confirmed in personal correspondence by Chris Skrebowski, editor of Petroleum Review.
3. “Statements on Oil” Royal Swedish Academy of Sciences Energy Committee. (17 Oct. 2005) http://www.energybulletin.net/9824.html (accessed 17 Jan., 2006)
4. Chris Skrebowski, “Prices Set Firm, Despite Massive New Capacity,” Petroleum Review, October 2005.
5. http://news.bbc.co.uk/1/hi/business/4077802.stm (accessed 13 March, 2006)
6. http://www.greencarcongress.com/2005/10/ford_exec_oil_p.html (accessed 13 March, 2006)
7. Future Fuels reportf (PDF) (accessed 13 March, 2006)
8. Michael DesLauriers, “Famed Oil Tycoon Sounds Off on Peak Oil, Resource Investor, 23 June, 2005 (accessed 13 March, 2006)
9. Jeroen Van Der Veer, “Vision for Meeting Energy Needs Beyond Oil,” Financial Times”
10. Global Energy Markets (PDF) (accessed 13 March, 2006)
11. Michael DesLauriers, “Oil Forecasting Legend Discusses Peak Oil, Share Prices,” Resource Investor, 19 October, 2005 (accessed 13 March, 2006)
12. Robert B. Semple, Jr., The End of Oil, The New York Times, 1 March, 2006 (accessed 13 March, 2006)
13. Adam Fenderson and Bart Anderson, “US Army: Peak Oil and the Army’s Future,” Energy Bulletin 13 March, 2006 (accessed 13 March, 2006)
14. “Strategic Significance of America’s Shale Oil Resource,” Vol. 1, “Assessment of Strategic Issues,” Office of Deputy Assistant Secretary for Petroleum Reserves, Office of Naval Petroleum and Oil Shale Reserves, U.S. Department of Energy, March 2004 .
15. Robert L. Hirsch, et al., “The Peaking of World Oil Produciton: Impacts, Mitigation and Risk Management,” February 2005. http://www.projectcensored.org/newsflash/the_hirsch_report.pdf (PDF) (accessed 13 March, 2006)
16. “Congressman Bartlett Discusses Peak Oil with President Bush,” staff, Energy Bulletin, 29 June, 2005 http://www.energybulletin.net/7024.html (accessed 13, March, 2006)
17. http://www.energybulletin.net/559.html (accessed 13 March, 2006)
18. Hirsch, op. cit.
19. http://www.senate.gov/~foreign/testimony/2005/SchlesingerTestimony051116.pdf (PDF) (accessed 13 March, 2006)
20. Hirsch, op. cit.
21. “Price of Gas,” ScienCentral News, 28 July, 2005, http://www.sciencentral.com/articles/view.php3?article_id=218392605&cat=all (accessed 13 March, 2006)
22. Gregson Vaux, “The Peak in US Coal Production,” From the Wilderness, 27 May, 2004 http://www.fromthewilderness.com/free/ww3/052504_coal_peak.html (accessed 13 March, 2006)
23. http://www.whitehouse.gov/news/releases/2005/04/20050428-9.html (accessed 13 March, 2006)
24. http://www.whitehouse.gov/stateoftheunion/2006/index.html (accessed 13 March, 2006)
Richard Heinberg is the author of two of the most essential books in the Peak Oil canon, The Party’s Over and Powerdown as well as a forthcoming small book to introduce the Depletion Protocol to a wide audience. This article is the April 2006 edition (#168) of Heinberg’s MuseLetter series.
For permission to republish this essay, please contact him at [email protected]
Editor’s note: This article was written as a chapter to be published in a forthcoming book by Project Censored titled The Case for Impeachment of Bush and Cheney, Seven Stories Press, Summer 2006.
Mar 29, 2006
LONDON (MarketWatch) — The Indian government is interested in participating in Russia's Sakhalin III oil and gas project through one of the country's state-run companies, a top Indian official said Tuesday.
The Sakhalin II project, controlled by Royal Dutch Shell PLC (RDSB.LN), “is closed. On Sakhalin III, we are looking for opportunities,” M.S. Srinivasan, the secretary for India's petroleum and natural gas ministry told Dow Jones Newswires during a visit to London.
He said India's petroleum and gas minister, Murli Deora was in touch with his Russian counterpart on the project, located off Russia's Far East coast.
Asked if India was seeking participation in the project through state-run companies such as Oil & Natural Gas Corp. Ltd (500312.BY), or ONGC, Srinivasan answered “yes.”
ONGC already has a 20% stake in the Exxon Mobil Corp. (XOM)-led Sakhalin I project.
However, the underdeveloped Sakhalin III acreage has long been coveted by oil companies.
Last year, Sinopec Shanghai Petrochemical Co. (SHI) agreed to buy about 25.1% in the Veninsky sector of Sakhalin III. Russian state-owned company OAO Rosneft (RNT.YY), the largest shareholder, still owns about 49.9% in Veninsky and the Sakhalin regional government about 25.1%, a Rosneft spokesman said Wednesday.
The spokesman said no talks are taking place between Rosneft and India, or Indian companies, on a possible participation in Veninsky. He added that discussions, if any, could take place with the Sakhalin government, although the latter couldn't be reached for confirmation.
Veninsky's estimated recoverable reserves stand at 114 million tons of oil and 315 billion cubic meters of gas, according to Rosneft.
However, other blocks in Sakhalin III are set to be re-awarded after a new mineral law comes into force at a yet-to-be determined date.
Rights to explore the blocks were granted in 1993 to a consortium headed by Exxon Mobil and Chevron Inc. (CVX), together with Rosneft, but were revoked in 2004. It is possible they could re-awarded to another applicant.
In its annual 2005 report, Exxon says “exploration activities on the Sakhalin III blocks are pending the award of exploration and production licenses by the Russian government.”
It is unclear whether the Sakhalin III blocks could come under a strategic list of assets which can't be controlled by foreign companies.
New Delhi, March 29 (UNI): Top energy majors including Shell, BP, BG, Respol, BHP and Cairn have expressed their interest to expand their operations in Exploration and Production (E&P), distribution and marketing of natural gas, including city gas distribution network in India.
Petroleum and Natural Gas Minister, Murli Deora, is currently in London for a road-show to showcase the latest New Exploration Licence Policy (NELP-VI) blocks.
The Minister along with senior officers in the delegation had several meetings with E&P companies and service companies. The major E&P companies that had one-on-one meetings are BP, Shell, ENI, Petrobras, BG, Repsol, BHP and Cairn.
In the meeting held with BG, Deora explained the vast opportunities arising in oil and gas sector in India particularly in the form of this offer (NELP-VI).
In addition, the Minister referred to the speech of the Prime Minister Dr Manmohan Singh last fortnight in which the Prime Minister had underlined the need for expanding CNG and PNG distribution network rapidly in all regions, cities and towns in India.
Deora also stated that the Petroleum and Natural Gas Regulatory Board (PNGRB) would be in place shortly. The company mentioned that they are already in India and are looking to expand their involvement in E&P sector and distribution and marketing of natural gas, including city gas distribution network.
They informed that ONGC and BG have already signed farm-out agreement for three deep-water blocks in Krishna Godavari basin.
The road show to promote recently launched 55 Oil and Gas Exploration Blocks under 6th round of NELP in London drew a big response from international companies.
As many as 82 international companies attended the Road Show. The major companies which participated include BP, Shell, Total, Statoil, Chevron, BG, Repsol, Cairn Energy, Woodside, Petrobras, Maersk, Devon, ENI, Burren, BHP, Ensearch, Goepetrol and Premier oil. Of the 82 participating companies, 38 prominent E&P companies from oil and gas sector were present.
Riding on the success of NELP-V, the Government announced the launch of global competitive offer of 55 exploration blocks, which include 24 deepwater blocks, 6 shallow water blocks and 25 onshore blocks.
This offer covers the highest ever acreage of 352 thousand sq km, nearly 12 per cent of the Indian sedimentary area.
In meetings with Petrobras, Deora invited the company to participate in NELP-VI. Petrobras informed that they have already signed an MoU with HPCL for participation in NELP-VI. BP in their meeting with the Indian delegation informed that they are already in India and are looking forward to expand their involvement in the E&P sector.
They are also discussing with ONGC to participate in the blocks held by ONGC, especially in deep-water area in Saurashtra Kutch.
The London Road Show spanned over two days — 27 and 28 March 2006 and comprised extensive and detailed presentations and one-on-one meetings with the companies.
The presentations, covered the geological potential of the blocks, liberal fiscal and contract terms, the experience sharing of working in Indian E&P sector by leading international and national companies (both private and public), presentations by industry associations and the merchant bankers and consultants.
The first road show was held in Delhi on March 10, while the next one would be held in Houston (US) on March 30 for NELP-VI and on March 31 for CBM-III.
By MASOOD FARIVAR
March 29, 2006; Page C4
Crude futures smashed out of their recent trading range, rallying nearly $2 and closing above $66 a barrel for the first time since early February as supply worries heightened.
The May crude delivery contract on the New York Mercantile Exchange rose $1.91 a barrel, or 3%, to $66.07, the highest close since Feb. 1. Crude futures had spent much of the past two months in a range of $59 to $65.
The rally came amid a backdrop of growing worries about supplies in major oil-producing countries.
In Norway, the country's largest private-industry union, Fellesforbundet, threatened to strike Saturday if an agreement isn't reached by Friday with the Federation of Norwegian Industries over pensions and wages.
The strike wouldn't affect offshore oil and gas production. Nevertheless, traders and analysts said the threat led to a burst of buying by investors already jittery about the loss of more than a quarter of Nigeria's crude-oil production.
“Every time we got any news suggesting that there is a problem with supply, this market wants to rally,” said Peter Beutel, president of trading advisory firm Cameron Hanover in New Canaan, Conn.
Nigerian militants on Monday freed the last three of the oil workers they had been holding hostage, but said they would continue attacks on oil infrastructure. Royal Dutch Shell PLC, the largest foreign oil company operating in the country, has shut nearly half of its Nigerian production, and says it won't resume operations until the country is safe for its workers.
In other commodity markets:
SUGAR: Prices on the New York Board of Trade climbed nearly one cent per pound and touched one-month highs as the market followed gains in crude oil and purchases by speculative funds. The May contract ended up 0.69 cent at 18.17 cents a pound.
COPPER: Prices on the Comex division of the Nymex pulled back slightly from Monday's levels. However, analysts and traders say the upward trend in copper is still intact, and prices could touch $2.50 a pound soon. The March contract ended up 1.9 cents to $2.4940 a pound, while the most-active May future closed down 0.15 cent to $2.4250.
Write to Masood Farivar at [email protected]
With green issues a hot political topic, environmentalists were hoping Gordon Brown's budget would tackle climate change head on. It was certainly on the agenda, but John Vidal looks at the reality behind the rhetoric
Wednesday March 29, 2006
For just a few hours last Wednesday, the broad British environmental movement toyed with the idea that Gordon Brown was transforming himself into Gordon Green. After nine years of saying the environment was important, and then doing little, the supremely confident chancellor appeared to be throwing around green money, green ideas and green initiatives.
“I want the UK's homes and businesses to be the most energy efficient in the world,” he said – and it looked as if he meant it. Micro-power was to get £50m seed money, there were to be tax reforms, drivers of gas-guzzling 4x4s were to be penalised and smaller cars rewarded, 250,000 homes were to be better insulated, biofuels and energy saving encouraged. There was to be a much-lobbied-for annual carbon budget, an ambitious national institute of energy was to be established and waste was to be addressed.
But even as environment groups, local authorities and a newly-committed businesses sector held their breath, it dawned that they had all mostly fallen for the oldest trick of the political game. The consensus slowly emerged that the chancellor had stroked them, told them they were important, handed out a few bones, but left them in the end with little.
Take the money promised – over three years, it later emerged – for micro-renewable technologies such as small-scale wind power, boilers, solar heating and electricity. The chancellor was putting up £50m, he said, “to enable 30,000 buildings in Britain [to micro-generate some of their own electricity]”.
“This is fantastic news,” gushed Gaynor Hartnell, head of renewable power at the Renewable Energy Association. “We were hoping that this would be the year when micro-renewables really took off, what with the publication of the micro-generation strategy, and the minister's obvious enthusiasm for the sector. An additional £50m for the low carbon buildings programme is a welcome sign that the government has been listening to us about the massive potential in this sector.”
By the next morning, the chancellor's real scale of ambition was better understood. Even if 30,000 buildings in Britain were converted – again, over several years – that would represent less than 0.15% of the crumbling, energy-leaking British building stock. Solar Century, an ambitious, fast-growing company with a vision to turn every roof and wall in Britain into a mini power station generating photo-voltaic (PV) electricity, was furious.
Chief executive Jeremy Leggett said: “Our competitors [in Japan, Germany and elsewhere] have support programmes for solar PV measured in billions of pounds, not millions. Divide that money by the six technologies [that the government defines as micro-generation] and you come up with less than £5m per year per technology, and that does not include energy efficiency, or the gas micro-CHP [combined heat and power] that the DTI slipped into the supposedly renewables-only programme at the eleventh hour.
“By contrast, Japan has spent an average of £100m a year for 10 years in building its PV industry. California is investing $2.9bn [£1.7bn] over 10 years. Germany pays premium prices for solar electricity, guaranteed for 20 years, financed by a tiny levy on the rates of all consumers. These programmes have the kind of scale and continuity that attract private investors.
“In the UK, we have another drip feed, for a few years. The government continues to fall far short of its rhetoric on the seriousness of climate change. Meanwhile, UK plc continues to lose out in some of the fastest-growing markets in the world, markets that hold the key to energy security and surviving global warming.”
The chancellor may have identified that the environment was one of the great issues facing the country at the moment, and that global warming was top of the agenda, but his attempts to deal with it seemed woeful, said most groups the morning after the budget.
On the plus side, the Local Authority Fund was to be given £20m to “enable 250,000 more homes to become better insulated”. But that amounts to about £87 a home – enough for a roll or two of insulation and one man's wages for an hour.
Modest assistance for householders to increase insulation, an increase in the climate change levy in line with inflation, a voluntary labelling scheme for some energy-using products, a pilot scheme to trial “smart” electricity meters, and a decision to take a proposal to the World Bank regarding a large fund for new technologies for developing countries – all were welcome in their own way, said the chastened environmental groups, but the consensus was that they added up to very little in the face of what scientists say is needed.
It was left to Tony Juniper, head of Friends of the Earth, to put the chancellor's measures into context: “Carbon dioxide emissions have risen under Labour. They have now reached record concentrations in the atmosphere, and if action is not taken immediately it may soon be too late to avoid catastrophic impacts arising from global warming.
“The measures set out in the budget are not enough to enable the government to achieve its target to reduce emissions of carbon dioxide by 20% compared to 1990 levels – a promise repeated in the last three Labour general election manifestos. Mr Brown needs to get more serious about climate change before it is too late”.
Caroline Lucas, Green MEP for south-east England, was even more damning: “Given that we're facing a climate catastrophe, Brown is trying to put out a forest fire with a bucket of water,” she said.
The transport reform campaigners felt the most let down. The much-hyped gas guzzler tax increases raised driving costs for some of the richest people in Britain by less than £1 a week, fuel duty was frozen again in deference to the road lobby, and aviation fuel and passenger taxes were not touched – again. While the Treasury continued to back the line that it was waiting for European consensus before it acted on aviation, its officials admitted that a freeze in air passenger duty would result in a “small” increase in carbon emissions and local air pollutants from aviation.
In fact, say many working at the coalface of the British environment, the budget could be defined by what was not in it. There was very little to help people, businesses or councils to waste less or recycle more; barely anything for councils trying to get people out of their cars on to footpaths or cycle tracks; nothing to encourage people to save water in a year of inevitable drought; little to protect landscapes or increase biodiversity; not much for air quality or noise; no encouragement to tighten planning, to force electricity companies to waste less.
As a postscript to the budget, environment secretary Margaret Beckett yesterday announced long-awaited plans to meet climate change targets. But for all the drastic action that Blair has urged other world leaders to take to avoid catstrophe, it was very much business as usual, with the emphasis on real changes being made later. A case, perhaps, of the buck being passed back to Brown.
The energy element
Labour's love of public-private partnerships took on a green tint last week when Gordon Brown announced a new scheme to develop more environmentally friendly sources of energy. David King, the government's chief scientist, hailed the new National Institute for Energy Technologies as “the biggest leap forward for energy research in the UK for the last 20 years”. The partnership aims to raise £1bn of funds, and energy giants BP, Shell and EDF have already said they will be involved.
Details of the new institute are sketchy. The Treasury said it will tackle specific 10-year goals, but didn't explain what those might be – only that they would be “in relation to energy sources and technologies that reduce carbon emissions and contribute to the security of energy supply”. It said public money would be found to match private investment, up to a set limit.
The new institute builds on a broader – but equally vague – initiative called the Energy Research Partnership, which was announced in last year's budget and officially launched in January. Run by the Department of Trade and Industry, the partnership is also intended to “identify approaches and technologies to accelerate carbon reduction while maintaining security of supply”. According to its website, its mission “is to work together towards shared goals and act as a sounding board for, and generator of, ideas”. The DTI has no more details about this scheme either, but says the remit and scope of the new institute will be hammered out “very soon”.
Environmental campaigners are worried that the new arrangement might be a way to leverage more public funds into restarting the UK's nuclear power programme – a government decision on which is expected in the summer. EDF Energy, one of the early backers of the chancellor's new public-private institute, and the company that runs the French atomic power stations, has already said it wants to build up to 10 new nuclear stations in Britain. Sue Ion, director of technology at British Nuclear Fuels is a member of the Energy Research Partnership, but the DTI says it is too early to say what types of energy it will work on.
By THE ASSOCIATED PRESS
Published: March 28, 2006
Filed at 5:12 p.m. ET
WASHINGTON (AP) — Crude-oil futures leapt by almost $2 a barrel Tuesday, testing the upper-end of a recent trading range amid strong demand and worries about supply from Iran and Nigeria.
The reported possibility of a labor strike in Norway, a major oil producer, contributed to the market's jitters. There was also some technical buying, brokers said, whereby traders who had anticipated lower prices had to cover their bets by purchasing crude.
Light sweet crude for May delivery rose $1.91 to settle at $66.07 a barrel on the New York Mercantile Exchange, where oil futures are 22 percent higher than a year ago. May Brent crude on London's ICE Futures exchange rose 74 cents to $64.35 a barrel.
Gasoline futures rose 5.57 cents to $1.8845 a gallon, while heating oil futures rose 4.66 cents to $1.8277 a gallon. Natural gas futures rose 14.7 cents to $7.214 per 1,000 cubic feet.
''It's a demand driven market. It's what the market is willing to bear,'' said James Cordier, president of Liberty Trading in Tampa, Fla., noting that U.S. oil supplies are at multiyear highs.
The market is also gripped by concerns about supplies from Nigeria and Iran, and growing anxiety about the next hurricane season in the Gulf of Mexico. Some analysts believe gasoline prices could climb as high as $3 a gallon this summer, though that assumes some significant disruptions at refineries or difficulty in getting fuel to markets. The average nationwide pump price is currently $2.50.
Dow Jones Newswires reported Tuesday that Norway's largest private industry union, Fellesforbundet, threatened to strike on Saturday if there is no settlement with the Federation of Norwegian Industries over pensions and wages.
The strike would affect 38,000 members in the manufacturing industry, including Norway's shipyards, engineering industry and manufacturing for offshore oil and gas projects. The strike would not affect offshore oil and gas production, Dow Jones said.
On Monday, militants in Nigeria's oil-rich southern delta released their last remaining foreign hostages — two Americans and one Briton — more than five weeks after the oil industry workers were kidnapped.
The militants took nine foreign oil workers hostage Feb. 18 from a barge owned by Houston-based oil services company Willbros Group Inc., which was laying pipeline in the delta for Royal Dutch Shell PLC. The group released six of the captives after 12 days in captivity.
The militants are behind a spate of attacks that have cut Nigeria's oil exports by more than 20 percent. On Saturday, they said they killed three soldiers in clashes near a key natural gas plant run by Shell. Shell said there was no impact on the gas plant.
Iran, the No. 2 oil producer in OPEC, also remains a potential source of concern. It has been referred to the U.N. Security Council over fears it may want to misuse its nuclear program to make weapons, but the council has been at loggerheads over U.S.-led efforts to ratchet up the pressure on Tehran.
Mar 29, 2006
TOKYO, March 29 Asia Pulse – Japan Energy Corp. has inked agreements with Showa Shell Sekiyu KK (TSE:5002) and Mitsui Oil Co. to procure 500,000 kiloliters of petroleum products annually from each beginning in April.
Through fiscal 2005, Japan Energy purchased about 4.5 million kiloliters of petroleum products annually from Fuji Oil Co.'s (TSE:2607) Sodegaura refinery in Chiba Prefecture. But having dissolved its capital relationship with AOC Holdings Inc. (TSE:5017), for which Fuji Oil was the refinery unit, the decision was made to reduce procurement to around 1.5 million kiloliters a year starting in fiscal 2006.
Japan Energy plans to make up half of this 3-million-kiloliter shortfall by boosting capacity utilization at two of its affiliated refineries. The remainder will be offset by the new supply agreements with the two wholesalers as well as short-term contracts with a number of trading firms.
By THE ASSOCIATED PRESS
Published: March 28, 2006
Filed at 5:06 p.m. ET
NEW ORLEANS (AP) — Most of Big Oil has returned to New Orleans since Hurricane Katrina, Mardi Gras got the city back in the tourism business and the skilled construction trades can't get enough workers.
The city's population — 455,000 before Katrina and almost zero after storm evacuations — is now near 190,000 and expected to climb. But Tim and Renee Baldwin likely won't be part of any long-term recovery.
''It's hard to make a judgment about the future,'' said Tim Baldwin, a French Quarter bartender who lives in the city's Uptown section, which was largely spared from flooding. ''It's a matter of day-to-day, a question of who's staying and who's leaving. We're probably leaving.''
Meanwhile, for Ida Manheim, the owner of a French Quarter antique store that's been in her family for four decades, there's no question.
''I'm going to help rebuild New Orleans,'' Manheim said. ''It's a wonderful city.''
While economists and think tanks struggle to come up with a quantitative prediction of the city's future, there is a common theme: New Orleans will be a much smaller city with an economic growth that will be fragile for years to come. There are simply too many unknowns and no other modern disaster with which to compare Katrina, leaving residents and businesses acting largely on faith.
Shell Exploration & Production Co. surprised many by bringing its 1,000 employees back and sponsoring the New Orleans Jazz & Heritage festival, one of the city's major tourist draws. And ChevronTexaco returned 700 white-collar workers, helping to alleviate fears that Katrina had done away with New Orleans' remaining oil business.
With billions of dollars in reconstruction work facing the city and not enough skilled craftsmen to go around, the construction business will be ''like gold mining in the gold rush days,'' said Loren Scott, a retired economics professor at Louisiana State University who tracks the state's employment picture.
On the down side, the state's only Fortune 500 company, utility holding firm Entergy Corp., says its New Orleans headquarters will be scaled down. And Hibernia National Bank, acquired last year by Capital One Financial Corp., is moving 350 to 400 jobs from its 3,100 pre-storm payroll to Dallas, citing the lack of housing.
Scores of small retail businesses and restaurants aren't sure how long they can remain viable with so few workers and a housing shortage that grows worse. Baldwin said the monthly rent on his family's home will jump from $900 to $1,550 in October.
The housing crunch has created a problem — and, for some, a big expense — for businesses too. Shell spent $33 million to acquire about 120 residential units in the New Orleans and Baton Rouge areas to lease back to their workers at cost.
The suburban commute for many now reaches as far away as Baton Rouge, 65 miles northwest of New Orleans.
Jason Williams, who's self-employed, drives at least an hour and 10 minutes in each direction on a work day that starts early in the morning. ''On a bad day, it can take anywhere from two hours and up,'' he said.
Williams and his family plan to return to their rental house in New Orleans next month. They're lucky — their longtime landlord isn't hiking the rent.
Others will never return.
RAND Corp., a private think tank, projects the city's population will reach only 272,000 by September 2008, three years after Katrina. Greg Rigamer, head of GCR & Associates Inc., a New Orleans consulting firm, said RAND is too conservative. He projects a population of 250,000 to 275,000 by the end of 2006, followed by an extreme slowdown as housing fills up.
Renee Baldwin, who's home-schooling her 12-year-old daughter in addition to keeping a job in the petroleum support industry, said she believes the housing scenario could put the city's middle class in jeopardy.
''The area is going to be people with a lot of money or people without any money,'' she said. ''They're pushing the middle class out. Not everyone can afford to pay $1,500 a month for rent.''
Mike Pendley, who works in the oilfield service business in New Orleans, chose to live in Baton Rouge and commute when he transferred from Houston three years ago. He believes many New Orleans workers will decide to become permanent Baton Rouge residents.
''It will be the safety factor for the their families, the levee factor,'' Pendley said. ''They won't have to worry about flooding. The schools are better, and the area is perhaps safer.''
Scott, the retired economist, said more commuting workers bodes ill for New Orleans, which has faced a dwindling tax base since the school desegregation flight of the 1960s and 1970s, the oil price crash of the 1980s and corporate consolidation and crime fears in the 1990s.
''The tax base will shift more to where they have their residences, instead of where they work,'' Scott said. ''That's where they will pay their property taxes, buy their groceries, buy their cars.''
Scott said the recovery likely will speed up if New Orleans escapes a major storm this year — or could be stopped stone-cold by another.
''If it happens again, you're going to have people giving up on coming back, businesses giving up on coming back and taxpayers in the other 49 states questioning sending billions (of dollars) into the area,'' he said.
The uncertainty makes no difference to Manheim, who says more tourist-oriented advertising is needed to convince the rest of the country that New Orleans is ready to host them.
Indeed, the RAND study said businesses and industries that rely on their New Orleans roots — petroleum, shipbuilding and, of course, tourism — will recover the quickest.
''Without the help of tourism, it's going to take us a lot longer to get back,'' she said. ''We need everyone in the United States to come visit us.''
Mar 28, 2006
CORPUS CHRISTI, Texas (MarketWatch) — U.S. states bordering the Gulf of Mexico should receive a larger share of oil and gas royalties collected from the federal offshore areas, Royal Dutch Shell PLC's (RDSB.LN) top U.S. executive said Tuesday.
“We believe Congress should enact comprehensive (Offshore Continental Shelf) budget sharing legislation to appropriately compensate states, such as Louisiana, that shoulder the burden of oil and gas development,” said John Hofmeister, president of Shell Oil Co., at a meeting of U.S. and Mexican governors.
Louisiana Gov. Kathleen Blanco has recently insisted that the U.S. Minerals Management Service, a branch of the Interior Department, hand over 50% of revenue collected from oil and gas production in offshore Louisiana.
That amount, which could reach up $2.5 billion annually, would be used to help restore the state's coastal wetlands and protect coastal communities from hurricanes.
Shell is one of the largest producers of hydrocarbons in the Gulf of Mexico. The company relocated about 1,000 employees to its New Orleans office, which had been evacuated after Hurricane Katrina struck last summer.
March 28 (Bloomberg) — Hugh Laddie, the first London High Court judge to resign in 35 years, said he often ruled on tax or insolvency cases that he wasn’t trained to hear because of the way the English legal system works.
“It is neither efficient nor fair on litigants to run a system in which judges are frequently deciding cases outside their area of expertise,” Laddie, a patent law specialist, said in an interview last week. “No system could avoid that in all circumstances, but that should be the aim. I do not believe it is the aim in the current English system.”
RBC, 28.03.2006, Yuzhno-Sakhalinsk.
At a meeting in Yuzhno-Sakhalinsk on April 5, 2006, the Sakhalin-2 Supervisory Board plans to consider the increase in investment in the project from $11.5bn to $20bn, the Sakhalin regional administration reported.
This meeting is also intended to approve the project's estimated expenditure for 2006 and discuss liquefied natural gas sales contracts, among other things.
Today Governor of Sakhalin Ivan Malakhov, Managing Director of Shell Russia Malcolm Brinded, and the management of the Sakhalin Energy consortium exchanged views on the project's progress and the issue of boosting investment.
Gazprom and Royal Dutch Shell are looking at working together to produce synthetic liquid fuel (SLF, by gas-to-liquid (GTL) technology).
Shell, Gazprom and VNIIGAZ are carrying out joint studies on the possibility of developing the GTL business in Russia, Maxim Shub, a spokesman for Shell in Russia, told Interfax. “Talks are at a very early stage and no specific projects are being discussed,” he said.
“Gazprom and Shell are holding consultations on working together in the GTL field. It would be premature to talk about any specific agreements,” a source from Gazprom said. A source familiar with Gazprom plans, however, told Interfax there was a joint project between Gazprom and Shell to build an SLF production plant near Nadym.
March 28, 2006, 1:55AM
By LYNN J. COOK and KATHERINE HOURELD
Copyright 2006 Houston Chronicle
THREE oil-field workers, including a Houston-area man, who were held for 38 days by a rebel group in Nigeria were freed early Monday, just in time for President Olusegun Obasanjo's meeting in Washington this week with President Bush.
An American official in Nigeria said the timing of the release is no coincidence.
The Nigerian leader and Bush already have a full slate of issues to confront when they meet on Wednesday, including oil supplies, genocide in Sudan and the push to bring Liberia's former president, Charles Taylor, who lives in exile in Nigeria, to justice before a United Nations-backed court in Sierra Leone.
U.S. Ambassador to Nigeria John Campbell had earlier hinted at the clouds gathering over the political powwow because of the hostage situation, which dragged on for more than five weeks.
“When my fellow countrymen are without their liberty, there are limits on what we can do,” Campbell said.
Abel Oshevire, a spokesman for the Rivers State Government, where the militant violence has been centered, said the hostage situation would have posed a problem for Obasanjo.
“Definitely, if the hostages were still in captivity, it would have been one of the knotty issues that would have confronted him,” he said.
Workers Russell Spell of Montgomery and Cody Oswalt of Jackson, Miss., along with Briton John Hudspith, were among nine Willbros employees kidnapped off a barge on Feb. 18. The oil service firm was doing work for Royal Dutch Shell.
Six other hostages, including Texan Macon Hawkins of Kosciusko, were released early this month.
The three remaining men were all winging their way home Monday, but Willbros, which runs operations out of Houston, was mum about what it took to gain their freedom. So was the U.S. Justice Department.
Delta State Gov. James Ibori told the Associated Press that no ransom was paid for the workers' freedom but added, “Now that they have been released, the pertinent issues raised by the youths on the Niger Delta condition will have to be addressed.”
The kidnappings by a new rebel group that has emerged in this impoverished region, dubbed the Movement for the Emancipation for the Niger Delta, or MEND, have jarred oil markets and worried energy companies working in Nigeria.
Publicly, the group has called for the release of ethnic Ijaw leaders from jail and demanded $1.5 billion in restitution from Royal Dutch Shell for years of environmental damage to the area. In February, a Nigerian court also ordered Shell, along with other oil companies, to pay up. Shell is appealing.
But the group's motivations are not so clear.
The Niger Delta has a long history of militant activism in the name of the poor who inhabit the region. Many foreign oil workers have been taken hostage in Nigeria. Most, though certainly not all, are released unharmed.
'We stand by them'
MEND appears to have a connection with an older group in the area called the Federated Niger Delta Ijaw Communities. That radical group has attacked oil installations before and kidnapped foreign workers, but some experts monitoring the situation have noted that when local subcontractors do not get paid work from companies like Shell or Chevron, the Federated group has attacked.
Kingsley Otuaro, a high-ranking official in the Federated group, said he could not speak for MEND but added: “All the things they do, we stand by them.”
Otuaro's half-brother is a subcontractor for Shell.
So far this year, MEND has kidnapped 13 foreign oil employees working on contracts for Shell, blown up an oil export terminal and sabotaged several pipelines. The attacks have shut down more than 600,000 barrels of oil production a day, about a quarter of Nigeria's output.
'A distraction to us'
In a statement to the Associated Press, MEND spokesman Jomo Gbomo said the release should not be taken as any indication that the oil industry is safe from future attacks.
“The keeping of hostages is a distraction to us,” he said in an e-mailed statement.
Shell spokeswoman Alexandra Wright said the company will not restart operations in the delta until worker safety can be guaranteed. She added that the company does want to assess environmental damage that the attacks on pipelines and the export terminal could have caused.
“We believe there should now be a period of calm and dialogue between all sides to ensure there are no future hostilities,” she said.
[email protected] Chronicle correspondent Katharine Houreld reported from Lagos, Nigeria.
China Energy Titan
Looks to Africa, Asia
To Help Boost Output
By ARIES POON
March 27, 2006
HONG KONG — Cnooc Ltd., China's largest offshore oil producer by output, posted a 57% rise in 2005 net profit on soaring oil prices and increased production and said it will continue pursuing expansion overseas to help boost output further.
Cnooc said net profit was 25.32 billion yuan (US$3.15 billion), up from 16.14 billion yuan in 2004. Analysts surveyed by Thomson Financial had expected the company to earn 27.08 billion yuan. Revenue rose 26% to 69.46 billion yuan.
Cnooc also said it has ended talks on buying natural gas from Australia's Gorgon project, which is led by Chevron Corp. “The Gorgon thing is over,” said Cnooc's company secretary, Cao Yun Shi.
Cnooc's unlisted parent, China National Offshore Oil Corp., has represented the group in the Gorgon talks. Mr. Cao, who is also the chief legal counsel of the parent, declined to elaborate.
Donald Campbell, manager of media relations of California-based Chevron, declined to confirm whether the Gorgon gas talks had ended.
“There are no plans specifically with Cnooc on the sale now,” he said. “We are still interested in working on other opportunities with Cnooc and other companies, wherever possible; we still have some gas that could be sold from Gorgon.”
China faces an increasing shortage of natural gas in the next five years amid sharply rising demand and limited production capacity.
Chevron holds a 50% stake in the Gorgon liquefied-natural-gas venture, while Royal Dutch Shell PLC and Exxon Mobil Corp. own 25% each.
In November, Chevron said it had scrapped a tentative agreement of A$30 billion (US$21.29 billion) for Cnooc to become a foundation customer for the Gorgon gas, saying the price Cnooc was willing to pay was too low. However, Cnooc said late last year that it was still in talks to acquire gas from the Gorgon project.
Chevron late last year signed gas-supply contracts with three Japanese companies — Tokyo Gas Co. Ltd., Chubu Electric Power Co. and Osaka Gas Co. — which are seen as more willing to pay a higher price in sourcing gas abroad.
Cnooc, which bought a stake in a Nigerian oil field in mid-January, said it will focus its expansion in Africa and Southeast Asia.
Hunting for oil and gas resources overseas is a major concern for Chinese oil companies. China has been a net crude importer since 1993, and its domestic oil output is falling farther behind local demand.
Early this year, Cnooc said it was buying a 45% stake in the OML 130 offshore-oil-mining license, which mainly covers Nigeria's undeveloped Akpo field, from South Atlantic Petroleum Ltd., a company owned by a former Nigerian minister. The deal, which cost US$2.27 billion, followed the battle Cnooc lost last year to take over U.S. oil and gas producer Unocal Corp.
Mr. Cao also said Cnooc hasn't agreed on final pricing of natural-gas from the Tangguh project in Indonesia. Indonesia has been pushing since January to raise prices in the long-term Tangguh contract to supply liquefied natural gas to China's Fujian province.
BP Migas, Indonesia's upstream oil and gas regulatory agency, said Thursday that China has agreed to adjust prices from the Tangguh project, operated by a consortium led by BP PLC, which holds around 50%.
Write to Aries Poon at [email protected]
Total Leads Push in Canada
To Process Tar-Like Sand;
Toxic Lakes and More CO2
Digging It Up, Steaming It Out
By RUSSELL GOLD
March 27, 2006; Page A1
FORT MCMURRAY, Alberta — In February, engineers from French oil giant Total SA fired up colossal drum boilers to generate steam that will be pumped to a depth of 300 feet under the frozen ground here. If all goes well, by May, the steam will marinate a tar-like mix of oil and sand until the crude begins to flow.
Nearby, Total will go after the oil-soaked sands closer to the surface, scraping away an ancient forest of spruce and poplars and shoveling the black soil into two-story dump trucks. Fully loaded, the trucks weigh as much as a Boeing 747. Total will then use industrial versions of giant washing machines to remove the oil, generating enough liquid waste to create vast toxic lakes.
Heavy-duty oil-extraction projects like these are turning Fort McMurray into the first great oil boom town of the 21st century. A Florida-size section of sandy soil beneath the boreal forest in this sparsely populated area of Northern Canada is loaded with bottom-of-the-barrel petroleum.
These deposits were once dismissed as “unconventional” oil that couldn't be recovered economically. But now, thanks to rising global oil prices and improved technology, most oil-industry experts count oil sands as recoverable reserves. That recalculation has vaulted Venezuela and Canada to first and third in global reserves rankings, although Venezuela's holdings in extra-heavy crude are a rough guess. Saudi Arabia is No. 2. Not including the oil sands, Canada would fall to No. 22. Led by Total, nearly every major Western oil company as well as their Chinese and Indian brethren are gearing up to go after the deposits here. In all, they plan to spend more than $70 billion in the next decade unlocking the oil from the sand.
The surging interest in Canadian oil sands is stark evidence that the world isn't about to run out of oil. Instead, it is running low on readily accessible light, sweet crude — oil that flows like water, has few impurities and can be easily turned into gasoline. As the good stuff gets scarce, Big Oil is turning its attention and pouring money into extra-heavy crude, such as the giant deposits near Fort McMurray and another similar one in Venezuela.
But heavy oil has big economic and environmental drawbacks. It costs more to produce and takes more energy to turn into gasoline than traditional light oil. Recovering and processing Fort McMurray's heavy crude releases up to three times as much greenhouse gas as producing conventional crude. And upgrading it into refined products, such as gasoline or diesel, will require a gigantic investment to retool global refineries.
“The light crude undiscovered today is getting scarcer and scarcer,” says Jean-Luc Guiziou, president of Total's Canadian operations. “We have to accept the reality of geoscience, which is that the next generation of oil resources will be heavier.”
Total is making the biggest bet on heavy crude of any of the half-dozen international Western oil giants. Nearly one-fifth of its commercial reserves are in heavy-oil belts, according to oil consultant Wood Mackenzie, a larger portion than any of its Western rivals. Its stockpile of heavy-oil reserves is second only to that of Exxon Mobil Corp., a company that is more than twice as large. Total has spent years developing the complex technology needed to extract oil from tar sands in the frigid environment of Northern Canada. So much heat is required to separate the oil from the tar that Total briefly floated the idea of building a nuclear-power plant there.
The rush into the oil sands also has turned a longstanding belief about fossil fuels and the environment on its head. For years, environmentalists have argued that higher gasoline prices would be good for the Earth because paying more at the pump would promote conservation. Instead, higher energy prices have unleashed a bevy of heavy-oil projects that will increase emissions of carbon dioxide, suspected of causing global warming.
“As oil prices have gone up, you get this increased desire to get out onto the new frontiers of oil,” says Marlo Raynolds, executive director of the Calgary-based Pembina Institute, an energy and environment think tank. “We're now getting into the dirtiest sources of oil anywhere.” To be sure, rising energy prices have spawned more interest in renewable fuel sources, but those investments pale in comparison to what's going on here.
Canada, which exports more oil to the U.S. than any other country, already is having trouble meeting its pledge to cut CO2 emissions largely because of its mushrooming heavy-oil production. By 2015, Canada's Fort McMurray region, population 61,000, is expected to emit more greenhouse gases than Denmark, a country of 5.4 million people.
Canada's northern forest contains at least 174 billion barrels of recoverable heavy oil, equivalent to five years' supply for the planet, according to the Alberta Energy and Utilities Board. Venezuela has perhaps even more in the Orinoco River delta. By comparison, Saudi Arabia has about 260 billion barrels of more traditional crude, or 8½ years' global supply, according to the Energy Information Administration, the statistical arm of the federal Department of Energy. Heavy oil also is being produced in the Middle East, the Caspian Sea, Brazil and even in California's San Joaquin Valley.
In northern Alberta, the oil-sands boom is remaking the landscape. The mining operations have clear-cut thousands of acres of trees and dug 200-foot-deep pits. The region is dotted with large man-made lakes filled with leftover waste from the mining operations. To chase off migratory birds, propane cannons go off at random intervals and scarecrows stand guard on floating barrels.
Alberta's energy minister, Greg Melchin, says oil-sands development creates a minimal environmental disturbance that is outweighed by the opportunities and jobs created. “It's worth it. There is a cost to it, but the benefits are substantially greater,” he said.
Environmental groups are increasingly critical of the government's reluctance to regulate the oil sands. “The pace of development is outstripping our ability to manage the environmental issue,” says Mr. Raynolds of the Pembina Institute. “Our unwritten energy policy is dig it up and sell it as fast as possible.”
The remarkable properties of Fort McMurray's oil sands have been known for centuries. Native tribes mixed the tar-like substance with tree sap to waterproof their canoes. In the 1960s, companies now known as Suncor Energy Inc. and Syncrude Canada Ltd., a consortium of oil companies, opened oil-sands mines in the area. Both operations stumbled through periods of low oil prices but are now rapidly expanding.
When oil was trading at $12 a barrel in the late 1990s, Big Oil had little interest in oil sands. But surging energy prices have made heavy-oil investments significantly more attractive. It costs about $25 a barrel to produce crude from Canada's oil sands, an acceptable cost when oil is trading for $60 a barrel. By comparison, it can cost as little as about $5 a barrel to produce crude in the Middle East and $15 in the deep waters of the Gulf of Mexico.
For Paris-based Total, the world's fifth-largest publicly traded energy company by market capitalization, the oil sands play to its strengths. Total had its roots as a refiner rather than an exploration and production company. Oil sands were easy to find but hard to process.
Total's first foray into heavy oil was in Venezuela's Orinoco belt. In 1997, the company's giant $4.2 billion Sincor project there began producing market-grade crude. Sincor, which Total owns with Norway's Statoil ASA and Petróleos de Venezuela SA, now produces 180,000 barrels of oil a day.
The same year, Total opened an office in Calgary to determine if a similar investment was warranted near Fort McMurray. It was soon clear to Total engineers brought in from Sincor that Canadian oil sands were more technically difficult than Venezuela's heavy-oil belt. The key difference: The heavy oil in Venezuela was quite warm and flowed easily, albeit slowly, while in Canada the oil-sand mixture had the look and consistency of tar-like Play-Doh. But Canada was attractive because it offered a haven from politically unstable oil hotspots.
In November 1999, Total teamed up with the financially struggling Gulf Canada Resources Ltd. on a promising project called Surmont. Gulf Canada was later acquired by Conoco Inc. and is now part of Houston-based ConocoPhillips.
For Total, sorting out the mechanics of producing this heaviest of oils fell on the shoulders of Mr. Guiziou, a French earth scientist who had worked his way into management from his first assignment studying the geology of Argentina. In 2001, when he was being considered for the Canadian job, he flew into Fort McMurray to see what the oil sands were about. Having worked in the industry for years, he was accustomed to the look and feel of oil fields. But when he visited Syncrude's mine, where giant cranes scooped up the oil-soaked earth in buckets capable of carrying 100 tons, he was flabbergasted. “It was another world,” the 44-year-old Mr. Guiziou says.
In some places near Fort McMurray, the oil sands are close to the surface and can be mined. But at Surmont, located southeast of Fort McMurray, the oil sands are 1,200 feet underground, far too deep for a mining operation. The partners in the venture needed to find a way to get the oil.
The solution was steam. In 1978, Roger Butler, an engineer with Imperial Oil Ltd., an independent company majority-owned by Exxon Mobil, hit on the idea of drilling two wells that start off vertically, then slowly bend until they are horizontal and located one on top of the other. The top well would pump steam into the reservoir while the other pumped oil out.
Surmont was to be Total's and Conoco's first venture with the technology, so in late 1997 they started small with a 1,000-barrel-a-day pilot. They pumped steam down a pipe laced with millions of tiny slits, each no wider than the thickness of a piece of paper. The initial results were encouraging but expanding into a full-scale project took several more years.
One pressing issue: Several companies, including Paramount Resources Ltd., were producing natural gas from a shallow underground zone above the oil sands. Total and its partner convinced an Alberta regulatory body that the gas project threatened the much larger oil deposit. The theory was that if the gas were allowed to be pumped out, the steam chamber would lose pressure and Surmont would have to be scrapped. In a landmark ruling, an Alberta regulatory body ordered 146 gas wells shut off in 2000.
In December 2003, Total and ConocoPhillips decided to build the first phase of Surmont. The steaming is slated to begin later this year, with production expected to grow to 27,000 barrels a day next year. Future expansions could bring it to 200,000 barrels a day — a good-size oil field but not the biggest in the area.
At Surmont, Total was merely an investor with ConocoPhillips and its predecessor companies operating the project. Last year, the French company went from being an investor to a full-fledged participant in the oil-sands boom.
In September, it bought Deer Creek Energy Ltd. for $1.6 billion, acquiring its only significant asset: a giant oil-sands project called Joslyn north of Fort McMurray. Once fully developed, Joslyn is expected to yield 200,000 barrels a day for decades. Total plans to produce oil from Joslyn by both mining and by shooting steam underground.
Becoming an operator, Mr. Guiziou needed to confront environmental problems as Total expanded its heavy-oil holdings in Canada. Mining oil sands generates enormous volumes of liquid waste that are stored in toxic lakes that have concentrations of naturally occurring naphthenic acid, an odorless liquid used to help paint dry quickly. The prospect of cleaning up these lakes is “daunting,” the Canadian National Energy Board, a federal regulatory body, noted in a 2004 report. “There is currently no demonstrated means to reclaim fluid fine tailings,” it said.
Since the lakes are likely to be around for years to come, Mr. Guiziou is working on a plan that will result in smaller lakes. He hopes to install a new technology at Joslyn that will suck out water and leave a smaller volume of waste laced with metals before it is dumped in the lakes. But he said the technology “needs to be proved at the industrial scale.” Total expects to conduct a test later this year at a neighboring facility.
Total is also trying to figure out ways to curb greenhouse-gas emissions at its Fort McMurray facilities by using pure oxygen instead of air in its combustion engines. The company is running a pilot project in Lacq, France, to capture carbon dioxide in exhaust flues more effectively. If the technology proves workable, it could be used in Fort McMurray as well.
Despite the environmental concerns, there is a strong economic incentive for Alberta's free-market-oriented government to let oil-sands development gallop ahead. Alberta added nearly 26,000 jobs in resource extraction in the past two years. That 25% jump helped drive the province's unemployment rate down to 3.1%, a 30-year low, according to the government. For the first time, every Albertan received a 400 Canadian-dollar ($340) check from the government earlier this year from an unexpected fiscal surplus.
Total and other oil companies are continuing to announce new oil-sand projects and shovel money into the region. Earlier this month, Chevron Corp. said it planned to spend “billions” to turn 75,000 acres into a 100,000-barrel-a day field. And last week, Royal Dutch Shell PLC said it had spent nearly $400 million to lease 219,000 acres west of Fort McMurray, shattering records for public-land leases.
In February, Total moved quickly to file the regulatory permit for Joslyn to move to the front of a growing queue of projects. With all the development, everything is in short supply, including steel, energy to power the projects, fresh water and skilled construction workers.
Some projects could end up being delayed for years. “It's like you've got one door frame and the Three Stooges trying to get through at the same time,” said Tom Ebbern, executive managing director of Tristone Capital, a Calgary-based investment adviser. “Without a doubt, we can become the next Saudi Arabia but it will take 10 years longer than the market thinks.”
Write to Russell Gold at [email protected]
URL for this article:
Jeroen van der Veer, Chief Executive Officier, Royal Dutch Shell Plc
Family: married to Mariette, he has three daughters.
Likes: golf (handicap is 16), skating the 200km Elfstedentocht ice marathon
1947: Born in Utrecht, the Netherlands.
Two degrees: from Delft university (mechanical engineering) and Rotterdam university (economics)
1971: Joined Shell, working in the Netherlands, Curacao and the UK in manufacturing and marketing
1984: Returned to Shell Netherlands as manager of corporate planning, and then of the Pernis refinery, Rotterdam
1992: Became managing director, Shell Netherlands. 1995: Moves to US as president and chief executive of Shell Chemicals
1997: Appointed group managing director
2004: Became chairman of the board of managing directors
2005: Oversees group restructuring to become group chief executive
March 28, 2006
By CLIFFORD KRAUSS
FORT McMURRAY, Alberta — Canada's wild west is going corporate.
In the last big energy boom in this province, during the 1970's, the card room at the Calgary Petroleum Club was so full of Texas oilmen that seats at the poker table were rarely freed up until well into the early morning hours.
With oil prices high again, Alberta is hopping once more — but with a twist. The skyline of Calgary, the business center of the province, is about to be altered by a large real estate project, and a big new jet runway to handle the influx of oil workers is already in place. While poker is still popular, conspicuous consumption these days includes such costly indulgences as white truffles and Mercedes-Benz convertibles.
The change is reflected in the very nature of the oil business here: once built around conventional drilling, in which independents played a major role, oil is now extracted through a heavy industrial process requiring huge capital investments.
Some of the biggest international oil companies plan to sink 100 billion Canadian dollars ($85.5 billion) over the next decade into developing the gooey oil sands that are at the heart of Alberta's growing wealth and political influence. The oil sands have transformed Alberta into the epicenter of a new energy-based Canadian economy that promises to be even more crucial to the United States.
The region is also taking a page from the Texas playbook.
Stephen Harper from Calgary was elected in January as Canadian prime minister; his free-enterprise, tax-cutting political philosophy is closer to Houston's than Toronto's.
As more oil flows, economic power and population are shifting westward from the traditional manufacturing centers of Ontario and Quebec, which are lagging in comparison. The rising west is splitting the national economy, forcing industries back east to retool and reorient manufacturing to supply the growing oil economy.
Here in Alberta, every week seems to turn up an announcement of a new refinery, a pipeline project or a land bid. To a lesser extent, the same is happening in neighboring British Columbia and Saskatchewan.
“It's a seesaw effect,” said Todd Hirsch, chief economist for the Canada West Foundation, a research group based in Calgary. “What's driving Alberta, western Canada and resources up are what's driving Ontario and Quebec down: the emerging Asian strength and the strength of the Canadian dollar.”
The energy companies say their investments in oil sands fields are just the beginning. The fields hold estimated reserves equivalent to as much as 175 billion barrels of oil, or more potential energy content than the oil fields of Iran and Libya combined. Oil sands production has risen to just over one million barrels a day today, from 400,000 barrels in 1995; it is projected to rise to 2.7 million barrels in 2015.
Alberta has long been cowboy country, a cattle center in the heart of the Canadian Bible Belt. But in recent years oil has given it the fastest-growing population of any province, with people lured from elsewhere in the country and even outside Canada because salaries are growing faster than anywhere else.
“We're a big laboratory in how to absorb so much investment,” said Gwyn Morgan, executive vice chairman of EnCana, a Canadian energy company based in Calgary. “None of us could have dreamed this would happen this quickly.”
In Fort McMurray, the town closest to the oil sands, truck and bulldozer drivers come from as far away as Newfoundland and Labrador to earn six-figure salaries. They are buying up expensive pickup trucks as if they were toys.
The town's population has increased to 61,000, from 33,000 in 1996, and housing is in such short supply that the average mobile home now sells for $277,000 Canadian dollars ($237,000) and couches are renting for about 500 Canadian dollars a month ($428).
The crowding and labor shortages persuaded Canadian Natural Resources Ltd. to build a jet runway long enough to accommodate Boeing 737's to allow workers to commute to its giant new Horizon project. In Calgary, EnCana is about to build a new corporate headquarters over two square blocks that will be the biggest real estate development project in Canada in two decades.
Restaurants, wine stores, art galleries and luxury car dealers are doing frenzied business. At a benefit auction earlier this month, one bidder paid more than 13,000 Canadian dollars ($11,120) to go fly-fishing on a local river with Ron A. Brenneman, president and chief executive of Petro-Canada. “I don't see any black clouds on the horizon,” Mr. Brenneman said with a smile.
The same might be said for much of Canada. Unemployment is at a 30-year low, the Toronto stock market reached a historical high this month and real estate is booming virtually everywhere. Oilmen here are now calling the Canadian dollar, which has climbed more than 35 percent against the American dollar since early 2002, a new petrocurrency.
The high cost of extracting oil from oil sands is no longer a major impediment to production, now that oil prices are at $60 a barrel or more and most experts expect them to remain relatively high for years. There were only a dozen oil sands projects in Alberta a decade ago. Today there are about 60, and 55 more have been announced for the future.
But Canada also has some losers amid the boom. Eastern manufacturers have had to retool, consolidate and shed 180,000 jobs in the last two years, as cheaper products enabled China to replace Canada as the top exporter of nonenergy products to the American market. Capital investment among manufacturers has decreased since 2000, although now it is recovering.
“There's no doubt we have a mild case of Dutch disease running in Canada,” said Don Drummond, senior vice president and chief economist at TD Bank, referring to the deindustrialization of the Netherlands after the discovery of North Sea gas in the 1970's.
Particularly hurt have been companies manufacturing household appliances, electrical equipment, plastic and rubber products, textiles and paper.
At Edson Packaging Machinery Ltd. of Hamilton, Ontario, one-third of the 85 workers were laid off in 2003. By switching to American suppliers, changing its product mix and putting more emphasis on service, Edson has rebounded somewhat and increased its payroll again.
“It's a tale of two economies,” said Robert Hattin, Edson's president. “The resource-based economy is hot and manufacturing right now is facing challenges we haven't seen before.”
Alberta has 10 percent of the population, but directly produces 15 percent of Canada's gross domestic product. Both numbers are likely to rise in the coming years, economists say.
“This is pretty close to the hub of Canada right now,” said Kevin Ellsworth, a 42-year-old Shell truck operator from eastern Canada who moved here nearly four years ago. “Every time you turn around there's another plant project coming to town.”
Mr. Ellsworth's enthusiasm is typical of many workers here and fits neatly with the dimensions of his job. His dump truck carries 400 tons of oil sands and reaches seven stories high when its box is lifted on its hydraulic cylinder. With overtime, he can make more than 100,000 Canadian dollars a year.
Shell's oil sands venture contains enough pipe to stretch from Calgary to San Francisco and its mile-long conveyor belt has the largest capacity in the world. But the venture is only going to become bigger.
After several stalled oil sands efforts, Shell was faced in 1996 with the prospect of losing a lease on land north of Fort McMurray that it now believes holds more than five billion barrels of oil. With a barrel of oil worth under $20 a barrel at the time, development of the oil sands did not seem worth the investment.
But Shell brought in Chevron and another partner and went ahead with a project three years later, just as the price of oil was poised to climb. In less than four years and with an investment of 5.7 billion Canadian dollars ($4.9 billion) its project is already producing 155,000 barrels a day.
That was only the beginning. New land acquisitions and at least two more mines are planned over the next decade. A 7.3 billion-Canadian-dollar ($6.2 billion) expansion will add another 100,000 barrels a day by 2009. Shell hopes to reach 500,000 barrels a day by 2015, equivalent to half the current daily production in all of Texas.
“It's the 'holy cow,' ” said Craig Simpson, a Shell mining engineer. “What people don't realize is how big this is.”
Published: March 28, 2006
A public already groaning under huge deficits does not need more red ink. An oil industry already rolling in record profits does not need more tax breaks. But both are sure to happen unless some way can be found to claw back from a decade's worth of Congressional and administrative blunders, aggressive lobbying and industry greed.
According to a detailed account in Monday's Times by Edmund L. Andrews, oil companies stand to gain a minimum of $7 billion and as much as $28 billion over the next five years under an obscure provision in last year's giant energy bill that allows companies to avoid paying royalties on oil and gas produced in the Gulf of Mexico.
The provision received almost no Congressional debate, in part because Congress was lazy and in part because the provision was misleadingly advertised as cost-free. The giveaway also seemed a natural sequel to a measure passed in 1995 to provide royalty relief. But that measure came at a time when oil prices, and new investment in oil and gas exploration, had declined. It also included an important safety valve: in any year when oil prices exceeded a threshold, about $34 a barrel, companies would have to resume paying royalties.
However, in what appears to have been a bureaucratic blunder, the Clinton administration omitted that crucial escape clause in all offshore leases signed between the government and the oil companies in 1998 and 1999. It seemed a harmless mistake at a time when oil prices were still below $20 a barrel. But times changed. Prices have been above the cutoff point since 2002, and an estimated one-sixth of the production in the Gulf of Mexico is still exempt from royalties for no good reason whatsoever.
That blunder was compounded, again and again. First, a court decision in 2003 effectively doubled the amount of oil and gas exempted from royalties. Then the Bush administration offered special exemptions for “deep gas” producers, drilling more than 15,000 feet below the sea bottom. Then came the 2005 energy bill, which essentially locked in the old incentives for five more years.
At least one oil company has the grace to be embarrassed by all this. “Under the current environment,” one Shell official told Mr. Andrews, “we don't need royalty relief.”
But some companies seem to want more. A lawsuit filed by Kerr-McGee Exploration and Production would greatly expand the royalty relief. If the suit succeeds, the lost revenue may rise to as much as $28 billion.
Edward Markey, a Democratic member of the House from Massachusetts, has proposed a bill that would keep any new contracts from granting relief when oil and gas prices were high, and would instruct the interior secretary to try to renegotiate existing contracts. That is a fair and overdue remedy.
Mar 28, 2006
Crude oil futures rose on Tuesday in early Asian trading amid strong demand and nagging worries about supply from Iran and Nigeria.
Light, sweet crude for May delivery gained 9 cents to US$64.25 a barrel on the New York Mercantile Exchange. The contract on Monday fell 10 cents to settle at US$64.16 a barrel.
Gasoline increased 0.42 cents to US$1.8330 a gallon (3.8 liters) early Tuesday, while heating oil rose marginally to US$1.7830 a gallon. Natural gas rose less than one cent to US$7.075 per 1,000 cubic feet.
With the Northern Hemisphere's summer driving season approaching, gasoline at the pump in the United States averaged US$2.50 a gallon (3.8 liters), and government data showed that consumption was up 1.6 percent over the past four weeks compared with the same period a year ago.
That said, the U.S. Energy Department predicted last week that gasoline prices may not run up much higher for the time being. Still, concern about supplies from Nigeria and Iran, and growing anxiety about the next hurricane season in the Gulf of Mexico, were expected to limit any price decline. Some analysts believe gasoline prices could climb as high as US$3 a gallon this summer, though that assumes some significant disruptions at refineries, or difficulty in getting fuel to markets.
On Monday, militants in Nigeria's oil-rich southern delta released their last remaining foreign hostages _ two Americans and one Briton _ more than five weeks after the oil-industry workers were kidnapped.
The militants took nine foreign oil workers hostage Feb. 18 from a barge owned by Houston-based oil services company Willbros Group Inc., which was laying pipeline in the delta for Royal Dutch Shell PLC. The group released six of the captives after 12 days in captivity.
The militants are behind a spate of attacks that have cut Nigeria's oil exports by more than 20 percent. On Saturday, they said they killed three soldiers in fresh clashes near a key natural gas plant run by Shell. Shell said there was no impact on the gas plant.
Iran, the No. 2 oil producer in OPEC, also remains a potential source of concern. It has been referred to the U.N. Security Council over fears it may want to misuse its nuclear program to make weapons, but the council has been at loggerheads over U.S.-led efforts to ratchet up the pressure on Tehran.
Copyright 2006 Associated Press
Tue Mar 28, 2006 8:39 AM GMT
By Neil Chatterjee
SINGAPORE (Reuters) – Oil prices steadied on Tuesday, weighed down by swollen U.S. crude stockpiles but held above $64 on threats of further attacks on facilities in Nigeria.
U.S. light crude for May delivery traded six cents down at $64.10 a barrel by 0320 GMT, after slipping 10 cents on Monday. London Brent crude edged 8 cents down at $63.53 a barrel.
Hopes of an end in Nigeria to three months of sabotage and kidnapping were raised by the release on Monday of three oil company hostages, but militants said their fighters would now focus on crippling oil supplies from the OPEC member.
About 26 percent of output from the world's eighth-largest exporter, or about 630,000 barrels per day, has been cut, mainly due to militant attacks.
“Looking ahead, the market shows signs of an upward bias, and will have to juggle between supply disruptions in Nigeria and a spike in (U.S.) refinery demand after the end of a spring turnaround season,” said JPMorgan.
A spokesman for Royal Dutch Shell, the biggest oil operator in Nigeria and the company most affected by the violence, declined to say when production would resume.
Prices have held between $60 and $65 for more than a month as traders balance geopolitical risks such as tension over Iran's nuclear programme with bumper U.S. fuel supplies.
U.N. Security Council powers held out on Monday for agreement this week on a statement to rein in Iran's nuclear ambitions, but a deal appeared elusive before a forthcoming ministerial meeting. Traders fear Tehran could retaliate to any potential sanctions by choking off oil supplies.
However, analysts expect U.S. crude stocks to have risen further last week, predicting a 1.8 million barrel gain in government data due on Wednesday. Analysts expect distillate and gasoline stocks to have each dropped 1.7 million barrels
High gasoline inventories will help cushion the impact of oil refineries switching away from fuel additive MTBE to ethanol, but supply disruptions are still possible this summer, according to the U.S. Energy Information Administration.
China, whose thirst has been a key driver behind surging oil prices, recorded a 4.4 percent increase in oil demand in February compared with a year earlier. That was the biggest leap since October as buyers stocked up ahead of retail fuel price hikes.
XAN RICE NAIROBI
Mar 28, 2006
Militants in the Niger delta released three kidnapped foreign oil workers yesterday – including a British security expert, John Hudspith – but gave warning of more attacks on multinational oil companies.
Mr Hudspith and two Americans, Cody Oswald and Russell Spell, were handed over to government officials in Warri, southern Nigeria. They were the last of nine foreign hostages taken on February 18 from a barge laying pipes for Royal Dutch Shell. The others were freed after 12 days.
A spokesman for Delta state said the men were in “good health”. In a statement, the Movement for the Emancipation of the Niger Delta (Mend) said it freed them following requests from local communities, who were no longer being attacked by the military for siphoning oil from pipelines.
However, Mend said its demands for the release of two Ijaw tribal leaders and payment by Shell of $1.5bn (pounds 858m) for environmental damage had not been met. It vowed to continue operations.
The militants accuse the big oil firms of colluding with corrupt government officials, and are fighting for greater control of the nation's oil wealth. Delta residents are among the poorest in Nigeria.
Mend's attacks have forced Shell to close two of its oilfields and a loading terminal. Nigeria, Africa's largest oil exporter, has seen its normal daily production of 2.5m barrels cut by more than a fifth.
By Dino Mahtani in Lagos
Nigerian militants released the last three of nine foreign oil workers taken hostage several weeks ago but threatened more destruction to the oil industry in the world’s eighth biggest exporter.
The Movement for the Emancipation of the Niger Delta handed over two Americans and a Briton to government officials on Monday, helping to stifle upward pressure on international oil markets. But Mend, which is demanding a bigger share of the government’s oil revenues for the Ijaw, the majority tribe in the oil-producing delta, said it had chosen to release the foreigners to free up hundreds of its fighters, otherwise used for guarding hostages.
“We are not in negotiations with the Nigerian government so oil companies and their workers should not be deceived into a false sense of relief,” the group said in a statement.
The group has threatened to cut another 1m barrels on top of a reduction of more than 630,000 b/d, or 26 per cent of Nigeria’s production, resulting from attacks this year – largely directed against Royal Dutch Shell, Nigeria’s biggest producer.
Officials said the hostage release was brokered by members of FNDIC, another militant group that has operated in the delta for years and was key to an Ijaw insurgency that shut 40 per cent of Nigeria’s oil production in 2003. Delta human rights activists say FNDIC has a close relationship with Mend. The role of FNDIC is complicated by the fact that some of its leaders and loyalists say they have registered companies with Shell to solicit jobs such as pipeline clamping, surveillance, oil-spill clearances and waste disposal.
Kingsley Otuaro, FNDIC secretary-general, said he and his half-brother had registered contracting companies for work in the area where militant attacks and abductionshad taken place. But he complained that Shell had not honoured many of its promises for work.
“Shell has a cumbersome bureaucracy and often rely on their own local syndicates. We feel cheated,” Mr Otuaro said. Shell confirmed that Mr Otuaro’s half brother owns a company that is a Shell contractor.
Tension among local communities linked to militant groups frequently results in acts of sabotage against oil facilities, or violence among rival communities. A report commissioned by Shell and published in 2004 said the company’s corporate policies could force it to withdraw onshore production by 2008.
While Chevron, one of the biggest US oil companies in Nigeria, has changed its policy of engaging with “host communities”, saying such policies are responsible for increasing tensions, industry officials acknowledge that all oil companies are under pressure to make ad hoc payments to communities or to dish out contracts to calm tensions. While Chevron was worst hit in 2003, this year it has avoided strikes on its facilities. Some militants say this is because the company is easier to deal with.
Meanwhile many militant groups in the delta operate in cartels alongside political and military figures and are engaged in the theft of crude oil for sale to international criminal syndicates. Industry officials say such groups have built up arsenals from the proceeds and are likely to be a source of instability before elections next year.
Government officials privately acknowledge that political figures encouraged the rise of militant groups to bolster their influence before elections in 2003. But some officials say the companies are more to blame. “The methods of the kidnappers may be wrong but you cannot exonerate the oil companies,” said Ovuozourie Macualay, a government commissioner for ethnic affairs and conflict resolution.
By THE ASSOCIATED PRESS
ABUJA, Nigeria (AP) — Nigeria's president heads to Washington on a high note after the resolution of two issues of concern to his U.S. allies — the release Monday of kidnapped oil workers, including two Americans, and his agreement to hand over the continent's most infamous warlord.
President Olusegun Obasanjo, a former military leader, is now seen as a force for peace and democracy on the world's poorest continent. He is to meet with President Bush on Wednesday.
Some Nigerians say Obasanjo is a good African but a bad Nigerian who devotes too much time to regional issues. His political ambitions in the conflict-plagued West African nation clash with his international reputation as a champion of democracy, critics say.
On the domestic front, he has failed to control militants who have launched increasing attacks on oil facilities in Nigeria's oil-rich southern delta. The militants released their last remaining foreign hostages on Monday but threatened to continue attacks.
Americans Cody Oswalt and Russell Spell and Briton John Hudspith were released just before dawn after more than five weeks in captivity, said government spokesman Abel Oshevire.
The U.S. applauded Obasanjo's regional mediation when he offered Liberian warlord Charles Taylor refuge under an agreement that helped end Liberia's civil war in 2003.
Since then, though, the U.S., the U.N. and others have called for Taylor to be handed over to an international war crimes tribunal.
Taylor is accused of starting civil war in Liberia and its neighbor, Sierra Leone, that killed some 3 million people, and of harboring al-Qaida suicide bombers who attacked the U.S. embassies in Kenya and Tanzania in 1998, killing 12 Americans and more than 200 Africans.
Obasanjo initially resisted calls to surrender Taylor, who has been living in a luxurious government villa in the southern town of Calabar. But Saturday, after Liberia's new President Ellen Johnson Sirleaf asked that Taylor be handed over for trial, Obasanjo agreed.
The logistics of getting Taylor to Sierra Leone have not been worked out, leading to fears he might escape. Taylor escaped from a U.S. penitentiary in Boston to launch Liberia's war.
The militants have targeted the oil industry in the world's eighth-largest producer of crude and the fifth largest supplier to the United States, blowing up oil installations and cutting production by 26 percent.
Since the attacks began, Royal Dutch Shell has closed half its oil fields and one of its two main loading terminals. Despite the danger, oil companies remain drawn to the country because its quality benchmark Bonnie Light is so easily — and inexpensively — extracted.
The militants took nine foreign oil workers hostage Feb. 18 from a barge owned by Willbros Group Inc., the Houston-based oil services company that was laying pipeline in the delta for Royal Dutch Shell. The group released six of the captives after 12 days.
The last three hostages could be seen from a distance as they greeted officials Monday, but the freed men did not immediately address reporters.
In a news release, the militants said it had better uses for the fighters guarding the hostages — namely more attacks on oil facilities.
There's some sympathy for ''the boys,'' as some Nigerians call the militants, because they call for a better deal for residents of the Delta, who remain among the poorest Nigerians, though their land is the source of the country's wealth.
The White House has said corruption, endemic among Nigerian officials, will be discussed when the presidents meet. Obasanjo promised to root out corruption when he was elected, but is accused of using the campaign against opponents as elections near.
Obasanjo's supporters have been campaigning for a constitutional amendment that would allow the Nigerian leader to run for a third term next year. Obasanjo has not said he wants to run again, but has resisted U.S. calls to announce he will not.
WARRI, Nigeria (Reuters) – Nigerian militants freed three foreign oil workers on Monday after five weeks in captivity and said their fighters would now focus on crippling oil exports from the world's eighth largest supplier.
The three men, two Americans and one Briton, were handed to the governor of Nigeria's southern Delta state by an ethnic Ijaw leader who had been asked to negotiate with the militants.
“(The three) are in very good health and high spirits,'' said Abel Oshevire, a spokesman for Delta state.
The freed men — Cody Oswald and Russel Spell of the United States and John Hudspith of Britain — were transferred to embassy officials who took them for medical checks.
“John's release has come as a huge relief for all his family,'' the Hudspith family said in a statement.
The rebel Movement for the Emancipation of the Niger Delta (MEND) had demanded as conditions for their freedom more local autonomy over the delta's oil wealth, the release of two jailed Ijaw leaders and compensation for oil pollution.
However, on Monday they said the release was unconditional. They said kidnapping had tied up hundreds of fighters who would be better used to extend a three-month campaign of sabotage against oil pipelines and platforms that has already cut a quarter off Nigeria's 2.4 million barrels per day output.
“Care for these hostages tied down close to 800 of our fighters (who) would be put to better use attacking oil facilities,'' they said in a statement.
President Olusegun Obasanjo is due to fly to Washington on Tuesday and pressure had been building up for an end to the standoff over the hostages.
WAVE OF ATTACKS
MEND militants originally captured nine foreign oil workers on February 18 during a wave of attacks on oil facilities, but six were released on March 1.
It was the second bout of kidnapping and attacks by the previously unknown group since January.
The raids have forced oil companies to cut 630,000 barrels a day of oil production in the OPEC member nation, and MEND has previously threatened to cut another million barrels a day with a major attack this month.
Royal Dutch Shell, which has been worst hit by the attacks, said it would not resume normal operations until it was safe to do so. It said it was particularly concerned about the environmental impact of the crisis, which has prevented workers from assessing spills, effecting repairs and cleaning them up.
Ijaw activists have been working behind the scenes to resolve the three-month-old crisis, and some saw the release as a possible first step in that direction.
“Now that MEND have shown good faith, it is of utmost urgency that we move to the dialogue table to discuss the issues raised,'' said Oronto Douglas, an Ijaw activist nominated by MEND to mediate talks with the government.
“If the issues they proposed are discussed with a view to the attainment of justice, it will lead to a final resolution of the matter,'' he told Reuters by telephone.
The majority of people in the delta have seen few benefits from decades of oil extraction that has yielded billions of dollars in profits for the government and foreign oil companies.
Vast areas of the delta are not connected to the national power grid. There is no clean water in many places. There are few roads. Teachers and doctors are in short supply.
The environment has been wrecked by oil spills and the constant burning of gas associated with the extraction of oil.
Militants, often armed and funded with the proceeds of crude oil theft, roam the mangrove-lined waterways of the vast delta in speedboats. Ethnic warfare, piracy and extortion are rife.
Analysts say Nigerian governments, during almost three decades of military dictatorship as well as during periods of civilian rule, have seen it as being in their interests to control the oil by keeping the delta poor, divided and insecure.
By Jeremy Scott-Joynt
BBC News business reporter
Trust is a fragile thing.
For companies as much as for individuals, it can be a slow, hard job to convince the world that you're safe to talk to, deal with or rely on. Then – in the blink of an eye – a chance event, or a misjudgement, can rip your reputation to shreds. And once gone, rebuilding it can sometimes be impossible. No wonder, then, that the number of people managing reputational risk is mushrooming.
But compared with other risks – of giving bad credit, of becoming the victim of fraud, of falling foul of the regulators – how can one measure something so nebulous as a reputation?
And is it really possible to manage a reputation?
It's certainly mounting up the agenda.
In Switzerland, for instance, the mounting row over Iran's nuclear ambitions and the prospect of sanctions means some of its legendarily discreet banks are turning away Iranian government money.
There can also be the more direct risk of misrepresentation: a reputation attack.
“Identity theft of the brand, and bogus investment products purporting to be from that brand can be a real issue,” says Bill Cleghorn, corporate investigations partner at RSM Robson Rhodes.
Similarly, a firm can be assaulted through rumour, slander – or selective leaks.
But more general threats to reputation are common too: caused by staff mistakes and misdeeds, bad policies or planning, or mishandled crises.
A recent survey by the Economist Intelligence Unit found that of the top managers it interviewed, 90% said their firm's reputation was one of the most valuable things it possessed.
Indeed, they ranked the risk to reputation as more of a threat than regulatory problems, human capital issues such as employee fraud or misbehaviour, or IT breaches.
And three-quarters said reputational risk needed extra investment.
That said, however, there is a difference of opinion about how to go about tackling the issue.
For some, reputational risk is a thing in and of itself – something which needs to be addressed directly.
“It helps to tease out softer issues which can impact your reputation,” says Jenny Rayner, a consultant and writer on risk management. “That can be a really good sanity check.”
THE RISKS FIRMS FEAR
Human capital: 41%
IT problems: 35%
Market risk: 32%
Credit risk: 29%
Source: Economist Intelligence Unit
Particularly in the PR and marketing sides of big businesses – the idea that risk management is something separate and special is proving rather popular.
For a concept which, unlike other risks, is frustratingly hard to measure, the temptation can be to attach money and faces to the issue as a means of keeping control – and that causes concern.
“Reputation doesn't lend itself to the quantitative, process-driven way risk management is normally packaged,” says Mike Power, Professor of Accounting at the London School of Economics.
“You can't manage it directly. But being weak human beings we tend to put a department and a budget behind it – and that can be why it gets discredited.”
A damaged reputation is an outcome, rather than a cause, he argues – and it's the causes that need to be managed.
Otherwise risk management itself can become a cause of reputational risk, by triggering defensive and over-reactive thinking.
Similarly, a concern about reputation as a thing in itself can pervert decision-making, some warn.
“What if there are things going on which will besmirch your reputation if discovered?” says Mike Porter, from risk consultancy Detica.
“Attacks on your reputation are one of the things that can happen, but risk goes much wider than that. It's not enough to justify someone's job as a reputational risk manager.”
The reputational dimension
Still, reputations can and do suffer – and therefore need protection.
The secret, it seems, is simply to expand what well-prepared companies should already be doing.
Alongside the process of working out where they are vulnerable to financial loss – which usually means determining both how likely a given event is, and what impact it has – they should consider the reputational impact too.
The key, says PriceWaterhouseCoopers partner Glen Peters, is to avoid separating it out, and instead simply build a reputation dimension into the auditing process which large corporations ought already to be undertaking.
“It's not a perfect science,” Mr Peters says.
“But you would go a long way towards making a more resilient business if you were to highlight the potential impacts of risks to reputation.”
Internal auditors, he says, are the people to entrust with collating this kind of threat: not as something separate, but as an extra means of gauging all the other risks that a company is likely to encounter.
The implications of this kind of thing can be far-reaching – and it's a tall order to implement it across an entire organisation.
There's a cautionary tale of a company which, every year, asked its managers to rate the risks they feared on the basis of potential financial damage.
Then one year, they added the reputational dimension.
The result: a list several times as long, and with impact several times as severe.
And the company's response?
It ditched the reputation exercise. Some things, it seems, are just too scary to contemplate.
You can't manage reputation directly… But being weak human beings we tend to put a department and a budget behind it (Mike Power, LSE)
This is the second in a series of articles on risk in 2006. Next: the systemic risks to capitalism from crime and corporate misbehaviour.
Story from BBC NEWS:
Published: 2006/02/12 16:24:42 GMT
© BBC MMVI
The Daily Yomiuri (Japan): 4,000 oil-coated birds wash up on Hokkaido / Endangered species fall victim to oil spills
The Yomiuri Shimbun
The carcasses of more than 4,000 oil-covered wild birds have been found washed up ashore, including along the Shiretoko Peninsula, eastern Hokkaido, marking the worst disaster of its kind since the Russian tanker Nakhodka leaked oil in 1997, affecting about 1,300 seabirds.
Part of the peninsula has been designated a UNESCO World Heritage Site.
If birds that have sunk or been eaten are included, it is thought that tens of thousands of wild birds might have died.
Since Japanese officials cannot cross the Russian border to investigate the problem, the cause of the disaster remains shrouded in mystery one month after the deaths were first confirmed.
A photographer found wild bird carcasses around the mouth of a river in Sharicho in the middle of the peninsula on Feb. 27. Crows were pecking at the rotting corpses.
In addition to Shiretoko, remains were also found in Koshimizucho, Hokkaido on the shores of the Okhotsk Sea.
The wild birds included endangered species such as guillemots, Brunnich's guillemots, crested auklets and slaty-backed gulls.
The Environment Ministry and the Hokkaido government have dispatched helicopters to inspect the situation further.
With ice on the sea surface and shores now melting, the number of dead birds being collected has increased rapidly.
As of March 17, the remains of 4,005 dead birds had been collected.
Even now, patrol personnel usually find more than 10 bird carcasses every time they go out on their rounds.
After dissecting the bodies, the Hokkaido government has come to believe that the birds died due to hypothermia induced by oil contamination or by drowning.
Yasushi Fukamachi, an assistant professor specializing in marine physics at Hokkaido University's Institute of Low Temperature Science, believes the carcasses were carried by currents from the eastern shores of Sakhalin over a period of one to two months.
Researchers initially believed that the wild birds had been contaminated by oil spills from pipelines in oil fields off Sakhalin.
However, more recent studies pointed to the possibility that the oil was Bunker C fuel oil, which is used by large ships, leading to the belief that the oil had come from a ship or ships rather than from oil pipelines.
A Russian government official told The Yomiuri Shimbun that many carcasses of wild birds had also been found on Kunashiri Island, one of the four disputed northern territories that the Russians refer to as the Kuril Islands.
The official suggested that an infectious bird disease might have broken out on the Japanese side of the Sea of Okhotsk.
Since no oil leaks have been confirmed in Russia or Japan, the cause of the disaster remains a mystery.
A spokesman at the First Regional Coast Guard Headquarters in Otaru, Hokkaido, said that with crab and seabird egg poaching rampant in that area, even if a refueling ship had leaked oil, it would not make a report to Russian authorities.
Susumu Chiba, a lecturer at Tokyo University of Agriculture's Faculty of Bio-Industry, said that the leaked oil might also affect scallops, shrimps and other marine life.
(Mar. 28, 2006)
By Robert Aronen
March 27, 2006
While Americans turned their attention to March Madness last week, Canadian papers were plastered with headlines about Royal Dutch Shell (NYSE: RDS-A) and its latest move in the oil sands.
The headline-grabber up north was that Royal Dutch had paid $465 million Canadian (about $400 million U.S.) for leases on 10 parcels of land in an area known as the Grosmont formation. The size of the deal is impressive and makes for one of the largest lease sales in recent history. Furthermore, Royal Dutch is making this investment through its subsidiary Shell Exploration & Production in the Americas, not through Shell Canada.
The industry is somewhat baffled by the investment, because the Grosmont formation is an almost untouched area of oil sands, with no proven technology to develop the resource. This is a big bet — but it's one that has left the players in the oil patch scratching their heads.
How big is this deal? If successful, Shell Exploration & Production will have squatter's rights for about 219,000 acres of the Grosmont formation, which is estimated to hold 300 billion barrels of oil, although the amount actually recoverable is uncertain. Even though the company has not purchased rights to the entire formation, 300 billion barrels of oil would be higher than Saudi Arabia's current reserves of 259 billion barrels. And if Shell has an economically viable technology, the purchase will boost its shrinking reserve base by billions of barrels.
The fact that Royal Dutch used its American subsidiary, instead of Shell Canada, for this purchase also raises questions. Shell Canada is the major partner in the Athabasca Oil Sands Project, along with Chevron (NYSE: CVX) and Western Oil Sands. Under this partnership agreement, Shell Canada must allow Chevron and Western Oil Sands to participate in any expansion within the region. Shell Exploration & Production in the Americas is not under the same sharing obligation, which may explain why Royal Dutch decided to use it instead of Shell Canada for the Grosmont leases.
While this aspect of the story is interesting, I doubt that Shell Canada's partners are too upset. After all, for the foreseeable future, the Grosmont formation will likely be a money pit, sucking up hundreds of millions of research and development dollars, with no known payback. Even Shell claims that any project will not begin producing until the next decade.
A different kind of oil sand
Investing in the Grosmont formation is risky because the oil is locked in limestone, unlike the profitable oil sands currently under development that extract hydrocarbons from a mixture of heavy oil, sandstone, and dirt. Hydrocarbons in sandstone are extracted from the oil sands via mining operations or through in situ (in place) thermal recovery methods, with a current production cost of about $15 a barrel, according to alternative-energy superstar Suncor Energy (NYSE: SU).
To date, however, the Grosmont formation has proved unwilling to yield to in situ technologies and lies too far beneath the surface for mining operations. The resource has been considered economically unviable, with very little interest in the site. So why did Shell spend almost half a billion dollars, and how does it plan to produce any oil?
An ace up the sleeve?
Shell might just have an ace up its sleeve with an experimental technology it has developed for the oil shale formations of Colorado. Shell announced last year that it has an in situ thermal recovery method that would be commercially viable in oil shale at $30 a barrel. My guess is that Shell is looking at some variation of this method for the Grosmont formation.
At a minimum, Shell has staked a claim on a huge resource. The company undoubtedly remembers that the first movers, like Suncor, grabbed the most promising properties in the other oil-sands formations. If oil prices continue at current levels or rise in the coming years, this bold purchase in the Grosmont formation will likely prove to be a pivotal moment in Shell's corporate history.
Robert Aronen recommends a trip to Fort McMurray for anyone who doesn't believe in the oil sands story. Please feel free to share your comments with him at [email protected]
He does not own shares in any company mentioned. The Motley Fool has an ironclad disclosure policy.
• Monday, Mar 27, 2006
A Shell Petroleum Development Company (SPDC) corked-up well at location two last Friday, burst, spilling oil to over five communities at Kpor in Ogoniland of Rivers State.
The incident occurred as negotiations between Ogoni people and SPDC is about to commence on the resumption of oil production in the area.
Our correspondent reports that the incident, which occurred around 5p.m. on Friday, affected Kpor, Mogho, K-Dere, B-Dere and Bara communities.
The villages are located along the road leading to Kpor, the headquarters of Gokana Local Government Area of the state.
Conducting journalists round the scene, the leader of the Movement for the Survival of the Ogoni People (MOSOP), Mr Ledum Mitee, ruled out the possibility of vandalism.
He attributed the incident to the aging pipes.
Shell Corporate External Affairs Manager, Mr Don Boham, in his reaction, said crude oil was seen spewing from the company’s well on Friday.
Boham said SPDC had mobilised its Spills Response and Fire Service teams to the site, adding that measures have been taken to secure the well and contain the spill.
He said relevant government agencies and community leaders had been informed of the situation and that a joint investigation team was due to visit the area.