Perception gap between the haves and have-nots’ is widening — in the energy sense too. And this is scary!
With oil markets putting pressure on all vulnerable and not so vulnerable, the wedge between crude producers and the consumers is growing at an alarming rate. Pundits too seem divided on familiar lines. Tension is building up. Body language is terse with perceptions varying and still widening — not a good omen at all. The visit of the US Treasury Secretary Henry Paulson to the Kingdom earlier the week followed a visible pattern. He was here almost in the immediate aftermath of President Bush’s visit to the Kingdom mid-May where he reportedly pushed Riyadh hard to open up taps further.
President Bush’s earlier visit to Riyadh in March was also followed up with an immediate visit by the then energy secretary Samuel Bodman, when he tried to pick up from where the president had left. And this time too it was no different. Only the face had changed. Treasury Secretary was in Jeddah, apparently to follow up on the discussion the president and his team had with the Saudi leadership on all issues — oil included.
Many now believe relentless pressure is being put on Riyadh, like on some other capitals, to toe Washington’s line on important issues and indeed oil and energy is a major issue today — who can dare deny.
The brief Secretary Paulson was carrying was very clear. ‘The key message there the secretary will highlight is that record high oil prices are putting a significant burden on the global economy, they are also putting a significant burden on families and consumers, not just in the United States but around the world,’ David McCormick, Treasury Undersecretary for International Affairs, told reporters just ahead of Paulson’s first trip to the region as Treasury chief.
While President Bush was here mid-May, the Saudi government had announced raising output by 3.3 percent, owing to market dynamic, there was indeed clamor for more, while on the other there was definite skepticism in Dhahran — the virtual global energy capital — that the move would have any effect on prices. ‘Oil can’t be sold, just to be stored at sea,’ industry leaders have been insisting — referring to growing suspicion here that the current high price is a result of speculation, and even covert hoarding by some of the larger traders. The wedge stands more visible indeed.
And thus in its first meeting after the US President’s visit to Saudi Arabia, the Saudi Cabinet reiterated that current oil production was enough to meet market requirements. Petroleum Minister Ali Al-Naimi briefed the cabinet on the “Kingdom’s view that the currently produced quantities meet all needs of the market and that the production capacity can meet any real additional energy needs.”
Yet, the OPEC is fast becoming the target. In the US Congress, a resolution blocking an otherwise normal arms sale to Saudi Arabia was moved unless the Kingdom signaled raising production by some one million barrels per day. And then in an additional move, some Congressmen tried to bring a lawsuit against the Organization of the Petroleum Exporting Countries (OPEC) for collective action. Stakes are indeed getting higher.
The open season seems now having spread to the UK too, where the British Prime Minister Gordon Brown also appeared aiming squarely at the OPEC. “It is, as people will recognize, a scandal that 40 percent of the oil is controlled by OPEC, that their decisions can restrict the supply of oil to the rest of the world, and that at a time when oil is desperately needed and supply needs to expand, that OPEC can withhold supply from the market.”
And some analysts are jumping on the bandwagon too. Sadad Al-Husseini, a former senior Saudi Aramco executive, NOW alleges that some oil-producing countries are inflating the size of their oil reserves by as much as 300 billion barrels by padding supposedly proven reserves with “probable” reserves and tar and oil sands
‘Take the 140 billion barrels of Canadian bitumen that’s regularly reported as proven oil reserves, he says. In reality, Husseini alleges, only a small fraction of that will be converted to useful fuels. Similarly Siberian hydrocarbons, reported as reserves, call for massive investments to extract and refine, and cannot be considered reserves.
Oil producers, according to Husseini, are also overly optimistic about new extraction techniques. They presume they’ll work well everywhere, instead of analyzing their usefulness field by field.
In the meantime, the OECD energy watchdog, International Energy Agency, is studying depletion rates at about 400 of the world’s major oil fields in its first-ever study of world oil supply. “We are entering a new world energy order,” the IEA Chief Economist Fatih Birol told The Associated Press. The Wall Street Journal reported that the IEA was planning to lower its forecast for long-term world supply. The concern seems growing. “The prices are very high, and demand did not respond in the last few years as much as one would have expected,” Birol added in a rather sober tone. “The growth in terms of production was not great. We did not see enough investment.” The IEA is to report on its findings about the status of world’s major oil fields by November this year.
And in the meantime, the producers continue to insist the current market upheavels are not a result of less than adequate supplies. There was no lack of supply, and no consumers struggling to find gasoline at gas stations, they insist. OPEC’s head of research Hasan Qabazard hence argued last week there was no need for the Organization of the Petroleum Exporting Countries (OPEC) to boost output this year. Qabazard said stocks were building as oil production was outstripping demand by 800,000 bpd to one million bpd in the second quarter of this year. “This year there is more production than demand,” Qabazard said. “With the 300,000 bpd from Saudi, stocks should build even more.” He estimated that the average daily addition in stocks for the whole year, including the increased Saudi output, would come to around 500,000 bpd. Oil fundamentals were sound and did not justify high oil prices, Qabazard said.
Further, the OPEC was in the midst of $160 billion of projects that would help take the group’s capacity to more than 40 million bpd in 2012-2013, up from around 34-35 million bpd now, he said. Thus the two sides appear apart on some of the real issues afflicting this industry. There seems a real lack of trust. Our friends at the International Energy Forum have a real task in hand, for this lack of trust between the producers and the consumers could well turn into a disaster for this energy driven civilization of ours.
