ENG will be able set price of its oil.Czeschin's
Oil & Energy
Investment Report January 7, 2008
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Fuel riots rock China!
Stranded drivers go on rampage as gas stations
run dry. Riots spreading from inland coast.
Officials pulling out all stops in a desperate
attempt to increase oil imports.
This is creating extra pressure under oil prices
in an oil market that's already tight as a drum.
It could easily be the push that finally sends
oil prices to US$100 to stay ...
You don't see it widely reported on TV or in the
international press, but China's gas stations are
running dry.
From one end of the country to the other,
drivers are having to stand in line for hours to
get to the pumps. And when they finally do,
they're likely to get a miserly ration of only
about 5 gallons per customer.
In the coastal city of Ningbo, full-scale fuel
riots have broken out and are spreading inland.
Dozens of cities are now deploying riot police
to try to maintain order at the pumps.
It's not just motorists who are feeling
the pinch. So are ordinary workers.
In the city of Hubei, the entire fleet of public
buses ground to a halt because of lack of fuel. As
a result, more than 100,000 angry commuters were
forced on to the streets on foot on most days.
Beijing is scared stiff. The last thing the
Party needs in the run-up to the Olympics ... is
millions of motorists AND factory workers united
in angry protests over fuel shortages.
So, the government is pulling out all the stops
to ramp up both domestic production and imports of
everything from crude oil to gasoline to diesel
fuel. And because China already has a voracious
appetite for oil -- it's the second- biggest
petroleum consumer after the United States -- it's
creating substantial pressure under world petroleum
prices.
This could be the trigger that finally sends oil
prices bursting above US$100 to stay.
Mexican oil minister warns oil output
could plunge 30% in just 36 months.
Mexican oil exports -- most of which
go to America -- could plunge 85%.
Fuel riots in China are not the only force
pushing up oil prices. In one key petroleum-
producing country after another, depletion of
aging oilfields, combined with soaring domestic
consumption is cutting into supplies that would
otherwise be available for export.
In an increasingly oil-thirsty world, any
significant decline in exports is going to
ignite a wild scramble for dwindling supplies
-- and send oil prices screaming up to levels
undreamed-of today.
After a quarter-century of continuous production,
Mexico's super-giant Cantarell oilfield -- which is
still responsible for the lion's share of Mexico's
petroleum output -- is now producing 14% less oil
every year.
Moreover, the arithmetic of depletion is
remorseless. A 14% decline rate means Cantarell's
present output will be halved in just a little over
3 years. Even worse, depletion rates don't remain
stationary over time; instead, they increase.
Keep in mind that the governments of most OPEC-
member countries are totally undemocratic and
deeply unpopular. So, one way they try to buy
political support from an otherwise restive
citizenry ... is by keeping motor fuel prices at
heavily subsidized, below-market rates.
Keep in mind that the governments of most OPEC-
member countries are totally undemocratic and
deeply unpopular. So, one way they try to buy
political support from an otherwise restive
citizenry ... is by keeping motor fuel prices at
heavily subsidized, below-market rates.
Nowhere have subsidized fuel
policies been more vigorously
pursued than in Iran, the world's
fourth-largest oil producer
By all accounts, Iran's ruling mullahs have
become as unpopular among ordinary Iranians as the
Shah was in his final days in power. But one
popular "benefit" the mullahs have always been able
to claim political credit for is: gasoline at the
equivalent of 34 cents a gallon (and diesel at 11
cents).
With prices this low, domestic Iranian fuel
consumption has been going right off the charts.
Indeed, major smuggling rings have gone into
business, purchasing large amounts of cheap motor
fuel, and then sneaking it across the border to
where it can be sold at market prices.
But like Mexico, Iran also has a depletion
problem. Iranian Oil production peaked in 1977,
and has generally been declining ever since.
Like Pemex, the Iranian National Oil Company is a
vast bureaucracy run by people who know a lot about
local politics -- but very little about oil. So,
it's hardly a surprise to discover that its efforts
to slow the decline in Iranian oil output have
generally achieved very little.
Precise oilfield data is hard to come by in Iran,
where it is considered a state secret. But based
on what information is available, Iran's oilfields
are believed to be drying up at about the same rate
as Mexico's.
So, between declining output and soaring domestic
consumption, the volume of oil Iran can export is
coming under enormous pressure.
Oil exports have already hit zero in Indonesia
(US$2.16 a gallon gasoline) -- which is the first
OPEC country to become a net oil importer. Iran is
now set to be #2.
The other OPEC country's are also going down this road, and
as they lose their ability to supply the world with oil, that
will mean that any other country or company that discovers world
class deposits of oil, will have buyers fighting to get a long
term exclusive contract for their oil, and so anyone that
discovers a mega field of oil, one of several hundred million barrels or more of oil, will be able to dictate the price that
they will accept, and that would certainly be over $100/barrel.
more, will be able to dictate.