tag:newsweek.washingtonpost.com,2008:/postglobal/energywire/579 2008-07-08T13:37:27Z A debate with Steve Mufson on how energy prices are moving money, nations, and lives. Movable Type Enterprise 1.53 tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39772 2008-07-08T13:07:26Z 2008-07-08T13:37:27Z

The French have mixed a lot of state support in with their nuclear power industry.

Steven Mufson talking recently about nuclear power and recent U.S. government plans to fund new power plant construction. France, which gets 78 percent of its electricity from nuclear power, is often cited as a model by nuclear power advocates. But is it?]]> plans to build a new nuclear plant, France's 60th. The new plant will be financed by EDF, but EDF is still largely state-owned. The contractor, Areva, is also largely state-owned. The location of the plant still hasn't been decided and French President Nicolas Sarkozy said the "first stone should be placed in 2011." This is interesting news, but it is nowhere near enough to change the energy profile of the world's industrialized nations, especially as some plants grow old and face potential closure. Nuclear supporters would probably celebrate if U.S. subsidies were enlarged enough to catalyze the construction of half a dozen U.S. plants over the next dozen years, but that won't fundamentally alter America's energy balance. Energy Department officials acknowledge that even though President Bush fervently wanted to get a nuclear plant started before leaving office, it isn't likely to happen. The process of soliciting proposals for loan guarantees which started last week will take some time. ]]> tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39771 2008-07-07T13:23:41Z 2008-07-07T13:48:36Z

The nuclear industry says it’s ready to help solve U.S. energy problems. All it needs is a little more help.

Steven Mufson why the nuclear industry isn’t satisfied with the $18.5 billion in loan guarantees that the Energy Department is opening up for proposals. And that reminded me of a meeting I slipped into on Capitol Hill in mid-May that was organized by the Heritage Foundation, whose nuclear energy expert, Jack Spencer, used to work for Babcock and Wilcox, a maker of nuclear plant equipment. He had invited Michael Metzner, senior vice president and treasurer for Exelon Corporation, and Caren Byrd, executive director of Morgan Stanley's investment banking division, to speak. There were two or three dozen congressional staff members there.]]> "The economics have never been stronger," Metzner said about the nuclear business, "but they are not strong enough to incentivize what this country needs with respect to nuclear." He noted that a single 1,500 megawatt nuclear plant could cost anywhere from $6 billion to $8 billion and take a decade to build. For many companies, that's half their market capitalization. "No management team is going to bet the company on a single project," Metzner said. Byrd chimed in, saying that banks are very wary about sinking money into new nuclear plants. During the last wave of nuclear plant construction, she noted, about 100 units were cancelled and she said that investors "have very long memories." Unlike Metzner, she was cautious about putting a price tag on new nuclear plants, saying she had seen numbers ranging from $3,000 a kilowatt hour to $8,000. The upper end of that range would make Metzner's model 1,500 megawatt plant a $12 billion project. The answer to this problem? The federal government, of course. The federal loan guarantees - which the DOE noted were "backed by the full faith and credit of the United States" - would move all the financing risk from the banks and put it on the federal government. How much that will cost taxpayers depends entirely on how many of the plants end up going bankrupt. (While the loan guarantee number is huge, taxpayers would be on the hook only if projects went bankrupt or were never completed.) As Byrd noted, last time that included 100 units. Will the industry be smarter this time around? Metzner said that the nuclear industry doesn't expect the federal government to underwrite all of the plants the industry hopes to build. Only "the first dozen or more." Then, he said, financial markets "will step up" and start lending on their own to build new nuclear plants. What he didn't mention was that the first dozen nuclear plants would require a minimum of about $75 billion in loan guarantees, and perhaps as much as $150 billion depending on the cost of the plants. I wish I had a nickel for every person with a great solution to the nation’s energy needs who just needed a few billion dollars of federal support to get going. tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39770 2008-07-04T12:25:55Z 2008-07-07T13:51:46Z

The Energy Department offers loan guarantees that are too big for the foes of nuclear power and not big enough for nuclear proponents.

Steven Mufson The Energy Department earlier this week outlined plans to solicit proposals for $18.5 billion of loan guarantees for the construction of new nuclear plants. Nuclear foes say it's way too much, but the nuclear industry says it's not enough. Both of them can claim to be right with some reason. The loan guarantees could certainly lead to the construction of the first completely new nuclear plants in nearly three decades since the scare at the Three Mile Island plant in Pennsylvania. That would be a setback for nuclear power's foes. But new nuclear plants are so expensive that the $18.5 billion in loan guarantees are only big enough to finance the construction of three new nuclear plants. my next post. ]]> tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39774 2008-07-03T21:09:19Z 2008-07-03T21:15:04Z

Quote of the day: Oil prices aren't governed by basic economics.

Steven Mufson "How many times do I have to tell you, prices have nothing to do with supply and demand." --Saudi oil minister Ali al-Naimi according to story by Bloomberg News. The comment was made as Naimi was reiterating his view that "speculators", not the fundamentals of supply and demand, were driving up oil prices, and that OPEC did not need to raise output to bring prices down.]]> tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39668 2008-06-27T17:45:55Z 2008-06-27T17:47:01Z

When it comes to Iraqi oil contracts, there may be less there than meets the eye.

Steven Mufson A week ago newspapers reported that a handful of the big Western oil companies were close to unveiling contracts for work in Iraq, whose underexploited oil reserves are probably second only to Saudi Arabia’s. One well-read paper said the contracts would be announced next Monday. It’s the kind of story that whips up attention because of the persistent suspicion that access to Iraqi oil for Western companies was wrapped up in the Bush administration’s decision to invade Iraq in 2003. reported last November that major Western companies were engaged in oil service and advisory activities in Iraq, but the nature of their work was long distance because of the security situation. At the time, we wrote that: “The major oil companies have been giving advice, reviewing data and training Iraqi oil workers -- without compensation. Royal Dutch Shell Group, for example, is drawing up a master plan for tapping for domestic consumption the more than 600 million cubic feet a day of natural gas now being burned off. Exxon Mobil, Chevron, BP and Total are also doing technical studies, industry sources say.” The main difference now is that the companies are going to start getting paid fees for services they had been giving away for goodwill (and possible access to Iraqi fields). But with the Iraqi national petroleum law still unsettled and with security a persistent problem, the big international firms are still reluctant to send in personnel and these agreements only last a year or two. I talked to Chevron’s executive vice president for upstream and gas, G.L. (George) Kirkland, about the contracts. He said the contracts will be fee-based, but with certain targets to meet. He wouldn’t say what they were, but they are presumably production targets or goals that the Western oil giants’ advice and perhaps technology should help achieve. Some of the companies may work with fields they worked in before Saddam Hussein invaded Kuwait in 1990, while others, like Chevron, will be helping in fields in which they’ve never worked. Kirkland said Iraq’s reserves were tremendously appealing, but this type of contract isn’t what he has in mind. “We’re not in the contracting business,” he said. Still, he added, “it is “a starting place” to “prove what we can do” and “hopefully open the door” for further opportunities. “There’s a big prize” in Iraq, he said. The trick, as with prizes in so many other politically sensitive countries, is getting hold of the prize. ]]> tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39659 2008-06-26T16:55:45Z 2008-06-27T14:51:00Z

Despite pledges to increase production, it’s unclear what the Kingdom is really planning.

Steven Mufson *Correction Appended* What sort of commitment did Saudi Arabia really make to ultimately expand oil output to 15 million barrels a day – and is that even possible? That’s been a major subject of debate since last Sunday’s big oil consumer-producer pow-wow in Jeddah , Saudi Arabia. And thus the Saudi pronouncement has had hardly any discernable calming effect on oil markets, especially since it would take several years to reach that 15 million barrel a day level in any case. Meanwhile, the kingdom has talked of nudging production up by 200,000 barrels a day from current levels next month -- and current prices remain as high as they’ve ever been. ]]> The original post incorrectly stated Britain's fuel prices at $10 a barrel. The correct figure is $10 a gallon.]]> tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39440 2008-06-13T20:39:04Z 2008-06-16T17:27:04Z

High oil prices rock Europe, the land of high oil taxes.

Steven Mufson The Qatari oil minister Abdullah Bin Hamad Al Attiyah was visiting the United States this week and at a dinner reception he told a story about oil prices. About two years ago, he said, a British official met him and urged him and OPEC to increase output to lower oil prices. The Qatari minister responded with an offer: If Britain would share its tax revenue on oil products 50/50 with Qatar, Qatar would give Britain the oil for free. His point was this: Taxes on petroleum products in Europe are greater than the price of the petroleum itself. Put it another way: European governments make more money on oil product sales than the oil producing countries. 50 cent increases in U.S. gas taxes every six months for the next two years. But with the price of oil at these levels, even Europe, long a model for people advocating high taxes, is having trouble holding the line on its energy tax policies – and that’s disturbing. In the past month, demonstrations by truckers have rocked Britain, France and Spain. Advisers to the British government say that Prime Minister Gordon Brown has met with a variety of experts, including investment bankers specializing in commodities, in search of a reasonable policy idea that would ease price pressures and tell British voters that he cares. France’s President Nicolas Sarkozy last month proposed a ceiling on the sales tax on fuel so that it wouldn’t keep rising along with oil prices. Still, there’s hope that governments won’t react to high prices by cutting taxes or increasing subsidies because that will only blunt the supply and demand effect and prolong current market tensions. The French news agency Agence France-Presse reported today that French Prime Minister Francois Fillon rejected the idea of lowering fuel prices, saying the move would “encourage fuel consumption” and would therefore “be a historical misstep.” During a visit to a geothermal power site in eastern France, Fillon said "It would prolong the illusion pending the next hike. I refuse to take this short-term approach." A short-term approach is exactly what many developing and oil-producing countries in much of the world have done, as discussed in an earlier item here on Energy Wire. Indonesia’s fuel subsidies helped boost consumption there and last month it finally had to withdraw from OPEC because it isn’t exporting anymore. In the past several weeks, several of those nations have taken the plunge and let its artificially low prices rise to world levels. This could help slow down oil consumption growth in the world’s fastest growing markets. It won’t be easy. India has already faced widespread protests for trimming its fuel subsidies. Unfortunately, that will probably make it unlikely that China would follow suit – at least until after the Olympics. With inflation rising and the sports spectacular approaching, Chinese leaders will probably want to wait another three months before risking disturbances. And perhaps longer.]]> tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39412 2008-06-10T18:25:53Z 2008-06-10T18:26:42Z

The rosy view from the other end of the oil pipeline.

Steven Mufson From the United States, the prospect of endlessly high prices for oil and gas looks unrelentingly grim. Just this morning, the Commerce Department announced a bigger than expected trade gap for April and it’s clear who the villain is – crude oil imports accounted for just under half of the nation’s net trade deficit. From the other end of the international oil pipeline, however, things look pretty good. No giant sucking sound there, just the happy gurgle of oil revenues flowing into the government cup that is running over. Recently I had lunch with Stuart Pearce, the head of the Qatar Financial Authority, and he explained just how good the future looks from the perspective of the emirate on the Arabian peninsula.Within three years, Qatar’s output of oil and gas combined is expected to reach the equivalent of 6 million barrels a day of oil. What that means in dollars is this: If the emirate earns $100 a barrel over the next 10 years, it will have total revenues of more than $2 trillion. “It’s just phenomenal. It’s a country that doesn’t fit into any IMF model,” said Pearce, whose agency is responsible for setting up a regulatory framework for banks seeking to do business in Qatar’s relatively open economy. It only takes about $40 billion a year to run the country, Pearce said. The Qatari budget was set earlier this year with the assumption that the government would earn about $40 a barrel on oil exports. “It’s a little bit conservative,” Pearce says. That leaves a lot for other purposes. The country is growing at a rate of 20 percent a year. Unlike the 1970s, when the Organization of the Petroleum Exporting Countries sqaundered a large portion of their petrodollars, OPEC is trying to be smarter now. That’s one reason Pearce is working for the emirate. He has helped set up laws and regulations for financial firms and there are now 82 foreign financial firms in the emirate. He rejects the model of Dubai, which lives off of investment income, tourism, and capital fleeing Iran in search of a safe haven. Qatar is trying to build a more diversified economy. “Qatar isn’t going to be the next Dubai,” Pearce says. “Qatar needs to do what’s best for itself.” But in much of the world, people still haven’t come to grips with just how gigantic an earthquake oil prices are for the international financial system. It could throw many aspects of the financial system out of balance and turn more U.S. and European companies into suitors for Mideast capital. These sums are enormous, much, much bigger than the volume of petrodollars that needed to be recycled in the 1970s. The “giant sucking sound” phrase Ross Perot used in 1992 to describe what he said were jobs flowing to Mexico applies more accurately to the money leaving industrialized countries for oil exporting countries. The April trade deficit is just one month of a much bigger problem. tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39359 2008-06-03T17:46:37Z 2008-06-03T18:01:47Z

It would be the most important piece of energy legislation ever – if it had a chance of becoming law.

Steven Mufson views of the whole mess.) But if all this is a dress rehearsal, why care? ]]> Two reasons. First, this legislation, even if defeated, could end up being a baseline for future negotiations. That’s why some expensive lobbying has been going on and why people have been paying attention to the 25 or so congressional hearings that were held about this bill (and why we at the Post have spilled a fair amount of ink on it). Second, the debate over the bill could play a role in the elections later this year. At the moment, each side believes the political advantage lies with them. Supporters of climate change legislation believe foes could incur the disapproval of voters who mostly want to do something to slow climate change. But opponents of the legislation hope to convince voters that the bill would raise energy costs and be just like, as Sen. James M. Inhofe (R-Okla.) put it, “the largest tax increase in the history of the nation.” So love it or hate it, but the legislation might actually come to a vote because neither side will want to filibuster it. Here is one of my questions about the future of climate legislation, assuming that supporters of this bill fail now and try again next year under a new president: Will climate legislation circa 2009 meet the same fate as the failed Clinton-backed health care legislation circa 1993? Both bills have good intentions. Both address problems that won’t go away. Both are immensely complicated. Both try to include something for almost everyone, but may wind up simply making sure that there is somethng for almost everyone to dislike. Last Friday, Sen. Dorgan told me that he remembers getting briefed back in 1993 by Clinton healthcare gurus Ira Magaziner and Judy Feder. “I sat and listened to them. Since I couldn’t understand their explanation I figured I could never explain it to someone else,” Dorgan said. “This is, in some ways, more complicated than that.” The climate change bill – proposed by Sens. John Warner (R-Vir.) and Joseph I. Lieberman (I-Conn.) and amended by Senate Environment and Public Works Committee Chairman Barbara Boxer (D-Calif.) – tries to cover almost all the political bases. It proposes big tax cuts to help the poor pay for higher energy prices that would come out of the legislation. It allocates far fewer emission permits than Europe does in its system, but the allocations are still substantial. It also takes a novel approach to state governments, many of which have already designed their own systems. Rather than force states to join a federal system, the bill provides scores of billions of dollars of incentives to entice states into joining the national system. Paul Bledsoe, communications and strategy director for the National Commission on Energy Policy, says “if you have an economy-wide cap-and-trade system with some basic cost containment provision and incentives for developing country action, you have a fairly broad constituency for that approach. It’s when you have to get to the next level of detail that you alienate people all over the spectrum. That’s probably the danger here.” Take stalwart Democrats Dorgan and Sen. Maria Cantwell (D-Wash.). Cantwell worries that the bill does too much for so-called clean coal projects that would capture carbon dioxide and not enough for places like Washington, where most electric power already comes from hydropower. Dorgan, however, frets that the bill doesn’t do enough for coal. A group of GOP senators say it doesn’t do enough for nuclear. Or consider the different stances within the environmental movement: Organizations like the Environmental Defense Fund approve of the way the bill woos big utilities by allocating them most of the permits they will need for current emissions then phasing out the allocations while Friends of the Earth believes that 100 percent of the emission permits should be auctioned. Or take the utility industry: Those with large amounts of nuclear power are happy with the bill, while big coal users such as Duke Energy want bigger allowances. This sort of legislative gridlock isn’t unusual. But it has taken on a more alarming dimension because if climatologists are right, there is a very limited amount of time to start acting to steer the giant U.S. economy in a more environmentally and climate sustainable direction. The Boxer-Warner-Lieberman bill may fail this week, but this issue isn’t going away. tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39325 2008-05-29T19:24:18Z 2008-05-29T19:27:14Z

The oil-rich emirate invests in solar.

Steven Mufson Abu Dhabi, the largest of seven sheikhdoms in the United Arab Emirates, is swimming in oil revenue - and it's investing some of that money in solar power. That's more than can be said for Exxon Mobil Corp., which rebuffed a Rockefeller initiative at yesterday's annual meeting to nudge the company toward renewable energy. A shareholder resolution sponsored by the company's founding family was easily defeated. Exxon's stance is an assertion that today's primacy of oil will continue for years to come, and that what the oil giant does best is look for oil and gas, not manufacture solar panels. But Abu Dhabi is doing the sort of forward planning that the Rockefellers wish Exxon would consider for tomorrow. Today Masdar, part of the industrial development arm of the Abu Dhabi government, unveiled plans to invest $2 billion in thin-film photovoltaic solar technology. True, this amounts to about a month of Exxon Mobil's projected capital spending this year. But in the solar world, it's substantial and noteworthy and probably just the sort of thing the Rockefellers would like Exxon to do. Steven Geiger, director special projects at Masdar, talked with me by phone today. He said that Masdar aims to produce 1 gigawatt of panels by 2013 by adding plants, most likely in the southwest United States and Asia. The first phase of investment will help bring solar power to Abu Dhabi and other Mideast oil producing countries, many of which still use oil to generate electricity, a practice that is wasteful and costly. In addition, Geiger said, there is a “staggering the growth of power demand” in the UAE. But the solar plants Masdar envisions will have the capacity to produce way more than those Mideast markets will buy. Masdar is looking to become a player in the global solar market. Until now, Geiger said, Abu Dhabi had made three modest investments in solar thin film companies. By contrast, he said, “this is 100 percent built and owned by Abu Dhabi.” Though the investment is big, it will still leave Masdar well behind the industry leader in thin films, U.S.-based First Solar, which is also the low-cost producer right now. The way thin film works, Geiger explains, is that you spread two layers of amorphous silicon on large glass substrates, or panels. It isn’t as efficient as some solar panel technologies, but it’s cheaper and good to use in places with plenty of space, like the desert. It’s also good to use in hot places where the temperature on the surface of the panels can reach 75 or 80 degrees centrigrade. And the more of it a company can make, the more it drives down costs. Masdar quotes Deutsche Bank as saying that the current global PV market is worth US$15 billion and growing at 40 percent a year clip. “It’s a scale game,” Geiger said today. “I think you’ve seen the entry of large tool suppliers into this business, the same people drove down costs in semiconductors and flat panels.” At this point, he said, solar has “moved out of the garage, away from people trying to build better mousetraps to people with tool sets who are cranking out bigger volumes.” So Abu Dhabi isn’t waiting, he said. While the oil is still flowing and with cash coffers brimming, it is diversifying into renewable technologies. It’s the sort of thing the current generation of Rockefellers would appreciate. tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39298 2008-05-27T16:50:49Z 2008-05-27T16:52:28Z

A battle over coal-fired power plants in Kansas could signal a new chapter in the fight for clean energy.

Steven Mufson two new coal-fired power plants in the western part of her state. Coal plant plans are drawn up and dropped all the time, but these were different. ]]> reject an air permit for a new coal plant because of greenhouse gas emissions. The state’s health and environment secretary rejected the permit, citing last year’s Supreme Court decision, which said that carbon dioxide is a pollutant subject to regulation under the Clean Air Act. The federal Environmental Protection Agency has been dawdling about coming up with those regulations, but the Kansas decision raises the prospect that proposed new coal plants could run into licensing problems at the state level. Bruce Nilles, a Sierra Club lawyer in Wisconsin, has been active in fighting against new coal plants throughout the Midwest. Last week he was ecstatic. “This is a major epic heartland battle that has changed the thinking about new coal… If this is not a sign that there is a new day of clean energy coming, I don’t know what is,” he said. “This is not one of those radical east coast states. This is Kansas.” What’s next? I asked him last week. “There are 86 plants left,” he said. “Our work is far from done.” Even for those less partisan in the fight against coal, the Kansas fight is important. Coal-fired plants provide half the electricity in the United States, but as a sense of urgency about climate change mounts, there will be more and more focus on the carbon dioxide emissions from those plants. Carbon capture and storage techniques at a commercial scale are probably at least a decade away, and environmentalists and climatologists want to rely on conservation and renewable energy for the time being and at least delay new coal plants until new technologies are tested. The end of the Kansas fight also comes at an interesting political moment. Sebelius has been a strong supporter of presidential hopeful Sen. Barack Obama (D-Ill.) and she’s usually mentioned as being among those Obama might consider as a running mate. If so, her performance in this fight will be seen as a key test of her political abilities. ]]> tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39223 2008-05-20T15:49:30Z 2008-05-20T16:05:30Z

Oil prices rose today on one forecaster's comments, but he's guessed wrong before and stands to gain from higher prices.

Steven Mufson he expects oil prices to rise as high as $150 a barrel before the end of the year. And he said this is partly because of long-term trends – limited global production capacity and strong demand in China. But buyers beware. Readers beware, too.Just three months ago, on February 22, Pickens told CNBC that oil prices would drop to $85 a barrel. "I think oil's going to back off," Pickens said during the interview. "The weakest quarter is the second quarter. We'll drop $10 or $15 a barrel in the second quarter. I think we'll be back above $100 in the second half of the year." ]]> he expected prices could reach $150 a barrel but added, “I won’t be investing in $150 oil.” How much should markets believe someone who can move markets with a cozy chat on a morning talk show when he stands to make millions of dollars on the market moving his direction? Pickens describes himself as an oilman, and he did in fact train as a geologist and work in the industry, building up Mesa Petroleum. But Pickens made more money in the 1980s by drilling for oil on Wall Street through takeovers of companies bigger than his, and he sold his company in 1996. The company would be worth a lot more today; crude oil prices have quintupled since 1996. He’s made money more recently by trading oil and natural gas in hedge funds that are part of his firm, BP Capital. His success means he’s savvy about oil, but he’s not exactly an unbiased oracle; he has a big stake in relatively short-term price movements. I’m interested in reading about what he has to say, but it’s worth taking his oil forecasts with a grain of salt.]]> tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39205 2008-05-17T21:38:44Z 2008-05-17T21:44:49Z

The oil-rich kingdom made a gesture, but a small one.

Steven Mufson So did the Saudis rebuff President Bush’s plea for more oil production or not? The answer appears to be that the oil-rich kingdom made a gesture, but a small one. Initially, after Bush’s meeting with the Saudi king, Abdullah, Bush’s national security adviser Stephen Hadley said that the Saudis would not be increasing production despite Bush's appeal. Then, shortly after that, Saudi oil minister Ali al-Naimi said that the kingdom had decided a week earlier to boost production by 300,000 barrels a day – not because of Bush but in response to requests from 50 commercial customers. How to interpret that? Saudi Arabian officials have been saying for some time that the oil market has enough supplies. And they have been trying to say that they are taking politics out of oil production decisions. So the oil minister’s comments would be in line with those positions. At the same time, announcing a 3 percent output increase with the American president visiting could moderate some criticism of Saudi Arabia, though even after this increase in output the kingdom has nearly 2 million barrels a day of additional production capacity. As for what effect the production boost will have on the oil market: a small one. Crude oil prices still finished the day about $2 a barrel higher despite the announcement. The increase, traders said, would have to be more like half a million barrels a day and would have to be sustained in order to let some air out of the $126 a barrel price. That leaves Bush searching for other answers, hence his call today for lower gasoline use and greater exploration in U.S. offshore waters currently closed to drilling. The politics of oil can be tricky for the president at this point. Political consultants warn that a call for major cuts in oil use could remind people of President Jimmy Carter, whose calls for energy conservation (prescient looking now) were seen as signs of weakness when he made them (remember his much-mocked sweater and anger over lower speed limits). On the other hand, submitting production requests to the Saudi king probably isn’t good for the presidential image either. This week Bush did both. The next act will probably be a ratcheting up of perennial U.S. domestic political fights over offshore drilling, nuclear power, renewable energy sources, electric cars and energy efficiency measures. American voters are looking for people to blame and Republicans and Democrats will be pointing at each other. tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39192 2008-05-15T15:09:31Z 2008-05-15T15:14:14Z

Why this Saudi visit probably won't produce any more oil for the U.S.

Steven Mufson President Bush pays another visit to Saudi Arabia this week, but the visit isn’t likely to produce new flows of oil from the world’s biggest exporting nation. That's not just a matter of Bush's own diplomatic shortcomings - it's also linked to changes in the U.S.-Saudi relationship and changes in the kingdom’s view of its self-interest. Former U.S. Ambassador to Saudi Arabia Chas Freeman told me before I visited Riyadh last fall that years ago, the U.S.-Saudi relationship was based on a perceived exchange of U.S.-provided security for Saudi-exported oil. Nowadays, Saudi Arabia questions whether the U.S. invasion of Iraq enhanced the kingdom’s security and the region’s stability. And the Saudi royals also wonder whether the giant U.S. military can really protect the kingdom’s oil infrastructure from terrorist attacks. On the U.S. side, many analysts believe that Saudi Arabia, by cutting its oil output on several occasions over the past nine years, helped drive prices up to their current peak. One sign of the breakdown of the oil-for-security exchange is the effort by a group of Democratic senators, led by Sen. Charles Schumer (D-N.Y.), to block arms sales to Saudi Arabia until that country increases its oil production. The kingdom could pump an additional 1.5 million to 2 million barrels a day, though most of that excess capacity is comprised of heavier crude oils that many refineries are unable to process. The move in Congress isn’t likely to have much more impact than Bush’s visit. The Saudi oil policy seems surprisingly settled. For years, many people viewed Saudi Arabia as a relative pricing “dove” in the Organization of the Petroleum Exporting Countries – meaning that it favored moderate price increases in order to keep consumers hooked on petroleum and avoid what OPEC ministers call “demand destruction.” But whatever gap might have once existed between OPEC pricing “hawks” (who push for more limited output and higher prices) and OPEC pricing doves has practically vanished. In a meeting earlier this week at the Brookings Institution, Fareed Mohamedi of the PFC Energy consulting firm said that Saudi Arabia’s days as a pricing dove ended in the 1990s. Now, he said, Saudi Arabia worries less about oil consumers turning away from petroleum and focuses more about conserving its resources for future generations, while enjoying high prices in the current generation. Another factor, he said, is that Saudi Arabia and other Gulf countries are building up their own domestic industries to take advantage of their abudant oil and natural gas resources and capture some of the value added to finished products by Western companies. Georgetown University professor Jean-Francois Seznec noted at the same meeting that by 2015, Saudi Arabia will be the world's largest producer of petrochemicals, and by 2020 will produce a quarter of the world's aluminum. So the kingdom needs to keep some resources around to fulfill that vision of its future development. Apart from changing Saudi attitudes, there are global reasons why the gaps between the two OPEC factions have narrowed. One is that growing world demand has soaked up most of the world's excess production capacity. OPEC doesn’t need to cut output much in order to boost prices, so the problem of cheating on quotas that plagued the group in the 1980s and 1990s has become mostly moot. Most members are pumping as much as they can while Saudi Arabia restrains its own output. And it has worked. Just 16 months ago, OPEC trimmed output and stopped the price of oil from sliding below $50 a barrel. Just 16 months ago, OPEC was worried about falling prices. Even though prices are soaring now, OPEC has little fear about losing oil customers. Even though demand is stagnant or even falling in the United States, China and India are adding millions of cars a year. tag:newsweek.washingtonpost.com,2008:/postglobal/energywire//579.39176 2008-05-13T16:23:37Z 2008-05-13T19:36:24Z

What's behind the call to stop buying oil for our strategic petroleum reserve.

Steven Mufson Today members of Congress will press President Bush to halt purchases of crude oil by the Strategic Petroleum Reserve in a bid to do something – anything – to tamp down crude oil prices, which have doubled in the last year. The reserve, created in the aftermath of the 1973-1974 oil embargo, has been quietly stockpiling oil in the Louisiana Salt Caverns for three decades, with only a handful of pauses. Bush says the amount of oil being purchased by the strategic reserve – about 70,000 barrels a day – is too tiny to make any difference in oil prices. But members of Congress, including 16 Senate Republicans, say it’s worth a try. How did a suspension in purchases by the Strategic Petroleum Reserve become a cause célèbre in Congress? The idea has originated in large part with the Aspen, Col.-based oil consultant Philip K. Verleger. An economist, Verleger was director of the Office of Domestic Energy Policy at the U.S. Treasury under President Carter and later a lecturer at Yale University. He has been an independent consultant for some time and a provocative analyst of oil markets. For months, he has been advocating a halt in the strategic reserve purchases, which he said take the most desirable, easy-to-refine light crude oil off the market at a sensitive time for supplies. The purchases directly affect demand for the oil used as a benchmark by the closely-watched New York Mercantile Exchange. Verleger has also suggested that the Strategic Petroleum Reserve could sell some of its light crude oil and buy the same amount of cheaper, lower quality heavy crude oil, which can be used by some but not all U.S. refineries. How much a suspension of strategic reserve purchases would sway price is a matter of dispute. Though the Strategic Petroleum Reserve purchases account for 0.3 percent of demand for that grade of petroleum, Verleger testified that it could add 10 percent to the price of light sweet crude oil on the New York Mercantile Exchange. Today House Speaker Nancy Pelosi put out a press release noting that Bush did in fact halt additions to the SPR in 2006 to blunt the rise in prices. But Bush now says that the oil bought by the reserve amounts to less than 0.1 percent of world oil demand. If the purchases seem like a drop in the bucket of world demand, they also represent a drop in the bucket of the Strategic Petroleum Reserve, which currently has 701.3 million barrels, equal to 52 days of all U.S. petroleum imports. On Jan. 23, 2007, Bush announced plans to expand the reserve to 1.5 billion barrels. Sen. Byron L. Dorgan (D-N.D.) has been rallying lawmakers’ support since March. “All of us feel very strongly that it makes no sense at all for the administration to be taking action to put upward pressure on prices when the SPRO is 90 percent filled,” Dorgan told me. *** UPDATE: May 13th, 1:58pm: The Senate voted this afternoon to suspend oil deliveries to the country’s Strategic Petroleum Reserve until crude prices fall below $75 a barrel. The measure cleared the Senate in a 97-to-1 vote as part of a flood insurance reform bill.