White House Chronicle

News Analysis With a Sense of Humor

Europe Faces Winter on the Edge of the Abyss

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BURGENLAND, Austria –There is another world crisis brewing – and one for which President Obama cannot be blamed. The Europeans and have made a mess of things, and now the wolves are at the door.

The first snarling wolf is deflation. Europe’s economies are so weak, so close to recession, that the very real danger of deflation – falling prices – has its economists petrified. It ought also to have its politicians in anguish, but whether it does is less clear.

Europe’s big-driver economy, Germany, as well as France and Italy, are on the edge. The German miracle is ailing, and Berlin may have been writing the wrong prescriptions for the rest of the 18 countries that share the euro as their currency. It has been aided in this effort by the International Monetary Fund.

That prescription, which often seems to harm the patient, as in Greece and Spain, is for austerity – which appears to work better on paper than in the real world. Germany worries about profligate borrowing throughout the European Union. But if the German economy is to escape recession, Chancellor Angela Merkel may have to borrow some money herself and inject it into infrastructure spending to keep Germany competitive and its workers on the job.

The European Central Bank (ECB) has been slow to institute a badly needed program of buying qualified bonds, known as quantitative easing. In the United States, the Federal Reserve, in a program that is now ending, has pumped more than $1 trillion into the economy and helped pull the economy out of recession. But ECB has been timid because it has no clear direction from the European political establishment — pointing up how cumbersome and directionless the European Union structure has become. It has a parliament, which has no power, and is increasingly attracting members who are actually opposed to the European project.

The European Commission has arguably too much power centered in the bureaucracy in Brussels, but no clear direction form its controller, the Council of Ministers. Trouble is the ministers can disagree and veto needed courses of action.

The economic crisis points up the ungovernable nature of Europe and its present institutions. If Washington is gridlocked, Europe is by structures that cannot deal with crisis and what often appear to reflect as many policies as there are members (28) in the EU.

But it is not just the economic wolf that is at Europe’s door. The Russian bear is there, too. Already there is an undeclared war raging in Ukraine.

At the Association of European Journalists' meeting here, a spokesman from the Ukrainian government, who asked not to be identified by name, expressed the sense in Ukraine that it has been betrayed by EU bungling.

“Europe sees Ukraine as its European neighborhood partner. But in Ukraine, the truth is different: Ukraine’s view is that Europe let us down. We are hurt, bleeding. We have been betrayed by a neighbor that, six months ago, we saw as a brotherly nation,” he said.

What was not said was that Europe may freeze this winter if the Putin regime — a growling wolf — wants to punish Ukraine and its neighbors. Europe is hopelessly dependent on Russian gas, which is used mostly for heating. Germany gets 40 percent of its gas from Russia, and Finland, Estonia, Latvia and Slovakia get 90 percent. Russian gas makes its way — largely through Ukraine — down into Italy, and even the United Kingdom has some small exposure.

If the gas goes off, Europe freezes and its economies go south in an avalanche. The most hopeful thing for Europe this winter is that with the world oil price falling, Russia’s own fragile economy may dictate that it keeps the gas flowing — but it will force up the price where it can.

Washington, with a new Congress, might want to brace for Europe’s winter of crisis and disaster. If Europe goes into severe recession, can the U.S. economy escape major harm? The new Congress will be on a sharp learning curve. — For the Hearst-New York Times Syndicate

Energy Experts Predict Crisis-Free Winter

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There is something extraordinary happening on Main Street, in the suburban strips, and at country stores: workers are lowering the prices on the signs for gasoline.
Veterans of the energy crisis that began in 1973 and has continued, with perturbations, ever since, are trying to get their heads around this enormous reversal of fortune: there is no energy crisis for any fuel in the United States as winter approaches. That was the message delivered loud and clear at the annual Energy Supply Forum of the United States Energy Association (USEA).
Indeed the main problem, if there is one, is that oversupply is driving down some fuel prices, like for oil and natural gas, which could result in higher prices later as producers curb production.
"Who would have believed it?" asked Barry Worthington, president of USEA.
This year the forum, which has been known to be filled with alarm and foreboding predictions, was full of robust confidence that the nation will breeze through the coming winter, and that consumers will pay less to stay cozy than they have for several winters — but especially the last one. Stocks of gas and oil are plentiful. It is not just that heating oil will be cheaper, nature will also play a part: the National Oceanic and Atmospheric Administration predicts a mild winter.
No one is expecting a repeat of last winter's "Polar Vortex," which brought some big utilities close to being unable to meet customer demand in the extreme cold. Mark McCullough, executive vice president for generating at American Electric Power (AEP), which serves customers in 11 states, described how the giant utility came close to the edge.
This winter, McCullough thinks, things will be fine. But he is less sanguine about the future of AEP and its ability to deliver electricity in 2016 and beyond, if the Environmental Protection Agency holds firm on its proposed rule to curb carbon emissions from coal-fired plants.
AEP, which straddles the Midwest, has the largest coal-fired fleet in the country. McCullough said that his company had just come off extensive efforts with the so-called mercury rule and now was plunged into a very difficult situation.
McCullough was joined by oil producers and refiners in worrying about another proposed rule from the EPA on ozone. Neither the utilities nor the oil producers and refiners feel that the EPA's proposed ozone regulation can be met.
In short, in a buoyant energy world, there are clouds forming. But unlike the last 41 years, these clouds are regulatory rather than resource generated; public policy in their origin, rather than in the scheming of foreign oil cartels. Indeed Robert Strout of BP confidently predicted that in a little more than 20 years, the United States could be energy self-sufficient.
The other problem going forward, in the new time of bounty, is energy infrastructure. The industry needs more pipelines to facilitate the shift from coal to gas; better infrastructure to get the new oil to the right refiners. (Refiners actually favor moving oil by train as well as by pipeline.)
USEA's Worthington, a veteran of energy crises of the past, said ruefully the other thing that might happen is that excessive domestic production and falling prices will lead to a period when producers will stall new production and prices will rise. "Markets do work," he said, commenting on the cycles of the hydrocarbon market.
For now, with international economic activity waning, and hydraulic fracking unlocking oil and gas at an astounding rate, this is a bonus time for the American consumer.
For people like myself, who have spent more than 40 years commenting and reporting on the bleak energy future, this is indeed a time of astonishment. We had heard predictions of doom if China industrialized, expectations of steadily declining U.S. production, and more and more of our wealth being exported to buy energy. Now, if Congress acts, we will be a serious exporter.
This winter of our discontent is made glorious summer by fracking, as Richard III did not quite say. Astonishing! –— For the Hearst-New York Times Syndicate

A Civics Lesson on Government-Private Collaboration

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The world is awash in natural gas and, to a somewhat lesser extent, in oil. This is due to the controversial but hugely effective technology of hydraulic fracturing, known as “fracking.”
 
The principal of fracking is so simple that it has been discussed and tried since the latter part of the 19th century; in other words, it is as old as the oil industry. If you find something you want in the crevasses in the ground, why not dislodge it with something else?
 
It was frustrating to know that you were leaving more oil behind than was coming to the surface. Ditto when natural gas also became an important fuel.
 
In the 1960s, the federal government had not one but two programs to see whether nuclear detonations could release natural gas in tight formations. These foundered not on their feasibility, but on fears that the gas would be radioactive. That scheme sounds crazy now.
 
Crazy was what some people said of a Texas oil man, George Phydias Mitchell, who believed that fracking could be developed on a grand scale to unleash natural gas and oil in shale. By any standards, Mitchell, who died at the age of 94 in July, was a visionary who knew, from wildcatting, that on the frontier of technology, you will fail before you succeed.
 
He also knew that he needed the U.S. government.The U.S. government may not have known that it needed George Mitchell and his company, Mitchell Energy and Development, but together they forged a partnership so effective that it has changed the world and brightened America’s prospects as world competitor because of cheap energy at home.
 
There are those who want to believe that Mitchell did it all by himself; that the U.S. government was wasting our money on other things. But that is not so.
 
Starting in 1975, the U.S. government began putting money into advanced oil and gas recovery, fracking. The United States brought science to bear at a time when about half of Mitchell’s own employees thought he was on a wild goose chase.
 
Key to the success of the drilling revolution was the naval technology three-dimensional mapping. First developed for tracking submarines, it was possible to look under the ground and establish the contours of the resource.
 
Horizontal drilling was the essential breakthrough: the well — or borehole as it is called in oil-speak — could follow the shale seam laterally, but sometimes rising or falling with it. A well that is a few hundred feet might have horizontal branches, stretching out as much as 10,000 feet. The oil or gas is driven out under the pressure of water, sand and a cocktail of chemicals. The role of these is to prop open fissures created by the pressure, and so release the precious hydrocarbons – pry them from their eternal rest.
 
There are well-known environmental problems, especially the enormous quantities of water used and what becomes of it afterward. But fracking works and has changed the geopolitics of the world. More than 40 countries may have shale resources that change their prospects. For example, in time, Australia may be a bigger supplier of gas than Qatar. Already, Russia is treating its European contracts with a new respect. There is looming competition.
 
To me the lesson is that wondrous things happen in U.S. government-funded science, especially in its laboratories, and when it is combined with enlightened managers on both sides.

 

So it is a tragedy the federal research budgets are being cut by budget sequestration. We know what can be done when the U.S. government research machine, together with private collaborators, is unleashed: America leaps forward.
 
Medicine is the permanent frontier challenging us, but only 8 percent of research grant requests are funded by the National Institutes of Health. The sick suffer, competitiveness suffers, and American loses its edge as the fertilizer and incubator of science.
 
The idea that all research is or will be undertaken efficiently in private industry is fallacious. At present, there is a desperate need for research on the diseases of the immune system like Chronic Fatigue Syndrome, where a miniscule $6 million is budgeted. New antibiotics are needed to counter the declining effectiveness of those in use. Tragically, it is not happening in the private sector. A medical calamity is possible if research dollars are not committed to this high risk endeavor.
 
Science is our best national investment. George Mitchell knew that. — For the Hearst-New York Times Syndicate

 
 
 
 
 

Energy in the Time of Elections: Claims and Counterclaims

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Where there's oil and gas, there's milk and honey.

That is the thrust of the American Petroleum Institute's  report to the platform committees of the Republican and  Democratic parties. It was previewed in Washington on May 15 by API President and CEO Jack Gerard, the oil  industry's man on Earth, known for his tough attitudes to just about everything, but the Obama administration in particular.

In unveiling the report at the National Press Club,  Gerard declared that the recommendations were without political slant and were delivered to both parties’ platform committees without favor; although it is  generally known that the oil and gas industry — and Big Oil in particular — cares not a jot for the Democrats. In a slip, while reading a prepared statement, Gerard referred to the “Democrat Party,” which is a term used by conservative commentators and members of the Republican Party who cannot stand the thought of  Democrats having a monopoly on the word democratic.

As expected, and in line with other recent utterances, Gerard called for accelerated leasing on federal lands, demanded more sensitive regulation, and declared his belief that the United States is potentially the greatest energy producer on Earth.

The White House shot back at API almost immediately, claiming it is the oil the industry that is lagging not the government.

Not to be outshot, Gerard said, “Once again, the  administration is trotting out claims about idle leases to divert attention from the fact it has been restricting oil and natural gas development, leasing less often, shortening lease terms, and going slow on permit approvals—actions which have undermined public support for the administration on energy. It is also increasing or threatening to increase industry’s development costs through higher taxes, higher royalty rates, and higher minimum lease bids.”

Even if the administration is right this time, it has a hard sell ahead.

In the case of natural gas, there has been a giant windfall from shale seams; but that has been coming for some time, and the administration can take no particular credit. Similarly, oil imports are down from 57 percent to 45 percent, reflecting increased domestic production, something that helps more with the balance of  payments than the price at the pump.

Gerard admitted that while natural gas prices are at historic lows because of new recovery and drilling technology, oil is priced internationally and that is no help to American consumers. API and its chief tend to conflate oil and gas to make a point. Likewise, they like to include Canada in “North American” energy.

But the energy claims of the administration are even harder to follow and more dubious. It likes to confuse fossil fuels – coal, gas and oil — with electricity and, in particular, with alternative energy, like wind, solar and, in a manner of speaking, nuclear.

Most energy gurus see the dawning of a switch from oil to electricity for personal transportation, for buses and some trucks. But that dawn is breaking slowly with consumer indifference, battery life questions and other problems, including the availability of rare earths for motors and wind turbines.

Experience suggests that energy is a lousy political issue. It is complicated; each side has its own facts and there is some truth to both sides’ facts.

At the end of the day, the energy debate is reduced not to the amount of drilling taking place on federal lands, or to the virtues of natural gas over nuclear, but to the price of gasoline at election time. If that is lower than it is today, President Obama garners votes. If it is up, no matter why, all the GOP and Mitt Romney have to say is that it is Obama's fault.

The money vote is known already: With a very few exceptions the energy money is on the GOP. But that is not new. What is new is that environment is not on the agenda. Better wait until 2016.

Obama and Energy: What He Can and Can’t Do

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When the Obama administration seeks to explain its oil policy, it changes the subject mid-sentence.
 
The most frequent practitioner of this verbal contortion is the president's press secretary, Jay Carney. It is as though he's a magician who has promised to pull a live rabbit from his top hat. This conjurer stands before his audience, recites some incantations and, poof, retrieves not a live rabbit, but a dead chicken.
 
Carney, like others in the administration, starts talking about oil and switches to talking about "alternatives." The alternatives, with the exception of the nettlesome subject of biofuels (nettlesome because they produce little or no energy above what's invested in producing them), are ways of making electricity.
 
The administration is adept at confusing these almost unrelated subjects.
 
Oil is the stubborn problem. It affects every aspect of life and prosperity, from the balance of payments to war planning, from economic growth to our relationship with China. Worse, it may be in constrained supply for the rest of time, as the BRIC countries – Brazil, Russia, India, and China – continue to suck up the precious commodity.
 
New finds and technology relieve the gloom for a while, but as demand rises and supply struggles to adjust, the problem remains – even though conservative think tanks and trade groups fight the notion of structural shortage.
 
But the United States isn't short of electricity and has no need ever to be. The electricity problem, if there is one, is environmental. Do we continue to burn coal on a massive scale while we search for an environmental fix? Or do we go wholeheartedly for nuclear – even though the Obama administration has abandoned the Yucca Mountain nuclear-waste repository in Nevada?
 
Solar, wind, geothermal, wave, and even biomass energy come under the rubric of "alternatives" – and they're all electricity technologies.
Then there's natural gas, thought to be exhausted in the United States, but now in abundance as a result of sophisticated technologies. That's another electricity fuel.
 
It's enthusiasm for alternatives (a longtime love affair on the left) that has encouraged the confusing White House utterances about a policy of "all of the above." It's this that has spread the public perception that the president can do something about the price of gasoline. And it's this that makes him vulnerable to scorn over debacles like the loan guarantees to the solar-array manufacturer Solyndra.
 
If Obama's reelection hopes aren't to be extinguished at the gas pump this November, he needs to separate oil from electricity – and the future from the present. He can't affect world oil prices, and he can't drill enough holes in the United States to change the world oil market.
 
But he can change the debate, and push down the price somewhat, by taking up arms not against the oil producers, but rather against the oil traders, who are the market movers. They are concentrated in the New York Mercantile Exchange, where they daily bid up the price in a spiral that is unrelated to cost. The price of oil is set by traders, who use rumor, fear, and the knowledge that producers will be silent partners to jack it up.
 
They aren't phantoms. They are real, flesh-and-blood people who manipulate the markets daily. What's happening to oil in the New York Mercantile Exchange is what happened to electricity prices in California when Enron's traders were running wild.
 
There have even been shenanigans at the Cushing tank farm in Oklahoma, the installation that President Obama toured on Thursday. He might do well to read Leah McGrath Goodman's Fortune magazine article this month, on how ConocoPhillips warehoused oil at Cushing. That oil came in by the same pipeline that the new owners have now reversed, she writes, and it's now flowing to refineries by the very route it came in, but at higher prices.
 
Goodman knows what she's talking about. The former Wall Street Journal reporter wrote The Asylum, the definitive book about the New York Mercantile Exchange and the madness of oil trading.
 
Obama could jawbone the traders while providing more resources and moral support to the Commodity Futures Trading Commission – the poodle trying to do a pit bull's work.

Democracy Has a Tentative Start in Kazakhstan

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Is it the felt revolution or the fur revolution? Or is it a revolution at all? (In Kazakhstan, nomads still use felt to build their tents, called yurts, and to wear a fur coat in Astana, the modern capital, is not a luxury because temperatures can plummet to -40 C in winter.)

But political change – slow, to be sure – is taking place in Kazakhstan: a vast oil-rich and landlocked country in Central Asia, which gained its independence in 1991, when the Soviet Union collapsed. The Russians had both tried to colonize (22.8 percent of the population is Russian) and use Kazakhstan as a dumping place for prisoners, for nuclear facilities and for some of the worst environmental experiments, particularly dooming the Aral Sea by reversing the rivers that once fed it.

In mid-January, Kazakhs went to the polls for an election that could be the beginning – just the glimmering of a beginning — of a new era of democracy in Central Asia. In itself, this election was a small affair and was criticized as such by observers from the Organization for Security and Cooperation in Europe (OSCE).

Myself and a colleague were invited as journalistic observers. We stayed in Astana and observed voting in just two locales, which were orderly and had a movie-set feel to them. We even got to watch President Nursultan Nazarbayev enter the voting booth, exit it and drop his ballot into a transparent box.

Fur-wearing voters drop their ballots into a box at the National Academic Library polling station in Astana.  Photo: Linda Gasparello

The OSCE observers were critical of the way the government determined which parties could participate. They were also critical of the high polling numbers provided by the government, which claimed 80.7 percent support for Nur Otan, the party of the president, a former Soviet official who moved quickly from communism to capitalism but hesitatingly to democracy.

Yet in his 20 years of near absolute power, Nazarbayev has been popular. He has had the unique good fortune of being able to deliver above the expectations of his people.

Nazarbayev has been skillful in positioning Kazakhstan as a friend to everyone. By doing so, he has cultivated comity with his some of his irascible neighbors, including Russia, China, Iran, as well as the less-friendly other “stans” that border his sprawling, underpopulated country (about 16.5 million people).

He also has fostered good relations with ethnic minorities, including Uzbeks, Ukrainians, Uighurs, and many more. Likewise, with 40 religious groups: Kazakhstan is a predominantly Muslim country (70 percent, 26 percent Christian) with a secular tradition. Muslim women do not cover their heads; men are clean-shaven; the call to prayer does not ring out over Astana; and minority religions are permitted, including Buddhism and Judaism.

Cleverly, Nazarbayev has also given his people a shiny bauble to be dazzled by: Astana. In a little more than eight years, this architectural extravaganza has risen on the Central Asian steppe. Astana is spectacular and incorporates a kind of World's Fair-meets-The Emerald City architecture: There is a building that looks like giant golden egg in a white-branched nest, one that opens like a flower's petals, and one that looks like a yurt. The best architects in the world, like Britain's Norman Foster, have been invited to play – and they have let loose.

Palace of Peace and Harmony in Astana  Photo: Linda Gasparello

But Nazarbayev's days as the Wizard of Oz may be drawing to a close, and the tentative nod to democracy may be an acknowledgment of that. He is 71.

A new generation of ambitious, gifted and well-educated men and women now walks the streets of the capital; young people who wonder about the paternalism, want to play on a world stage, and do not remember the bad old days of Soviet domination. They worry about the pipelines that take Kazakh oil in many directions – at present, mostly into Russia and China. Especially, they worry what will happen when their president passes from the scene.

After the disappointment of the Arab Spring, dare the world hope for a democratic birth on the Central Asian steppe? I think so. – For the Hearst-New York Times Syndicate

Obama’s Empty Gasoline Tank

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There is a piece of doggerel which goes:

They said it couldn’t be done.

So I went right to it — that thing they said

Couldn’t be done.

And I couldn’t do it.

And that is the way it has been with presidents since the 1973 oil crisis. All of them – from Richard Nixon to Barack Obama, who has just joined the club — have wrung their hands and exhorted us to use less oil in general and less foreign oil in particular.

Nixon had his commerce secretary, Peter G. Peterson (he of enormous wealth these days), promise far reaching and revolutionary “initiatives” to tame our thirst for oil. But Nixon was out of office before these palliatives were revealed.

Gerald Ford, caught up in vicious inflation, partly linked to the cost of oil, launched the Energy Research and Development Administration (ERDA), combining the Atomic Energy Commission, the Office of Coal Research and other energy entities in the federal government. ERDA initiated many programs, while politicians invoked the Manhattan Project and the Apollo 11 moon landing. But the search for the Fountain of Eternal Energy failed.

Jimmy Carter wanted not only to solve the energy challenge, but to be seen to be solving it. Ergo, he expanded ERDA into the Department of Energy (DOE) and created a separate Synthetic Fuels Corporation. The latter failed after a short and unhappy life. No oil reached the pumps.

When the price of oil collapsed in the 1980s, so did hopes for many of the alternative energy sources, including ocean thermal gradients and flywheel energy storage.

To its credit, though at great cost, DOE, through its chain of national laboratories, kept searching. The result has been evolutionary improvements in many fields, and some really revolutionary ones in how we find oil and drill for it; these include seismic mapping, new drill bits and horizontal drilling.

These evolutionary developments brought more oil to market and have contributed to the recent improvement in domestic production that Obama likes to point out. It has enabled us to cut our imports slightly, so they now stand at 11 million barrels per day out of consumption of 20 million barrels per day.

Obama wants us to cut those imports by a third. To do this, he has no magic bullet.

In fact, he has no ammunition: solid numbers and research. His speech at Georgetown University was founded more on hearsay than science or economics.

Because he criticized them for taking out leases they have not drilled, the oil industry disliked the oil component of the speech, but thrilled at the emphasis on natural gas. When it comes to leases, the industry hankers not for those it holds, but for the plums that have not been leased for political reasons:  the eastern Gulf of Mexico and Alaska.

Sadly, Obama seemed to have learned the wrong lesson on his recent trip to Brazil because he is brimming with enthusiasm for ethanol. In Brazil, this is made from sugar cane, of which the Brazilians have a lot and cheap labor to farm it. Here, it is made from corn with devastating results on all the food products that come from corn. George W. Bush shoved the country down that slippery slope, and Obama wants to add more lubricant.

Another Obama tool is mandated fuel-economy standards. Problem is the market will start circumventing the regulations. It works like this: If you mandate 40-miles-per-gallon fleet average instead of floods of new small hybrids of the Toyota Prius type, the market will supply small, regular cars and large, luxury hybrids. Better, but not everything the president might want.

Real oil savings come with high prices dictated either by taxes or shortage. Presidents, however, have to placate voters by holding down the price of oil, signaling that it is all right to consume. That leaves presidents — and Obama has just proved it — with that last resort of the impotent in office: exhortation. — For the Hearst-New York Times Syndicate


 

Israel Set To Join the Rich Countries’ Club

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From Israel, there is good news and bad news.

The good news – and it is huge – is that Israel will soon be awash in natural gas. Gas discovered on the country’s outer continental shelf will turn the country from being hydrocarbon-deprived to being a net exporter.

Indeed, Israel is set to become so rich that it is laying the groundwork for creating a sovereign wealth fund for overseas investments in order to protect the country from inflation and the shekel from getting too strong.

The bad news is that with Hezbollah poised to control Lebanon’s government, Iran has de facto arrived on Israel’s northern border. Even without an Iranian nuclear weapon, this is a grave deterioration in Israel’s security.

Already Lebanon has asked the United Nations to guarantee that Israel does not violate the integrity of Lebanon’s outer continental shelf, where Iran plans to help Lebanon drill for gas.

Geology is about to change the political geography of the world’s most combustible neighborhood.

The two huge gas discoveries are in the Tamar and Leviathan fields. Taken together, the gas reserves are estimated at 26 trillion cubic feet or 10 times larger than Britain’s North Sea discoveries.

Since its creation in 1948, Israel has drilled on land for oil and gas with very little success. While the Arab Gulf countries have found and produced massive quantities of oil and gas, Israel has scrounged in the international markets for its hydrocarbons, including coal. But its isolation has made this difficult and expensive.

In recent years, Israel has bought gas from Egypt. Now Egypt will lose its good customer.

Turkey, Israel’s only Moslem friend until the botched seizure of a humanitarian ship bound for blockaded Gaza, will be affected too. There were plans for a pipeline that would carry gas from Azerbaijan across Turkey and undersea to Israel. That economic boost will not go to Turkey, but instead will probably go to Greece and Greek Cyprus. There have been preliminary discussions between Israel and Greece about shipping gas through Greece–by an undersea pipeline or a liquefied natural gas train–as an entry point into Europe.

Cyprus is a possible export-staging destination, as the Leviathan field, 86 miles off the Israeli coast, is nearby. But Turkish Cyprus, on the north side of the island, is not onboard.

The Tamar field is 50 miles off the Israeli coast and there are two smaller fields, potentially subject to claim by a free Gaza or a Palestinian state.

The gas will change Israel itself. Its defense force will have to defend the gas installations and the miles of pipes, pumps and other infrastructure. Israel has no domestic heating market, so all the new gas bounty will go to electric generation. The government hopes to make Israel the first 100-percent electric car country and the new gas will speed that transformation.

Credit for the Eastern Mediterranean gas discoveries goes to Houston-based Noble Energy. It is the technical leader in a consortium of Israeli companies. Now the world wants in before a whiff of the new gas has come onshore. Gazprom, Russia’s gas behemoth is keen to have a piece as an investment and to protect its European markets.

The Israeli government expects an influx of U.S. and European companies to supply piping, pumps, controllers and construction equipment and materials. It is not just private companies that are salivating: The Jerusalem government has just passed a law to tax gas profits at 62 percent.

Israel’s hostile neighbors want in too. The Eastern Mediterranean is in play in an area where play is rough.

 

 

 

Oil Prices Could Affect Presidential Politics

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Like death and taxes, the price if oil is always with us. And like taxes, it may be President Obama’s worst nightmare at election time next year.

Among forecasters, there is a sharp division between those who see an inexorable rise in the price of oil and those who believe it will stabilize about where it is now.

The hawks see gasoline streaking ahead to $4-a-gallon this year and $5-a-gallon in 2012.

Others say demand will collapse and it won’t go that high. The federal Energy Information Administration is very conservative in its forecasts and it gives very high prices only a 10-percent chance of coming about.

Adding to the confusion is a nasty little spat between the International Energy Agency in Paris and the Organization of Petroleum Exporting Countries over price, inventory and what OPEC calls “technical factors,” such as pipelines down for repair or the loss of the Deepwater Horizon rig in the Gulf of Mexico last April 20.

The IEA is saying that OPEC is keeping its production quotas low to jack up the price—currently just under $90 a barrel and the highest grade Brent crude from the North Sea as high as $99 a barrel—and it is endangering the global recovery with its actions.

But OPEC Secretary General Abdalla Salem el-Badri has taken issue with the IEA for roiling the markets with weak data and speculation. “Supplying the world’s media with unrealistic assumptions and forecasts will serve only to confuse matters and create unnecessary fear in the markets,” he said.
OPEC, which drastically cut back its targets for production in 2008 with the collapse of the global economy, has, in fact, increased its production by 2.3 million barrels a day while formally not changing its declared targets. OPEC controls about 42 percent of the world’s oil production.

What is certain is that world is slurping up more oil than ever. The latest IEA prediction is that daily consumption is increasing and will reach 89.1 million barrels a day as the recovery proceeds. Emerging markets and China in particular are held responsible for the surge, though that could change if Beijing takes steps to slow its booming economy.

With the exception of two of the savants of the oil industry, the legendary T. Boone Pickens and former Shell Oil Company chief John Hofmeister, comment in the United States has been muted. When asked why the price of oil was so high despite the recession, White House Press Secretary Robert Gibbs brushed aside the question, recommending the reporter ask the secretary of the Department of Energy, a physicist who has not spoken on oil pricing. Jack Gerard, president of the American Petroleum Institute, did not offer an explanation when he was asked the same question at a meeting in Washington.

The fact is that the price of oil is not determined only by simple supply and demand but by complex premiums and market sensitivities. It is a market that is roiled by wars and rumors of wars and, because oil was the first truly globalized commodity, the premiums can have their genesis far from the futures markets of New York and London.

Uncertainty in Russia, turmoil in Central Asia, the ongoing suspense of Iran’s nuclear plans and even corrosion in the Trans Alaska Pipeline System are cranked into the price. No wonder so many hedge funds are involved in oil. Instability is mothers’ milk to hedge funds.

One way or another, two things stand out: The chances are that the summer- driving season will put pressure on gasoline prices this year, after an extremely cold winter all over the Northern Hemisphere. The conservative (10-percent chance of happening) scenario by the federal Energy Information Administration says $4-a-gallon gas would come at the end of the summer.

The second reality is that the world thirst for oil has not been slaked; as the world prospers, the greater that thirst.

In 1974, the heads of 23 democracies lost their jobs because of surging energy prices. Obama, beware.

 

It Won’t Be the End of the World, but $5 Gas Is Coming

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May 21, 2011, according to a loosely-organized apocalyptic Christian movement, will be the “end of days.”

On or about that same date, the price of oil in the United States will begin to climb to $4 a gallon, according to two savants of the oil industry.

The former is highly unlikely but the latter is very probable.

The escalation in the price of oil is predicted by the legendary oil man T. Boone Pickens, known for his financial acuity as well as his oil expertise, and John Hofmeister, who retired as president of Shell Oil Company, to sound the alarm about the rate of U.S. consumption of oil.

In an interview with a trade publication, Hofmeister predicted that oil would rise to $4 a gallon this year and to $5 a gallon in the election year 2012. Separately, Pickens—who has been leaning on Congress to enact an energy policy that would switch large trucks and other commercial vehicles from imported oil to domestic natural gas—predicts that oil currently selling for just over $90 a barrel will go to $120 a barrel, with a concomitant price per gallon of $4 or more.

The Obama administration appears to have been slow to grasp the political implications of an escalation in the price of oil. When asked about it, outgoing White House Press Secretary Robert Gibbs referred the questioner to the Department of Energy.

Not everyone is alarmed by the incipient rise in the price oil. Republicans, who are especially close to the oil industry and its Washington lobby, orchestrated by the American Petroleum Institute, think that a great deal of hay can be made while this particular sun shines. They plan to attack the administration for spending too many resources on alternative fuels, over-regulating the industry, and keeping too many federal lands away from oil prospecting. They also accuse the administration of being too frugal with its release of drilling areas in the Gulf of Mexico and on the two coasts, as well as Alaska.

The Republicans have unlikely bedfellows in their quest to politicize the price of oil. They are joined by environmentalists who have long believed that only high prices will break America’s passion for the automobile.

Environmentalists have long advocated European-style taxation to drive motorists out of their cars and onto buses and trains.

A third interest group that will take some pleasure in rising oil prices are those who are invested in alternatives such as ethanol, oil from algae and electric vehicles.

Meanwhile, the International Monetary Fund is keeping an eye on the price of oil, according to Caroline Atkinson, director of external relations at the IMF. She told a Washington press briefing that the IMF is particularly concerned with food and other commodities that are directly affected by the price of oil.

Hofmeister, who now heads the non-profit Citizens for Affordable Energy that advocates energy development in all forms, believes that the United States could increase oil production from the current 7 million barrels per day to 10 million, half of its consumption. He told an interviewer from Platt’s, an energy publisher and broadcaster, that we were “essentially frittering at the edges of renewable energy, stifling production in hydrocarbon energy,” which he said could lead to blackouts, brownouts, gas lines and rationing.

There are already signs that the Republican-controlled House of Representatives is planning a big push for hydrocarbon energy. An indication of this comes from Rep. Fred Upton (R-Mich.), a one-time global-warming believer who has dropped that issue from his agenda. He is the new chairman of the House Energy and Commerce Committee.

In periods of high gasoline prices in the past, presidents have found there is very little that they can do. Their options are to reduce the tax on gasoline, sell oil from the Strategic Petroleum Reserve or the Naval Petroleum Reserve. President George W. Bush went a step further: He went to Saudi Arabia twice to ask the Saudis to increase their rate of production. Twice he came back empty-handed.

All of this would be good news for the oil producers and especially those troublesome players, Russia and Venezuela.

Of course, if you believe the human endeavor ends on May 21, better fuel the SUV and hit the road.