September 2006 Archives

OPEC producer Venezuela has joined fellow member Nigeria in making a token cut in supply to stem falling oil prices.

OPEC spokesman Omar Farouk Ibrahim said that "Venezuela has formally informed the OPEC secretariat of its voluntary decision to cut production by 50,000 barrels per day" from its 2.5 million bpd output and an overall OPEC quota of 28 million bpd.

Nigeria said it will cut exports by 120,000 bpd. Analysts question whether Nigeria will make good on its supply cuts. They cite strong demand for the country's light, sweet crude that is rich in gasoline and heating oil.

Despite the news oil fell more than $1. This is because there is plenty of oil around at the moment and investors are waiting for evidence that actual cuts are being instigated.

"There is definitely no agreement -- whether formal or informal -- within OPEC to cut current production," an OPEC official said.

OPEC officials say that there are no plans for an emergency meeting but there are plans to meet face-to-face on December 14.

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At the G-8 summit in Russia, President Bush and Prseident Putin announced that they would cooperate in the rapid expansion of nuclear energy worldwide. The Bush government feels that the future energy security of the US depends on increasing reliance on nuclear energy and the agreement with Russia was the latest in a long line of initiatives to promote nuclear power.

A technology that brought about the horrific Chernobyl meltdown and the Three Mile island accident and that lay for years in scientific purgatory has been resurrected in today's high oil prices age by a well planned public relations campaign touting it as the energy of choice.
While PM Tony Blair, famed scientist Sir James Lovelock and even some environmentalists have jumped on the nuclear power bandwagon, a sober look at the consequences of re-nuclearizing the world needs to be taken.

The first consideration is the high cost of setting up nuclear power plants. With a minimum price tag of $2 billion each, the plants are 50 percent more expensive than coal-fired power plants up and far more expensive than new gas-fired power plants. The cost of doubling nuclear power's current 20 percent share of US electricity generation could well exceed half a trillion dollars.
With the country facing record consumer and government debt, the idea of nuclear power generation is well nigh unaffordable.

Secondly, the safe transport, disposal or storage of nuclear waste is still an unsolved matter for our scientists. A vault that cost the government $8 billion and 20 years to build is supposed to be an airtight, underground burial tomb dug deep to hold radioactive materials. It's supposed to be leak free for 10,000 years but the Environmental Protection Agency already suspects that the storage facility will leak.

Thirdly, an International Atomic Energy Agency study shows that uranium resources could fail to meet demand as early as 2026. Discovery of new deposits or technological breakthroughs that reduce uranium requirements are possibilities but as of now they are speculative.

Fourthly, nuclear power plants are the ultimate soft target for terrorist attacks. On the one hand, the US is worried that Iran might use enriched uranium from its nuclear power plants for a bomb. On the other hand it is advocating nuclear power all over the world. This would mean uranium and spent nuclear waste in transit everywhere and piling up in makeshift facilities, often close to populated urban areas.

In 2005, the Australian government foiled a terrorist attack on its single nuclear power plant. The U.S. Nuclear Regulatory Commission found that more than half of the nuclear power plants in this country failed to prevent a simulated attack on their facilities!

Finally, nuclear power seems old fashioned and obsolete in today's age when distributed technologies are undermining hierarchies, decentralizing power and giving rise to networks and open-source economic models. These technologies are also giving people the chance to become active participants while nuclear power will be controlled by a few.

An aggressive effort to bring the full range of decentralized renewable technologies online: solar, wind, geothermal, hydro and biomass needs to be brought online. Hydrogen storage infrastructure is required to ensure a steady supply for electricity and transportation.

The future lies with the sun and not with uranium.

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The possible revival of a Saddam-era oilfield deal between Iraq and China has given hope to top oil multinationals over the potential of getting contracts giving them access to Iraq's vast untapped resources.

The deal, like others made by Saddam Hussein was effectively frozen by international sanctions and then by his overthrow.

The news that Iraq's oil ministry is thinking of awarding China the first foreign contract to develop oil resources has given heart to western oil majors that Baghdad is opening up and looks ready to honor its contract rather than handing over the al-Ahdab field to the US, which has 142,000 troops in the country.

After the US led invasion in 2003, US firms won most of the big infrastructure deals and European firms feared that the same would happen with Iraq's oil wealth.

This deal, worth some $700 million, could be a beginning for other Chinese companies and a door opener for other development deals. Iraqi oil minister al-Shahristani is expected to visit China, Japan and Australia to discuss oil investment projects.

The oil minister favors centralized control of Iraq's oil, but a new constitution gives autonomous federal regions a role in

developing resources. There might be a political message in his overture to China signaling his centralization goal to the Kurdish regional government in the north which has struck deals with many independent oil exploration companies.

The government has given priority to the Ahdab oilfield because of its proximity to new power stations and refineries. It expects output to increase from 30,000 barrels per day to full capacity of 90,000 over two years.

Though Russia's Lukoil did not comment, analysts say that if Baghdad were to validate the West Qurna oilfield deal, Lukoil would be willing to start work again.

While multinationals will not sign multibillion dollar contracts until an investment law is in place and security improves, a western executive says that the Chinese "don't give a damn whether there's an investment law to protect them" and "don't have the same incentives on profitability as the international oil companies."

The major oil companies are confident that the fields they would like to work on will not be assigned to rival companies from India or China, as the Iraqi government is aware that it needs the technology and finance that international oil companies bring.

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The US government's independent inspector on Iraqi reconstruction reported that Iraq's largest industry, the oil sector, has lost $US16 billion in oil export revenue over a 2 year period and insurgent attacks on the country's energy infrastructure have prevented it, in part, from maintaining adequate electricity supplies.

"A number of factors, including attacks, aging and poorly maintained infrastructure and criminal activity are adversely affecting Iraq's ability to develop a viable energy sector," said Inspector General for Iraq Reconstruction Stuart Bowen.

In an unclassified summary Bowen said that these factors are working together to hold down Iraq's oil exports and the availability of electricity.

The oil sector in Iraq which was expected to be a big revenue raiser for the rebuilding of Iraq, has been subjected to repeated attacks on its pipelines and oil export facilities.
Iraq is paying billions of dollars to import gasoline and other refined petroleum products for its people, in spite of owning huge oil holdings.

The US has invested about $320 million to help Iraq improve its capability to protect its oil and electricity infrastructure.
Bowen noted that in addition to the initiatives Iraqi leaders are taking to enhance security and performance of the oil and electricity infrastructure, they also need to take "bold action" to protect energy sites in the country.

Iraq's oil production is far below pre-war levels when Iraq pumped between 2.8 million and 3 million bpd. Currently the country's oil exports have been running at almost 1.7 barrels a day.

Iraq needs investments by foreign energy companies in its underdeveloped and undiscovered fields to boost its oil production.
Iraq claims to need up to US$20 billion in investment to reach oil production limits of 6 million bpd.

However, many foreign companies are apprehensive about doing business in Iraq due to the ongoing violence.

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A deal between Iran and Sinopec for developing a major Iranian oilfield will be finalized in the next 2 months, Iran's deputy oil minister stated.

Deputy Oil Minister Mohammad Hadi Nejad Hosseinian was quoted as saying "The talks will be finalized in less than two months and the contract will come into effect two months later."

Sinopec agreed in October 2004 to take the lead in developing the Yadavaran field and to buy 10 million tons of LNG a year for 25 years.
But the finalization of the deal, in the manner of other Iranian energy contracts with foreign firms had been subject to protracted negotiations and delays. Disagreements over pricing for the deal were behind a previous delay.

The Yadavaran oilfield is estimated to have 3 billion barrels and is expected to produce 300,000 bpd, around the same amount of crude that China currently imports from Iran.
The deal worth as much as US$100 billion if signed could draw fire from the US.

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Russian Foreign Minister Sergei Lavrov in an effort to alleviate Western concerns over Russian energy deals said that talk of revising PSA's or seeking to exclude foreigners from the sector were unfounded.

Lavrov said, "Assertions about 'revisions' of PSAs and especially about squeezing foreigners out of the Russian energy sector have absolutely no basis whatsoever".

He also added that "Carrying out checks in no way means that licenses for developing deposits within the Sakhalin-2 project will be withdrawn".

Recent threats from Russian officials to withdraw an ecological permit for the Sakhalin-2 oil and gas project led by Shell have led to fears that Russia wants to renegotiate the production sharing agreement.

Natural Resources Minister Yuri Trutnev said on Tuesday that work on the Sakhalin-2 project could continue while a full-scale ecological probe, due to start on October 25 is held.

Shell has doubled the estimated cost of the Sakhalin-2 project to $20 billion which has infuriated Russia, complicating talks on the strategic swap of assets with state controlled Gazprom.

Concerns about the suspension of oil pipeline loading for technical checks on the ExxonMobil run Sakhalin-1 PSA project abounded while ExxonMobil's arm in Russia said it was unaware of any order to suspend work and business was continuing as usual.

The head of Russia's technical standards agency said that he hoped Sakhalin-1 would be able to deal with any breaches of the rules at its De Kastri terminal before its planned launch on October 1.

ExxonMobil said that while the issue needed to be sorted out, the scheduled launch of the terminal was possible.

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Update

Key OPEC producers, including Saudi Arabia, have agreed unofficially to cut production to curb falling prices.

With oil falling toward $61 on robust US inventories ahead of the winter heating season, OPEC said that the price slide from summer peaks had gone as far as it should go.

US crude fell to US$61.01 per barrel, reversing the rebound from 6-month lows below US$60.
Easing Middle East tensions, ample fuel stocks and slowing US economic growth have resulted in the steepest decline in oil prices since the Gulf War, falling from July's high of US$78.40 a barrel.

OPEC President Edmund Daukoru said that the slide in prices was harmful for investments and that OPEC was already talking among itself about what needs to be done.

Industry analysts feel that if the price slide continues, OPEC might cut its quota.
It is expected that if prices fall below US$60, it would trigger OPEC action.

While OPEC has avoided setting a target oil price to defend, Saudi Oil Minister Ali al-Naimi said that prices were "reasonable" when they were above US$62 a barrel.

On the other hand, BP is adding to the downward pressure on prices by increasing production at its Prudhoe Bay Field. BP expects to hit 400,000 barrels a day by the weekend, just 50,000bpd below full capacity.US stocks stand at their highest level since January 1999. US stocks of distillates are projected to rise.

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The Peak Oil Theory of Value is worth analyzing in the view of recent comments by ExxonMobil's Australian CEO Mark Nolan that there " is no peak oil theory of value."
Beyond something "that possesses us" and "makes us speak its words and do violence to our nature", is the question: What is theory?
A theory is a doctrine, or scheme of things, which terminates in speculation or contemplation. A simple way to understand the concept of a theory is that it is the premise or set of premises upon which an argument rests, although the focus of theory is on the “science” of something, more so than the “art” thereof. 
If a theory is something that is going to possess us, it better be a good theory.

Reporter Mike Sexton from ABC in a conversation with Mark Nolan ExxonMobil came upon the ExxonMobil view regarding peak oil.
He said that while the peak oil theory suggests that at one point the world will have used more than half its oil supply and future demand will be sharply higher than supply, big oil isn't buying it.
Nolan said that these theories have been around since the 1920's, especially when oil hits high prices. The ExxonMobil view is that the world has abundant energy resources and there is no peak oil theory of value.
Mr. Nolan did not expand on his throwaway comment that there is no peak oil theory of value initially. Later he talked about

the US Geological Survey's report that the Earth has more than 3 trillion barrels of conventional recoverable resources and so far we’ve produced 1 trillion of that. An additional 1 trillion barrels are estimated with conservative estimates of heavy oil and shale oil.

While the USGS estimate is notoriously optimistic with lots of good petroleum geologists and engineers taking the USGS to task on it, the focus of this article shall remain on the Exxon man's comment on there being "no Peak Oil theory of value."

So what is a theory of value?
You know what a theory is; Value is the worth of something or its utility to satisfy the needs of people.
A theory of value must be the premise or set of premises upon which an argument rests, relating to the worth of something, or its utility to satisfy the needs of people.
A key question in economic theory is how the value of goods and services comes about, and how to calculate the correct value of goods and services if such a value exists.

The first category in measuring value is called the "intrinsic theory of value". This theory implies that every item has an inherent worth built into the item itself that does not depend on what people think of it. Intrinsic valuations mostly depend on the process of producing an item and the costs involved in that process as a measure of the item’s intrinsic value. The "labor theory of value" which holds that the value of an item comes from the amount of labor spent producing the item, is one of the  most influential of the intrinsic theories.

The second category is the "subjective theory of value". This theory holds that for an object to have economic value, i.e. a price, it must be useful in satisfying human wants and not be in unlimited supply.
Goods that are in unlimited supply, or in a greater supply than that demanded, would have lower value. This theory recognizes that an item may be more useful in satisfying the needs or wants of one person than another, or of no use to one person and of great use to another.
This theory differs from the intrinsic theory in that it holds that beyond the objectively correct value of an object, is the value of individual judgments.

The third category is the "cost-of-production theory of value". The theory is that the price of an object is determined by the sum of the cost of the resources that went into making it. Factors such as labor, capital, land or technology will all come under cost of production.

Now that we have the basics, it's back to the Peak Oil Theory of Value. The central argument of Peak Oil is a scientifically valid concept that relies on historical "discovery" numbers and extraction figures for conventional petroleum.
Extraction figures implies that you cannot extract what you have not discovered and peak oil says that mankind has found most of the world's oil deposits. And it appears that mankind has extracted about half of all the conventional oil that will ever be extracted. This is the basic premise.

Peak oil refers to conventional petroleum as the substance that will be available in lower and lower quantities. Conventional petroleum is the rock oil that is made to flow from pores in rock formations into bore holes in the ground and lifted from there to the surface of the Earth.
The world’s exploration, production, transportation, refining, marketing, delivery and end use is geared by conventional petroleum.
The world's extraction and use is currently at 85 million barrels per day.

As a departure from conventional petroleum are tar sands and oil shale, that require different methodologies not only to extract or produce, but also for transportation, refining and delivery. The infrastructure in the world for plumbing for these is negligible. Besides, non-conventional hydrocarbon sources have a far more negative economy in both energy return on investment and monetary metrics.

The question for the future is whether the world's energy sectors and the economies they drive can make the transition from extracting, refining and delivering conventional petroleum to delivering non-conventional petroleum. And additionally, if the transition can happen... will it happen faster than conventional sources are depleting?

Coming back to the peak oil theory of value begs the question - what is it worth to be able to understand if not predict that the world's capacity to extract conventional petroleum is on a downhill run? What is it worth to be forewarned?

If we're headed for a cold, bleak future, isn't it best to look at the peak oil theory of value as a caution toward the future trends of mankind's energy use and particularly mankind's oil use.

Is the value of peak oil intrinsic or subjective? Is it based on the cost of production? Or is it quite simply that understanding of Peak Oil is a key to mankind understanding how to survive into the future. That seems like a perfectly useful “theory of value.”

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Venezuela's state oil company is helping Grenada build storage tanks needed to store the fuel bought under the Petrocaribe deal.  The lack of storage has been a key issue holding up the delivery of oil to the Caribbean.

Under the Petrocaribe deal which was finalized in June 2005, Caribbean countries pay market price for Venezuelan fuel but need pay only part of the cost immediately. The remaining can be paid over 25 years at low interest. The governments can also pay part of the amount with services and goods such as rice and bananas, while Venezuela will provide storage tanks and docking facilities.

The tanks will hold up to 20 days worth of Grenada's fuel needs - more than the current maximum of a 10 day supply.

Grenada's Petrocaribe program has been weighed down because it lacks the infrastructure to receive and distribute oil.

While 14 countries in the region have signed the Petrocaribe deal, itis unclear whether Grenada has received any oil under the agreement.

The Petrocaribe deal is seen as a bid by anti-Us Venezuelan President Chavez to make inroads in the Caribbean, where the US is a major trading partner. His deals are an opposition to the US free trade deals.

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Russian plans to divert up to 25-45 billion cubic meters of gas from its Shtokman field to Europe and away from the US could be bad news for US companies Chevron and ConocoPhillips.

The Shtokman field has a planned output of 70bcm a year. With plans to divert up to half of it to Europe, Russia's current gas supplies to Europe get a 15 to 30 percent boost.

Previously Russian gas monopoly Gazprom had said that it wanted to grab 10 percent of the US market by 2010 by liquefying almost all of the gas for shipment to the US.

Shtokman has gas reserves of around 3.7 trillion cubic feet and is a challenging project due to its offshore, out of helicopter range, location. Gazprom has shortlisted 5 companies including Chevron, ConocoPhillips and Total to help it develop the field.

If Gazprom is planning to focus on Europe as the key market for Shtokman's gas, then the European companies on the shortlist such as Total, Statoil and Norsk Hydro would have better chance of being part of the project. ConocoPhillips and Chevron may be left out as Gazprom has said that in the final line-up it will only take 2 or 3 partners on for the $20 billion project.

Gazprom has repeatedly put off announcing its choice of partners. Russia is using the bidding process for partnership in the

Shtokman project as a bargaining chip to become part of the World Trade Organization. If Russia does not succeed in this, the chances that Shtokman will have European partners are high.

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An editorial in the Chronicle last September warned of peaking global oil production in this decade followed by an inevitable decline. If that were to happen, the US needs to invest heavily in developing alternative energy sources or be prepared to endure steep increases in the price of energy.

A study conducted by the US Department of Energy concurred with the editorial's conclusions.

The study, led by Robert Hirsch, affirmed that global spending on developing alternative energy sources should be $1 trillion per year to prevent the economy from being crippled by oil shortages and the resulting chaos. Considering that the study recommends a 20-year lead time, it might already be too late to prevent a crunch.

Hirsch predicts that oil production will certainly peak by 2020, if not in the next 5 years.
In fact, oil production does not need to peak for severe shortfalls in oil supplies to occur. Natural disasters like Hurricane Katrina, wars like the Israel-Hezbollah conflict, political unrest, government intervention, deteriorating equipment like in the case of the Prudhoe Bay field pipeline, accidents or any combination could interrupt the supply of oil.

The trend of dropping oil prices with the end of the vacation season is extremely temporary. ExxonMobil CEO Rex Tillerson predicts that world demand for crude ol will increase by 50 percent in the next 10 years. Demands from countries like India and China and the developing world will only go up.

Perhaps the report's most sobering conclusion is that the free market and private industry alone will not be able to avoid economic catastrophe from energy shortages. A policy for managing the transition from conventional crude oil to other energy forms is required to be set in place by the government.

If oil companies disagree, they need to make good by showing where all the oil to meet excess demand is going to come from, or come up with plans to develop alternative sources.

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Russia tried to ease European concerns over its business maneuvers like investment in the European aerospace consortium and the withdrawal of permits to western oil companies in Russia. France, Germany and Russia met over the weekend at a castle in the north of Paris where these issues came up.

A Russian state-controlled bank has acquired a 5.02 percent stake in EADS and the government is believed to want to increase the stake. Speculation that Russia might gain a position on the board of the European consortium was rebuffed by EADS and French Finance Minister Thierry Breton.
However at the meeting in Paris, Putin stated that the acquisition "is not at all the sign of an aggressive behavior on the part of Russian partners" and that they "will not use this stake to change in any way the institutional situation of EADS."

Concern was also evinced over the future of French oil giant Total in Russia. There have been indications that Total may lose its license for the Kharyaga oil field. Putin told reporters in Paris that these were "greatly exaggerated rumors".
French officials believe that Putin's words are solid guarantees for France's investments in Russia.

Though Putin did not address the disagreements with ExxonMobil or Shell over contracts and revoked licenses, he assured western countries that he was aware of the co-dependent nature of energy suppliers and consumers. He also indicated that some oil resources would be redirected to Europe.

Russia also signed two "Memoranda of understanding" which act as blueprints for potential contracts worth more than $10 billion.
One MOU is between French construction giant Vinci and the Russian Transportation Ministry for a highway between Moscow and St. Petersburg. The other looks at possible cooperation on railroad, transportation and infrastructure in Russia between the Russian and French transportation ministries.

Chancellor Angela Merkel of Germany insisted on the need for "reliable partners," between Europe and Russia, in energy matters.

Besides business matters, the three countries also discussed current diplomatic issues.

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Russia's nationalist oil policy that's aiming to wrest back control of the country's resources from the world's most powerful energy firms has come under international glare following events last week.

Shell and ExxonMobil's Sakhalin island project, BP's joint venture with TNK in eastern Siberia and Total's operations in the Kharyaga oil field have all been affected by threats to revoke licenses granted years ago to the companies. The Russian move was no crude step, rather a well planned effort with ambassadors overseas, Siberian officials, the natural resources ministry officials, environmental agencies all coming in with a variety of reasons - financial, time overruns, environmental - to account for the retraction of contracts.
For Shell, BP and Total, environmental concerns were cited by government officials.

While Western companies have not commented publicly, the moves have attracted international condemnation.
Japan was stinging in its reaction saying the delay in the Sakhalin-2 project would have a 'negative influence on overall Japanese-Russian relations.'

Japan is to take gas from the Sakhalin-2 project and has two leading companies, Mitsui and Mitsubishi, holding 45 per cent of the venture.

Russia's nationalized energy giant Gazprom, is believed to be the reason behind the politicking and in fact in response to Japan's statement, Russian ambassador said that a state-run company could speed along the project. He meant Gazprom, which has been trying to negotiate its entry into Sakhalin for many years now.

The asset swap that was being negotiated between Gazprom and Shell, which would give Gazprom a 25 percent stake in Sakhalin-2 has also been suspended.
Costs overrun have been touted as the reason behind the falling through of the deal. Cost increases mean that Gazprom can claim a reduction in value of the 25 per cent of Sakhalin that it is acquiring, which means recalculating the asset swap.

The Production Sharing Agreement signed a decade ago between Shell and the government, allows the government to retain ownership while the partners develop the project and take revenue in early years to pay back their investment. After this, the government receives an increasing proportion of revenues up to 70 per cent. Cost overruns and delays mean that the government will get less money, and get it later.

PSA's and cost overruns also affect ExxonMobil's Sakhalin-1 project. Costs could increase there, from $12.8bn to $17bn. The Russian government reacted angrily and said that Exxon could be stripped of its license.

Total faces the withdrawal of its license for environmental reasons and failing to reach production levels set out in its PSA.

PSA's made sense for Russia in the mid-90's when the government was financially stretched and could not invest on its own account.

But it is unpopular in today's Kremlin, when the rising oil prices have filled government coffers. Also the fact that they are internationally enforceable make them humiliating for the government in that it does not have sovereignty over its assets.

Gazprom is in talks with ONGC, India to buys out its stake, which will give the company a stake in 2 key projects on the island. Gazprom is also keen to secure the stake of three owners in the TNK-BP venture.
There have been reports that exploration licenses for the Kovykta field could be withdrawn from BP.

It certainly seems clear that Gazprom and the government are strategically exerting pressure on foreign companies.

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Crude oil dipped to below $60 a barrel at $59.80 after Iranian President Ahmadinejad said that Iran is open to discussing "everything" if the US stops its threats against the country.

Crude oil for November delivery fell by 61 cents, or 1 percent, to $59.94 a barrel in after-hours electronic trading on the Nymex.

Hedge-fund managers and other large speculators cut their long positions, or bets prices will rise, by 39 percent in the week ended Sept. 19. Traders with long positions outnumbered short positions by 22,498 contracts on the Nymex.

BP's announcement that it expects to resume production of about 150,000 barrels a day from the eastern field in a week's time is also expected to have helped in the price drop.

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According to a report by Greenpeace and the Global Wind Energy Council, Wind has the potential to supply one third of the world’s electricity by 2050.
Ambitious or unrealistic?

Despite 9 years of government support and subsidy, wind farms in the UK, one of the windiest locations in the world, have been erected at a snail’s pace.
Roughly just 1.4 percent of total UK electricity supply comes from wind power. Though the government wants 20 per cent of electricity generation to come from renewable sources by 2020 (most of that capacity provided by wind farms), there are many hurdles.

Primarily, the problem is inadequacy of the electricity infrastructure. The second problem is nimbysism, that is though most people say they approve of wind farms, the average time it takes to get a wind farm through planning is 5 years!

Offshore wind farms were supposed to be the solution. But development has barely begun because of problems with shipping lanes, bird life, radar interference and soaring costs.
Tax breaks in the US and Germany for investors in wind farms have caused a run on turbines, and the soaring cost of steel, required to embed giant turbines 20 meters in the sea bed, make off-shore wind farms look distinctly uncompetitive.

Greater incentives to build offshore can be offset only by higher electricity prices in the long run.
All in all, wind seems good in theory, but plain old blustery in practice.

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The US Environmental Protection Agency has given a $10,000 grant to a team from the New Mexico Institute of Mining and Technology, as part of their People, Prosperity and the Planet competition.

Dr. Warren Ostergren and his student team will use the grant to develop a lower-cost heliostat with the idea of creating an alternative energy system that is less damaging to the environment.

The idea of EPA's P3 competition is to bring together people from varying disciplines like engineering, chemistry, industrial design, politics, economics and architecture to prevent pollution.
In 2008, the teams will be invited to bring their designs to Washington D.C. to compete for a $75,000 grant which will help them implement their projects in the field.

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A day after Venezuelan President Chavez called President Bush "the devil" in a speech to the UN General Assembly, he visited a Harlem church and pledged to double the amount of discounted heating oil his country ships to poor Americans.
Chavez announced that Citgo, the US-based refining arm of Venezuela's state-run oil company, plans to increase the amount of heating oil it is making available under the relief program from 40 million gallons to 100 million.
He said the oil will reach people in 18 states, including American Indians in Alaska.

Chavez started the heating oil program last winter, accusing Bush of neglecting the poor.
He called Bush "an alcoholic and a sick man" to applause from the crowd which included activists and supporters at the Mount Baptist Olive Church.
Chavez said that the American people are friends of Venezuela and he hoped that they would awaken before long and elect a better president. He called Bush's policies in Iraq criminal.

The South American country receives billions of dollars from the US as its top buyer of Venezuelan oil, which fund many of Chavez's popular social programs.
Chavez repeated warnings that if the US government tries to oust him, Venezuela would halt oil sales to the US.

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California Gov. Arnold Schwarzenegger and New York City Mayor Michael Bloomberg said they cannot wait for the Bush administration to take action on climate change and agreed to work together to reduce greenhouse gas emissions.

Gov. Schwarzenegger said that this partnership with Bloomberg and another made with British Prime Minister Tony Blair in July on clean energy technologies will help improve the environment and they did not need the federal government to take the lead.

His partnership with Bloomberg marks the latest environmental push from a Republican governor who has accused President Bush of failing to show leadership on climate change.

Bloomberg, also a Republican, has echoed the Governor's remarks saying "we can't wait for Washington to do something".

The actor turned politician plans to turn a landmark global warming bill into law that makes California the first U.S. state to mandate a cut in greenhouse gas emissions, equal to 25 percent by 2020.

Bloomberg, who was on a 2-day visit to California, to discuss environment and education also announced a five-point program to make New York an "environmentally sustainable city" by taking an inventory of carbon dioxide and other greenhouse gases that will help set targets for lowering emissions.

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BP and its minority partner, ExxonMobil in the Thunder Horse project in the Gulf of Mexico, are at odds over how to deal with increasing problems at the deepsea oil project.

The world's largest semi-submersile oil and gas platform, has been delayed yet again, this time targeting 2008 production.

According to a BP employee, the delay has been caused by problems including inferior welding on the project's distribution systems and other underwater equipment, as well as defects on the production, drilling and quarters platform.

He said BP is considering a temporary bypass system to get oil flowing in 2007 that will involve the completion of a workover riser, a connecting piece used to install equipment to complete the wells.
This temporary structure would be environmentally very risky from a spill standpoint and 25 percent partner ExxonMobil has pushed for waiting until the permanent structure can be properly repaired before production begins.

While ExxonMobil said that it cannot discuss any business it conducts with co-venturers, it can assure the public that any developments that they are part of will adhere to the "highest standards of safety, health and environmental conduct in design, construction and operation of facilities."

ExxonMobil and ConocoPhillips are also BP's partners in the Prudhoe Bay Field project. As the operator of Prudhoe Bay, and the majority owner in Thunderhorse, BP is the key decision maker on those projects and its partners are said to be suffering from the fallout of BP's decisions.

Analysts noted that the closure of the Alaskan field and the delay of the Thunder Horse project would affect the earnings of ExxonMobil.

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Speculation that BP will become a partner of Calgary-based EnCana Corp. has been stoked by BP PLC's announcement that it is making the largest investment to date in U.S. refining capacity to handle Canadian oil sands output. The company stated that it is in the final stages of planning a $3 billion upgrade of its Whiting refinery near Chicago.

The investment would increase the refinery's capacity to handle heavy crude from 85,000 barrels to 350,000 barrels a day.
BP is the only major oil giant without a stake in the Alberta oil sands.

EnCana Corp. hopes to produce 500,000 barrels of oil sands crude a day by 2015, and is close to deals to help process the output. A deal would probably include exchanging an interest in a refinery for a stake in oil sands production.
EnCana will announce a partner or partners by the end of this month.

BP said it is in talks to expand deals with current suppliers and has nearly completed agreements with other players.

The capacity to process additional oil sands is essential for the industry because of estimates that production from Alberta's Fort McMurray region could triple to three million barrels a day by 2015.

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Update

BP said Wednesday it will spend $3 billion to upgrade its Whiting, Ind., refinery to process more Canadian crude and benefit from increasing production from deposits buried in northern Alberta.

The largest gasoline market in the world hasn't seen a new refinery open in 29 years. Though the industry enjoyed record profits last year, it isn't likely to break that streak anytime soon.

Despite dramatically improved profit margins, most refiners still don't believe that the 5 percent a year return on investment is worth plunking down $2 billion to build a new facility.

New refinery construction has been stunted for years by poor economics, changing environmental rules and vociferous community opposition.
The years long struggle to obtain the necessary air and zoning permits is another factor stymieing the building of new facilities. Instead, refiners run their facilities full-tilt and resort to upgrading and expanding them.

Currently, the US has some 149 refineries processing nearly 17 million barrels of crude a day. This is less than the 1981 figure of 325 refineries handling 18.6 million barrels a day. With demands 20 percent higher today, much of the deficit is made up by imports and also with refiners adding capacity to their existing sites.

Connecticut-based Premcor Refining Group plans to spend up to $220 million to boost capacity at its Port Arthur refinery. San Antonio-based Valero Energy Corp. will add 36,500 barrels-per-day of capacity across its refineries, while Marathon Ashland Petroleum is expanding its Detroit refinery by about 26,000 barrels a day.

Good refining years tend to encourage major expansion projects.
Refining margins, the difference between the cost of a barrel of oil and the price of products made from it, hit $16 a barrel during the second quarter of last year and averaged $10.44 for all of 2004. This is a significant increase from the average margin of $6.45 between 1999 and 2003.

Despite the lucrative margins, experts believe that refiners are not expected to expand production capacity at the same rate as in previous years.
This might be because refiners have tackled the easier expansion projects and have been busy making changes to meet new lower-sulfur regulations.
Concerns over a shifting federal regulation known as New Source Review might also have stifled investments.

During the Clinton administration, an interpretation on the law required refiners to make environmental upgrades when performing what the industry deemed routine maintenance.
Under pressure from the industry, the Bush administration has backpedaled on that provision.

Over the next several years though, we can expect new facilities.
Phoenix-based Arizona Clean Fuels plans to build a $2.5 billion, technologically advanced refinery in southwest Arizona. The company hopes to negotiate an oil supply agreement with Mexico's national oil company, Pemex, which would ship crude to the Pacific Coast using an existing pipeline.
The crude would then be loaded aboard tankers and shipped up the West Coast. The investment group would then build a pipeline from the coast to the refinery.

Considering that the Arizona Clean Fuel partners have been trying to obtain the necessary air permits since 1999, many in the industry remain dubious.

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World oil prices dropped to further lows below $61 a barrel after data showed a surge in US stockpiles of distillates, used for heating oil and diesel fuel. The inventories of distillates have gone up by 4.1 million barrels to 148.7 million in the week to September 15.

With the end of the driving season, the market has switched its attention from gasoline to heating fuels.

New York's light sweet crude hit $60.60, while In London, Brent North Sea crude dropped to $60.74.

New York's main contract, light sweet crude for delivery in October fell by 71 cents to $60.95 per barrel in pit trading.

Brent North Sea crude for November delivery plunged $1.03 to $61.14 per barrel in electronic trading.

Crude oil prices have shed almost 23 per cent in value since striking historic highs above $78 in July and August.

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A rare rebellion by government investigators against their own agency, has 4 auditors who monitor leases for oil and gas on federal property say that the Interior Department clamped down on their efforts to recover more than $30 million in fraudulent underpayments of royalties for oil produced in publicly owned waters in the Gulf of Mexico.

Bobby L. Maxwell, who was formerly in charge of Gulf of Mexico auditing, said that these assets belong to the American public and "the agency has lost its sense of mission, which is to protect American taxpayers."

These lawsuits have surfaced as both Democrats and Republicans are questioning the Bush administration's willingness to challenge the oil and gas industry.
Two of the lawsuits claim that two senior auditors with the Minerals Management Service were ordered to drop their claim that Shell Oil had fraudulently shortchanged taxpayers out of $18 million.
Similar suits against Kerr-McGee Corporation and another 2 dozen companies were also suppressed.

Interior officials have denied these accusations, claiming that the auditors simply want a share of any money recovered through their lawsuits.
The department says that the auditors should have followed proper procedure if they believed that fraud was being committed by the companies they were auditing, instead of pursuing private lawsuits under which they could receive up to 30 percent of the monies recovered from the companies.

The auditors have sued the companies under the False Claims Act, that allows individuals to expose fraud against the government. A losing company is required to pay triple the amount of recovered money as well as back interest. In the cases brought by the auditors, this amounts to more than $120 million. People who successfully recover money for the government in such cases are entitled to a share.

While Shell said it had not seen the suits and could not comment, a spokesman from Kerr-McGee said that the case is without merit and the company is fighting it.

The lawsuits come at a time when the Interior Department is already under fire from Congress, accused of covering up ethical lapses and managerial incompetence.

Senator Ron Wyden, Democrat of Oregon, who has been investigating the accusations said, “If it was one isolated instance, you could say that’s somebody who had a bad experience and was frustrated,” Mr. Wyden said.

“But when you have three or four professional, nonpolitical, independent auditors all bringing the same message, that is too important to ignore.”

The Interior Department under President Bush has focused on increasing oil and gas production in the US. Lawyers who have specialized in lawsuits under the False Claims Act said they had never seen a group of government investigators use the law against their own agency and considering that it is 4 and not an isolated one, it forms a pattern of practice.

The agency’s own statistics indicate that revenue from auditing and enforcement plunged after President Bush took office.

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Over the next 5 years, Chevron Corp. will fund up to $25 million in research at UC-Davis to develop renewable fuels from plant waste.

Chevron Technology Ventures, a subsidiary of Chevron, will support a wide range of projects focusing on converting renewable feedstock's available in California into transportation fuel.

Barry Klein, vice chancellor for research at UC-Davis, said that this will fit into a niche of energy research on biofuels and bioenergy and that they hope to make an impact on generating new sources of biofuels.

Klein expects the research projects to move quickly with a group from UC-Davis and Chevron hashing out details and deciding on specific research proposals. A pilot program should be in the works at the end of the 5 year time frame.

The research will focus on California's agricultural industry as a key source for the raw materials to generate energy. Any carbon based material that can be fermented is a source of fuel. So parts of crops that are typically thrown away, like leftover rice straw, wheat straw, nutshells, grape skins, can all be recycled into energy.

UC-Davis has been a leader in energy and transportation research. In April the school received a $1 million grant from the California Clean Energy Fund and established the Energy Efficiency Center. Since 2005, the campus has received more than $7 million in funding and funding commitments for its UC-Davis Bioenergy Research Group, which includes scientists and administrators in seven major campus units.

Chevron has also displayed heightened interest in bioenergy and has already pledged $12 million over 5 years to the Georgia Institute of Technology focusing on research on cellulosic biofuel and hydrogen.

In May, Chevron formed a biofuels business unit to advance technology and pursue commercialization of the fuel. It also made a small initial investment in a biodiesel production plant in Galveston, Texas.

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Reliance Industries from India announced that its natural gas reserves could yield as much as 50 trillion cubic feet and that it was bringing forward the start up of a new refinery it had planned by 6 months.
Additionally, Reliance's head of international operations Atul Chandra stated that one of its discoveries at a site he declined to identify could yield 1 billion barrels of oil.

Reliance made one of the world's largest gas finds at the Krishna Godavari basin, which were estimated to contain 35 tcf. Now with reserves and technical resources put together, it could exceed 50 tcf.

Chandra also said that Reliance will soon enter the coal business once the Indian government has liberalized the coal industry to allow private investment in production.
Reliance also hopes to enter Iraq "at the appropriate time" either on its own or with partners.

At a time when many international oil majors are struggling to keep projects on schedule due to a tight market for inputs and contractors, Reliance has preponed the start up date of its new Jamnagar refinery by 6 months to June 2008.
Chandra said it would be one of the most sophisticated in the world, with a complexity level of 14.4 as measured by the Nelson index, enabling it to process heavy crudes.

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Expectations of rising fuel stockpiles and long drawn out negotiations with Iran caused crude oil to trade near a 6 month low of $61.66 a barrel in New York.

A statement by President Bush that he will give European diplomacy a chance to resolve the dispute with Iran and reports that

US fuel stockpiles have extended their gains from the past month caused the biggest oil price fall in 4 months.

Crude oil fell by $2.14 to $61.66 a barrel, the lowest close since March 21 and the biggest one-day decline since May 15. In after-hours electronic trading on the Nymex, crude oil for October delivery went up by 13 cents.

Hedge funds may also be selling futures after seeing others lose money in the energy market and as the pace of the decline in oil has accelerated, analysts and traders said.

Gasoline for October delivery was at $1.5090 a gallon in after-hours trading, after falling 4.8 percent to $1.5038 yesterday, the lowest close since Feb. 22.
October heating oil was at $1.6980 a gallon, after falling 2 percent to $1.6916 yesterday, the lowest close since March 10.

The UN-Iran dispute looks like it will be a long drawn out affair.
The US seems to have moved over to the European position with French President Chirac proposing the suspension of plans for sanctions if Iran also suspends its enrichment during negotiations.
Bush said that the US would "come to the table" once Iran suspended enrichment and that there was "no objection" to Iran pursuing a truly peaceful nuclear program.

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Inflation and foreign exchange pressures have pushed up Exxon Mobil's expected spending on its Sakhalin oil project in Russia above the 2002 estimate of $12.8 billion.

Bob Davis, a spokesman from the company said that Exxon Mobil had seen higher oil field service costs, but that he was unable to quantify the spending amount on the Sakhalin-1 project.

He said that "the budget is essentially the same, but the $12.8 billion was in 2002 dollars."

The Sakhalin-1 started output in August and is expected to reach 250,000 barrels per day by the end of the year.
Moscow plans to auction off newly discovered deposits in the region, though Exxon Mobil says those properties are included in its existing contract. The government and the company are currently at odds over whether the oil giant will be allowed to enlarge the license territory of the Sakhalin-1 block to the nearby deposits.

Just weeks before its first shipments are set to begin, a regional environmental watchdog questioned the environmental and technical readiness of Exxon Mobil's export terminal on the Pacific Ocean.
The Russian Resources Ministry has also revoked environmental permits for Shell's Sakhalin-2 project.

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BP's Gulf of Mexico field which was originally scheduled to start production at the end of 2005 has hit new technical glitches which will push its start-up date to the middle of 2008.

This latest slippage in the Thunder Horse field will make it harder for BP to meet production growth targets in the coming years and also calls into question the company's skill at overseeing complex projects, especially when its management of Alaskan oilfield and pipelines in already under scrutiny.

BP announced that tests carried out had revealed metallurgical failure in components of the subsea system and that while the company plans to retrieve and rebuild all the subsea production equipment, it was too early to estimate the additional costs involved.

Thunder Horse's manifolds were manufactured by FMC Technologies, which also built the manifolds for the similarly sized Atlantis project.

The shut down of the Prudhoe Bay Field has severely affected BP's US output. The Alaskan problem and the fatal explosion at a BP Texas refinery last year have got regulators, lawmakers and law enforcement agencies investigating BP.

Thunder Horse, designed to process 250,000 barrels of oil  and 200 million standard cubic feet of gas per day has been repeatedly delayed.

It is expected to be the biggest producer in the Gulf of Mexico when it finally gets going. BP owns 75 percent of the project with ExxonMobil owning the balance.

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If Iran worries about sanctions at all, it should be concerned over those that the US is drawing up and not those than the UN is still deliberating over.

There have been hints that the US may enforce its current sanction laws against foreign companies dealing with Iran and the Congress may further tighten the noose.

Now that the EU has dropped its insistence that Iran stop the controversial nuclear work before talks, US and Eu are not on the same negotiating page. The permanent members of the UN Security Council are expected to meet to thrash out methods to put pressure on Iran but hopes for a resolution aren't high.
Maybe some coherent sanctions will come out of the contrary opinions, most likely the travel bans on the political elite, but it will be seen as the empty diplomatic gesture it is with hardly any actual effect.

US efforts on the other hand are looking tougher. Henry Paulson, the Treasury Secretary called for help in choking off funds to Iranian companies that the US suspects of trading in weapons or nuclear components.
He said that there are reports suggesting that more than 30 front companies are part of a suspected network and have duped Western banks into helping them.

For ten years the US has enforced the Iran-Libya Sanctions Act, which bars non-US oil and gas companies from investing more than $20 million a year in Iran. US companies are banned separately from any dealing with Iran by presidential directive.
With Libya's decision to give up its nuclear program, the Act has been redrafted to excise the part about Libya and will expire on September 29. But a new version, dealing with just Iran is sure to be passed.
There are signs that the US may enforce this version more aggressively, and interpret its provisions more widely than in the past. Under the US’s separate Iran Non-Proliferation Act 2000, there has been much action targeting companies from Russia, North Korea, India and Cuba for allegedly supplying banned equipment.

While some energy companies have been deterred by ILSA from investing in Iran, many have flouted it. But if the US takes a tougher approach, with the Congress producing a much more stringent piece of legislation then these companies will have to be more wary.

A much tougher sanctions package on energy companies investing in Iran, The Iran Freedom Support Act, was passed by the House of Representatives early this year. The White House objected on the grounds that the Bill could harm diplomatic relations.
The Bill languishes so far with the Senate not having passed this version. But the bitter elections could revive it, as well as collapse in diplomatic efforts or the furor created in Iran by the Pope's supposed slur on Islam.

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Government approval for Shell's $20 billion Sakhalin project was withdrawn and state-owned Gazprom was reported to be trying to buy half of the TNK-BP joint venture, giving impetus to doubts about the involvement of foreign companies in the Russia's oil and gas sector.

The reason for withdrawing environmental approval on the Sakhalin-2 project was supposedly to "satisfy the arguments of the prosecutor's office". The prosecutor generals office had allaged that the permission to develop the second phase of the

Sakhalin scheme had been granted illegally. Shell denied the charge and said it was continuing work on Sakhalin, but admitted that the removal of its environment permit might lead to more delays and further cost overruns.

Shell has faced lots of problems on the project with doubling costs and mounting anger from environmentalists over potential damage to the endangered whale population. In this situation state-owned Gazprom has been trying to purchase 25 percent stake in Sakhalin-2.

Some feel that Gazprom is acting as the political arm of Kremlin and the permit issue is the latest attack by the government in an attempt to wrest back control of oil and gas assets held in the private sector.
Local reports hint that ExxonMobil's Sakhlain 1 project could meet a similar fate.

Sakhalin-2 is one of 2 projects run by western energy firms under production sharing agreements signed in the 1990's when

Russia lacked the resources to develop oil and gas projects on its own. With the Russian economy now booming thanks to high oil prices, many government officials have called for a revision of the Sakhalin-2 deal to include Russian participation.

Similarly, Gazprom is said to be in talks to buy the holding in the TNK-BP joint venture that is currently controlled by three local Russian investors.

Russia has taken repeated steps in recent years to consolidate state control over the energy sector.

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The no-show of oil giants in the recent auction of oil prospecting licenses held in India has been attributed by Director-General of Hydrocarbons VK Sibal to the strength of the country.

The absence of the oil majors like Exxon, Chevron and ConocoPhillips has been attributed to the maturity of Indian companies which refused give in to demands for large share of the production from the blocks.

BP and BG from the UK, Total of France and ENI of Italy, and companies from Malaysia, Myanmar, Australia, Ukraine, and Cyprus took part in the auction.

Though the actual investment could be much larger, the latest auction of prospecting licenses is expected to lead to investment of $8-10 billion, in a worst-case scenario.

The next round of auction blocks are expected to be bigger in scale and the data acquisition process for the blocks has begun with marketing kicking off in December.

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Update

A record 165 bids were received for 52 blocks put up for exploration by the Indian government.

Global energy giants British Gas, British Petroleum, Italy's ENI and Malaysia's Petronas are among the 66 firms that have bid for exploration acreages.

However, super majors Chevron, ExxonMobil and Conoco Philips of the US, who were expected to partner Reliance Industries, did not participate at all.

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Oil majors like BP, Shell and Exxon Mobil are among a throng of investors who are bidding for 55 exploration blocks covering 30,00 sq. km for oil and gas exploration rights on India's continental shelf.

This is the largest auction of oil and gas acreage to be held in India and interest in the licensing has been high after Cairn Energy's billion-barrel Mangala discovery.

Murli Deora, India's Petroleum and Natural Gas minister, said that he was confident that investor perception of India's oil and gas prospects was changing rapidly.

More than two third's of India's oil is imported with the oil import bill currently at $45 billion. This bill is increasing with rising demand in India and is adding to the financial burden of supporting fuel subsidies to the nation's rural poor.
Subsidies on fuel for cooking and lighting in rural India costs the government up to $15 billion.
State owned Oil and Natural Gas Corporation is in a race with Chinese oil companies in the hunt for foreign sources of fuel.

BG Group of Britain and BHP Billiton are seeking acreage in the Indian licensing round. Cairn Energy is looking to extend its Indian activity with a bid for 11 blocs.
Chevron, which is already in partnership with India's Reliance Energy has also bid.

The Indian government changed the bidding rules to give more weight to companies with “international credibility” so that it could attract big oil’s expertise and deep pockets.
Chevron, Exxon and BP are thought to have been aggressively pursuing exploration rights in the Krishna Godavary basin where substantial gas reserves have already been found.

Bidders will be judged on their technical skill, scale of proposed work program and the profit share they seek from the state. The results will be announced at the start of next year by the Indian government.

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Exxon Mobil Corp. which was involved in a dispute with Venezuela over a 500,000 barrels shipment of oil from the La Ceiba field has resolved the problem.

The shipment worth about $29 million had been blocked by state oil company Petroles de Venezuela on the grounds that Exxon Mobil had violated conditions for the development of the field by producing oil after a cutoff date for initial tests.
Ownership of the oil produced after the test deadline was the matter being disputed. Oil produced before the deadline belonged to the developers of the tract, Exxon Mobil and Petro-Canada.
Exxon Mobil tried to sell its stake in the tract in 20901 but did not find any buyers.

While company spokesman from Exxon Mobil announced that the crude has been shipped, neither party disclosed the terms of the agreement.

Relations between Exxon Mobil and Venezuela have been strained ever since President Chavez unilaterally raised royalties in 2004 on 4 heavy-oil ventures. Recently Venezuelan Energy and Oil Minister Rafael Ramirez said his country wants to change the terms of the contracts governing La Ceiba and two other profit-sharing ventures which would mean that Venezuela takes a majority stake in the projects.

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Iran is going to introduce petrol rationing to curb crippling domestic fuel consumption, if it gets parliamentary approval.

Vaziri Hamaneh, an oil minister said that the current situation will continue for a few months after which rationing will be implemented, pending the parliaments decision. But he did not say when the Bill would be submitted.

Though Iran the second largest producer in OPEC, a lack of refineries make it dependent on imports for 30 million liters of petrol a day to meet the demand for subsidized petrol which is sold in Iran at a rate 2.5 times cheaper than a liter of mineral water.
Earlier Hamaneh had announced that Iran would stop importing petrol, but later changed the decision when MP's argued that the move was not feasible.

The parliament had approved annual $2.5 billion budget in February for petrol imports but the government is now seeking approval for an additional $3.5 billion budget for the remaining bit of the year to cover a daily consumption demand of 70 million liters.

Deputy Oil Minister Mohammad Reza said that the government will present the parliament with a draft bill that included raising prices and rationing by late September.

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BP PLC and Shell Oil Co. are among 10 companies that the government is in negotiations with to rework improperly prepared oil and gas leases that didn't include clauses requiring royalty payments for oil selling above $36 a barrel.

Head of Interior's Minerals Management Service, R.M Burton said that BP and Shell "are thinking about it."
Both the companies seem willing to make changes in the leases.

Besides these 2 companies, the Interior department has spoken with 20 of the 55 energy companies that have interest in the leases and has developed "proposed terms".

The leases were made at a time when the price of oil was between $10 to $20 a barrel and the idea was to encourage companied to drill in deep water by waiving the usual 12 percent royalty as long as prices remained low.
But some companies aren't paying royalties since the clause was omitted in their lease agreements.

The government says it is near agreement with the two giants to recover some of neary $10 billion in lost royalty.
Republicans and Democrats shared their outrage over the loss of billions of dollars in lost royalty over what Interior officials have called a "mistake" in lease agreements.
The House Government Reform Committee is not satisfied with the department's explanations.

Burton said that she wants to know if the error was intentional or not. While Republican Darrell Issa said that the error shows the "culture of irresponsibility, unaccountability that pervades the entire department", some Democrats called for criminal investigations saying there was an obvious element of fraud.

Rep. Edward Markey stated “We will have a solution to the Middle East before you have an agreement from Shell and BP for a $36-a-barrel threshold."

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BP said that 1,000 barrels of oil were spilled in a highly industrial area in the Port of Long Beach, California.

The company said that the released product, used in the production of transportation fuels, has been contained and that it is working with officials to clean up the release. Locations for possible released product into the environment are being investigated.

Beside the fact that the company does not expect a supply disruption, the leak has also not caused any injuries, harm to wildlife or any significant impact on the environment. No oil has been released into the ocean or its tributaries.

BP said that the product pipeline was in compliance with federal and state pipeline regulations and that the company takes full responsibility for the leak and its cleanup.

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Chevron recently announced that it successfully completed a record setting production test on the Jack #2 well in the Gulf of Mexico.
At a total depth of 28,175 feet, the Jack #2 is the deepest successful well test drilled with a sustained flow rate of more than 6,000 barrels of crude oil per day.
More than half a dozen world records were set for test equipment pressure, depth and duration in deep water were set during the Jack well test, helping CHevron and co-owners carry out the deepest extended drill stem test in deep-water Gulf of Mexico history.

Chevron's success is undoubtedly historic, but the Jack #2 is not "the first" deep well ever drilled in deep water. Similar efforts are being conducted in the Gulf, and plannned elsewhere by other oil companies.

Additionally Chevron's announcement is not "new" news. The well was drilled in 2004 and the company spent the last 2 years evaluating and testing the prospect. While the Jack well penetrated a respectable amount of "oil pay", the technical teams of Chevron required large amounts of additional testing, data gathering and analysis in order to solidify future development plans. Thus, the company kept the news close to their chest till last week.

Considering that Chevron needed to spend huge sums of money to the tune of almost $80 million per year just to rent a rig and the extra costs of geoplogists, petroleum engineers, drill bits, mud, wireline services and the rest, to explore the commercial viability of the discovery and to coduct follow up testing after the drilling of the Jack #2, it is not surprising that the company kept its information tight.

Though Chevron and its partners have not publicized data on the oil quality and reservoir parameters of the Jack #2, an insider from Devon Energy Corp, a partner, stated that while the oil-bearing rocks at Jack #2 do not present any "undue complexity", the producing reservoirs are very different from one another. This might have to do with fraction systems within rock formations and the intrusion of lower and older salt beds into the rock formations above, with salt formations playing a prominent role in controlling the location and entrapment of petroleum.
Some estimates place the oil resources in the deep waters of the Gulf of Mexico in the range of 15 billion barrels. These are expected to be in the lowr Tertiary formations below the "allochthonous salts", which are the bed of salts that overlay the stratigraphically "younger" formations. These subsalt formations are the targets aimed at by oil-exploring firms.
There might be a lot of oil there if you can find it. But it's cheaper to send space probes to Mars than to drill beneath the deep salt!

Though Chevron and its partners have not described the quality of gas or oil, sulfur content, or the oil-to-gas ratio of the reservoir, it is believed that the reservoirs are oil dominant.

Since the Jack well is located far from all existing subsea oil-gathering pipelines, the transport of oil to shore poses a major logistic problem.
Chevron and Devon have been in discussions with the US Minerals Management Service regarding the possibility of using floating production, storage and offloading vessels.
An additional concern is that if the facility, when productive, produces associated natural gas, then that will also present a handling problem. Thus the production associated gas could be used to power the production platform or it will have to be re-injected into the rock formation.

Cost estimates for field development in the vicinity of Jack #2 are about $80-120 million per well drilled, with an additional $1.3 to $1.5 billion for subsea facilities.
Chevron's Tahiti project, located elsewhere in the in the deep waters of the Gulf of Mexico carries a $3.5 billion price tag and is expected to produce 125,000 barrels per day. Chevron's Blind Faith project in the Gulf of Mexico will cost an estimated $1 bilion and yield about 30,000 barrels per day.
The capital expenditure per barrel of oil equivalent produced per day is $28,000 and $33,000 respectively for the two projects, in contrast to shallow water, shelf development in the Gulf of Mexico which is tagged at about $1,000 per barrel of oil equivalent produced per day.
So deep water development may be 30 times more expensive than shallow water offshore development.

There will be other deep-water wells, but the Jack #2 stands alone as the milestone on the pioneering trail, being the first confirmation of a significant oil discovery in a frontier exploration area.

The Jack well stands as an example of applying immense measures of resources to solving a great problem. It stand as a symbol of the culture and industry of our interrelated world with decades' worth of fundamental research, development work by industry and government, spectacular scientific and engineering developments and entreprenurs coming together to pull it off.

Chevron utilized the most advanced scientific and engineering assets, locating and drilling a well in deep water, based entirely on information gained from remote sensing. Among the indispensable developments behind the Jack #2 well were those in geology, oceanography, geophysics, cartography, numerical computing, signal processing, drill bit design, drilling rig design, down-hole logging and completion, metallurgy, mathematics and more.

The Chevron effort is emblematic of our era but should not be confused with the "technology will save us" line of thinking.

Chevron has gone offshore, into deep water and conquered the rock. Like the Titusville well of 1859, the greatest accomplishment of the Jack #2 is that it shows that it can be done.

Mankind is entering upon the backside of Hubbert's curve. Global oil production is on the verge of entering the phase of irreversible decline. Worldwide oil extraction and depletion has exceeded oil discover by a wide margin for many years now.
Chevron's announcement is well timed and welcome in the present climate but it further illustrates a key element in the Peak Oil thesis... "easy" oil is gone. We have been drilling it up, lifting it out of the ground and voraciously consuming it for 147 years. The oil that we'll lift in the future will be in faraway places, under difficult conditions and in harsh climates besides being expensive.
So be warned. If you ever left the world of Peak Oil... welcome back.

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Germany based BMW will bring a hydrogen-burning car to the US based on the 7 series but with an internal combustion engine capable of running on either hydrogen or gasoline.

The technology is the first to be offered in a commercial car and can operate on the gasoline-only mode if a hydrogen-fueling station cannot be found. The car comes with a V12 engine and a total cruising range of 425 miles; 125 in the hydrogen mode and 300 miles in the gasoline mode.

The car, called the BMW 7-Series Hydrogen 7 Saloon, will be loaned to people who can shape opinion on the hydrogen infrastructure in the US. Entertainers, politicians and players in the energy and auto industry will be driving the car with BMW hoping that positive word-of-mouth will launch a movement to make hydrogen more available as an alternative fuel.
So BMW is going to market these vehicles to high profile, visible people initially.

The company wants the cars to be operated on hydrogen as much as possible. There are 2 fueling stations where the Hydrogen 7 Saloon can be tanked up with the required liquid hydrogen, near L.A. and in Washington D.C. But BMW officials said that it will offer mobile stations for users who might not be close to these locations.

The car's branding wil be a luxury car that operates on the cleanest of alternative fuels. And it's availability will be driven by how quickly hydrogen infrastructure is put into place.

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Iraq and Iran plan to strengthen their commercial ties by jointly developing oilfields that straddle their border. The two countries have already agreed to the unitisation principles and will sign the agreement as soon as the technicians mark out the common oil fields.

The deal entails both countries defining their reserves in the cross-border field and then pumping the crude jointly. After the deal is struck, the two sides will build a pipeline to carry Iraqi crude to Iran's southern refineries.
Iran is also willing to buy about half a million barrels a day of crude at market price for their Abadan refinery from Iraq.
With future sales of Kirkuk crude and Basra light crude also marked out, the two predominantly Shia Muslim countries are really forging deeper ties giving rise to concerns among the Sunni minority, other Arab states and the US which still has 145,000 troops in Iraq.

Besides this, Iraq would also like to forge similar deals involving oilfields with Syria and Kuwait.

Iraq is also looking for partnerships with oil companies to develop its fields and is awaiting the passing of the hydrocarbon law which will set oil policy by the end of the year.
The National Oil Company will be set up as soon as the law is passed as a regulatory and supervisory holding company for setting oil policies which operating companies will implement.

Iraq's state oil marketer SOMO will hold talks with customers to discuss contracts for the first half of 2007 in November or December.

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Notwithstanding the $10 drop in the price of oil over the last few weeks, the government predicts that crude will still average near $70 for the rest of 2006.

The Energy Information Administration said it expects gasoline prices to average $2.55 a gallon by January before rising again next spring.

EIA's bullish price view is based on rising demand with only a limited increase in supply.
The agency expects worldwide petroleum consumption to grow by about 1.7 million barrels a day in 2007 as opposed to the 84 million barrels a day used in 2005.
EIA reduced its estimate of oil consumption by 100,000 barrels a day due to high prices.

Production capacity is expected to increase only slightly during the forecast period, existing and potential supply problems throughout the world will shape the tight supply-demand balance resulting in little relief from current pricing patterns.

Following the EIA's report oil prices briefly turned higher but later gave gains back with US light crude for October delivery trading down 51 cents on the Nymex.
It also provided a little boost to the shares of oil majors like ConocoPhillips, ExxonMobil and Chevron.

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Gas prices have been falling over the last month with a drop of 42 cents from the summer high of $3.04 a gallon.

In the last week, gas prices have fallen by 11 cents to $2.62 a gallon.

With the peak driving season having ended, demand is down and inventories are up. Besides this the crude oil prices have also dropped significantly from $70 a barrel to below $65. With Prudhoe Bay production expected back in full capacity by October, supply looks to be going in the consumer's favor.

Crude oil prices account for about half the cost of gas at the pump.

Gas is cheapest in the Midwest averaging about $2.44 a gallon and has the highest prices in the West Coast averaging $2.90 a gallon. Californian gas fell 6 cents to $2.94.

Though prices might drop a bit more when gas moves from a "summer blend" to a "winter blend" which is cheaper, it is unlikely that there will be more big drops this fall.

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Flawed drilling leases issued in 1998-99 are allowing oil companies to avoid federal royalty payments and the companies are now facing pressure to resolve them.

A mistake made 8 years ago omitted a provision in more than 1000 drilling leases that would have required royalty payments if the price of oil went above $36 a barrel.
Congress had set the $36 mark at that time to allow royalty breaks to spur deep-water exploration.

With the current prices being almost double the trgigger level, most of the leases would have been subject to royalty payments if the provision had not been forgotten.

Chevron Corp, which has recently announced the discovery of new oil in the Gulf of Mexico acknowledged that 2 of the 8 leases involved in the discovery were among those issued without the royalty threshold.

The new discovery made by Chevron and its partners, Statoil ASA of Norway and Devon Energy Corp is believed to contain as much as 15 billion barrels of oil.
Chevron said that the "majority of the discovered resource" including the test well is from leases subject to federal royalty payments but oil found in 2 other lease blocks could be exempt.

The company claimed that those 2 lease areas had not been drilled yet and any conjecture about royalties for those blocks is an academic exercise.
Executives from the company have also assured the Congress that they are ready to discuss reworking the royalty issue in the leases to reach a mutually satisfactory resolution.

BP PLC and Shell oil Co. have also agreed to make changes in the leases held by them. But the companies have argued that the leases are contractual agreements and care should be taken while tampering with them.

Congress is applying pressur eon the companies to reach a compromise with a provision being added in an Interior spending bill that would prohibit any company that refused to rework the leases from bidding on new oil leases. The spending bill has not received final approval.

The Government Reform Subcommittee is set to hold another hearing into the royalty relief controversy hoping to ferret out how the mistake was made in the 1990's and why it was not quickly corrected.
The mistake could cost the government $10 billion in lost royalties, even if the new Chevron discovery is not taken into account.

But getting to the bottom of the blunder "is especialy important in light of Chevron's recently announced new discovery."

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China is getting incentive to become a global player in the nuclear power industry from Pakistan's growing nuclear energy needs and the country's determination to look to China for investment and knowledge in the field.

Though China is still in the process of seeking foreign aid to expand its nuclear sector, government officials have made it clear that an internationally competitive nuclear power industry is the ultimate goal.

During meetings in Pakistan last month, President Pervez Musharraf of Pakistan sought more Chinese input requesting new plants to help boost Pakistan's nuclear power capacity.
China has already completed a 300 megawatt nuclear power plant in Pakistan using its domestically built reactors and has started construction on another plant there.

Beijing aims to sign an agreement with Pakistan to help build 6 nuclear power plants with an installed capacity of 300MW each. Pakistan aims to have 8000MW of nuclear power capacity by 2025.

Pakistan had pledged cooperation in the global fight against terrorism and invited the US to set up nuclear power plants in the country but Washington has chosen to deal with Pakistan's arch-rival India instead.

Relations between Pakistan and the US suffered when it was revealed that the forerunner of Pakistan's nuclear weapon's program, Abdul Qadeer Khan, had helped Iran, Libya and North Korea develop their nuclear programs. He has been under house arrest since then.

This episode resulted in the US advising Pakistan to look to Iran for its energy needs. At the same time, the Us has discouraged India from sourcing Iranian gas.

The nuclear deal with India has been tailored to suit the civilian industry but could still allow India to boost its nuclear warheads using US nuclear fuel and technology. It has been passed by the US House of Representatives but still needs the Senates sanction.

China is eagerly stepping in to the breach in Pakistan, hoping to generate markets for its own burgeoning nuclear power industry.
China has revealed ambitious plans to have 4 percent of its electricity needs met by nuclear power by 2020. This would mean that China needs at least 2 reactors annually, each with a capacity of 1,000MW.

China's State Council approved a plan for the country's long-term nuclear devlopment which highlights the nuclear solution as a clean energy option and as the most practical choice for reducing dependence on Middle Eastern oil and heavily polluting coal-fired plants.

Initially, the prospect of a huge rollout of new plants had delighted foreign investors anticipating bolstered demand for their technology considering that only three of China's nuclear reactors were domestically designed and built. But the Chinese goverment has been repeartedly delaying the announcement of the bidding result for four new nuclear reactors causing foreign companies' hopes to dim.

Chen Hua, a senior official of the China National Nuclear Corp, the country's major nuclear conglomerate, argued that the purpose of foreign cooperation is to help China develop its technology so that its nuclear power industry is self sufficient and competitive. He said that in the present tendering process, only 2 reactors should be awarded to foreign companies and two should be reserved for domestic companies.

The CNNC has begun to portray the the planned increase of nuclear power generation as an oportunity for China's domestic industry to test and improve its indigenous second-generation-plus reactors. The CNNC officials claim that this would help China eventually export its home-grown technology making it a global player.

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The two largest oil consuming countries in this region, the United States and Brazil, have markedly different approaches to dealing with their addiction to oil.

While Brazil is seeking to increase its production, use and exports of alternative fuel such as sugar-based ethanol and is seeking alternatives to its dependence on Bolivia's natural gas market, the US is debating whether to open its natural reserves in Alaska for more oil exploration and is inhibiting ethanol imports from Brazil.

The main reason for the difference in approach is the size of the markets involved - Brazil's consumption is a tenth of that of the US.
The market volatilty and global nature of the oil business make it essential for pundits to look for ways to break the addiction to oil. Brazil has come up as a good example of ingenuity and resourcefulness.

Nearly all Brazilian cars have flex-fuel engines running on both gasoline and ethanol, and the country has cut its gasoline consumption by almost half in the past 4 years.
While this is significant, it is barely 3 percent of US gasoline consumption. So without any quick fixes for larger economies, analysts say that the region is likely to experience instability in the years to come and that political relationships will play a key role.

For instance, Venezuela which provides the US with 1.2 to 1.4 million barrels a day, has threatened to cut off supply and send more oil to China over the medium term.
The issue is deeper than supply. Venezuela is using oil to buy influence and has created an alternate trade bloc that operates outside of US influence. Chavez has begun to reassert state control over the private oil sector in Venezuela.

Other countries are following Venezuela's lead with Bolivia moving to nationalize its natural gas sector and Ecuador seeking to get control of private oil fields.

Norway has a progressive oil policy that shifts its windfalls into a tightly controlled fund that serves as a buffer when prices dive. This is in marked opposition to Venezuela which is spending all its profits on various presidential schemes and programs.

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Deputy Prime Minister Barham Saleh of Iraq said that Iraq's emergence as a "secure petro democracy" could suppress sectarian violence and called for partnerships with international companies to boost the country's oil industry.

He conceded that disputes between local officials and the central government over who controls oil proceeds were one of many obstacles to making improvements but said he hoped that oil would be a "unifying force for Iraqis rather than a resource to fight over."

Saleh is aware that foreign oil companies are needed to modernize Iraq's oil sector and meet the country's goal of doubling current crude production. The absence of legal framework governing investments and ownership of oil resources has hampered foreign investments.

Big oil companies are willing to send crews for exploration and pumping to Iraq depite the insurgency and attacks on oil workers as long as there are legal ground rules for their participation.

Iraq is on the way to ushering in a hydrocarbon law that could bring in investments by foreign companies in the oil sector. A law setting ground rules for managing Iraq's huge petroleum reserves is also to be approved by the end of the year.
The country needs invenment and has to push libralization and open up markets.

The main trouble in enacting laws is the difference in opinion about whether the resource is controlled by regional governments or Baghdad.

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Iraq is planning to gird up its military presence in the oil-rich north of the country, where insurgents and saboteurs have targeted workers, pipelines and faclities.

Iraq's northern fields had produced an estimated 8.5 million barrels of crude in July, but repeated attacks on workers and infrastructure have made it difficult for the country to lift the production back to pre-war levels of about 2.5 million to 3 million barrels a day.

A recent attack on oil workers killed four and injured another.

There is already a miltary presence in the area which will now be supplemented in an effort to protect and use the pipelines that have been down for some months now.
Iraqi authorities have also launched a campaign against smugglers who steal from gas stations and peddle the fuel on the black market.

Al-Shahristani said that the country aims to increase production to about 4 million barrels a day but conceded that it would require $20 billion investment in infrastructure to achieve that and added that "soft" loans could be a solution so that Iraq's budget isn't stretched.

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Sir Richard Branson has joined hands with venture capitalists Vinod Khosla and Ron Burkle and invested more than $60 million in Cilion, a company that will make bio-ethanol from corn in an effort to satisfy California's need for environmentally friendly fuels. California already uses bioethanol to fuel cars, but most of it is imported from the American Midwest.

Gov. Schwarznegger issued a directive, earlier this year, calling for the state to make 20 percent of the fuel itself by 2010.

Cilion, a joint venture between Western Milling and Khosla Ventures, plans to build enough refining capacity to meet the target itself.
Cilion plans to start work on the first of seven bioethanol plants within a few weeks. It will bring corn from the Midwest and process it with technology that makes it competitive with petrol at oil prices as low as $40 a barrel.

Branson's Virgin empire plans to move into environmental businesses of which this project is a starting move.
Virgin Fuels, a subsidiary will alone invest $400 million in several biofuel schemes. The company is also working with the government on a plan to make it economical for train companies to use biodiesel.
Besides this Branson is said to be considering big investments in other technologies including wind power, hydro-electric and even nuclear stations. The company is open to investing in any kind of alternative-energy.

Branson who attended the recent environmental summit in California said that he feels that global warming is the biggest crisis facing mankind and that every company chairman should be thinking about devoting a percentage of his earnings to it.

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Following charges by the Chad government against Chevron and Petronas regarding non-payment of taxes and their subsequent exclusion from the oil producing consortium in the country, Chevron Corp has agreed to pay extra tax to the government.

President Idriss Deby had ordered the two companies out of the country on charges of not having paid upto $450 million in taxes.

While Chevron has committed to paying the taxes in the coming days, no agreement has been reached with Petronas.

ExxonMobil holds a 40 percent stake in the consortium with Chevron and Petronas holding 25 and 35 percent respectively. They have financed a 657 mile pipeline from Chad to Cameroon's Atlantic port with a capacity of 225,000 barrels per day.

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Conoco Co. has decided to withdraw from Thailand after failing to break even for the last 15 years. Shell and Petronas are both interested in acquiring the Jet petrol stations operated by Conoco Co.

While Conoco has already approached several oil companies operating locally to buy its 147 petrol stations nationwide, industry executives believe that Conoco will call for public bids in the Thai operations in the near future.

Tiraphot Vajrabhaya, chairman of Shell Company of Thailand said the multinational was always exploring opportunities to expand in Asia Pacific, under its "move from West to East" strategy.

Though Shell is estimated to have invested upwards of 4 billion baht in its Thai operations, after depreciation and current market value are taken into account, the price of any acquisition is likely to be lower.

The current climate of retail oil business in Thailand is very poor and Shell is not going to expand this year. They will invest 200 million baht in general maintenance of its stations this year, much lower than normal investments of 700-800 million baht a year.

A Petronas executive also confirmed that the company plans to bid for Conoco's jet stations but is not planning to expand its network this year beyond the 117 stations it already has.

The bidding process if it goes ahead is expected to last  from 6 months to a year.

While companies are always looking for opportunities to expand, the final decision will rest with the headquarters and will depend on conditions, the market situation, potential and pricing.

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Iran said that it is ready to consider a temporary freeze in uranium enrichment on the assurance that it would not be attacked by the United States during negotiations with the 6 world powers on enrichment and other nuclear issues.

The progress was welcomed by top US envoys but the UN Security Council is expected to go ahead with sanctions if Tehran does not halt enrichment.
IAEA Chief, El Baradei, said that "the window of oppurtinity is not very long" - an implicit warning that the standoff was on the brink of escalating.

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With the OPEC keeping current production quotas steady and maintaining spare capacities of 2 million barrels a day added to US inventories hitting their highest levels since 1998, oil prices have dropped to below $66 a barrel.

Light sweet crude for October delivery fell by 60 cents to $65.65 a barrel on the Nymex.
In London, Brent crude fell to a five and a half month low at $64.64 a barrel.

Heating oil futures fell to $1.8240 a gallon while gasoline dropped almost a cent to $1.6000 a gallon. Natural gas prices fell by 35 cents.

Other factors playing in the price fall are BP PLC's announcement that Prudhoe Bay production could resume by the end of October and news of Iran's possible compliance with the UN Security Council demand to freeze enrichment.

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Key European nations warned that Iran is trying to split up the international community over its contentious nuclear program by stalling and giving unclear responses to the terms set by world powers for negotiations.

A closed meeting was held in Berlin of the 5 UN Security Council nations plus Germany to coordinate strategy over Iran's refusal to halt uranium enrichment.

Javier Solona, the EU's foreign policy chief, is expected to hold nuclear talks with Iranian envoy Ali Larijani on Saturday in a final effort to find common ground for negotiations between Iran and the 6 powers.
Manouchehr Mottaki, Iran's foreign minister, said that the Saturday meeting is not likely to resolve the disagreement over the scope and agenda of the broader negotiations.
Britain's UN ambassador said that "unless Solana is able to get Iranian movement on suspension of enrichment quickly, then the prospect of sanctions against Iran will be on the (Security) Council agenda soon.”
He also said that the 6 powers agree on the ultimate goal of denying Iran nuclear weapons and the strategy.

The assessment of Iran's response to incentives from the Western powers was a one and a half page document labeled "In Confidence". It summarized the technical, economic and political rewards offered to Iran and warned of punishments including UN sanctions if Tehran doesn't halt uranium enrichment.
Though Iran's response has been kept confidential, US and its allies have described it as inadequate and a document drawn up by Britain, France and Germany highlights that the Iranian response is along previous lines in that it neither accepts nor rejects outright.

Iran's goal is thought to be to involve the international community in talks about talks while continuing on its enrichment program. Its unyielding stance appears to be powered by the belief that China and Russia, both veto-wielding Security Council members will oppose the sanctions.
Besides Iran's no suspension before negotiation stance, it has also demanded the "termination" of Security Council involvement in its nuclear file.
While Iran continues to insist that its enrichment program is for generation of nuclear power, the Western powers are focused on imposing sanctions following the deadline.

Russia averred that any sanctions must exclude military force giving rise to the opinion that Moscow was contemplating the possibility of sanctions. The US and European diplomats have said that initially they will use low-level punishments such as travel bans and bans on the sale of dual-use technology to get backing from Russia and China.

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Oil giant BP testifying before a Congressional committee said that its Prudhoe Bay Field facility could be up and running to full capacity by the end of October resulting in oil prices falling back near $67 a barrel.

US light crude for October delivery fell 18 cents to settle at $67.32 a barrel. Earlier in the session crude hit $66.76 on the news.

Crude prices had slipped after the Energy Information Administration reported a jump in total motor gasoline inventories by 700,000 barrels putting them above the upper end of the average range.

Crude oil inventories at 330.6 million barrels remain well above the average for this time of the year.

Following the Israel-Hezbollah cease fire, oil prices have eased from their record highs of around $78.

With the end of the US summer driving season, an innocuous hurricane season and slowing global economic growth, crude prices have been driven lower. But not all analysts are convinced that the decline will continue indefinitely.

Right now the Iran nuclear standoff is giving support to oil prices.
Though OPEC is expected to leave production levels untouched, some analysts are speculating that the oil cartel could impose production cuts if crude prices remain ar their current level.

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Shell Exploration and Production Co. said that output from its Mars platform in the Gulf of Mexico has lifted to 20 percent more than where it stood before it shut down ahead of Hurricane Katrina last year.
The Mars platform is the largest-producing oil platform and output now stands at 190,000 barrels of oil equivalent per day.

Shell also managed to pick up 5 parcels of land in Northern Alberta adding to the adjacent 10 parcels it had bought in February. The acquisition of Canada's oil sands cost Shell C$101 million.

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It is widely expected that the OPEC meeting in Vienna on Monday will call for production to remain at current levels. An $11 drop in prices since the Lebanon cease fire may encourage some to push for cuts further out.
OPEC production is at the highest level since 1979 to cushion against supply shocks. The Saudi-driven policy has succeeded with refiners storing away OPEC crude.
Though oil has dropped from record highs of $78.40, it is still above the $61 price at the start of the year and $20 at the start of 2002.
With the hurricane season and the end of winter still to get through there seems to be no reason for agressive calls for cutting oil production.

But some OPEC members are looking to 2007 when demand could drop sharply if independent producers bring on projects of new crude and slowing economic growth would furher erode demand for OPEC oil.
OPEC economists predict a drop of 800,000 bpd in the requirements for the group's oil.

OPEC's production ceiling was set at 28 million bpd and output this year has run just below the official limit with everyone of the 10 members save Saudi pumping flat out.
Riyadh pumping at about 9.2 million bpd holds most of OPEC's spare production capacity with more than 2 million bpd in reserve.

While the kingdom has supplied the customers with what they want, it has refused to discount barrels to force feed the market and depress prices.
Iran's deputy oil minister and oil minister said they expect OPEC to keep oil production steady when it meets to chart output policy. Their sentiments echoed those of Algerian Energy and Mines Minister.

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The former head of pipeline-corrosion monitoring for BP in Alaska pleaded the Fifth amendment and refused to testify as lawmakers questioned company officials over the cause of the massive oil spill in March this year.

Lawmakers said that the company's lapses were particularly unacceptable given the record profits in the industry and the relatively inexpensive measures that might have prevented the oil spill.
BP exceutive apologized and promised to fix operational lapses.

With Congress aiming to wrap up its session by the end of the month, the hearing was not expected to result in any specific legislative action. It afforded lawmakers an opportunity to talk tough ahead of November elections.

Robert A. Malone, head of BP PLC's US operations said that they had falled short of the standadrds they held for themselves and vowed to manage Prudhoe Bay in "a safe, efficient and environmentally sensitive way", while conceding that the company's reputation had suffered.

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Shell Oil Co. President, John Hofmeister, touted the importance of a "culture of conservation" and investment in alternative fuels.

He said that with fuel prices at the current highs can be used by policy makers to force market changes. World oil prices as low as $10 a barrel in 1998 made investment in alternative fuels not ecenomical but under present circumstances, solar, wind and other alternative energy projects are doable.

Hofmeister said that conventional oil and gas resources are no longer enough for the country's energy security. Fuel derived from oil shales, gasified coal; ethanol and other biofuels; hydrogen fuel and wind and solar energy will play a major role in energy futures.

The US represents 8 percent of the world's population consuming 25 percent of the energy supply. "It's not a sustainable formula," he said, noting that the rest of the world wants its "fair share," too.

Conservation in the US needs to be stepped up. Different designs of homes, factories and vehicles are needed above and beyond adjusting thermostats and driving slower.

In June, Shell announced plans to build a wind farm worth $200 million on the island of Maui to help meet Hawaii's renewable energy goals and do away with the need for a coal-generating plant.
Shell and GM operate 5 hydrogen fuel cell passenger vans in Washington and Shell provides a refueling station near the Capitol.
The company is also investing in producing ethanol with various partners.

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Crude oil rebounded from a 5 month low to prices above $67 a barrel as the Petroleum and Natural Gas Senior Staff Association confirmed that they will carry out a three day "warning strike" beginning Sept. 13.

Nigeria's two main oil worker unions pledged to strike unless security in the Niger Delta region improves.
If the strike carries on longer, oil supplies from Africa could be further disrupted. Nigeria is Africa's largest producer and has been suffering from various problems this year including kidnappings of employees, attacks on infrastructure and militant action which has cut output by as much as 715,000 barrels a day.

With the latest issue, crude oil for October delivery has gone up 13 cents at $67.45 on the Nymex.

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With Chevron tapping a petroleum pool that could hold as much as 15 billion barrels of oil, prospects for companies far beneath the deep waters of the Gulf of Mexico are looking up.

It could be the biggest domestic oil find in over three dacades with prospects of more oil than Prudhoe Bay field, but production is years away and won't be able to reverse the nation's growing reliance on imports or have an effect on the gas prices.

The successful test drill by a group led by Chevron could lead to as much as 750,000 barrels of new daily US crude oil production within 6 years.

Though it's equal to only about 15 percent of what the US has been producing per day, it confirms a new frontier in the untradeep water. The announcement of a test well with a sustained flow of more than 6,000 barrels a day is a good news to western companies at a time when its is harder and more expensive to gain access to countries like Venezuela and Russia and with supplies at risk in the Middle East and Africa due to political unrest.
The first drop of oil from the field is not expected to hit the market till 2012.
The proximity of the Gulf of Mexico to the US makes the new discovery more attractive to the industry and it could have a reaction on other states to relax the limits they have set on drillling for environmental or tourism reasons.

US reserves are far less when compared to Saudi Arabia's - 29 billion barrels to Saudi's 250 billion.

While some observers are cautioning over inferring too much too soon, others feel that this discovery is a portent of the possibilities off Africa and Brazil.

The dearth of rigs capable of deep sea drilling and the long lead times required to drill and complete deepwater wells are some of the limitations forseen about developing the potential of the new discovery.

Analysts say that if oil prices remain high, costly deepwater exploration which is economically recoverable with oil prices as low as $40 a barrel will expand. The present prices of near $70 a barrel make exploration viable.
As oil consultant Peter Beutel put it, "You can drill a lot of dry holes and get one to pay."

It's important to find bigger fields since the cost of looking for oil in deep water far from shore run high. It's unclear whether Chevron and its partners will build a floating platform and put oil directly into tankers or use it to connect pipelines running to the shore.

It's an expensive undertaking but a significant move in the opening up of a whole new exploration horizon.

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The Indonesian government might take over a huge natural gas field run by ExxonMobil Corp when its contract expires in January.
The Natuna D-alpha block contains about 70 percent carbon dioxide and is thus expensive to develop and difficult to sell. The field has around 222 trillion cubic feet of gas, of which 46 tcf is thought to be commercially recoverable.

Energy Ministers Purnomo told reporters that if ExxonMobil has no commitment to produce or sell gas, Indonesia will terminate the contract.

Indonesia amd ExxonMobil had signed an agreement in 1995 to invest $40 billion in the offshore gas project, however tapping the reserves has proved difficult. ExxonMobil said it was looking for buyers for gas from Natuna D-Alpha.

The gas in this field accounts for about 25 percent of Indonesia's total gas reserves of 182 tcf.

ExxonMobil has a 76 percent stake in D-Alpha with the remaining 24 percent with state energy firm Pertamina.

Indonesia is trying to phase out costly oil-fired power generation and uses more of its cleaner, cheaper natural gas domestically. The country is Asia Pacific's sole OPEC member with more gas than oil.

Exxon was engaged in a 5 year row with Pertamina over the operatorship of the $6.2 billion Cepu oilfield, which was recently resolved and has faced sporadic problems in the country.

A government move not to renew Exxon's contract will create uncertainties about doing business in Indonesia amongst foreign investors. Added to this are worries about Indonesia's legal system, labor and mining policies.

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China's biggest refiner, China Petroleum & Chemical as well as Nippon Oil of Japan are trying to reduce their dependence on the Middle East by importing oil from Africa and Russia.

Angola and not Saudi Arabia is China's largest supplier this year and Japanese refiners are buying crude from the Russian Far East. As the world's fastest growing automobile market, Asia finds refined oil from Africa and Russia more attractive since it yields more gasoline and diesel than Mideast supplies.

This trend will benefit companies like EXxonMobil, BP, Total and OAO Lukoil that are drilling in Africa and Russia and have been largely excluded from production in the Middle East where state-owned monopolies control the oil industry.

The Asia-Pacific Petroleum Conference in Singapore will certainly have diversifying oil supplies on its agenda. With a fifth of the world's oil consumption flowing through the Strait of Hormuz, concern over disruption of oil supplies in that region by Iran have increased.

China Petroleum, Nippon Oil, Indian Oil  and SK of South Korea are few Asian refiners that have bought new grades of crude oil for the first time this year as sour-crude from the Mideast produces less gasoline and refiners in Asia are trying to produce more transportation fuel.

The share of producers such as Saudi Arabia, Oman and Yemen in the world's second-largest energy market has fallen with China importing from Africa, Kazakhstan, Russia and Venezuela.
Angola shipped 15 million tons of crude oil to China, in the first 7 months of the year, 13 percent more than Saudi Arabia.

While shipments from the Persian Gulf to China rose by 5.8 percent in the first half of this year, during the same period imports from Africa rose by 22 percent.

Sinopec imported Chinguetta crude from Mauritania and Azeri light and Hamaca Blend from Venezuela. Japan which relies on the Mideast for 90 percent of its oil needs has started to import crude to the tune of 700,000 barrels from Sakhalin island in Russia.

Indian Oil bought Girassol crude from Angola and Erha from Nigeria. Hindustan Petroleum and Bharat Petroleum have purchased Azeri light and Erha.

Refiners are taking Winston Churchill's words, "energy security lies in diversity" very seriously now.

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US Secretary of State Christopher Hill, is set to visit Beijing to discuss reviving stalled negotiations on North Korea's nuclear program and has accused Pyongyang of boycotting mulitlateral talks on its nuclear ambitions.

Reports of a simulataneous visit of North Korean leader Kim Jong-il to China are uncertain.
An anonymous official said that China has decided to invite Mr. Kim amid speculation that North Korea may be planning an underground nuclear test. An armored train known to be used by Mr. Kim for long travels has been spied at the border with China prompting speculation about his visit to China.
Mr. Hill said he had "no information on Kim Jong-il's travels."

Tensions have been high since early July when North Korea conducted missile tests. They are not yet thought to have tested a nuclear bomb though have admitted to nuclear capabilities.

Christopher Hill and his Japanese counterpart have agreed to work with the other partners to revive talks with North Korea, advocating concrete action to persuade Pyongyang to abandon its nuclear program amid talks of North Korea planning more tests.

Mr. Hill maintained that the Us position has not changed. The September 2005 agreement which promised economic aid in exchange for Pyongyand scrapping its nuclear program is still on the floor. The agreement fell apart over disagreements on how to implement it.

International concerns were raised when North Korea launched 7 missiles in July, including a long-range weapon capable of hitting parts of the US.

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Updates

1. BP seems to be hopeful that the Alaskan Prudhoe Bay field will start up sooner than expected.

2. Exxon Mobil Corp. is shutting down the SCU-2 Claus B unit at its 563,000 barrel-per-day refinery in Baytown, Texas.

ExxonMobil has been asked to pay up $92.2 million as environmental damages from the 1989 Exxon valdez disaster.

The Alaska Department of Law and the U.S. Department of Justice made the demand not covered in the previous $900 million settlement with Exxon.

The settlement made in 1991 allowed the state and federal government to seek additional damages not foreseen at the time of the settlement.

Alaska and federal officials said in May they would seek additional damages and had until Friday to make their demand of Exxon's successor company, ExxonMobil.

Exxon Mobil is expected to contest the demand since it has said that there are no lingering environmental damages not covered in the 1991 settlement.

If Exxon Mobil does fight the additional damages, the U.S. District Court for Alaska will hear the case.

The Exxon Valdez supertanker grounded on a reef in 1989, spilling about 11 million gallons of crude oil that reached over 1,200 coastline miles making it one ofr the worst environmental disasters in U.S. history.

In addition to the 1991 settlement, Exxon and its successor Exxon Mobil have paid more than $2 billion in cleanup costs, as well as $300 million in claims to affected fishermen.

But it continues to contest a punitive damages verdict of $5 billion issued by a U.S. District Court jury in 1994 in the class-action case brought by fishermen, Alaska Natives and others.

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Oil prices firmed at under $70 after sliding nearly 5 percent last week due to reduced hurricane concerns with dealers braced for situational rises over the Iran-West nuclear dispute.

The US market was trading electronically on Labor Day but trade was thin. U.S. light sweet crude traded up 30 cents at $69.49 a barrel.

Though Washington pressed for sanctions that oil traders fear could disrupt supplies from the world's fourth-largest exporter, the European Union indicated it wanted more talks.

Iran has been given 2 weeks to clarify its nuclear stance. Iran says it is ready to negotiate but will not halt any enrichment work ahead of talks.

EU foreign policy chief Javier Solana will meet Iran's chief nuclear negotiator, Ali Larijani, next week to try to clear up ambiguities in Tehran's reply to major powers' offer of broad cooperation if it stops the nuclear work.

Tobin Gorey, commodity strategist at Commonwealth Bank of Australia, said that "We're thinking the oil market might downgrade the risk further. A break below $68 would suggest that the downgrade is on."

With the projected number of hurricanes for this season dropping and other supply news being mostly positive over the weekend, has also played a part in the price drop this week as opposed to the closure of 50,000 bpd of Nigerian output.

Authorities in Iraq said they had detained the second most senior Al -Qaeda figure in the country, potentially improving security and freeing a pipeline used to pump 6 million barrales of crude that has been mostly paralyzed by sabotage for the past three years.

Thanks to the Exxon-led Sakhalin-1 field ramping up output, Russian oil production rose 0.9 percent to a record high of 9.759 million bpd in August.

OPEC meets next week to chart output policy and is unlikely to change production even though that may mean that supply is more than market demand.

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The tax hike from 34 percent to 50 percent on heavy oil operations imposed by the Venezuelan National Assembly has ExxonMobil worried.
The "unilateral decisions taken by the Venezuelan government to change the fiscal terms of the Cerro Negro strategic association agreement, which the National Assembly approved" is a matter of concern for the company.
The company holds a 41.7% stake in the 120,000 barrels-a-day Cerro Negro project, one of four heavy-oil Orinoco Belt joint-ventures between international oil companies and the state-owned giant Petroleos de Venezuela S.A.

The country's government is looking to hold a majority stake in the Orinoco oil projects by December. The new tax could bring in between $700 and $800 million to the government.

ExxonMobil relations with the Venezuelan government have soured in recent times as Chavez has sought to reassert the role of the state in the vital oil industry.

The four projects in the Orinoco area are jointly run by PDVSA along with ExxonMobil, Total SA (TOT), ConocoPhillips (COP), Chevron Corp. (CVX), Statoil ASA (STO) and BP PLC (BP).

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Chevron Corp. has awarded Houston-based Transocean Inc. a five-year, $862 million contract to build a drillship.

Transocean (NYSE: RIG) has a fleet of 83 mobile offshore drilling units and has won three drillship-construction contracts already this year.

If Chevron exercises converts the contract to three years, the deal would generate revenue of $609 million.

Transocean expects to begin the contract after shipyard construction, sea trials, mobilization to the U.S. Gulf of Mexico and customer acceptance. This is likely to be in the first quarter of 2010.

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Apparently the world's largest solar electric power plant with more than 1,400 movable solar modules has started up in the southern German state of Bavaria.

The solar modules can automatically tilt and rotate during the day to face the sun at all times and harness energy for around 3,500 households, according to operators at the plant.
This technology helps the firm to generate upto 35 percent more electricity than a fixed solar array. The area around the modules is open for sheep grazing to help prevent erosion.

The company has invested $90 million in the project and it is expected to yield an output of 12 megawatts when fully operational.

A neighboring solar park in Pocking held the previous record as the world's biggest, providing 10 megawatts of electricity to 3,300 homes.

Germans who are also forerunners in wind power energy invested 3.7 billion euros in solar energy last year.

Solar energy accounts for less than 1 per cent of the country's energy needs, but is expected to grow to more than five percent by 2020.

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The U.S. Environmental Protection Agency (EPA) has cut a deal with 3 Phases Energy Services to purchase more than 100 million kilowatt hours (kWh) in renewable energy certificates, making it the first federal agency to purchase renewable energy equivalent to 100 percent of its annual electricity needs.

This green power purchase brings the total to nearly 300 million kwh per year which is equivalent to 100 percent of the EPA's nationwide electricity need annually. This maount can power 27,970 homes for a year.

The arrangement effective from Sept. 1 extends yearly green power purchases to more than 190 EPA facilities nationwide and supports the development of wind farms.

EPA Administrator Stephen L. Johnson said that with this move they are committing to alternative, renewable power sources, and meeting the president's call to green our nation's energy.

In 1999, EPA's Region 9 laboratory, in Richmond, Calif., became the first federal facility to purchase green power equal to its total annual electricity consumption. This was the beginning of the green power purchasing program. Since then, the program has steadily expanded to reduce demand for conventional electricity sources by supporting such renewable energy sources as wind power, geothermal sources, and biomass - primarily through the purchase of renewable energy certificates, or RECs which help reduce emissions associated with conventional electricity sources.

On an annual basis, the EPA's total green power purchases manage to offset more than 600 million pounds of carbon dioxide - nearly the amount 54,000 cars emit during a year.

The EPA is an active partner in the agency's own Green Power Partnership, a voluntary public-private program that promotes renewable energy.

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The controversial plan to effect ship-to-ship oil transfers may have got the go ahead from the Maritime and Coastgurad agency but environmental groups have vowed to wage a battle against it on the basis that the project would put the Fort and its two special protection areas for seabirds in serious danger.

The EU has launched an investigation to check whether the proposal to pump Russian crude oil between supertankers breaches any environmental regulations.

Mark Ruskell, a green environmentalist said that the Forth Ports situation could descend into a legal battle and that investor confidence in a less than clean PLC would suffer. He feels that the time is coming when executive ministers should use the licensing powers they hold.

Alyn Smith, the Scottish Nationalist MEP who triggered the EU investigation, said the outcome could overrule the Maritime and Coastguard agency's decision.

Forth Ports said that safety was of paramount importance and that it would await the decsion of the panel of independent experts  who  are carrying out the risk assessment of the proposal.

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Tehran ignored its second deadline for halting uranium enrichment and the foreign ministers of the European Union have agreed to give Tehran 2 more weeks to clarify its stance on the country's nuclear program.
At a meeting in Finland, Philippe Douste-Blazy spelt out the position held by the EU - if Iran suspends enrichment, the Eu will suspend the sanctions process in the UN. Javier Solana, the EU foreign policy chief will meet up with Iran's chief nuclear negotiator in a week to clarify the Iranian stance on its enrichment program as well as its offer of cooperation on nuclear energy.
On the other hand, Iran's stance has remained defiant with President Ahmadinejad reiterating that Tehran will not abandon its nuclear program since it is for a peaceful purpose.

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