Recently in Oil Category

Oil rich Kazakhstan is planning to cut tariffs on the export of crude oil by one third in order to help domestic producers, energy minister Sauat Mynbayev said today.
In a move to reduce soaring oil prices in their domestic market, the Kazakh government had introduced an export tariff in May. This way they boosted their state revenue while helping their domestic fuel market. However, with the drop in oil prices, the tariff started eating into the profit margins of domestic producers.
As per the proposal by the energy minister, the government is considering dropping the duty to $139 per ton from the current levy of $210 per ton.
The duty is adjusted every quarter to keep pace with the fluctuations in global prices. Mynbayev has said that this may change with revisions of tariff taking place as often as on a biweekly or monthly basis.
Kazakhstan has some of the world's largest oil reserves, concentrated in the western parts of the country.
Information from The Associated Press website.

The International Energy Agency (IEA) has predicted that the era of cheap oil is over. They warn that crude oil prices will soon skyrocket above $100 a barrel and that by 2030 this will double with fields in the North Sea and in other areas of the world getting depleted faster than expected.
The IEA, which acts as an energy policy advisor to 28 countries, was founded during the oil crisis of 1973-74. It says that more than $26 trillion of investment would be needed over the next few years to help countries of the world achieve energy independence.
At the moment, market fluctuations have caused prices to fall but this trend will not last long.
On a brighter note they categorically stated that it wasn't that the world was running out of resources, the risk to supply was that there was a lack of investment in the right areas. Total world oil production isn't projected to peak before 2030 but the more easily accessible sources of crude or conventional oil will most likely plateau towards the end of that period. Besides that, energy sources are concentrated with a few people, largely being confined to the OPEC producer's cartel. It is Non- OPEC oil production that is projected to decline by the middle of the next decade.

Information from The Guardian website.

Oil futures rose early Tuesday after falling nearly 6 percent in the previous session. Crude oil for December delivery rose by $1.41 to $65.34 a barrel in electronic trading done on Globex.
Futures prices rebounded today after falling by $3.90, or 5.8 percent closing at $63.91 per barrel yesterday on the New York Mercantile Exchange. The futures prices of oil have taken a beating amid concerns about the impact of the economic slowdown on energy demand.
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The World’s largest oil companies are raking in huge profits owing to the rise in oil prices. Their windfall gain has come at a time when even their production has come down. While Royal Dutch Shell recorded a third quarter profit of $10.9 billion up 71 percent, Exxon Mobil broke its own record for the biggest quarterly profits in the US by earning $14.8 billion up 58 percent, despite an 8 percent decline in production. BP recently declared a profit growth of 148 percent which prompted Gordon Brown into stating that a reduction of oil prices in oil pumps was needed after the reduction of oil prices globally.
Such profits prompt the public to call for the creation of windfall tax that applies a tax on the huge profits companies make in inflated markets. The companies claim however that all their profits get invested back into their businesses and that their huge profits also imply that they have to pay very large taxes on their income hence a windfall tax in unnecessary.
To read the complete article click here.

AGL Energy, Australia’s largest power and gas retailer is leaving Papua New Guinea after selling all its assets in the country to an unknown international buyer for $1.16 billion.
This decision comes after the sale of 22 percent of their stake in Queensland Gas Company to a British company for $1.18 billion.
The current condition of global markets may have prompted AGL to take this action.
To read the complete article click here.

With the pace of global growth slowing down, people are worried about the demand of oil falling. This has led to a further decrease in oil prices on Wednesday. The promise of output cuts by OPEC has been outweighed by what traders perceive to be a  fall in demand for oil. Besides, traders feel that any cuts implemented now will take a few months to have any impact on the market.

The fall in prices are beginning to alarm OPEC nations, several of whom depend on oil for most of their revenue.

To read the complete article click here.

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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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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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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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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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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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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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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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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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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