Oil squeeze spurring war

Invasion of Iraq is getting closer, so what do we stand to gain? Will seizure of the oil fields mean cheaper gasoline and lower-priced heating oil and natural gas?

Most Americans probably hope so, but the likelihood is that the “victory” will not have that result.

Senior U.S. defense officials, who decline to be named, say the invasion plan is to seize the oil fields as rapidly as possible, presumably to protect them from Saddam Hussein.

British troops will be used to do this because the Bush administration does not want to give the impression of a U.S. oil grab. Oil executives have said there’s desperate need for another 80 million barrels a day to meet growing demand for crude.

Why can’t we get it from the OPEC countries, such as Saudi Arabia? Geologist Dale Allen Pfeiffer cites a report from Matthew Simmons, president of Simmons & Co. International, investment bankers for the oil industry.

Mr. Simmons said a government tour of the OPEC nations in 1999 confirmed his suspicions that OPEC has no spare capacity; that means production is at or near full capacity. These oil-producing nations cannot pump more oil if another crisis like Venezuela occurs.

Oil geologist and consultant Colin Campbell was asked whether Iraqi oil could be used to reduce oil prices and destabilize Saudi Arabia. Campbell replied: “…I don’t think it’s in anybody’s interest, least of all the American interest, to drop the price of oil worldwide, because they simply need more of the stuff and with low prices, there is less incentive for anybody to produce and you create tensions throughout the world.”

Campbell continued: “…What is much more likely is that they put one foot in Iraq and the whole of the Middle East erupts in popular outrage at this unjustified attack, which will be seen as a very negative thing.”

Campbell noted it doesn’t take much to blow up a pipeline. As he put it: “One camel with a bit of explosive on its back can do a pretty good job.”

Simmons said he informed the administration of the looming energy crisis before it took over the White House, so Bush knew about this going in. Since then, oil depletion has been in the background of every decision and every action of this administration.

Even if he gets control of the oil fields, Bush will face a monumental task in getting them to peak production. ExxonMobil is at the head of the line to do the rehab job, but they and the other major oil companies will have a difficult time upping production in the short term. In fact, they may have to cut production, Pfeiffer said, because Iraq has been using unsound methods to produce the amount of oil they are pumping today.

Before the 1991 Gulf War and the 10-year Iraq-Iran war, Saddam was pumping an average 3.5 million barrels daily. In 2001, he averaged 2.45 million barrels a day. Experts say the maximum he can sustain is no more than 3 million barrels a day.

Most of Iraq’s present oil production comes from three large fields: Kirkuk in the north, East Baghdad in central Iraq and Rumallah in the south. There are many other smaller, and largely untapped fields along the Iranian border and elsewhere in the country. All told, Iraq has proven reserves of 112 billion barrels of oil. Unexplored areas of the western desert might add another 100 billion barrels, but it’s believed that area is more likely to furnish natural gas because the source rock lies so deep.

Iraq’s oil industry suffered heavy damage in the 1991 Gulf War. Gathering centers and compression/degassing stations at Rumallah, and pumping stations and storage facilities along the north-south pipeline were destroyed. Several oil fields were damaged and remain unrepaired. Export-import facilities and tanker ports also were damaged.

Saybolt International, an oil consulting firm, has warned that annual Iraqi production may drop from betweeen 5 to 15 percent at damaged fields. U.N. Secretary General Kofi Annan warned Iraq’s oil industry could suffer a “major breakdown” if spare parts and equipment are not provided soon.

The U.S., however, has fought any efforts to solve those difficulties and has insisted on only short-term solutions.

So what would it take to get these oil fields up and running at capacity or at least higher production levels than at present?

It will require, Pfeiffer said, a consortium of international oil companies making a major investment, and it will take 10 years to double production.

Pfeiffer said it’s estimated it will take about $7 billion to get Iraq back to pumping 3.5 million barrels a day. Raising that output to 5.5 million barrels a day would take at least a $20 billion investment, he said.

Iraq has signed deals with France, China, Russia, India, Turkey and others, but not the U.S. or Britain. None of these contracts can be put into force until the U.N. approves.

This may indicate why the U.S. is so fixed on war with Iraq and grabbing the oil. The Bush administration continues to block UN attempts to work out methods of getting spare parts and equipment into Iraq to rehab the oil fields.

The outlook for natural gas is not very bright, either. Amounts of natural gas are below the five-year average of 1,604 billion cubic feet. Tony Say, president of Clearwater Enterprises, a gas marketing company, said he expects that gas reserves will reach an all- time low of 600 billion cubic feet by the end of this season.

Bruce Bell, chairman of the Oklahoma division of Mid-Continent Oil & Gas Association, said once reserve levels hit 700 bcf, there are concerns about how much gas can be withdrawn.

Gas reserves are stored in underground caves, and there must be enough gas in there to create pressure to force the reserves out and into the pipelines. Gas production is expected to continue dropping, and Canada intends to export less of its natural gas to this country as its production dropped 4 percent.

The bottom line: expect a gas supply crisis and higher prices next heating season.

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