Posted on 04/05/2006 10:11:34 AM PDT by aculeus
Hugo Chavez is setting the stage for the next chapter in world oil history. In a Monday night interview with the BBC, he indicated that he wants Venezuela to take the lead in the OPEC cartel. Chavez is planning to propose that OPEC members increase their long-term oil target price to $50 per barrel. At this price, a portion of Venezuela's Orinoco Tar Sands become economically viable, and Venezuela can officially increase its proven reserves to 312 billion barrels -- 50 billion barrels more than Saudi Arabia.
A brief history
OPEC (Organization of the Petroleum Exporting Countries) was formed in 1960 to "secure fair and stable prices for petroleum producers." Producing nations view OPEC's role as stabilizing prices in what has historically been a boom-and-bust industry. Consuming nations often view OPEC as "price fixers," rigging the market to artificially inflate prices.
Whatever its stated mission, OPEC has not been very successful in managing oil prices. In the 1990s, oil was cheap. OPEC just couldn't seem to get along. Venezuela would routinely exceed its OPEC production quotas, keeping prices down. In 1998, with oil near $10 a barrel, Hugo Chavez was elected president of Venezuela. That was the turning point.
President Chavez cut Venezuelan oil production down to the OPEC quota. He made a concerted effort to unify the cartel, which had been fragmented and contentious for nearly two decades. By 2000, his strategy was working. Oil prices had risen to $30 a barrel, and oil revenues to OPEC nations were once again on the rise.
Each OPEC member state reports "proven oil reserves" (total oil that can be produced at prevailing market prices). Production quotas for each country are established based on these reserves, creating the incentive for the aforementioned cheating. Currently, Saudi Arabia has the largest reserves in OPEC, at 262 billion barrels, with Venezuela in sixth place at 79 billion barrels.
Hugo plays hardball
Because production quotas are determined by proven oil reserves, and reserves are a function of market price, Venezuela has a lot to gain if OPEC recognizes $50 per barrel as the long-term price of oil. The country's Orinoco tar sands deposit is an ultra-heavy oil formation, not unlike Canada's oil sands. Including all of Orinoco, the U.S. Department of Energy estimates Venezuelan reserves at 1.3 trillion barrels -- more than all other OPEC nations combined. Venezuela claims that at $50 per barrel, a portion of the Orinoco tar sands becomes commercially viable, enough to bring the country's proven reserves up to 312 billion barrels.
The other members of OPEC are unlikely to welcome this development, but it will not be easy for them to simply reject the proposal. In 2004, OPEC nations were all essentially pumping at full capacity. Furthermore, OPEC member Indonesia has become a net oil importer and is considering dropping out of the cartel.
OPEC also must be looking at the production increases in several non-member states, worrying that its control over global oil markets may diminish if its member nations do not increase their reserves. After the fall of the Soviet Union, Russian oil production plummeted to 6 Mbpd (million barrels per day). Over the past seven years, however, there has been a massive investment in Russian oil production, which boosted output to 9.5 Mbpd -- making Russia the world's leading producer.
In Canada, meanwhile, high oil prices have led to massive investments in Alberta's Oil Sands, and huge profits for producers like SuncorEnergy(NYSE: SU). A large portion of this ultra-heavy oil deposit is now included in Canada's oil reserves of 180 billion barrels, which places Canada second only to Saudi Arabia in proven reserves. Furthermore, investments in the oil sands will increase Canadian output from a current level of 2.6 Mbpd to 3.9 Mbpd by 2015.
Hugo opens Pandora's box
Given the possibly weakening position of OPEC, perhaps President Chavez believes he has the cartel over a barrel, and that now is the time to make his move. Whatever his thinking, it will be interesting to see how the cartel responds, and how this drama plays out in the world's oil markets.
If the cartel agrees to a significant increase in Venezuelan reserves, it will not immediately drive oil prices lower. Venezuela will need several years to increase production. Chavez may also live to regret driving away foreign investment with his strong-arm tactics. ExxonMobil(NYSE: XOM) and the Italian oil firm Eni(NYSE: E) have both pulled out of the country because of unfavorable terms. However, given current oil prices and Venezuela's reserves, 17 companies have signed a deal with the government-owned PDVSA (Petroleos de Venezuela SA), including the Spanish oil firm Repsol(NYSE: REP) and Royal Dutch Shell(NYSE: RDS-A).
A more interesting scenario will arise if OPEC refuses to recognize an increase in Venezuela's reserves. Will Chavez return to the country's past practice of violating production quotas? Despite playing the dutiful OPEC member to date, Chavez might find the power available with increased production is likely too great a temptation for him to resist. He has been using oil revenues to build his power and influence, not only in Venezuela, but in all of Latin America and the Caribbean. He wants to continue this campaign and extend his influence to the entire developing world.
In either scenario, the danger for OPEC is that member nations will begin a race to the bottom, increasing production to maximize profits while prices are high. In the 1980s, most OPEC nations mysteriously increased their reserves by as much as 100%, just to increase production. Could the same thing happen again? Or will they skip that step and violate their own production quotas? Considering that many are already producing at maximum capacity, are OPEC nations capable of production increases? OPEC claims its members will increase production from the current level of 32 Mbpd to 38 Mbpd by 2010.
The next chapter
Will the current boom go bust? Will world consumption keep climbing in lockstep with production, leading to a stable but high oil price? We can only wait and see, but history would suggest that the boom will eventually end. For investors in the oil patch, keeping an eye on how this issue develops may just be the key to taking profits before the "bust" part of the cycle sets in.
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I want nuclear! Screw Chavez!
The green river basin shale, north central US tar sands, and Canadian shale also become viable at those prices. Ugo isn't thinking about the implications very well.
I. There is more oil in the oil shale in the green river basin in Colorado than
the known Saudi reserves, and when you add the shale in Canada and tar sands,
etc there is 10 times or so known world reserves but barrel out of the ground
cost is going to be 25 to 28 USD
II. Taking a look at what Brazil has done with biomass (sugar cane frass)
biorenewable celulostic ethanol conversion oil alternatives are viable at
current levels.
III. Taking a look at Sasol in South Africa that built on the German Synfuel
tech based on coal liquifacation, this is possible for reasonable cost. The
US has 500 years of road fuel in coal.
All of them are more than viable at $50 a barrel.
"Hugo Chavez Makes His Move"
And that would be the usual flatulent bowel movement?
there is more oil in Colorado than in known Saudi reserves!!!!
question, which wacko leftist group is gonna allow us to get it?
LTGM-
Very interesting post. Thanks for the information.
Sounds like, based on the current market, we should be VERY close to exploiting at least two of those options.
Are we? And if not, why not?
Excuse my ignorance but $50.00/barrel translates to what retail price at the pump? I guess another way to phrase this would be what are we paying now?
Yes, but many of those researves are owned by China.
we are above $50 bucks right now, so if you are fine with current pump prices... they would be a tad lower.
http://72.14.203.104/search?q=cache:2Sy1rGN1w3EJ:www.tsaugust.org/Oil_Articles.htm+freezewall+oil+extraction&hl=en&gl=us&ct=clnk&cd=3&client=firefox-a
Oil Shale Project Moves Ahead.
Shell will proceed with a football field size development of its freezewall technology for extracting oil from shale.
If successful, this step could lead to commercial development of oil shale in the U.S. within this decade.
A recent Rand study estimated that there were between 500 billion and 1.1 trillion bbls of recoverable oil in the Green River geological formation, covering parts of Colorado, Utah and Wyoming. “The mid-point of the RAND estimate - 800 billion barrels - is three times the size of Saudi Arabia's oil reserves” according to RAND.
Shell has received the necessary approvals from Rio Blanco County, Colorado and federal officials to proceed with its $50 million study that will take up to four years to complete.
The freezewall technology uses refrigerants that are circulated through underground pipes to freeze the groundwater: This establishes a barrier wall in the earth to keep groundwater out of the oil-shale formation and to keep heated oil within the walled in area.
Once the freezewall is established, heaters are lowered through bore holes into the shale formation to release the oil from the shale. The liquid or vaporized oil is then pumped out of the ground.
Shell’s representative said: “We’ve tested the process in a circular pattern and this will be a football field-shaped rectangle in an area more like where commercial production could happen".
Development of this area will require establishment of a gravel road as well as a treatment plant and waste storage areas to clean up any contaminated water and fluids. Shell is also storing top soil so as to be able to fully reclaim the site.
If successful, this method of extracting oil from shale will avoid the serious environmental issues that are associated with the retort method of mining, crushing and cooking oil from shale.
Hey hugo, it's already over $50/bbl. Alternative fuels are already on the way.
"The green river basin shale, north central US tar sands, and Canadian shale also become viable at those prices. Ugo isn't thinking about the implications very well."
Yes he is. He knows full well that the leftists in the US will not allow our energy companies to exploit the finds. He raises the floor prices and increases his reserves.
OIL TERRORIST!
Do we thank Oxy and Dr. Arm and Hammer for this?
I must be missing something here. Baby Huey is asking to "raise" the target price of oil to below its current price and threatening to sell more oil than his quota whilst cutting off sales to the United States? And all he wants to effect this remarkable plan is to take control of OPEC from the Arabs?
Either there's something to this too subtle for me or Huey's smoking some righteous weed...
Venz crude oil is high-sulfur crap
Lousy for making gasoline and requires more expensive refining facilities, time, engineering, and labor -
Venz crude may be OK for some cheap bunker fuel use - but even then it is corrosive on Swiss and Japanese diesel engines that should go long periods of time with miminum expensive maintenance and replacement of parts - and it is environmentally unsuited and unfit as heating fuels with very low rates of produced %s of product for vehicle &/or heating fuels
Texas & some Arabian ME oil is the best - shale is not going to be a "next year" thing in the USA or Canada - but should be part of an overall plan with ANWAR, offshore drilling, alcohol, Nukes, etc.
To "encourage" politicians to think and vote - a "surcharge" should be placed by producers on LA, NYC, SF, Chicago, DC - to be "fair" on transportation costs on fuels, water, even farm products......
The lib urbanites are ripping off and being subsidized by Red State/flyover America!
Commie Hugo Chavez is nuts (surprise!) if he thinks he can get the same price at $50 per barrel as Saudi or Texas crude
OPEC will never fall for this
They may be Islamics - but they are not going to let a lying little Commie set/get the same price/barrel as their top quality crude oil
Chavez has eyes on surrounding SA borders and disputes current borders - like Iran does with UAE, Iraq did with Kuwait etc. - look at the stability there
Venz, Iran - cannot be trusted
But Chavez little incursions and troops in Columbia will give him mucho problems sooner then you think
Fidel Castro cannot help him there - the Columbian military and US SpecpOps (advisors!) there are not under the thumb of AJ Ruth Bitter Ginsberg
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-- Sorry Tom! - I forgot yer FR screen name - email it to me please..... Just a "2" before the "@" on my address
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John from LI is back on Sean Hannity's show! Sean just "un-Zotted" John from LI!
Where is "Jimmy 'Commie the Killer' from Brooklyn"?
[Not to be confused with "Jim from Brooklyn" - who is a Commie nutcase! - But should be paid for his entertainment value!]
Steve M. - Now where could Jungle Jim be?
He's talking a target price not the spot price. I'm sure other OPECkers would love a $50 permanent price, i.e., as both the floor and the ceiling.
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