Caspian Sea, National Geographic, and James Kudrow ......
In January I posted the following regarding James Kudrow:
"James Kudrow - Individual Investor Magazine: Has anybody read his commentary this month? He believes the only reason oil ever had any price strength at all since the 70s was because it was a hedge against inflation. Now that inflation has virtually disappeared, we no longer need it as an investment option. He also goes on to say that oil really has little to no value to all in this economy and that none of the analysts get this fact. His view is the economy is changing from one that is commodity based to a technology based / driven market. He predicts that prices will remain low for years to come due to oil finds in the Caspian sea and other regions and the US will prosper as a result of it. His column is called "It's the Economy"."
Mr. Kudrow has probably been a little humbled since his commentary in Individual Investor earlier this year. Has anyone picked up May's National Geographic? It has a special article on the Caspian Sea titled - "The Rise and Fall of the Caspian Sea". I'm mentioning this because Mr. Kudrow is counting on the Caspian Sea as a catalyst for low Oil prices. Here is a portion of the article regarding Caspian Sea oil output - I apologize if this post is too long for some:
So far however, reality remains stubbornly short of the anticipated bonanza. The 1997 output in the Caspian was more comparable to Argentina's than to the oil giants of the Persian Gulf. The AIOC's (Azerbaijan International Operating Company) first offshore project, called Chirag 1, was pumping on 90,000 barrels a day at the beginning of this year, about a tenth of the overall production goal the consortium hopes to reach early in the next century.
Doubts are growing and to how much oil will be discovered and how profitable it will be. A geologist in one of the western consortiums told me his company had recently drilled two dry holes in North Apseron, an offshore Azerbaijani field. And in the wells that have proved to contain oil, drillers have found problems with maintaining pressure, in part due to mud volcanoes on the floor of the sea. Tapping these deposits will require frequent and expensive injections of water, the geologist said. He called the Oil-boom talk "a scam".
Even if great pools of oil are recovered, there are doubts about whether, and how profitably, it can be shipped to Western markets.
The east west pipelines that the Clinton administration has touted as the solution to this problem would cost billions of dollars and would, of necessity, skirt areas of political turmoil and ethnic violence. It remains to be seen whether Western investors will back them, particularly if the market price of oil remains low. [the article goes on ...]
"There's been a lot of media hype" about a Caspian oil bonanza, said Robert Ebel, an energy and national security expert at the Center for Strategic and International Studies in Washington D.C. "Potential is one thing, but you still have to drill wells that produce oil." Ebel predicts that in the year 2010the Caspian region will export about 2.5 million barrels of oil per day - roughly the amount Britain now draws from the North Sea.
The article is really very sad. Oil extraction in the Caspian Sea region has taken such an enormous toll on the environment, that it's amazing anything can live there. As for Mr Kudrow, he seems to be an armchair analyst. If he really did his homework and got out there to look around to see what was going on in the Caspian region, he would understand that Caspian oil won't be a factor for at least 10 more years - especially if oil prices stay low. And that's where he really missed the boat - if oil prices stay low.
Malcolm.
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