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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Dwight E. Karlsen who wrote (38263)	2/25/1999 8:08:00 AM
From: Crimson Ghost	Respond to of 95453

Low oil prices threaten US security Journal of Commerce Low oil prices today present grave economic and national security risks. There has been a gradual decline of America's domestic oil industry over the past 15 years. Domestic drilling is nearly extinct. The large numbers of marginal and stripper wells now shutting down across the country produce small amounts individually, but their collective production equals U.S. imports from Saudi Arabia. Those wells and undeveloped adjacent oil fields constitute America's true strategic reserve. Today U.S. dependence on foreign oil is 56 percent, compared with only 36 percent in 1973 when the Arab oil embargo crippled the U.S. economy. The Energy Department's "strategic oil reserve" stored in salt domes along the Gulf Coast, is inadequate insurance. That "strategic reserve" would last only two months, if oil imports were cut by 50 percent. Even a cursory knowledge of our energy history ought to remind consumers and lawmakers alike that reliable supplies at steady prices are far better for our economy than cycling price plunges and drastic spikes. Consumers now enjoying low gasoline and heating oil prices will experience painful reverses once America's independent oil producers are history and OPEC is again calling the tune. In December, Luis Guisti, former chief of Venezuela's state oil company, happily predicted that low prices would mean the disappearance of America's competing on-shore production in Ohio, Wyoming, New Mexico, Texas, Oklahoma and 23 other states. Extremely low oil prices reduce the diversity of sources by driving all but the lowest-cost production out of business. Oil imports become a dependency. Saudi Arabia, Iraq and the Persian Gulf states are today's lowest-cost producers. They are also part of an historically unstable region. We seem already to have forgotten that the United States went to war in 1991 when Iraq's invasion of Kuwait threatened world oil supplies. Saddam Hussein still aspires to rule the region under the banner of Pan Arabism. Low prices and a continuing cash crunch for Saddam's neighbors may also create an exploitable instability for Baghdad. The Iraqi tyrant -- with United Nations assistance -- is a major contributor to the world oil glut. That orchestrated surplus will drive the higher-cost producers from the business, and with them the production cushion upon which price stability rests. Given the costs of exploration and development, petroleum production and demand naturally tend to maintain a very close equilibrium. There is today little crude oil inventory or excess production capacity. Price swings of the proportion seen in the last 18 months occur when unanticipated political or economic variables affect supply or demand. In 1973 the Arab oil embargo cut supply and radically drove up prices. The firmer 1998 prices were driven down by the recession in Asia. The 1973 shortages led to expanded exploration for new sources in the North Sea, Alaska, and Mexico. Today, in a predictable reversal, exploration and development of oil and gas fields is being delayed around the world because of the present abundance. When Asia's recession reduced oil demand and prices, OPEC countries like Venezuela and Saudi Arabia stepped-up production to replace lost revenue. This downward price pressure is exacerbated by the Clinton administration's ill-conceived United Nations sanctions policy, which since 1997 has allowed Iraq to sell $5.2 billion worth of oil every six months. Under this sanction relief regime, Iraq is now exporting as much oil as it did before the Persian Gulf war. UN Security Council Resolution 1153 allows Saddam to buy anything under the sun, except items for his arsenal. Items for the arsenal are bought with hard cash earned through the export of contraband Iraqi oil trucked across the Turkish border and on ships in the Gulf. Not only do sanctions conceal the lack of an effective American policy, they also exacerbate the instability of the world petroleum industry. The United Nations net-receipts formula for Iraqi production effectively puts Iraq outside OPEC. That organization, led by Venezuela and Saudi Arabia, is ready to adjust supplies to a level that meets the stated U.S. objective of having diverse sources of petroleum but Saddam Hussein is now the swing producer. He is the one actually setting the price. It should shock everyone but the administration whose policy it is. In order to insure America's energy security, two steps should be taken immediately. The Foreign Relations Committee and the Energy and Natural Resources Committee should schedule joint hearings on those foreign and domestic policies of the administration affecting our national economic and energy security. The lack of serious coordination presents a long-term threat to overall both military and economic security. We should immediately suspend collection of all federal oil royalties on stripper and marginal production until prices stabilize and a fairer royalty collection procedure can be introduced. The precedent for this exists in the relief provided to deep offshore oil. The cost of this should be minimal for if there is no industry there will be no royalties. The costs of failing to assure the survival of the domestic on-shore industry are incalculable. (Copyright 1999) _____via IntellX_____ Publication Date: February 23, 1999 Powered by NewsReal's IndustryWatch ...back to top