April 4, 2003

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War jitters send oil prices up
Concerns that Iraqi oil may remain off the market longer than anticipated and a sharp cut in Nigerian supplies brought oil prices to the highest level since the start of the war in
. Oil prices initially fell sharply after the US and Britain invaded Iraq on preliminary trader expectations of a swift resolution to the war, but prices rose 17% over the last week as the military warned of an extended conflict. Oil prices rose above $30 a barrel.  Statements by both President George Bush and British Prime Minister Tony Blair that the campaign against Saddam Hussein would be tough and difficult have reaffirmed concerns that Iraq's resumed oil production is not in sight. Oil analysts predict that with inventories low and spare production capacity largely used up, oil prices are expected to remain volatile until the military situation clarifies in Iraq and the political turmoil in Nigeria and Venezuela settles. Salomon Smith Barney analyst Kyle Cooper remarked, "You have a couple things here that could dramatically change the fundamentals of oil in a short time, and this makes everyone skittish."

A surge in ethnic conflict in the Nigerian delta has forced oil companies to shut down their operations
The Niger delta, accounting for most of Nigeria's crude output of two million barrels per day, has been in recent days the center of ethnic violence for oil benefits claiming the lives of more than 100 people with oil companies getting caught in the deadly struggle.
The fighting, which has also drawn in the army, erupted between the Ijaw and Itsekiri tribes. Ijaw warriors are leading a campaign for a greater share of Nigeria's oil wealth. They had taken control of between nine and 11 crude oil flow stations threatening to destroy them if the army continued to raze their villages. The recent tribal warfare has shut down about 40% of Nigeria's total oil output amounting to an unprecedented 800,000 barrels in daily oil production. Nationwide, well over 10,000 people have died in ethnic, religious and political violence since President Olusegun Obasanjo's election in 1999 ended 15 years of military dictatorship.
The Nigerian unit of the oil company ChevronTexaco said it had shut all operations in the western Niger delta because of the fighting. Chevron announced one of its contract workers had been killed by a stray bullet from the fighting. It said it had taken the decision to shut down the facilities and relocate its workers because it felt it was no longer safe for staff to stay in the area. Royal Dutch/Shell and the French TotalFinaElf have already halted operations. Ijaw militants accused ChevronTexaco of collaborating with the army, which has established a base at its Escravos export terminal. They have warned Chevron that if they do not remove the military from the installation it will be destroyed.
Nigeria is the fifth-largest supplier of petroleum products to the United States. "Nigerian crude is not the kind of stuff you want to be short of," said Paul Horsnell, oil analyst at J.P. Morgan. "It's very serious. It's not a little local disturbance."

Saudi Arabia: a war profiteer?
Elevated oil prices and expanded production as a result of the Iraqi conflict are already pouring as much as a billion extra dollars a week into Saudi Arabia's coffers and could double the government's oil revenues this year.
Saudi Arabia, normally limited by OPEC quotas to producing just over 7 million barrels a day, is now pumping 9 million barrels a day. That output could surge as high as 10.5 million barrels a day - Saudi Arabia's full capacity - if the country makes up for lost Iraqi production during the entire war. All other OPEC countries are already producing at or near capacity and Saudi Arabia is the only country with remaining spare capacity.
However, the unexpected revenue - as much as $28 billion - is not likely to bring much prosperity to the kingdom. It will mainly help offsetting the country's growing budget deficit. Saudi Arabia has accumulated a huge domestic debt of more than $170 billions about the size of its total annual economic output.

Talisman Sudan suit to proceed
Canada's largest independent oil producer can be held liable for genocide if it is proven it cooperated with the Sudanese government to wage war on civilian populations near oil fields, a judge ruled Wednesday. The lawsuit accuses Talisman of collaborating with Sudan to commit gross human rights violations, including murders, forced displacement, war crimes, confiscation and destruction of property, kidnapping, rape and enslavement. It describes the current Sudanese government as a "Taliban-style Islamic fundamentalist movement" engaging in a "war of genocide" that has already claimed two million lives and displaced four million people, with the violence aimed at wiping out Christians and those practicing religions other than a strict form of Islam. Click here for the text of the suit.

Bomb explodes in Kashmir oil depot 
A bomb exploded Wednesday in an empty oil tanker outside a fuel storage area in Jammu-Kashmir. Police suspect Islamic separatists planted the bomb. The vehicle's driver was killed and six people wounded, but police said had the blast taken place inside the depot, it would have led to widespread devastation even in the surrounding residential areas. Two days prior to the attack suspected Islamic militants killed 24 Hindus in a village in the Indian-controlled portion of Kashmir. Islamist militants in Kashmir, India's only Muslim majority state, are fighting to establish an Islamic state in Kashmir or else merge with Pakistan. Over 61,000 people have died in the 13 year insurgency.

Drilling in ANWR fails in the Senate
The Senate voted 52 to 48 against drilling for oil in the Alaskan wildlife refuge. Eight Republicans joined 43 Democrats and one independent to remove the drilling clause from a budget vote. The vote came after the hardest-fought lobbying campaign yet in the Congressional session, setting environmental groups, who said oil production would cause ecological damage to the area, against Alaskan business interests, who said the oil was necessary for jobs and energy independence.
Administration officials had hoped that Republican control of Congress would shatter the power of the environmental lobby and had used the rising price of gasoline, the strike in Venezuela and the war with Iraq as arguments for increased domestic oil production.
Supporters of the drilling plans were yesterday warning that this battle was far from over, and they would be returning with new plans. Representative Tom DeLay, the House Republican leader, said his chamber would probably approve drilling next month as part of an energy bill, which could force another vote in the Senate.
The Bush plan would have allowed for drilling over 1.5m acres of the 20m-acre refuge. The U.S. uses around 7bn barrels of oil a year, and the government had estimated that as many as 16bn barrels could have been found in Alaska. Opponents suggested that only around 3bn could have been recovered without causing major damage. Click here for ANWR Backgrounder.

Environmental implications aside, "the real show-stopper" for ANWR, as James Woolsey and Amory Lovins wrote, "is national security." Delivering the oil from Alaska could only be done via an 800-mile-long Trans-Alaska Pipeline System (TAPS). "This would make TAPS the fattest energy-terrorist target in the country - Uncle Sam's "Kick Me" sign." TAPS is extremely vulnerable to terrorist attacks.  It has already been sabotaged, incompetently bombed twice, and shot at more than 50 times. Last Oct. 4, a drunk shut it down with one rifle shot. "If key pumping stations or facilities at either end were disabled, at least the above-ground half of 9 million barrels of hot oil could congeal in one winter week into the world's biggest Chapstik."

Fueling coalition forces in the desert
The nightmare of military logistics planners in Iraq is for advancing military units to outrun their fuel supply. Logistically, fuel is a huge burden for an army on the move. If Napoleon's army "moved on its stomach," today's ground forces move on diesel fuel. For heavy divisions, fuel accounts for 70 percent of the weight of supplies that have to be delivered to the front lines. For lighter divisions, fuel still makes up 30 percent.
A 1999 study on fuel economy in the military by the Rocky Mountains Institute showed that many of the vehicles, tanks, aircraft and vessels currently used by the military suffer from poor fuel economy partly due to anachronistic design but mainly due to flawed calculation of the real cost of fuel. "The venerable B-52 bombers now being flown by the children of their original pilots have inefficient, low-bypass engines from the 1960s. Those could be refitted to modern ones using a third less fuel to achieve up to half again as much range. But they haven't been, because the fuel is thought to be cheap," says the report. Another primary platform, the Army's half-mile-a-gallon M1A2 tanks are powered by inefficient 1960s-design gas turbines enabling to cruise at 3 miles per hour. But 60-to 80 percent of the time, that huge turbine is idling at one percent efficiency to run low power systems like air conditioning and electronics. "Most civilian vehicles would use a small auxiliary power unit to serve such tiny, steady loads efficiently. Tanks don't, because their fuel was assumed to cost about a buck a gallon," said Amory Lovins the report's author.  When the tanks advance hundreds of miles into the desert, away from their logistics base, the cost of refueling increases drastically. The cost of delivering fuel to the tank either by tankers or cargo helicopters can rise to $400-600 a gallon. Similarly, refueling bombers and jetfighters in midair makes refueling costs prohibitive.
But fuel waste doesn't just cost money; it inhibits war fighting. Each tank is trailed by lumbering fuel tankers. "An armored division may use as much as 20, perhaps even 40, times as many daily tons of fuel as it does of munitions."
For the future, the military is committed to creating a lighter, faster force that uses a lot less fuel. The U.S. military is currently developing hybrid systems, efficient diesel engines, and gasoline engines enhanced by auxiliary power units. The military is also interested in fuel cells to replace generators in the field. For the most part the fuel cells will likely be auxiliary power units, with hydrogen produced from water using diesel at least in the foreseeable future.

New legislation offers tax incentives for alternative fuels
Congress is proposing $16 billion in tax credits for alternative and traditional energy sources over the next decade. The Energy Tax Incentives Act of 2003, introduced this month, proposes numerous tax credits for advanced technology vehicles.  The wide-ranging bill offers incentives for the purchase of fuel cell, hybrid electric and alternative fuel vehicles. It establishes credits for small ethanol producers, as well as for selling alternative fuels and building residential or retail alternative fuel refueling sites.
The bill provides an income tax credit for biodiesel fuel mixtures made from vegetable oil and animal fats and also for ethanol producers. There are numerous tax incentives for traditional motor fuels from non-conventional sources such as coal bed methane and heavy oil.

DaimlerChrysler: Over 500,000 Fuel Cell Cars Worldwide by 2010
A top DaimlerChrysler executive, Thomas Weber, predicted that more than half a million cars in the world will be powered by fuel cells by the year 2010. He said DaimlerChrysler is to invest one billion dollars in the fuel cell technology.
Weber, head of DaimlerChrysler's research and development, said that greater cooperation among carmakers is needed. Half a million exhaust-free fuel cell powered cars would mean about one per cent of the number of new cars registered each year.

New fuel cell buses to reduce air pollution in China
China Thursday launched a project of $32 million to help reduce the cost of fuel-cell bus  technology. "We hope many FCBs are on the roads during the 2008 Olympic Games for the sake of better air quality," said Fan Boyuan, vice major of Beijing.

Greek navy modernizes submarines with Siemens fuel cell technology
Siemens Industrial Solutions and Services Group (I&S) together with Howaldtswerke Deutsche Werft AG (HDW) of Kiel are to equip three Greek class 209 submarines with a propulsion system that is independent of an external air supply. Delivery is scheduled to be between mid-2004 and 2010. A PEM (polymer electrolyte membrane) fuel cell system provides the power for the submarines when running submerged.

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