June 9, 2003

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Geopolitics of Oil

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Hizb ut-Tahrir: An Emerging Threat to U.S. Interests in Central Asia

The Economist: "The devil's excrement - Is oil wealth a blessing or a curse?"

The UK Telegraph: "Where are Iraq's missing oil billions?"

Reuters: "Major energy firms battle rising drilling costs"

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Internal Combustion vs Fuel Cells
Inside a Fuel Cell

American Anti-Slavery Group

Survivors Rights International

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Ballard Power Systems
UTC Fuel Cells
MTI MicroFuel Cells
Neah Power Systems
Millennium Cell
Delphi Corporation

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Back Issues

View our online presentation:  The Changing Geopolitics of Oil

Spotlight Saudi Arabia: The Oil Kingdom, A Royal House of Cards
Last month's terrorist attacks in Riyadh, Saudi Arabia, which claimed the lives of 34 individuals, among them eight Americans, laid bare the fissures underlying the oil kingdom.
The ruling family of Saudi Arabia controls 25% of world oil reserves and is completely dependent on oil revenues for its survival. Tens of thousands of Saudi princes live off lavish royal stipends. The rest of Saudi Arabia's population, whose per capita income has plummeted from over $28,000 a couple decades ago to below $7,000 today, has become increasingly resentful of its rulers' excesses - as Ariel Cohen, research fellow at the Heritage Foundation, notes in a recent Washington Times article: "The opulent — and sometimes distinctly 'un-Islamic' — lifestyles of the rulers are becoming increasingly unsustainable as the populations explode."
To forestall open condemnation by its fundamentalist Islamic religious establishment, and the certain turmoil that would follow, the royal family has taken pains to placate the clergy by bankrolling its growth. As Cohen puts it, the royal family employed its "oil bonanza [to fund] the worldwide export of radical Wahhabi Islam, the ideological breeding ground of al Qaeda and the Taliban, over the last three decades. Government-sponsored foundations, supervised by members of the Saudi royal family, fueled Jihad from New York to Kabul, and from Miami to Manila, by funding brainwashing for violence in Wahhabi academies (madrassahs), and terrorism training under the guise of charity."
Seymour M. Hersh described the situation succinctly in The New Yorker on Oct. 22, 2001, "Since 1994 or earlier the National Security Agency has been collecting electronic intercepts of conversations between members of the Saudi Arabian royal family, which is headed by King Fahd. The intercepts depict a regime increasingly corrupt, alienated from the country's religious rank and file, and so weakened and frightened that it has brokered its future by channeling hundreds of millions of dollars in what amounts to protection money to fundamentalist groups that wish to overthrow it."
Saud backing for the fundamentalists has been thorough, as Ali Al-Ahmed, executive director of the Saudi Institute, a human rights watch group, makes clear: "The Saudi government has systematically financed the propagation of Salafi Islam [fundamentalist Islam; also referred to as Wahhabi], by spending hundreds of millions of dollars on three out of seven universities in Saudi Arabia [that] are religious universities. They built thousands of mosques around the world, including the United States. They have given free scholarships to non-Saudis, to come and study Salafi and become Salafi. They sent 2,000 Salafi clerics around the world every summer. They print books by the millions in every languages to promote Salafi Islam. They have conventions, conferences. "
Al-Ahmed notes in the introduction to a Saudi Institute survey of hate literature distributed by Saudi Officials in the U.S.: “Astonishingly, even as the Saudi government spends millions to convince Americans that they are friends and allies, they are waging a campaign based on slanders, falsehoods, intolerance and defamation..It is vital that the American people and their elected leaders know what the Saudi government is doing – and respond appropriately.”
While the House of Saud perhaps remained sanguine about the effect of these policies on the Islamic world - a recent survey by the Pew Global Attitudes Project found "solid majorities in the Palestinian Authority, Indonesia and Jordan – and nearly half of those in Morocco and Pakistan – say they have at least some confidence in Osama bin Laden to 'do the right thing regarding world affairs'" - and about anti-American sentiment in the kingdom itself - NBC reports that just days before the bombing, a prominent Saudi imam (Muslim cleric) on the payroll of the Saudi government, prayed at a mosque in Riyadh for the destruction of Americans - it appears the Faustian bargain the royals made with the Wahhabists has come in for payment.
The ramifications for the global economic system are significant. Given that Saudi Arabia, aside from holding one quarter of the world's oil, is the only country with significant surplus production capacity, it plays an irreplacable role in the world oil market, keeping supplies of oil liquid by increasing its pumping when there is a shortage - as was seen recently with the reduction in other OPEC production due to unrest in Nigeria and Venezuela and war in Iraq - to keep prices from going through the roof.
How high would prices climb were Saudi capacity to be removed from the market?
During the Arab oil embargo in 1973 oil prices tripled within a brief period, precipitating a profound recession. Many experts believe that an attack on one of Saudi Arabia's largest oil-producing facilities could create a reduction in the flow of oil roughly equal to what all of OPEC effected in its 1973 embargo. In such a case, crude oil could rise to as much as $150 a barrel with devastating implications for the global economy.
Such a scenario isn't as unthinkable as it may sound; as former CIA Middle East field officer Robert Baer notes: "The Saudi system..seems..frighteningly vulnerable to attack..half its proven oil reserves are contained in only eight fields--including Ghawar, the world's largest onshore oil field, and Safaniya, the world's largest offshore oil field..if terrorists were simultaneously to hit only a few sensitive points "downstream" in the oil system from these eight fields--points that control more than 10,000 miles of pipe, both onshore and offshore, in which oil moves from wells to refineries and from refineries to ports, within the kingdom and without-they could effectively put the Saudis out of the oil business for about two years. And it just would not be that hard to do. "
Al-Qaeda leaders have vowed repeatedly to cut the “economic lifelines” of the world’s industrialized societies. As Al-Qaeda sees it, an attack on Saudi Arabia's oil infrastructure would not only disrupt life in the west but also weaken the much despised House of Saud, deeply reliant on oil revenues for its continued existence.
While one would hope the Riyadh bombings served as a wake up call to the royal family, the response has not been encouraging: in a recent crackdown, Jamal Khashoggi, the editor-in-chief of Al-Watan, Saudi Arabia's largest daily newspaper, outspoken in his criticism of the extremists, was ordered fired by interior minister Prince Nayef bin Abdul Aziz, who also, Newsweek reports, warned the country’s leading newspaper editors against fomenting “dissent” within the kingdom.

Chinese oil demand and the Middle East
China's demand for oil is growing 7.5% a year, seven times faster than that of the U.S. China is a net oil importer, currently importing 32% of its oil, a figure expected to double by 2010. The geopolitical implications of China's increasing dependence are profound. Thomas Woodrow notes in a Jamestown Foundation brief: "Beijing is rapidly becoming a major player in world oil markets, and increasingly sees access to energy resources as a critical component of its national security and long-term military strategy. It has assiduously cultivated ties with Riyadh since the mid-1980s, when it sold CSS-2 nuclear-capable intermediate-range ballistic missiles (IRBMs) to Saudi Arabia. Some reports indicate that Saudi Arabia has been involved in funding Pakistan's missile and nuclear program purchases from China, which has resulted in Pakistan becoming a nuclear weapons-producing and -proliferating state." Also see IAGS Spotlight - Fueling the dragon: China's race into the oil market.

Oil companies in the Gulf face new risks
The Pentagon has warned companies hoping to operate in Iraq and develop its oil resources that they will have to provide their own security and that their movements will be restricted. The highly insecure environment in the country, the looting and the violence have made international oil companies postpone visits to Iraq. The inhospitable investment climate is likely to set back by months reconstruction of the country's oil production and exports. With every day the sector's recovery is delayed, Iraq loses millions of dollars of revenue it needs to get back on its feet.
Analysts say that predictions by Iraqi officials that oil exports would double by the end of the month might have been overly optimistic. Significant repairs are needed to take Iraq beyond its pre-war production level of about 3m b/d, but as long as contractors are deterred from operating there the process would be delayed.
Another factor delaying investment is that the fourth Geneva convention prohibits companies from striking long-term deals with transitional authorities. Oil executives are reluctant to get involved in oil deals until the country has a transparent and clear political and legal framework.
Other locations in the Gulf have also become high-risk. The terrorist bombings in Saudi Arabia and Morocco that killed 70 people last month as well as the warnings about additional attacks on U.S. interests abroad have upped security costs for U.S. companies. Companies are now required to invest more money in securing their staff and upgrading their emergency preparedness plans. They also face greater difficulties in recruiting people, especially those with families, to take on assignments in places like Saudi Arabia, and are forced to pay them high risk premiums. Some companies, as a result, will be forced to employ more foreign nationals, especially from Asia, instead of Westerners. With anti-Americanism in the region running high, many of the 150,000 Americans currently employed in the Arab world might eventually decide to return home.

European Commission study claims OPEC will hold 95% of global oil reserves by 2030
The European Commission published its "World Energy, Technology and Climate Policy Outlook (WETO) 2030." The report reveals that while sufficient oil, gas and coal reserves exist worldwide to satisfy the projected demand in energy during the next three decades, uneven distribution of oil reserves would put OPEC producers at a much stronger position than they are today. World oil production is projected to increase by about 65% to reach some 120 million bl/day in 2030. Three quarters of the production increase will come from OPEC countries, where the largest part of oil reserves is concentrated. As a result, OPEC would account for 60% of total oil supply in 2030 (compared to 40% in 2000).
According to the report, the percentage world's oil reserves concentrated in OPEC countries will reach 95% at the end of the projection period in comparison to 80% today greatly increasing dependence on OPEC resources.
Coal reserves, on the other hand, are enormous and do not constitute a constraint to coal demand at the horizon of 2030.

The U.S. faces a shortage of natural gas
In testimony before the congressional Joint Economic Committee last month, Fed chairman Alan Greenspan warned that tight natural gas supplies presented "an extremely serious problem" adding he was "quite surprised at how little attention" the problem is getting. Greenspan mentioned "the inability of heightened gas well drilling to significantly augment" production noting that "working gas in storage is presently at extremely low levels.'' The Fed chairman concluded, "Something has to give, and what is giving of course is price.''
Indeed, gas prices have been on the rise since 1999 when price stood on less than $2 per million British thermal units (BTU). It passed the $4 barrier in May 2000 and today the price is roughly $6. If natural gas prices rise into the $7 to $9 range over the next few years, that will have an adverse effect on the economy.
Beyond its energy uses, natural gas is an important ingredient for the chemical and fertilizer industries. A rise in gas prices will push up prices of a large variety of products fueling inflation.
Another outcome of rising gas prices is shifting of industrial and power plants as well as domestic households from cleaner-burning gas to oil and coal. This would not only affect the environment but also increase U.S. dependency on foreign oil.
The U.S. government has already expressed concerns about natural gas price spikes or even shortages this winter and is taking steps to avoid any crisis that would leave consumers out in the cold next heating season. Energy Secretary Spencer Abraham has called a June 26 meeting of the National Petroleum Council, an advisory panel, to devise ways to boost natural gas supplies this summer, and the House energy panel summoned an urgent hearing next week on potential threats to the economy from tight natural gas supplies and rising demand. In a recent letter to lawmakers, Secretary Abraham said analysis by the Department of Energy revealed no more than "limited opportunities" to increase natural gas supplies over the next year and a half. Abrahams added, "Therefore the emphasis must be on conservation, energy efficiency and fuel switching."
The U.S. consumes about a quarter of the world's natural gas, making it a $71 billion market. U.S. natural gas reserves are but 3.2% of the world total.

News from the technology front

FedEx seeks ways to curb dependency on gasoline
FedEx Corp., operating a 30,000-truck fleet, is engaged in two path breaking initiatives to reduce dependence on gasoline. The first initiative began a decade ago as a two-year demonstration project to put next-generation fuel vehicles into daily commercial service in the Federal Express package delivery fleet in the Los Angeles basin.
The program introduced five next-generation fuels in 84 vans, including 20 Ford vans modified as flexible fuel vehicles, capable of operating on any mixture of methanol and gasoline -- from 85% methanol to 100% gasoline. One of the most successful fuels was "M-85" -- a blend of 85% methanol and 15% gasoline. According to a report by the Methanol Institute the methanol vans "performed extremely well, with the highest vehicle availability and driver use, and the lowest number of repair order days per 100 service days of the alternative fuels demonstrated. When drivers were asked if they were able to meet their regular schedule with the alternative fuel vehicles, fully 96% said yes to M-85, the strongest positive response. In fact, more than half of the M-85 drivers said they would consider driving a methanol vehicle for their personal car."
The second initiative involves the use of diesel-electric hybrid delivery trucks and is the first step in a process that could convert FedEx's entire fleet to hybrids. The E700 truck has a 4-cylinder diesel-electric hybrid system engineered by Eaton Corp. Lithium-ion batteries capture energy from the trucks' brakes and apply a power boost during acceleration. Fuel economy of the truck is expected to be up to 50 percent better.
If the trial of 20 hybrid trucks in five cities goes well, FedEx will buy hybrids as permanent replacements for its fleet retiring medium-duty trucks on a regular schedule. Doing so, it could replace its entire fleet in 10 years.
Also see, DOE: Clean Coal-to-Methanol project a success.

Coal fuel for jets
South African fuel company Sasol reports that in the near future planes flying out of Johannesburg International Airport will be filling up their fuel tanks with synthetic jet fuel made completely from coal. The company expects international aviation authorities to approve commercial aircraft use of the synthetic fuel by August. "At the moment all planes are being refuelled with a semi-synthetic petroleum mix, but soon we hope to have a purely synthetic fuel," said Johann van Rheede, spokesperson for the Johannesburg and New York-listed firm,
Sasol already supplies 80% of Johannesburg International Airport's 1,4-billion litre annual jet fuel requirement with a mix that includes about 40% synthetic fuel made from coal.
Coal based synthetic fuel contains much less sulphur than standard jet fuel thus improving engine performance and reducing emmissions, and is cheaper to produce.

Japan's Toray develops tiny fuel cell to power mobile electronics
Toray Industries, Inc. has developed a polymer electrolyte membrane for a direct methanol fuel cell (DMFC) that enables both the power density and the operating time (energy capacity) to be tripled as compared with using conventional fluorine polymer-based electrolyte membranes. The company expects the membrane will contribute to greater compactness and longer operating time of devices such as cellular phones and other mobile electronic equipment.
DMFCs use methanol directly as fuel, thus eliminating the need for a high-pressure hydrogen tank or reforming equipment to generate hydrogen.

Matsushita to commercialize residential fuel cell system by March 2005
Matsushita Electric Industrial Co., Ltd., best known for its Panasonic brand of consumer electronics and digital communications products, has developed a compact home-use fuel cell that can generate enough electricity and heat to supply the average household.
Based on data obtained under real-world testing conditions, the system is designed to offer the following features: (1) membrane-electrode assembly (MEA) structures designed to limit output voltage fluctuation per 1,000 hours to under 3 mV, achieving record durability in the industry; (2) 35% power generating efficiency; (3) reliable operation based on the application of combustion and fluid control expertise accumulated over the years; and (4) quiet 44 dB operation, equivalent to an air conditioner's outdoor unit, to allow its use in densely populated residential areas and at night.

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