big oil

Peak oil and your wallet

Posted on by roymacmullin

If you have concerns about the price of oil these days, you’re not alone. With oil at $135 a barrel and rising daily, you are witness to a major life-altering event in the world economy – peak oil. Diesel fuel is now at $1.52 a liter, roughly 23 cents higher than regular gas. The high price of fuel in Europe over the years has led to the greater use of diesel engines in their new vehicles, in turn causing a greater demand and now a higher price.

A typical barrel of oil provides 73 liters of gas and 29 liters of diesel as well as other products. European refiners ship their excess gas to North America.

In New Brunswick, the total taxes on gas / diesel is 36 cents and 39 cents respectively, which is 27% and 25% of the total price at the pumps. The taxes consist of a federal excise, provincial taxes and HST of 13%.

If the price seems to be too high in Canada, you may want to try Venezuela where the price of gas is 3 cents a liter. A fill-up will cost you roughly $1.20. Hugo Chavez provides a subsidised domestic price, an off price break for friends such as Cuba and poor neighbourhoods in the US, but also sells at the world market price.
Saudi Arabia sells a liter for 12 cents. In England and France drivers pay $2.09 due to high taxes, with the Netherlands being one of the highest at $2.38 per liter. The tax policy is designed to stimulate energy efficiency in choices.

Stephen Harper weighed in on the debate this week saying that the federal government has no power to change world oil prices. He indicated that price relief would be limited to the existing cuts in the HST. For the average Canadian, this amounts to roughly $43 / year in reduced gas prices.

In another era, the 1961 national oil policy provided higher than world prices for Alberta producers while Eastern Canada had cheap Middle East oil. The policy ended in 1973 and after the OPEC oil embargo the government broke the link between the domestic and world energy prices giving protection to Canadian consumers. A further change was the National Energy Policy of 1981 following the second oil embargo. It appears that previous governments have reacted to public concern.

The present government is buying time for the status quo. Ultimately though, as the price of oil climbs to extraordinary heights, a number of things will happen. One, the value of the Canadian dollar will rise, perhaps to $1.15 US causing serious grief to industrial Canada. Secondly, the public outcry from gas at $2 or $3 a liter will force this government or its replacement to implement a number of steps to reduce dependence on oil.

Stephane Dion’s proposal for a carbon tax is the least of the worries facing the average consumer. The carbon tax is proposed as a revenue-neutral method to introduce a higher sticker price for carbon based fuel with the intended effect of increased efficiency of use and reduced greenhouse gases. Income taxes would be reduced to compensate for the change.

Prime Minister Harper portrays this as a tax grab. Very indirectly, he indicates that peak oil is here saying, “the world is using low-cost hydrocarbons more quickly than most people are aware.” Is there some information that you should be sharing with us, Mr Harper?

How are we to feel about a government which offers us no solution to the dangers of peak oil and an opposition leader who proposes a carbon tax, which is only a partial step towards a comprehensive solution? Would the words disappointment, sadness or anger describe our lost opportunities and money?

The price of inaction on oil conservation by world leaders has been astonishing. Oil consumers now pay $2.4 trillion dollars more than a year ago to oil producers. The additional cost to Canadians is $55 billion dollars per year or $1,700 per capita. That is equivalent to 10% of the federal budget.  Do you wonder why there is less money in your wallet?  The future will be even more expensive.

Stephen Harper is right to resist lowering the cost of energy as being short-sighted and counterproductive. There are many things that could be done to reduce our dependence on oil but our existing government has little interest in an effective off-oil and conservation program.  How long can we afford this type of incompetence?

Al-Qaeda, the Taliban and the US tango

Posted on by roymacmullin

Al Qaida was formed by Osama bin Laden in 1988 at the close of the Afghan – Soviet war. His goal was to continue the struggle to protect Islam against another adversary – the USA. With his fortune estimated at $250 million, he becomes the paymaster of operations around the world including New York City. The assassination of Rabbi Meir Kahane in New York in 1990 is one of the first overt acts of that group.

In 1993, the first World Trade Center bombing is organized by bin Laden associate Sheikh Abdul Rahman, who had entered the US on a visa signed by the CIA. His previous work was the recruitment of militants to fight in the Afghanistan war. The tower does not fall at that time and only causes $700 million dollars of damage.

Osama was forced out of Saudi Arabia because of his political views on the monarchy in 1991. Bin Laden operated out of Sudan in the period of 1991 to 96 before US pressure is too great on the Sudan government. He moved to Afghanistan, developed a relationship with the Taliban and was named one of the most significant sponsors of terrorism by the U.S. In the 90’s, Al Qaida is responsible for a significant number of bombings in Kenya, Yemen, US, Saudi Arabia and other locations.

Captured operatives provided considerable information to the FBI or CIA on the organization’s finances, structure and plans. “The United States intelligence community was told in 1998 that Arab terrorists were planning to fly a bomb-laden plane into the World Trade Center, but the FBI and the Federal Aviation Administration did not take the threat seriously” according to a New York Times article.

Back in Afghanistan, the Taliban took control over most of the country in 1996. Support for the Taliban military initiative came from the Pakistan government. The arms, training and technical support made the “students” a viable force.

The government soon consisted of only Pashtun tribe members and a very strict interpretation of Islamic law was instituted, with flogging being a punishment or much worse. Women were forbidden to go to school or to work, which in a country of many widows of war, amounts to a death sentence. War crimes, including mass murder of 15,000 Hazara civilians were noted in the city of Mazar-e Sharif. One of their worst cultural crimes was the destruction of the Bamiyan Buddhas.

At this time, Unocal and Enron were looking for a pipeline route to permit natural gas from the Caspian Sea reserves to market through a route other than Russia or Iran. Enron allegedly pays millions to the Taliban to encourage the pipeline approval. The US wanted the Taliban to turn over bin Laden to them but they also wanted a pipeline. In 1998, Clinton bombed Al Qaida training camps in Afghanistan with the hope of killing bin Laden and in response to bombing of US embassies in Africa.

Unocal abandoned the idea of a pipeline in late 1998. Clinton banned commerce with the Taliban in 1999. Plans begin for overthrowing of the Taliban during 2000. Prior to 9/11 the new administration of George W made a threat to the Taliban – accept war or a pipeline. The response was an attack on the Twin Towers in New York. The bin Laden – Mullah Omar collaboration were never interested in a pipeline but to turn back the clock to an Islam of many centuries past. The overthrow of secular Muslim states and the formation of Islamic states with Sharia law is the real goal.

When the planes crashed into the twin towers, the tango was over and the Americans knew instantly who had done it. The government had ignored the intelligence community due to commercial considerations of the big energy companies and also because their support for the fundamentalists had been useful in tormenting the Russians and dismantling their empire.

Many books have been written about the subject of the CIA, Afghanistan and Al-Qaida that cover the territory better than I can in a few brief paragraphs. It is clear that the policy of supporting an extreme fundamental Islam has blown back into the U.S.’s face.

Osama bin Laden had previously declared war on the US and bombed embassies in foreign lands. But when he brought his war onto US soil, he had suddenly become almost the highest priority.  The highest priority was alway Iraq.

Next article – Six years of war get us where?

Diplomacy is a crude story

Posted on by roymacmullin

The first chapter of “Diplomacy for dummies” would explain how the world really works.  “Energy resources create excellent opportunities to make fortunes for big business.  Big business makes big money and will make substantial bribes to governments and politicians to grease the wheels of commerce.  Governments support these efforts with low royalties.  US governments go the extra mile and will send soldiers if required in case of pesky foreign governments.  As usual, the poor will always be shafted.”

One of the most intriguing exceptions to this rule is Venezuela (a pesky foreign government), where Hugo Chavez, as an extraverted socialist, has turned the standard dynamic on its head in recent years.

His primary goal appears to be increasing the standard of living for the people of his country. To do this has meant changing the status quo for the establishment of his country and the international oil companies (IOC’s). Not a very popular idea in many circles. Increasing control and nationalization of energy resources is not a new idea. Over the years, we have seen a similar process in Mexico (1938), Iraq (1960-72), Saudi Arabia (1950-80), Iran (failed attempt 1953, success in 1973), Libya (1970), Algeria (1971), Russia (re-nationalization 2003-05), Ecuador (2006), and Bolivia (2006) as part of the list.

This continuing desire of countries wanting to control their oil resources is based on:

  • Retaining a larger share of the profits from the resource to allow financial autonomy and to increase social benefits for their citizens.
  • The realization, that in most cases, the financial and technological requirements for oil development can be obtained without giving away the ship. The model of the multi-national oil major being able to dictate terms is less common today.
  • The knowledge that their resources are limited and that control over production levels to increase or decrease production according to national objectives is crucial.

The history of colonial powers such as France, England and the United States in matters of oil gives us many rather sad instances where the military or economic weakness of oil rich states have been exploited. The example of Iran in 1951 failing to negotiate better royalty rates with the predecessor of British Petroleum is typical. When Iran nationalized the industry, Britain blockaded the export of Iranian crude with British intelligence and the CIA responsible for a coup that toppled the government in an early example of “regime change”. The Shah of Iran was re-instated and did the bidding of both British and American interests through repressive government. The fall of the Shah in 1979 led to the hostage taking at the American embassy. Subsequent behaviour by the US during the Iran-Iraq war provided further fuel to the fire. Present day relations between the US and Iran is related to “blowback” from the covert activity of the early 50’s.

Back in Venezuela, a 2002 coup attempt temporarily removed Chavez and to supporters of Chavez appears to have some links to the US. It may be some years before the allegations can be confirmed. Based on a few of the known interventions by the US in the governance of Guatemala (1950’s..), Dominican Republic (1960’s), Congo (1960’s), Cuba (1960’s), Chile (1973), Haiti (1980’s), El Salvador (1980’s), Nicaragua (1980’s), Grenada (1984), Panama (1989), it appears to be a plausible scenario. Since 2002, the rocky relations between the US and Venezuela have become even more strained. Chavez is seen as a “socialist with deep pockets” and a serious risk to US control of Central and South America countries. Support from Chavez provides those countries with some choice in their economic and political policy decisions.

The balance of power in the oil industry is changing as well. At this moment, the percentage of oil under the ownership of national oil companies (NOC’s) is roughly 85%. IOC’s such as Exxon Mobil, BP, Total, Chevron, Repsol produce only 12 million barrels a day compared to the 85 million total world output. Big oil (IOC’s) claim that they are kept out of many areas where their expertise and money would mean higher production. This is true in some cases. However, the only place where it may change is Iraq, where the invasion has had as a principle goal the privatization of oil, and the entrance of American and British oil companies. Given the $1.3 trillion cost of the war to date and the failure of the Iraqi government to pass the oil laws demanded by the US, it is not a cost-effective way to stimulate privatization.

In the future, the amount of oil that will be available to the open market may decrease in addition to geological depletion. National oil companies (China) are making contracts with oil nations, offering them billions in loans, and development technology in exchange for long-term supply contracts. In the short term, that volume may be sold on the open market. However, when shortages appear, these volumes could revert to the home country. Given this case, those buying on the open market will be the hardest hit – an area like Eastern Canada for example.

Secondly, the growth of NOC’s may continue to increase at the expense of the international oil companies. The IOC’s have not yet adjusted to the change in roles and the best use of their technology in cooperation with the NOC’s is not in place.

As the price of oil rises, exporting countries may be satisfied with lower export volumes to conserve reserves and revenues for the long term, worsening the supply problem. What will be Canada’s national strategy to declining world production? It is not clear to those of us who are the most at risk (Eastern Canada). Perhaps we could all just act surprised when the going get rough?