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lunes, 29 de julio de 2013

Moran: US Incentive For Keeping Gulf Oil Flowing Will Diminish



By Michael Moran
The Persian Gulf has roiled the world regularly since the Iranian Revolution of 1979 – through an Iran-Iraq war, the Gulf War, bombings in Saudi Arabia and Yemen of US military targets, the Iraq War in 2003 and in 2011 the Arab Spring. In each cases, crises spawned in the Gulf sent shudders through global markets, sending the price of oil sky high and prompted US presidents to order naval task forces based half a world away to put to sea.
Yet by 2030, the incentives will have changed. Yes, the US Navy is still watching, warily. And because oil remains a global commodity where prices everywhere are vulnerable to small disruptions, America remains concerned about any problem that might disrupt the flow of oil and gas through the narrow Strait of Hormuz – the bottleneck that could in an instant take Saudi, Iraqi, Qatari, Kuwaiti and other energy supplies off the market. But it’s not the disaster it was in, say, 1991.
Over the next decade and a half the fleets that really care will no longer fly the Stars and Stripes. More than likely, warships from a host of Asian countries – Japan, China, India and others – will be regular visitors to the Gulf by that time. It will be these nations, not the US or its European allies, who have the greatest stake in preventing a calamity that could damage their economies.
For Americans, this may come as quite a relief. For decades, ever since Britain’s Royal Navy lost command of the seas after World War II, the US Navy has provided something of a free public utility by ensuring that global commerce is free to travel on the long, exposed sea lanes connecting major economies. In effect, American task forces are the Coumadin of the global economic circulatory system, preventing blockages and, occasionally, identifying potential tumors to be excised more urgently.
(Like that blood-thinning drug, of course, overdose and other misuse is possible. By and large, though, most of the world is happy for the US to spend billions annually to guarantee free movement of goods by sea.)
The incentives for the US to bear this particular burden are changing. According to the US Energy Information Administration (EIA), by 2030 the share of US oil consumption fulfilled by Persian Gulf sources will have fallen below 35 percent – and perhaps even further, given the new productivity of old US wells, new discoveries off Brazil and the shale gas and tight oil revolution in the US Midwest.
But South and East Asia is facing a very different future. For China, the figure in 2030 is 75 percent. For South Korea, Japan and Taiwan, the percentage is even higher. India’s suppliers are slightly more diverse, but even there over 60 percent of imports will flow from the Gulf in 2030.
Sliced a bit differently, the data leads IEA to project that Asian economies will be importing 90 percent of Persian Gulf oil by 2030. Indeed, higher prices for oil precipitated by a Gulf crisis – at some point – actually becomes a benefit to a country producing as much oil as the US will in 2030.
“From a strategic perspective, the “Achilles heel” of China is its over-whelming dependence on Persian Gulf energy imports to fuel its rapidly growing economy,” says Samir Tata, a former U.S. intelligence analyst and author on naval issues. “The sea lines of communication over which these vital oil and gas imports are transported by tanker … and the choke points linking them are controlled by the US Navy.”
The Obama administration’s “pivot” to Asia may be the beginning of an end to this free ride. Given the costs – both financial and political – of maintaining the US Fifth Fleet’s carriers, escorts and submarines in the Gulf, and the continuing pressure in Washington to curb expenditures, it may not be long before Asian nations have to figure out a way to guarantee their own oil supplies.
This means a very different reality on the high seas. Nature is always a threat in the deep ocean, of  course, but since World War II commerce has not feared political threats except in specific places relatively close to shore – the Red Sea off Somalia or the Gulf of Guinea on Africa’s West Coast, for instance.
That may change over the next several decades as new players start acting on new incentives.
China’s disputed claims to areas of the South and East China seas have garnered headlines of late, but the management of the vital energy sea lanes through the Indian Ocean and its multiple bottle necks is a probably a more important factor behind the growth of naval budgets in the region in recent years.
After all, China’s disputes with Japan, South Korea, Taiwan, Vietnam and others over territorial waters is about oil and may exist beneath them. National pride, of course, also plays a role.
But the vast stretches of Indian Ocean that all these nation’s oil and gas imports must traverse is, to put it in the lexicon of national security, a “clear and present danger.”
The most publicized manifestation of this trend was the launch last year of China’s first aircraft carrier, a refitted Soviet Navy leftover renamed Liaoning.
Regionally, Indian military leaders have also expressed concerns about a system of port projects along Indian Ocean basin funded or partly owned by China. Referred to in India’s press as the “string of pearls,” these port facilities stretch from Myanmar to Bangladesh, Sri Lanka and Pakistan – with Chinese contractors also building major port facilities in Tanzania and Mozambique. India has also been alarmed by the increased activity of Chinese submarines in nearby waters.
Of course, Chinese companies are involved in port operations around the world – including the Panama Canal. China denies it wants to encircle India – a charge that frequently appears on Indian op-ed pages. Its navy’s expansion has proceeded at a pace that’s hardly surprising given the extent of its economic growth. And naval experts agree China’s navy is no match for Japan’s, would probably struggle against India’s relatively modern and larger fleet, and certainly cannot challenge the US Navy’s regional dominance.
Some regional strategists are hoping that the existence of a common threat to their interests – the risk of an interruption in Gulf oil flows – might foster cooperation rather than competition. So far, that’s simply not been the case. If anything, the region appears as fearful of China as losing its energy supplies.
Last month, Japan and India announced they would hold regular naval maneuvers together in the Indian Ocean – augmenting the annual US-led naval maneuvers that have been held – without China – since 2007.
Naval spending is also rising in Australia, Vietnam, the Philippines and South Korea, too. While few in official circles will say so publicly, as much of this spending is directed at the threat of Chinese domination of these vital sea routes and in the mutual interest all these nations have in securing them against interruption. The plans across the region include six carriers, dozens of powerful surface warships and over 100 submarines at a cost of some $220 billion by 2030.
That’s a regional armada that should keep Somali or Indonesian pirates at bay, to be sure. But it could also turn a reason for cooperation into a casus belli.
But in 2030, when crisis in the Persian Gulf once again threatens to become a debacle of global proportions, things will be different. Yes,  the region’s unique combination of repressive regimes, energy resources, intra-Islamic rivalry and pent up popular frustrations can still explode in violence, sending shudders through global markets, sending the price of oil sky high and prompting naval task forces based half a world away to put to sea. But from an American standpoint, a 2030 spike in global oil prices – at least while tight oil holds out  - might look more like a windfall than a tragedy.
Michael Moran is Vice President, Global Risk Analysis at Control Risks, the global political, security and integrity risk consultancy.

jueves, 18 de julio de 2013

Tim Worstal on Keystone XL: These people really are getting desperate!



I really do understand that there are people out there who don’t want the Keystone XL pipeline to be built. For a number of different reasons, some of them even possibly sensible reasons. But there are at least some of the people opposing that pipeline who seem to be becoming desperate, even to the point of advancing self-contradictory arguments to oppose the pipeline. One such is here, from Consumer Watchdog.
U.S. gasoline prices will rise, with the greatest effect on the
Midwest. The chief purpose of the pipeline is to raise the price
of Canadian tar sands by creating new export markets outside
the Midwest. Statements by Alberta, Canada officials and the
pipeline developers reflect this aim. Their explicit intention is
to export to the Gulf and abroad, which would increase the
price of crude oil and gasoline in the United States and, in
particular, the Midwest.
• Midwest drivers would be hardest hit because the region
currently imports more than half of its oil for refining from
Canada. Increases at the pump could range from 25 cents to
40 cents a gallon, depending on how regional refineries re
spond to paying $20 to $30 more per 42-gallon barrel for
Canadian crude oil.
• Canadian oil currently sent to the Midwest from Canada
would likely be diverted to Keystone XL to reduce Midwest
supply, which would put additional pressure on gasoline prices.
• Midwest refiners have been reaping exceptional profit on
cheaper Canadian oil and will resist giving up that profit to off
-set the large increase in the price of their Canadian crude oil.
That last point doesn’t accord with the first point being made. In fact, that last point makes the first point being made wrong. It’s not possible for both to be true.

Think it through for a moment. Yes, Keystone will mean that more of the Canadian tar stuff reaches the Gulf refineries. This means that less of it will get stranded at Cushing OK. So, yes, the price of crude at Cushing will rise.
This could mean that gasoline prices will rise in the Mid West. But it can’t mean both that gas prices will rise and that excessive refining margins will fall. If excessive refining margins are being made then people in the Mid West aren’t getting cheap gas to reflect the low crude price. That’s where the excessive margins are coming from, from the fact that the gas price is disconnected from the crude price. So, we might either see a fall in those refining margins or a rise in gas prices. But both won’t be happening at the same time. If Keystone removes the oversupply of crude at Cushing then refining margins will fall and there’s unlikely to be much effect on gas prices.
The aim of tar sands producers with refining interests on
the Gulf Coast–primarily multinational oil companies–is to
get the oil to their Gulf refineries, which would process addi
tional oil largely for fuel exports to hungry foreign markets.
Other oil sands investors, including two major Chinese petro
chemical companies and major European oil companies, have
an interest in exporting crude oil and/or refined products
to their markets. Such exports would drain off what the tar
sands producers consider a current oversupply, and help push
global oil prices higher.
And that’s just ludicrous. How is an increase of supply of crude to the international markets going to increase the international price of crude? Have we entered some mirror universe of entirely alternative economics or something? An increase in supply leads to a fall in price, not an increase.
If you’d like a more detailed look at the arguments being made I recommend this from Craig Pirrong, aka The Streetwise Professor.
But my basic diagnosis is that some opponents of Keystone XL are becoming so hysterical in that opposition than they’re becoming incoherent in their arguments.