China fuel crisis spreads

BEIJING/SHANGHAI (Reuters) - China's worst fuel crisis in two years spread to the capital and other inland areas by Wednesday, and one man was killed in a brawl at a petrol station queue, upping pressure on the government to intervene.

Diesel shortages in China's political heart, which escaped previous supply crunches unscathed, highlight tensions between the government and its increasingly independent oil firms about who should pay for the country's generous fuel subsidies.

Top refiner Sinopec on Wednesday pledged more supplies and bought additional diesel fuel abroad, but it may fall to Beijing to end the stand-off by raising domestic prices, easing taxes, promising another year-end pay-off -- or simply strong-arming suppliers into selling more fuel at a loss.

"Sinopec will work hard to resolve the diesel supply tightness," a headline in the company paper announced. Even so, at least five of its Beijing stations were rationing supplies.

At stake are profits for oil majors Sinopec and PetroChina from selling motor fuel in the world's second-largest consumer, where pump prices have not been raised in 17 months even as crude costs hit a series of record highs.

In scenes reminiscent of the weeks-long shortages in summer 2005, also caused by the yawning gap between domestic prices and global crude costs, petrol stations across the country were turning away trucks and rationing supplies.

After striking the southeastern coastal provinces and the financial hub of Shanghai, they are now hitting the interior, managers and local media say.

In Hefei, the capital of eastern Anhui province, independent suppliers had almost all run out of diesel and several controlled by the oil majors were rationing supplies, station workers said.

"We don't have diesel today. Supply has been quite spotty. Long lines in front of gas stations are very common these days in Hefei," a manager surnamed Yang told Reuters by telephone.

A man was killed in fuel-strapped Henan during a brawl over queue jumping at a service station, police said. Parts of Hunan and Hubei provinces also face shortages, media reports said.

Beijing worries that more costly energy could push up already-high inflation or spark unrest, and effectively forces its refiners and retailers to subsidize state-set prices.

Diesel costs about 64 cents a liter at the pump in Beijing, versus around $1 in Singapore and $2 in Britain.

But a recent rally in global crude prices to above $90 a barrel has deepened large firms' losses and made them ever more reluctant to keep markets supplied.

A source at PetroChina said the company would lose 1,500 yuan ($200) a tonne by selling imported diesel at Chinese pumps.

"The crux of the problem is the state-owned enterprises... you see the remaining contradictions of the state sector in the market economy," said Joseph Yu-shek Cheng, political science professor at the City University of Hong Kong.

"On the one hand they understand that they have to assume certain political responsibilities, but at the same time they have to look after their own company interests."

Underlining the key role of pricing in the shortage, shipping companies in badly hit Zhejiang province said they had no problem securing supplies if they were willing to pay above-market prices to independent traders.

After China's last major fuel crisis in summer 2005, when queues stretched for hours, Beijing cracked down heavily on a flow of exports that firms were using to ease their bottom lines, rescinding tax breaks, among other things.

But this time round, with diesel exports just a tiny fraction of consumption, the shortages may be more difficult to solve without direct subsidies, price liberalization -- or a more overt political crackdown on the recalcitrant refiners.

With current retail prices most plants only break even when crude is around $65 a barrel or lower, so soaring markets have forced many independents out of the market. The burden of making up the difference has fallen on the state-owned companies.

Sinopec has raised imports and refining in November, and analysts expect it will get another tranche of cash from the government at the end of this year to offset its losses. Beijing gave it $1.2 billion in 2005 and $640 million in 2006.

An industry source said Sinopec had bought another 30,000 tonnes of diesel for import in November to the hardest-hit southeastern coastal areas. And it will boost refinery runs by 800,000 tonnes next month, a company paper said.

But a Sinopec official told Reuters on Tuesday that its largest refinery will switch off a crude unit in November and process 3 percent less crude than the previous month, sending a signal to Beijing in a move that could worsen the shortage.

"It's ridiculous to shut down plants at a time of razor-thin supply," one source remarked. "I guess it's a silent protest for the central government to raise pump prices."

Though a 2005 article, seems as though this is what is at play now w/respect to $96/brrl oil, not to mention: The Federal Reserve in printing money at 14% faster rate than growth in the GDP (borrowing) which is going to make the US dollar dive in value because of sub-prime fiasco and home foreclosures doubling in the 3rd quarter of this year.

U.S. Home Foreclosures Doubled in the Third Quarter - Nov. 1 - Bloomberg

Major Powers Jockey for Position and Risk All-Out War Before the 2007-8 Oil Cliff

Maps Reveal Rapid Global Realignment/Competition

By Michael C. Ruppert © Copyright 2005, From The Wilderness Publications, www.fromthewilderness.com. All Rights Reserved. May be reprinted, distributed or posted on an Internet web site for non-profit purposes only.

January 25, 2005, PST 1300 (FTW) - Three key facts are of overriding importance to world events today.

FACT ONE - If the actions - rather than the words - of the oil business' major players provide the best gauge of how they see the future, then ponder the following. Crude oil prices have doubled since 2001, but oil companies have increased their budgets for exploring new oil fields by only a small fraction. Likewise, U.S. refineries are working close to capacity, yet no new refinery has been constructed since 1976. And oil tankers are fully booked, but outdated ships are being decommissioned faster than new ones are being built.

- Mark Williams, Technology Review, February 2005

LONDON -- Major oil companies are replacing dwindling reserves by acquiring other oil companies instead of exploring for new fields, a strategic shift with implications for global oil supplies, investment bank Credit Suisse First Boston said in a report Monday.

Integrated oil companies are spending only 12% of their total capital expenditures on finding new oil fields, down from nearly a third in 1990, the report said. Integrated oil companies like U.S. super-major ExxonMobil Corp (XOM) have upstream oil exploration and pumping and downstream refining and marketing operations.

In addition, with the world's biggest oil companies convinced exploration is too costly and risky, the steady growth of the world's total oil reserves has fallen sharply, the bank said. Global oil reserves are being replaced at a rate of 1.2% a year in the last three years, compared to 2.3% over the last 20 years, even as oil demand growth is hitting new records with China and India becoming industrial powers, the bank said.

-- Dow Jones Newswire, January 17, 2005

FACT TWO - Let's forget about economic growth, how about just offsetting declines. If Mr. Raymond's curve reflects reality we would still have to find about 30 Gb/yr. How are we doing?

From http://www.ems.org/rls/2004/01/28/oil_supply_short.html we find the following:

The rate of major new oil field discoveries has fallen dramatically in recent years. [Global discovery peaked in the 1960s. Per capita energy production peaked in 1979. -Ed] There were 13 discoveries of over 500 million barrels in 2000, six in 2001 and just two in 2002, according to the industry analysts IHS Energy. For 2003, not a single new discovery over 500 million barrels has been reported. Key findings of a recent Petroleum Review report are:

* Between 2003 and early 2007 some 8 million barrels/day of new capacity is expected to come on stream. * In 2005, 18 projects with a potential peak capacity of 3 million barrels a day are due to come on stream, slowing in 2006 with 11 new projects followed by 3 in 2007, and 3 in 2008 adding a cumulative 4 million barrels/day of potential new capacity at their peak. * It appears likely that from 2007, the volumes of new production will fall short of the need to replace lost capacity from depleting older fields.

Further confirming this trend, recent E&D results strongly support the expectation of a near term peak in oil production. The net present value of all discoveries for the 5 oil majors during 2001/2/3 was less than their exploration costs.

-- Murray Duffin, Energy Pulse, November 17, 2004 (These calculations were confirmed by the Oil Depletion Analysis Centre of the UK in November 2004 and by FTW's Dale Allen Pfeiffer's independent calculations in February of 2004. There was not a single discovery of a 500 Mb field in 2003 and - as far as we know (as of this writing) the same holds true for 2004. The world is currently consuming a billion barrels of oil every eleven and one half days.)

Fact Three -- Look at this imbalance: The average American consumes 25 barrels of oil a year. In China, the average is about 1.3 barrels per year; in India, less than one… The challenge is huge. For China and India to reach just one-quarter of the level of US oil consumption, world output would have to rise by 44 percent. To get to half the US level, world production would need to nearly double. That's impossible. The world's oil reserves are finite. And the view is spreading that global oil output will soon peak.

-- The Christian Science Monitor, January 20, 2005 These three facts alone dictate a global mêlée over oil and that is in fact what is happening. It seems clear now that the world's major oil consuming nations have decided to position themselves to control as much oil as possible before the now certain 2007 cliff event. The first fact underscores a point FTW has been making for years now. Even if Peak Oil was some fabrication (hard to believe at this point), the world is behaving as though it were quite real and imminent. The fact that there is virtually no exploration or refinery construction means that the majors understand clearly that there is no more significant oil to find and their investments would never be paid off.

As the following maps disclose, events in just the last year reveal the building frenzy behind these conflicts which are threatening to escalate to military conflict soon. Sometimes a picture is worth more than a thousand words.

BATTLE LINES BEING DRAWN

China is by far the most aggressive player. It has moved on almost every continent to buy (with US dollars while they still have value) existing oil fields. A recent deal between China and Venezuela must be making Washington and Wall Street wince. The Venezuelan national PdVSA oil company owns more than 10,000 US Citgo gas stations. Could Washington sit idly by if Venezuela started shipping gas meant for Kansas City or Little Rock to Shanghai?

Recently, in two bold moves China made offers to purchase a large interest in Alberta's tar sands and placed an outright offer to buy America's Unocal for $13 billion cash. Unocal holds large leases in the waters off of Southeast Asia. Those leases do not suggest there are large finds to be made. They would have been developed had that been the case. This region has been explored thoroughly. China's interest is in getting even the smaller reserves close by because of its insatiable demand.

However Canada's national government in Ottawa has moved to thwart China's Alberta investment, provoking angry responses from the Alberta government which is concerned about jobs and income. Alberta wants to do a deal with China. China wants to do a deal with Alberta. Even though tar sands recovery is anything but energy efficient or profitable, China could care less about the destruction of Alberta's landscape. In World War II the Nazi government of Adolf Hitler made synthetic crude oil from coal. In war it was damn the costs and forget the inefficiency or insustainability. War machines need oil. Economies need oil.

The Ottawa move could not have occurred without impetus from Washington. So if the US blocks China from Canada's tar sands and Unocal, China's already desperate oil hunt becomes even more urgent and frenzied. The recent ill-founded and almost comical reports of Chinese suspects linked to al-Qaeda turning up in Boston is another (Karl) Rovian preparation of the American people for future conflict with China. Rove is banking that the same 70% of Americans who believed that 9/11 was perpetrated by Saddam Hussein will buy this one too.

Russia is either already selling or contemplating the sale of air-to-ground and anti-armor missiles to Iran, Syria and Venezuela. Still smarting from its geostrategic loss in Ukraine, it is far from out of the game. As I recently observed of this new wrinkle:

"Remember that arms races become economically self-propelled Frankensteins on their own. It's the way money works. This progression of events is historically characteristic of all previous warfare.

"Homo Sapiens survived the Cold War because (especially on the issue of nukes) both sides were controlled by the same interests and money. MAD was never going to happen anyway. Not then...

"There are no such restraints now.

"But also, the planet is rising up in resistance as Lilliputians or gnats to torment the giant in any way possible. The revolution has begun. It is asymmetric. It is even outside of any previously-described legal definition of 'revolution' that I know of. The world is just saying "No" and it seems to mean it."

AFRICA

But far and away, from FTW's perspective Africa is where we are most likely to see conflict in the short term. Africa's undeveloped reserves are larger and Africa itself is less under US hegemonic control. A clear sign of this was a recent seven-nation tour by Iranian President al-Khatami to the African continent, followed almost immediately by announcement of a pending oil development agreement with Nigeria and a completed one with The Ivory Coast. Bribery is a way of life in the region and the US can play this game better than anyone. It remains to be seen whether West African leadership can withstand the temptation long enough to do a real deal with Iran. Already this year the French government has sent its Mirage fighter-bombers on strafing runs in the Ivory Coast. We should expect a coup there fairly soon.

The signs are clear. With the rest of the world lining up behind Iran, Iran obviously feels confident enough to go head to head with the US in Africa, banking on the fact that much of Africa's people and leadership understand clearly that the US - as one State Department observer quipped - has only one interest in Africa: oil.

How many wars can the US fight? How big is Gulliver's reach? These Lilliputians are not gathering in one convenient place to be swatted. They are spreading Gulliver very thin and showing no fear. How long before shots are fired; first in proxy wars, then in direct superpower confrontations?

That time cannot be far off.

As you look at the following maps bear in mind that all of these developments have taken place within just the last year and most within the last six months. These images show clearly the rate at which the world has begun playing the end game for oil.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.