Stocks for the 2006 Commodities crunch

Jim Jubak posted an article Tuesday on energy and commodities.

http://moneycentral.msn.com/content/P136804.asp

Angolan production - Kizomba A and B

The following are excerpts from an article by John Donnelly published in the Boston Globe:

link to full article

Price rise and new deep-water technology opened up offshore drilling

December 11, 2005

KIZOMBA A OIL PLATFORM, Angola -- Angola's oil windfall is largely driven by the rise in global oil prices. But new discoveries of oil, thanks to deep-water technology, have also been critical...

''All the easy oil and gas in the world has pretty much been found," said William J. Cummings, ExxonMobil's spokesman in Angola. ''Now comes the harder work in finding and producing oil from more challenging environments and work areas."

In 1994, ExxonMobil's affiliate in Angola, Esso Angola, acquired the license for Block 15, a large expanse of water about 90 miles offshore from northern Angola. It has become a bonanza, producing 550,000 barrels of oil a day, and, on average, the oil from the area fills up a supertanker every four days, primarily for export to refineries in the United States and China. Angola hopes to produce 2 million barrels a day by 2008, tripling production in eight years.

Block 15 also is one of ExxonMobil's most important new discoveries. In the past two years, 50 percent of the company's new oil finds came in Africa, and three-quarters of the discoveries in Africa were from Block 15.

Now technology is being used in what the industry calls ''ultradeep" water, depths of 6,000 feet or more. Farther offshore from Block 15, the oil giant BP has discovered nine oil reservoirs in one such area. Up and down the coast of West Africa, as well as in the Gulf of Mexico, the North Sea, and in waters off Asia and Australia, oil companies are going ever deeper in the search for oil.

...Kizomba B, an ExxonMobil production vessel that is three football fields long, two-thirds of a football field wide, 15 stories high, and has an internal storage capacity of 2.2 million barrels of oil, as well as housing quarters for 100 workers.

In the distance loomed Kizomba A, B's twin. Each vessel, the largest of its type in the world, has a huge floating oil rig nearby that maintains dozens of wells drilled into the ocean floor. Kizomba A produces about 250,000 barrels of oil a day, almost equal to the total output of the Republic of Congo.

The helicopter landed on Kizomba A, and the occupants were ushered below deck. ''It's pretty amazing, huh?" Cummings said, referring to the $3.4 billion structure, which was built in 36 months by construction companies located on four continents.

Oil Prices 1998-2005

link to larger image

Angola article in the Boston Globe

Oil wealth helping few of Angola's poor
Vast reserves cannot undo legacy of war, corruption

By John Donnelly, Globe Staff December 11, 2005

...Because of wars, dictatorships, and thieves, Angola and other oil-rich African nations have failed so far to turn their natural wealth into better lives for their citizens.

Angola's history is particularly bleak. During a quarter-century of war, the national oil company acted as a national bank, disbursing millions to ministries and ministers. One nongovernmental group, London-based Global Witness, says $8.4 billion in public money from 1997 to 2001 remains unaccounted for.

Angola's situation, in particular, is ripe for change. Its relatively small population of 13 million means that the oil wealth per person is far greater than that of Nigeria, Africa's largest oil producer, which has more than 135 million people. Angola's infrastructure is in such bad shape from the war, which ended in 2002, that basic improvements will help win the hearts of many. And it will have the cash, reaping as much as $10 billion this year in oil revenues, which would be $4 billion above projections.

Just five years ago, Angola produced 700,000 barrels of oil a day. Today the figure is at 1.3 million barrels, and in two years it could be 2 million, thanks to a series of deep-water offshore discoveries.

President José Eduardo Dos Santos, who may next year call the country's first elections since 1992, is making almost all the decisions on rebuilding. Government outsiders, from the World Bank to activists in the country, are rarely listened to.

Kinsukulu Landu Kama, the coordinator of an organization that promotes openness in the government, held up a draft of a letter to a senior government official, demanding a meeting.

''They won't meet with us," Kama said. ''We want full disclosure of the oil money. We are trying to find out how the money is being used, but they won't tell us anything."

''I've been traveling around the country for the last three months, and I couldn't believe what I saw," said dos Anjos, putting down his espresso and raising his hands in excitement. ''There are the Chinese building roads, bridges, houses. Former generals in the army are actively looking for farms. Everyone is looking for farms!"

He stood to hug a friend. ''Do you know who that is?" he whispered, sitting down. It was an Angolan oilman. ''BP," he said, referring to the man's affiliation with the oil giant. ''They're doing great."
Dos Anjos, though, was more interested in his own plan. He hopes to start a 345,000-acre eucalyptus timber plantation in the interior highlands.

But Dos Anjos became defensive when the discussion turned to the country's overall economic prospects and, in particular, the fruitless negotiations between the government and the International Monetary Fund. The government wants an IMF seal of approval that the country's economics are sound so that it can attract investors, while the IMF wants more openness in the country's oil business.

''Even if we have a lot of corruption in this country, we pay back all the loans we get from overseas, so give us a chance," Dos Anjos said. ''If the IMF closes the doors on us, other guys will open the doors."

The others already are. Last year, the Chinese export bank extended a $2 billion line of credit, in exchange for 10,000 barrels of oil a day. Angolan officials are now wrapping up a $2.25 billion loan from a French bank that will allow the country to restructure debt payments with lower interest.
The Chinese loan is funding projects around the country, including housing developments, roads, railways, and hospitals.

But Luis Bernardino, director of the Luanda Pediatric Hospital, said that while the country needs hospitals, it needs small health clinics even more....

Nigerian Gas Flares

Natural Gas Prices 2000-2005

Interview with 'Syriana' screenwriter

The following links to an NPR interview with the screenwriter of 'Syriana'

The audio requires that you have either RealPlayer or WindowsMediaPlayer running.

http://www.npr.org/templates/story/story.php?storyId=5046449

Gas Taxes

10 AM - The NYT runs the following editorial Monday morning as Hurricane Wilma batters its way across Southern Florida.

October 24, 2005
Editorial

Gas Taxes: Lesser Evil, Greater Good

There's no serious disagreement that two major crises of our time are terrorism and global warming. And there's no disputing that America's oil consumption fosters both. Oil profits that flow to Saudi Arabia and other Middle Eastern countries finance both terrorist acts and the spread of dangerously fanatical forms of Islam. The burning of fossil fuels creates greenhouse emissions that provoke climate change. All the while, oil dependency increases the likelihood of further military entanglements, and threatens the economy with inflation, high interest rates and risky foreign indebtedness.

Until now, the government has failed to connect our crises and our consumption in a coherent way. That dereliction of duty has led to policies that are counterproductive, such as tax incentives to buy gas guzzlers and an overemphasis on increasing domestic oil supply, although even all-out drilling would not be enough to slake our oil thirst and would require a reversal of longstanding environmental protections.

Now, however, the energy risks so apparent in the aftermath of Hurricane Katrina have created both the urgency and the political opportunity for the nation's leaders to respond appropriately. The government must capitalize on the end of the era of perpetually cheap gas, and it must do so in a way that makes America less vulnerable to all manner of threats - terrorist, environmental and economic.

The best solution is to increase the federal gasoline tax, in order to keep the price of gas near its post-Katrina highs of $3-plus a gallon. That would put a dent in gas-guzzling behavior, as has already been seen in the dramatic drop in the sale of sport-utility vehicles. And it would help cure oil dependency in the long run, as automakers and other manufacturers responded to consumer demand for fuel-efficient products.

Still, raising the gas tax would be politically difficult - and for very good reasons. The gas tax, which has been at 18.4 cents a gallon since 1993, is painfully regressive. It hits hardest at poor people for whom fuel costs consume a proportionally larger share of their budgets; rural dwellers for whom truck-driving over long distances is an everyday activity; and the gasoline-dependent middle class, particularly suburban commuters, who, on top of living far from their workplaces, have been encouraged by decades of cheap gas to own large, poor-mileage vehicles. Fortunately, those drawbacks can be overcome.

A bolstered gas tax would raise huge amounts of revenue, roughly $1 billion for every penny of additional tax. Some of that money would have to be used to provide offsetting tax breaks to low-income households, such as an increase in the earned income tax credit. Another offset that lawmakers could consider would be to use some of the revenue to buy back S.U.V.'s. The buyback notion is a variation on the "scrappage" idea from earlier crises, when it was proposed that the government buy up old clunkers so that their owners could more quickly upgrade to less-polluting cars. Eventually, the gas tax would pinch consumers less, as revenues from it are used to finance long-term structural changes to reduce oil dependency, including mass transit and research into alternative fuels and technologies.

There is a also a good possibility that, over time, higher gas taxes would not hurt consumers as much as is generally feared. Oil exporters dread gas taxes because the higher gas prices go, the greater the incentive for companies and governments to invest in alternatives. For that reason, economists assume that raising the gas tax - say, by a dollar or so - would not necessarily raise the price at the pump by the same amount. Rather, a tax increase could induce exporters to allow the price of oil itself to fall, in order to keep the price at the pump below the level at which oil alternatives begin to look attractive.

"We know that the days of unlimited, inexpensive gasoline are over," William Clay Ford Jr., chairman and chief executive of the Ford Motor Company, said last week. So be it. Cheap gas is no longer compatible with a secure nation, a healthy environment or a healthy economy - if ever it was. The real question is whether we should continue paying the extra dollar or two per gallon in the form of profits to the Saudis and other producers, or in the form of taxes to the United States Treasurywhere the money could be used to build true energy independence.