Deep Blade Journal

Key sections of super-giant Ghawar field may be “watering out”;
Why does Senator Levin say “we’re not going to cut off funding for the troops” in Iraq??

Stuart Staniford at The Oil Drum says THIS DISCUSSION is “not introductory.” No, surely it isn’t. There is no way that I understand all of the oil field concepts involved. However, the upshot of this post, previous cited posts, and a great deal of debate and discussion attached to all of these posts is that the largest Saudi oil field, Ghawar, will play out in one to two decades.

This is no small matter. This single field produces about 5% of all the oil produced in the entire world.

The way oil is produced at Ghawar involves the injection of water in order to force out the oil. At some point, mostly water will be produced and not much oil. It will have “watered out”. Indications are that this is happening now. Including handy references to the entire discussion, Staniford writes of the

hypothesis that watering out of North Ghawar is the main cause of declines in Saudi production in the last couple of years. Readers getting up to speed may want to read the following earlier posts which document most of “The Oil Drum Ghawar Project”:

• Saudi Arabian Oil Declines 8% in 2006
• Saudi Arabia and that $1000 Bet
• A Nosedive Toward the Desert
• Saudi Production Laid Bare
• Of Oil Supply trains and a thought on Ain Dar
• Further Saudi Arabia Discussions

In many cases, the comments contain a great deal of additional analysis and value beyond the posts themselves…

Do go read this stuff. There are several competing points of view, but they are beginning to merge upon a concensus that Saudi Arabia is no longer capable of increasing oil production in a sustained way. In fact, Saudi output involuntarily is declining at an alarming rate.

Of course, the implications of this are staggering. What country can function as swing oil producer if Saudi cannot? Perhaps in ten years, Iraq? Maybe. Plenty of reporting on Iraq’s potential may be found on the net. A typical number used for Iraq’s potential production intensity is cited HERE, “Iraq might be able to pump up its production to as much as 6 mbd by 2010 and 7-8 mbd by 2020″.

But the US project to harness control of development and production of Iraqi oil has hit a roadblock that if looked at honestly would be called armed indigenous resistance. Hence, US troops are destined to remain under the policies of President Bush, or ostensibly competing strategies offered by Democrats.

Senator Carl Levin (D-MI, Chair of Senate Committee on Armed Services) cleared up the point on ABC News today. He said that in the end, the Democrats will continue to fund war in Iraq against the will of the American people for the indefinite future.

Though he says, “What we should do, and we’re going to do, is continue to press this president to put some pressure on the Iraqi leaders to reach a political settlement,” what this really means is that the Democrats are all for the colonial project. The “benchmarks” Levin and the Democrats speak of include “dividing the oil resources.”

This is code for what I have discussed before, that the new Iraqi oil law will give “executive managers of from important related petroleum companies” control of Iraqi oil valves, thus taking direct control of world swing oil production–what the Saudi’s have been in charge of since the Texas Railroad Commission lost its power due to the depletion of Texas oil reserves after 1971.

The only way to keep these “executives” in charge will be to keep thousands of American troops in Iraq for an indefinite time.

Law assigns powers to “executive managers from important related petroleum companies”

Antonia Juhasz may be the most important writer on Iraqi oil. She had an oped in the New York Times a couple of days ago, that I will reproduce below.

This oped by Ms. Juhasz is a refreshing departure for major media where just about only thing you ever hear about the Iraq Oil Law is that supposedly it will distribute evenly an unexplained portion of revenue on a per capita basis. In theory, this is probably the right way to do it. But that is just a small section the law. What never is discussed is that it is a blueprint for the privatization of control of Iraq’s oil.

A couple of brief media snippets from yesterday illustrate elite posturing on Iraq’s oil and the oil law. First, this is what Rep. Randy Neugebauer (R-TX) said in response to a C-SPAN caller’s question about “stealing” Iraqi oil.

I don’t think our intentions are to steal any oil from the Iraqi people. We are hoping to get those oil wells up so that the Iraqi people can build their nation back. They’ve got a lot of infrastructure to replace. Saddam basically decimated that country during his rule. We’re bringing a tremendous amount of resources to that country and not taking resources out of that country.

Note the lack of discussion about what actually happens to the money received from Iraqi oil sales, which has been stolen by both the American occupation and corrupt Iraqis. During the period beginning with the 2003 invasion, the US-run CPA (Coalition Provisional Authority) did in fact steal every dollar in Iraq’s oil accounts.

It’s also a great technique to blame everything that happens on Saddam, even though he hasn’t been around for four years and, arguably, life for Iraqis along with their oil infrastructure vastly is worse today than it was four years ago today. There is not even mention of the oil law and how, as described below, it will privatize Iraq’s oil and empower multinational oil executives to make the most important decisions about it.

Second, just briefly, a Pentagon report yesterday said, “Some elements of the Iraq war are properly descriptive of a civil war.”

NPR dutifully reported yesterday on All Things Considered the Pentagon take on this admission, including mention of the “positive success” of the oil law, “which would evenly distribute revenues around the country. That’s expected to be debated soon in the full Iraqi Parliament. ”

If you’re curious about the actual text of the law, an expat Iraqi blogger has the whole thing translated here.

Note that the ORIGINAL draft was in English, brewed at a Camp David war council last June after several years of preparation. Then it was TRANSLATED to Arabic. Raed, the blogger, then translated it BACK to English after getting a copy that even the New York Times could not get.

Here’s how the system will work: Iraq will have a “Federal Oil and Gas Council” that will “assist the Council of Ministers in creating Petroleum policies and related plans”.

According to the Law, the Council SHOULD include

• “Federal Government’s Ministers from the ministries of oil, treasury, planning, and cooperative development;
• The director of the Iraqi central bank;
• A regional government minister representing each region;
• A representative from each producing province not included in a region;
• Executive managers of from important related petroleum companies including the national Iraqi oil company and the oil marketing company; and
• Three or less experts specialized in petroleum, finance, and economy to be hired for a period not exceeding 5 years based on a resolution from the council of ministers.”

Check out that fifth item–”executive managers from important related petroleum companies” will be the ones deciding what is best for Iraq’s oil!

Among many other absolute powers in deciding all aspects of exploration, development, and production contracts,

The Federal Oil and Gas Council is the competent authority to review and approve the transfer of rights among holders of Exploration and Production rights, the Federal Oil and Gas Council is responsible for ensuring that Petroleum resources are discovered, developed, and produced in an optimal manner and in the best interest of the people in accordance with legislation, regulations and contractual conditions as well as recognised international standards.

“Optimal manner” looks like an absolutely loaded phrase, doesn’t it? I’ll take it to mean that those “executive managers of from important related petroleum companies” will have at their disposal control of Iraqi oil valves, thus taking direct control of world swing oil production–what the Saudi’s have been in charge of since the Texas Railroad Commission lost its power due to the depletion of Texas oil reserves after 1971. The only way to keep these executives in charge will be to keep thousands of American troops in Iraq for an indefinite time, at least until the reserves deplete.

Whose Oil Is It, Anyway?

by ANTONIA JUHASZ
Published: March 13, 2007

TODAY more than three-quarters of the world’s oil is owned and controlled by governments. It wasn’t always this way.

Until about 35 years ago, the world’s oil was largely in the hands of seven corporations based in the United States and Europe. Those seven have since merged into four: ExxonMobil, Chevron, Shell and BP. They are among the world’s largest and most powerful financial empires. But ever since they lost their exclusive control of the oil to the governments, the companies have been trying to get it back.

Iraq’s oil reserves — thought to be the second largest in the world — have always been high on the corporate wish list. In 1998, Kenneth Derr, then chief executive of Chevron, told a San Francisco audience, “Iraq possesses huge reserves of oil and gas — reserves I’d love Chevron to have access to.”

A new oil law set to go before the Iraqi Parliament this month would, if passed, go a long way toward helping the oil companies achieve their goal. The Iraq hydrocarbon law would take the majority of Iraq’s oil out of the exclusive hands of the Iraqi government and open it to international oil companies for a generation or more.

In March 2001, the National Energy Policy Development Group (better known as Vice President Dick Cheney’s energy task force), which included executives of America’s largest energy companies, recommended that the United States government support initiatives by Middle Eastern countries “to open up areas of their energy sectors to foreign investment.” One invasion and a great deal of political engineering by the Bush administration later, this is exactly what the proposed Iraq oil law would achieve. It does so to the benefit of the companies, but to the great detriment of Iraq’s economy, democracy and sovereignty.

Since the invasion of Iraq, the Bush administration has been aggressive in shepherding the oil law toward passage. It is one of the president’s benchmarks for the government of Prime Minister Nuri Kamal al-Maliki, a fact that Mr. Bush, Secretary of State Condoleezza Rice, Gen. William Casey, Ambassador Zalmay Khalilzad and other administration officials are publicly emphasizing with increasing urgency.

The administration has highlighted the law’s revenue sharing plan, under which the central government would distribute oil revenues throughout the nation on a per capita basis. But the benefits of this excellent proposal are radically undercut by the law’s many other provisions — these allow much (if not most) of Iraq’s oil revenues to flow out of the country and into the pockets of international oil companies.

The law would transform Iraq’s oil industry from a nationalized model closed to American oil companies except for limited (although highly lucrative) marketing contracts, into a commercial industry, all-but-privatized, that is fully open to all international oil companies.

The Iraq National Oil Company would have exclusive control of just 17 of Iraq’s 80 known oil fields, leaving two-thirds of known — and all of its as yet undiscovered — fields open to foreign control.

The foreign companies would not have to invest their earnings in the Iraqi economy, partner with Iraqi companies, hire Iraqi workers or share new technologies. They could even ride out Iraq’s current “instability” by signing contracts now, while the Iraqi government is at its weakest, and then wait at least two years before even setting foot in the country. The vast majority of Iraq’s oil would then be left underground for at least two years rather than being used for the country’s economic development.

The international oil companies could also be offered some of the most corporate-friendly contracts in the world, including what are called production sharing agreements. These agreements are the oil industry’s preferred model, but are roundly rejected by all the top oil producing countries in the Middle East because they grant long-term contracts (20 to 35 years in the case of Iraq’s draft law) and greater control, ownership and profits to the companies than other models. In fact, they are used for only approximately 12 percent of the world’s oil.

Iraq’s neighbors Iran, Kuwait and Saudi Arabia maintain nationalized oil systems and have outlawed foreign control over oil development. They all hire international oil companies as contractors to provide specific services as needed, for a limited duration, and without giving the foreign company any direct interest in the oil produced.

Iraqis may very well choose to use the expertise and experience of international oil companies. They are most likely to do so in a manner that best serves their own needs if they are freed from the tremendous external pressure being exercised by the Bush administration, the oil corporations — and the presence of 140,000 members of the American military.

Iraq’s five trade union federations, representing hundreds of thousands of workers, released a statement opposing the law and rejecting “the handing of control over oil to foreign companies, which would undermine the sovereignty of the state and the dignity of the Iraqi people.” They ask for more time, less pressure and a chance at the democracy they have been promised.

Antonia Juhasz, an analyst with Oil Change International, a watchdog group, is the author of “The Bush Agenda: Invading the World, One Economy at a Time.”

Update: I checked to see about cross-posting this over at Daily Kos, but there are already three good diaries on this oped. Plus another interesting diary concerning an attempt by Rep. Dennis Kucinich to “offer an amendment on the floor to strip out the oil law benchmark from the supplemental” funding bill for Iraq. Sad that we are not so far stopping this funding entirely.

Update 2: HERE is an entry at Huffington Post describing the Kucinich “oil law not a benchmark” effort.

2006 average production level decrease precipitous 8%;
Does the US see its Iraq project as a sort of replacement OPEC?

Monthly Saudi production levels for 2006, assembled by Stuart Staniford at The Oil Drum

Here is another major story about oil that has received no ink in the mainstream press: According to data from official sources, oil production in Saudi Arabia has been declining since the beginning of 2006.

Stuart Staniford at The Oil Drum has written a very careful analysis, citing key news stories about production in specific Saudi fields. Staniford unpacks recent Saudi press releases suggesting production cuts have been intentional.

Staniford writes, “The entire ‘production cut’ may be a public relations exercise to disguise other processes.”

In my own analysis, this story suggests there is yet another nail in the coffin containing Saudi’s history as the world’s swing oil producer. Staniford bets against Saudi posturing that it will optimize “upstream operations, and development and depletion strategies” in order to achieve “maximum sustained capacity to 10.7 million barrels per day.” If he is right, Saudi’s swing producing days are over.

Furthermore, Saudi oil decline suggests an underlying motivation behind the continuing US project in Iraq. The new Iraqi oil law (discussed below, updated HERE by blogger Raed Jarrar with the “final, official” version) could allow the US occupation to appoint itself a sort of OPEC on the Tigris through the new Iraqi Federal Oil and Gas Council established in the law, replacing Saudi as the world’s swing producer. That is, when or if conditions in Iraq ever allow development of the resource to full production potential of six or eight million barrels per day (from barely two million barrels per day today), Washington itself would acquire power it has until now always cooperated with the Saudi royals in order to exert.

The notion of American “success” in Iraq that officials so often bandy about in reality means that there will be permanent military enforcement of the swing production role that Bush-connected Washington elites desire. It should be emphasized that it is not that oil itself that is at issue, but the hand on the tap. Noam Chomsky has it right, as outlined by Daily Kos diarist indefinitelee last week, “if the United States controls Middle East resources it’ll have veto power over its industrial rivals.”

Control of oil is the linchpin behind the unspoken US strategy in the Middle East. Ability to control swing production through its Iraqi client, backed by the US military in order to make the oil law stick, is a major long-term goal of this endless occupation.

UPDATE 3/7: See THIS item at The Oil Drum for important additional discussion.

We’ve heard about oil trust for the Iraqi people before. It was a lie then and it is a lie now.

War council has oil plans

Back in January 2003, Colin Powell sought to quell rampant speculation about America’s plans for Iraqi oil. He said that Iraq’s oil, “will be held for and used for the people of Iraq. It will not be exploited for the United States’ own purpose,” and he assured us that, “it will be held in trust for the Iraqi people, to benefit the Iraqi people.”

For the first years of the US occupation of Iraq, these statements by Colin Powell turned out to be totally false. Iraq’s oil revenue simply vanished under the auspices of the Coalition Provisional Authority. In one of the best articles on the subject, CIA veteran Philip Giraldi wrote in the October 24, 2005 issue of The American Conservative:

The American-dominated Coalition Provisional Authority [CPA] could well prove to be the most corrupt administration in history, almost certainly surpassing the widespread fraud of the much-maligned UN Oil for Food Program. At least $20 billion that belonged to the Iraqi people has been wasted, together with hundreds of millions of U.S. taxpayer dollars. Exactly how many billions of additional dollars were squandered, stolen, given away, or simply lost will never be known because the deliberate decision by the CPA not to meter oil exports means that no one will ever know how much revenue was generated during 2003 and 2004.

Now, news coming out of the White House war council and the president’s stealth visit to Iraq sounds vaguely similar to those falsehoods Powell spoke in 2003. On Monday, the New York Times published a story by David Sanger quoting President Bush’s remarks that, “Iraq ought to think about having a tangible fund for the people so the people have faith in the central government.”

About this remark, Sanger makes totally apropos observations, suggesting that Bush is talking about Iraq’s oil as if the last 39 months never happened.

Mr. Bush did not elaborate, and he said nothing about the insurgent attacks on pipelines and pumping plants that have kept production to levels below what Iraq produced under Mr. Hussein’s rule, and the rampant corruption that has diverted oil revenues from the Iraqi government.This is not the first time that Mr. Bush and his aides have suggested that oil could be a solution to many of Iraq’s problems: Before the war, Paul D. Wolfowitz, then the deputy secretary of defense, suggested that oil revenues could pay for Iraqi reconstruction. So far, that has not happened.

Usually President Bush speaks about Iraq as if oil does not even exist there. But on Monday during his war council at Camp David, he issued a slightly expanded statement, containing more information about oil in Iraq than the oilman had ever given before.

PRESIDENT BUSH: We spent a lot of time in talking about energy and oil. The oil belongs to the Iraqi people. It’s their asset. It is one of the — the capacity to generate wealth from the ground distinguishes Iraq from Afghanistan, for example. It’s something that I view as a very positive part of Iraqi future. And we talked about how to advise the government to best use that money for the benefit of the people.
Secondly, obviously, we spent time figuring out how to help strategize with the new ministries as to how to get oil production up. And recently, they’ve had oil production as high as a little over 2 million barrels a day, which is extremely positive. The oil sector is very much like the rest of the infrastructure of Iraq. Saddam Hussein let it deteriorate. There wasn’t much reinvestment, or not much modernization. After all, he was using the money for his own personal gain and he wasn’t spending the people’s money on enhancing the infrastructure. And the oil infrastructure collapsed and deteriorated. And as a result, there’s a lot of work that needs to be done on, for example, work-overs — that is to help oil wells become revitalized, just a standard maintenance procedure. So there’s a maintenance program on to help the Iraqi people get their production up.
There’s some unbelievably interesting exploration opportunities. And the new government is going to have to figure out how best to lease the people’s lands in a fair way. My own view is, is that the government ought to use the oil as a way to unite the country and ought to think about having a tangible fund for the people, so the people have faith in central government.

The stuff about Saddam stealing from and ruining Iraq’s oil industry contains truth, but Bush fails to mention that the scale of theft during the period his own CPA was in charge. There is a sense of salivation in this statement, as Bush certainly understands the riches available. And let’s just assume that the crap about “the people’s lands” and “tangible fund for the people” is nonsense recitation required for the consumption of Iraqis well aware of the history of the CPA theft, and window dressing for the American media.

Tuesday, Bush dropped into the central palace of his energy colony. I could speculate that one of the messages he brought with this show of body was that he was very, very serious about getting the right result out of the new government’s early deliberations on the hydrocarbon law.

What the clue? Back in DC, Bush made a statement on this during the Wednesday press conference. Can’t be sure, but this very much sounds like code, a warning to Iraqi Prime Minister Maliki and the Parliament to tread very carefully where US oil interests are concerned:

I’ve directed the Secretary of Energy to travel to Iraq to meet with his counterpart and identify ways we can provide additional support. It’s up to the Iraqis to pass a hydrocarbon law, which they’re now debating. It’s up — for the Iraqi government to decide what to do with the people’s asset. Our advice is to be careful, and to develop it with the people’s interest in mind. [emphasis added]

So what might be the content of this “hydrocarbon law” the Iraqis are supposedly designing for the benefit of “the people’s interests”? I wrote about the move toward PSAs or Production Sharing Agreements for Iraq’s oil last December. The top-level reason the US will stay in Iraq indefinitely is US-centered international oil companies getting PSAs, amounting to concessions for new oil exploration and a significant stake in producing and marketing oil from the existing fields. Control of this incredibly important asset in Iraq will only grow in strategic importance as oil markets tighten over the next few years. The US has not had direct control of spare oil production capacity, or the ability to influence market prices, since the Texas Railroad Commission lost leverage after US peak oil in the early 1970s.

Citing a report called Crude Designs from PLATFORM/www.carbonweb.org, an organization related to the Institute for Policy Studies (IPS), I wrote:

“What the Bush `Victory’ outline forgets to mention is that currently there are highly secretive negotiations being pushed for oil production sharing agreements or PSAs. A stunning new report from a UK group associated with the Institute for Policy Studies explains in great detail how a massive theft of control of Iraq’s oil is being planned and executed as the touted `democratic’ elections are being used to legitimate US `gains’ from the process:

In October 2005, a new Constitution was accepted in a referendum of the Iraqi population. Like much of the Constitution, the oil policy section is open to some interpretation. Apparently referring to fields not currently in production, it states: “The federal government and the governments of the producing regions and provinces together will draw up the necessary strategic policies to develop oil and gas wealth to bring the greatest benefit for the Iraqi people, relying on the most modern techniques of market principles and encouraging investment”…

…The debate over oil “privatisation” in Iraq has often been misleading due to the technical nature of the term, which refers to legal ownership of oil reserves. This has allowed governments and companies to deny that “privatisation” is taking place. Meanwhile, important practical questions, of public versus private control over oil development and revenues, have not been addressed.

The development model being promoted in Iraq, and supported by key figures in the Oil Ministry, is based on contracts known as production sharing agreements (PSAs), which have existed in the oil industry since the late 1960s. Oil experts agree that their purpose is largely political: technically they keep legal ownership of oil reserves in state hands (3), while practically delivering oil companies the same results as the concession agreements they replaced.

Running to hundreds of pages of complex legal and financial language and generally subject to commercial confidentiality provisions, PSAs are effectively immune from public scrutiny and lock governments into economic terms that cannot be altered for decades.

In Iraq’s case, these contracts could be signed while the government is new and weak, the security situation dire, and the country still under military occupation. As such the terms are likely to be highly unfavourable, but could persist for up to 40 years.

Furthermore, PSAs generally exempt foreign oil companies from any new laws that might affect their profits. And the contracts often stipulate that disputes are heard not in the country’s own courts but in international investment tribunals, which make their decisions on commercial grounds and do not consider the national interest or other national laws. Iraq could be surrendering its democracy as soon as it achieves it.

“There should be no doubt about why the US faces an insurgency in Iraq.”

An article just posted at Dar al-Hayat covers some of this ground suggesting how the most consequential decisions Iraq will make for decades–if Bush is to be taken seriously about the “people’s asset”–should be considered. This document is quite difficult to sort out. But go there and try to read it carefully. It explains the serious rifts that are being created by the carve-up of existing fields and prospective fields, demanding changes to the Constitution rammed through last fall. Most important, it recommends that,

In order to have efficient development of the oil industry “ensuring highest benefit to the nation” it is necessary that a reference be made in the constitution to legislate a hydrocarbon law which endorses, among others, the allocation of the upstream and down operations and related commercial aspects, to a national oil company (INOC)

In other words, control of the oil industry should not be farmed out to international companies, but rather held by the national company.

It will be interesting to see how Bush and the Americans react if the Iraqis try to write law and set up their oil industry truly “to benefit the Iraqi people.” My bet is that Bush is lying. The US will tolerate nothing short of total behind-the-scenes control of Iraq’s oil.