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John Ryden

Global Warming Examiner
John Ryden is an Engineer with a background in Finance and Economics. Here he will discuss how energy production, energy use, and conservation affect us and the rest of the world with a focus on the economic implications.

  

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Showing entries for Category: Saudi-Arabia


Congress Wants To Drill For Oil in Court

May 21, 11:13 AM
 
 

The House of Representatives overwhelmingly approved legislation allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude prices. (Link) The idea is to subject countries like Saudi Arabia, Venezuela and Iran to US antitrust laws. These ‘illegal’ practices by foreign governments hurt US consumers. Foreign investment in the US by these countries could become targets to pay monetary damages and legal fees.


There are so many problems with this type of legislation that I don’t know where to start. Let’s start with Iran. This is a country that we have put economic sanctions on and don’t even buy their oil, at least legally. So now we are going to sue them for damaging our consumers for with-holding oil?

Most OPEC countries are producing all the oil they can. Are American courts going to determine they are not doing enough to produce the supplies we need and are therefore hurting American consumers? Should we sue Venezuela because Chavez is not investing enough money in their oil industry to increase production?

Saudi Arabia is the one country that might be able to increase their production. It is really unclear if they can actually increase production in the short term without damaging their ability to produce more oil in the long term. Do American courts have jurisdiction to determine if they are producing at an appropriate rate based on American political considerations? Do we really want to sue one of our major oil suppliers, not to mention one or our ‘better’ allies in the Middle East?

Let’s say we do sue Saudi Arabia. What is to keep them from just selling their US assets, dumping their US treasury bonds, and not selling us any of their oil. They could also let their currency float against the dollar or set their currency to a basket of other currencies like the Euro and Yen. They have plenty of other countries that would be happy to buy all of their oil. Might this action cause the value of the dollar to drop and inflation to increase, not to mention oil prices rising higher?

How about increasing oil production in this country? The Arctic National Wildlife Refuge (ANWR) has approximately 11 billion barrels of recoverable oil reserves. The Alaska pipeline is already in place to deliver this oil and is being underutilized as Prudhoe Bay is being depleted. 75% of the people in Alaska favor development in ANRW. ANWR is about 1.2 million acres in size. Developing that oil resource would require about 2,000 acres of land by utilizing new directional drilling techniques.

What do I expect? It doesn’t make sense that they would actually try to do this, but the bill passed by 324 to 84, which is a wide enough margin to over-ride a presidential veto. Then again, just look to Mexico, which can’t develop their oil resources because of political problems [I posted this link yesterday]. Mexico has a constitutional amendment that doesn’t allow any foreign investment in their oil industry. Pemex, their national oil company, doesn’t have the technology to develop their oil resources. At their current rate of depletion, they could stop being an oil exporter in about 5 years and completely run out of oil in about 10 years. They fund about 40% of their national budget from oil revenue. The president wants to amend the constitution to allow Pemex to partner with foreign oil companies to develop their oil resources. This would be done much that same way that PetroBras in Brazil and Petro China partner to develop their resources. What does the Mexican Congress do? They organize demonstrations to denounce the president for trying to let foreigners exploit their national resources. Does that make any sense for Mexico? Does that make any sense for us?


Topics: oil , Saudi Arabia , Mexico , Congress , Iran
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