Truth-Bringer
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Why oil could hit $180 a barrel
Just when crude is becoming more costly to extract and process, producers in three key countries are short of cash. And without that money, recent finds won't do much good.
By Jim Jubak
Yikes! Oil at $117 a barrel. It has to go down from here, right?
Wrong. In the short term -- say, the next two years or so -- we're looking at bad news about global oil supply that could take the price of a barrel of crude to $180.
Needless to say, today's $3.50-a-gallon gasoline would look cheap if oil prices hit $180 a barrel. At that price for a barrel of oil, gasoline would cost somewhere north of $5.50 a gallon.
The good news is that's about the price, experts now say, that would send global consumption tumbling and oil prices into retreat, as drivers scrambled to find ways to conserve.
Of course, experts once thought $3-a-gallon gasoline would lead to a drop in consumption. The latest forecast from the International Energy Agency calls for global oil demand of 87.2 million barrels a day this year. That would be an increase in consumption of 1.3 million barrels a day from 2007 -- despite a U.S. economic slowdown and soaring oil prices.
Rest of Article Here
Of course the short answer is "because government is in the way." Government is always the culprit, as we see later in the same article:
"It's never easy to find $1 trillion in investment capital, but the Russian government has made it hard for its oil industry to attract even a small part of that capital. The Kremlin has structured taxes so that most of the extraordinary rise in oil prices flows into government coffers, not oil-company profits.
When oil rises above $27 a barrel, the Russian government takes 80% of any additional revenue in taxes. That means at $67 a barrel, an oil company gets just $8 more a barrel in revenue than at $27. If the price climbs to $107 a barrel, the oil company's revenue increases by just $16 a barrel from what it was at $27 a barrel.
That may delight U.S. consumers who believe oil companies are making obscene windfall profits from soaring oil prices, but it hasn't made companies eager to sink their money into developing new oil in Russia.
The production decline in Russia would be serious enough if it were an isolated problem. But it's not. The same conjunction of geology and geopolitics is crimping production in Nigeria and Mexico, for example.
Paying less than what's fair
In Nigeria, a third of the country's oil output by 2015 is at risk, energy advisers to Nigerian President Umaru Yar'Adua have warned, because the government hasn't been paying its share of the costs of joint ventures -- about $3 billion to date -- with Royal Dutch Shell (RDS.A, news, msgs), ExxonMobil (XOM, news, msgs), and Chevron (CVX, news, msgs). If the government's failure to pay jeopardizes the joint ventures, Nigeria can kiss plans to double its production goodbye. Instead, total oil and gas production will fall 30% by 2015.
Where has the money gone that was supposed to go into the joint ventures? It's in the pockets of just about any Nigerian government official with any clout."
Just when crude is becoming more costly to extract and process, producers in three key countries are short of cash. And without that money, recent finds won't do much good.
By Jim Jubak
Yikes! Oil at $117 a barrel. It has to go down from here, right?
Wrong. In the short term -- say, the next two years or so -- we're looking at bad news about global oil supply that could take the price of a barrel of crude to $180.
Needless to say, today's $3.50-a-gallon gasoline would look cheap if oil prices hit $180 a barrel. At that price for a barrel of oil, gasoline would cost somewhere north of $5.50 a gallon.
The good news is that's about the price, experts now say, that would send global consumption tumbling and oil prices into retreat, as drivers scrambled to find ways to conserve.
Of course, experts once thought $3-a-gallon gasoline would lead to a drop in consumption. The latest forecast from the International Energy Agency calls for global oil demand of 87.2 million barrels a day this year. That would be an increase in consumption of 1.3 million barrels a day from 2007 -- despite a U.S. economic slowdown and soaring oil prices.
Rest of Article Here
Of course the short answer is "because government is in the way." Government is always the culprit, as we see later in the same article:
"It's never easy to find $1 trillion in investment capital, but the Russian government has made it hard for its oil industry to attract even a small part of that capital. The Kremlin has structured taxes so that most of the extraordinary rise in oil prices flows into government coffers, not oil-company profits.
When oil rises above $27 a barrel, the Russian government takes 80% of any additional revenue in taxes. That means at $67 a barrel, an oil company gets just $8 more a barrel in revenue than at $27. If the price climbs to $107 a barrel, the oil company's revenue increases by just $16 a barrel from what it was at $27 a barrel.
That may delight U.S. consumers who believe oil companies are making obscene windfall profits from soaring oil prices, but it hasn't made companies eager to sink their money into developing new oil in Russia.
The production decline in Russia would be serious enough if it were an isolated problem. But it's not. The same conjunction of geology and geopolitics is crimping production in Nigeria and Mexico, for example.
Paying less than what's fair
In Nigeria, a third of the country's oil output by 2015 is at risk, energy advisers to Nigerian President Umaru Yar'Adua have warned, because the government hasn't been paying its share of the costs of joint ventures -- about $3 billion to date -- with Royal Dutch Shell (RDS.A, news, msgs), ExxonMobil (XOM, news, msgs), and Chevron (CVX, news, msgs). If the government's failure to pay jeopardizes the joint ventures, Nigeria can kiss plans to double its production goodbye. Instead, total oil and gas production will fall 30% by 2015.
Where has the money gone that was supposed to go into the joint ventures? It's in the pockets of just about any Nigerian government official with any clout."