Sunday, June 27, 2004

Appendix B

The precipitating cause for the invasion of Iraq was not to be found in the policy papers of current, or former, or currently former, officers of the US capital. Nor was the determining factor found in the Pentagon's order of battle, the essays of neo-conservative ideologists with unsavory business partners, the balance sheet of a certain construction services company, visions of new American empires, fear of old economic competitors, loss of hegemony, dramatic dollar declines and euro ascents, or the ecstatic belligerence of the evangelical half-wits occupying all three branches of government.

But the pre-determination of the invasion was published for all to see by the US Department of Energy's Energy Information Agency in its
Appendix B: Performance Profiles of Major Energy Producers 2002.

The headline on the executive summary read Major Energy Companies' Profits Decline In 2002 As Income from Both Upstream and Downstream Operations Falls. And that was the good news. The net income of those companies participating in the Federal Reporting System (FRS) declined, after excluding the effects of unusual items, 36.6 percent in 2002. It was the lowest level of net income since the nightmare year of 1998 when prices broke to $10 per barrel.

The bad news got even worse. Both upstream, production, and downstream, refining and sales, declined from prior levels. A glut, yes glut, of natural gas in the US produced lower natural gas prices and a precipitous drop in net income. Refining and marketing net income dropped 111 percent, proving that zero can be a fond memory and a fervent prayer.

Appendix B recorded high levels of capital expenditures in the petroleum industry, but the expenditures were directed on acquisitions and mergers. Minus capital buying capital, capital expenditures increased only by 5 percent from 01-02.

The War Report/Appendix B recorded the historical build up of the means of production which had created this near disaster. Net property, plant, and equipment (PPE) increased 11 percent between 1996 and the price collapse of 1998. Still, net PPE asset values increased another 33 percent between 199 and 2002 to $446.6 billion. Total liabilities which had expanded by 10 percent in the 1996-98 period, grew 50 percent in the 98-02 period.

The basis for the predicament of petroleum capital had been created in the 1996-1998 period. Total exploration and development expenditures increased 66 percent in that period, with the largest percentage increase going to acquisitions of unproved and proved acreage. These expenditures increased from 11 percent of the total in 1996 to 33 percent in 1998.

Iraq's future was written in the decline of the return on investment for the oil majors of the Federal Reporting System. Higher prices, increased rates of return, were just a cruise missile away. With the assault on Iraq, prices and returns soared. During 2003, at every downturn in prices, the war drum is beaten harder, and prices resume their climb. When, after the invasion, after Bush soft-landed on the aircraft carrier, oil prices declined, there was the terrorism premium, the strategic reserve purchases, the continued demolition of the Iraqi infrastructure to refloat the barrels.

While 2003 is a bad present and an unbearable future for the Iraqi people, for the unemployed workers, the dispossessed citizens of a once secular society, for women, it was bright, shining, day for the industry as profits recovered not just with this economic demolition, but because of this demolition.

And Appendix B 2002 passed its baton,its billy club, its M4 to 2003, oil prices soared above $32 per barrel, and the FRS companies return on investment increased in lockstep. War and terrorism are the snake for the snake oil of economy recovery.

And then there's British Petroleum's Statistical Review of World Energy June 2004, the widely respected and early awaited report of the Dowager Queen of the petroleum sisters.

The review covers the previous year's results and was positively bubbling in its assessment of results and prospects. In 2003 oil prices reached 20 year highs. Brent crude rose from $30/barrel at the year's start to $35/barrel just before the invasion of Iraq. Prices fell as traders expected Iraqi production to return to pre-war levels after the capture of Baghdad, but when production didn't, prices resumed their upward trends. Such sweet sorrow.

In the meantime, the BP report had some disturbing information for the new Hubbertists who make their living predicting the death of oil. The intractable bell curve, the iron-clad offset between production and reserves wasn't quite so bell-shaped, curved, intractable, or iron-clad. It seems that Mexico's proven reserves measured 50.8 billion barrels in 1993 and only 17.2 billion barrels in 2003. According to the Hubbert theory of petroleum depletion, this rather steep decline should have produced the absolute end to production in Mexico. But no such end occurred. Nor is it in sight.

Instead, production in Mexico has increased every year since 1993. Daily production in 2003 was 20 percent greater than in 93. The explanation is in the fact the budgeted amounts for exploration and development of new and existing fields in Mexico have been restricted by the government's financial concerns. Consequently, definite determination of increased reserves has not been possible, despite the fact that such reserves obviously exist.

Reserves exist in the ground and not in the bell curve.

The brand new year, 2004, was brought in and brings along in turn the same old same old. With prices breaking $40 per barrel, retreating, regaining the loss, and retreating, the EIA's performance profile for 51 independent energy companies in 1Q04 were 11 percent above 1Q03. Oil prices were 3 percent higher than the previous year's 1Q, while natural gas wellhead prices declined as storage levels were significantly higher.

Most importantly in this era of grab and go capitalism, refiners net income increase 47 percent over the year earlier level as the terrorism surcharge doubled product prices. Field companies, point of production industrial units, realized only a 6 percent increase in year to year net income.

But the new year brings in one more report of significance, Appendix A. And Appendix A is the report of oil workers' strike in the Norwegian North Sea oil fields. Two hundred oil workers struck Norwegian Statoil, ExxonMobil, and ConocoPhillips, reducing output by 372,000 barrels daily. The issues for the workers are full-time employment and pensions. Looking across the waters, the workers in the Norwegian fields see the handiwork of Thatcher/Majors/Blair-- where only 5 percent of British workers are considered full-time and no pensions exist.

British oil production, while down from the 1998 high, is still above the 1993 mark. When the price of oil declined in 1998, dipped in 2000, and retraced some steps in 02, oil companies retired drilling platforms and left others with only skeleton full time staff. As the price of oil increases, production is augmented by hiring temporary workers and reanimating the idling platforms.

The Norwegian government has stepped in, breaking the workers' strike. Nevertheless, Appendix A puts the truth to the predicament of the oil industry and its rates of return-- the overproduction of capital. Two hundred workers producing 372,000 barrels of oil a day can only do so if the technical apparatus so employed is massive. Even if the wages of the 200 workers are, including overhead and benefits, $50 an hour, even if the workers work 16 hours daily, at $40 a barrel, the workers produce oil equivalent in revenues to the total daily wage in the first 2.2 hours of work.

The future is not written in the appendices, but in the main body of the workers' struggle.

S. Artesian

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1 comment :

  1. So the irony is that is we oppose the war against Iraq we end up being lumped in with all those who think it was just to get cheap oil for the US. It was about cheap oil, which gets in the way of profits and in financing new development in places where it costs more to produce it. All this rings very true now when the conservatives keeps saying, Gee, if it was about cheap oil, why is gasoline so expensive now? And we aren't supposed to get the joke!