The good news front on Saudi oil

Bush has a sitdown with Crown Prince Abdullah


Enjoying the company of a man (White House photo by David Bohrer)

There is no doubt that the White House has taken care to posture its handling of Saudi relations along a front of good news. From statements issued by officials from the meeting between Bush and de facto Saudi leader Crown Prince Abdullah in Crawford, Texas, you could hardly tell that there has been a year-long undercurrent of doubts about the Kingdom's ability to increase oil production.

According to the main news releases on the event, Bush has ``pressed'' (``jawboned'') Saudi Arabia to ``help curb skyrocketing oil prices that are hurting the budgets of American families and businesses.'' An impression that the Saudis are in complete control of taps to essentially limitless oil tanks under their Kingdom is one both the White House and the Saudis wish to cultivate. Then it's just a matter of the strong figure of Bush presenting arguments to a reluctant friend. Carefully calibrated messages are heard by the publics in both countries and, very importantly, by the global oil market.

On the other hand, there is some of the stark realism of the situation presented if one reads deeper into the stories. Namely, significant Saudi capacity increases will be long-, rather than short-term. In the account cited from the Washington Post, Saudi will ``invest $50 billion over five years in a plan that would eventually increase the kingdom's oil production capacity by close to 50 percent.'' Even if it is true that Saudi is eventually capable of sustained 12.5 to 15 million barrel per day output after this huge investment, five years from now is not worth much in salving a brewing crisis that looks more immediate every day.

It was rare, but a few stories today indicated that the Saudis would do nothing in the near term to provide gas price relief. For example, the Washington Post reported today, Bush, Saudi Fail to Reach Deal to Lower Gas Prices. But Australian public broadcaster SBS really broke dictation of the good news front with this story:

BUSH FAILS TO GET OIL DEAL

Saudi Crown Prince Abdullah bin Abdul Aziz has rejected a request from US President George W Bush to help limit soaring oil prices by increasing production.

Instead, both sides urged energy markets to consider a Saudi plan, unveiled in February, to raise its oil output gradually, to 12.5 million barrels per day over the next few years and possibly up to 15 million if needed....

Last week President Bush promised to get a "straight answer" on how much more oil Saudi Arabia could get to the market.

But on Monday officials from both sides wouldn’t confirm that he sought such information.

The US leader, who has said he does not have a "magic wand" to reduce oil prices, has seen his job approval ratings drop sharply over the past few months as American consumers pay higher prices at the gas pump.

A senior Saudi official said Riyadh believes global oil prices were too high but boosting the kingdom's output would not necessarily lead to lower US gas prices.

"It will not make a difference if Saudi Arabia ships an extra million or two million barrels of crude oil to the United States. If you cannot refine it, it will not turn into gasoline and it will not turn into lower prices," he said.

Indeed, the crude price did pull back some the last couple of days to $54.12 per barrel from $55.39 at the Friday close. But this is a weak signal considering the way the profile of the issue was raised by the Bush-Abdullah meeting. Many market players remain skeptical, according to quotes in the Bloomberg story cited.

To illustrate the height of the profile the oil price issue has achieved, a Press Briefing from Crawford Monday featured National Security Advisor Stephen Hadley and Secretary of State Condoleezza Rice. Hadley covered the good news about the Saudi ``plans in the next decade to increase that over time to about 15 million barrels a day in order to help stabilize the market and ensure an adequate supply at a reasonable price....'' Emphasis -- There is nothing the Saudis can do about today, all this remarkable capacity is in the ``next decade''.

Then came this exchange, which shows who Hadley thinks is boss, that the super-duper Saudi plan won't help in the short term -- or maybe not even in the long term -- while he offered no resistance to the notion that the era of oil below $30 is over:

Q: Steve, what did the President ask the Crown Prince, in terms of boosting oil production? Is he satisfied with the number you gave, 12.5 million? And, also, is the administration disappointed that the Saudis, according to their spokesman, are no longer able to keep their pledge of reducing the price of oil from $28 to $22 a barrel; he says it's no longer realistic?

MR. HADLEY: Well, two things. One, the Saudis really came with a plan, which was briefed in some detail to the Vice President yesterday. So they came with a plan of what they intended to do, went through it in some detail. Their oil minister was here. And it is, again, seemed a very good plan ...

Q: Do you believe that the plan will lower oil prices anytime in the near term?

MR. HADLEY: It's hard to say. Obviously, though, you know, when you increase the capacity of a significant amount -- which they are talking about -- that can't help but have a positive downward affect on prices and deal with some of the volatility in the market ...

... The Saudis have some questions about refinery capability on our side and what they can do on their side with respect to refinery capacity. I think there is more discussion that needs to be done on that issue. But it was addressed; more attention needs to be paid to it. What really came was a plan for increasing production through substantial investment, to the tune of about $50 billion over time. So it's a major initiative that they've undertaken.

Condi chipped in, ``that we have not a short-term problem, but a long-term problem'' that it will take the president's energy bill to address, even though Bush himself conceded last week that it will not lower gas prices.

Kerry fires a few shots at the Energy Bill
John Kerry awoke yesterday long enough to light up the screen on CSPAN-2 with a speech blasting the Bush energy plan now working its way into the Senate after passing the House last week. I'd like to have a buck for every time Kerry uttered ``dependence'', ``dependency'', ``foreign oil'' and how ``dangerous'' it all is:

[Americans] are not going to see Washington taking the necessary steps to end our dependency on foreign oil. Instead, people will see President Bush meeting with Saudi Crown Prince Abdullah, a stark reminder of our dangerous dependence on foreign oil and how much that dependence threatens our economy as well as our national security.

In the last days, the administration has conceded ``changes to production, consumption, imports and prices are negligible under the plan submitted to the Congress.'' Frankly, Washington has danced around this statement for a year now. But last week, President Bush himself acknowledged the truth. He said: [The] energy bill wouldn’t change the price at the pump today. I know that and you know that. So if we all know that, why pass this Energy bill along in its current form when real solutions are staring us in the face...

Kerry did throw in the following very interesting details supporting the fact that he is right -- the oil-based life we enjoy has huge costs and perilous dangers:

In recent years, U.S. forces have had to help protect the Cano Limon pipeline in Colombia. Our military had to train indigenous forces to protect the pipeline in Georgia. We plan to spend $100 million on a special network of police officers and special forces units to guard oil facilities around the Caspian Sea and to continue to search for bases in Africa so we can protect all of the facilities there. Our Navy patrolled tanker routes in the Indian Ocean, South China Sea, and the Western Pacific.

The reality is, we have to protect oil because that is what protects our way of life today. This is a serious issue, with real consequences, because of the unstable nature of conflict-ridden, oil-producing areas which challenge our security.

In the spring of 2004, insurgents attacked an Iraqi oil platform. There was violence against oil workers in Nigeria. The result was to press global oil output and record-high gasoline prices. We were helpless to stop it. I do not think any American wants to be helpless where national security is concerned. Our dependence on foreign oil creates just the sort of alliances that George Washington warned against in 1796. These alliances with foreign suppliers leave us more vulnerable, and they can crumble the foundations of our economic and national security.

So Kerry was right to decry how America projects its power to protect its oil, but he left out any direct mention of the costs paid by or anger generated in people upon whose heads America lands and bombs in order to keep the oil flowing.

But he does offer some alternatives:

It is time now for America to make its next transition in fuel, to move to a mix of solar and wind and biomass and fuel cells and clean coal and other wonders of American ingenuity. We have huge reserves of coal. But despite all the rhetoric, the administration hasn’t even adequately funded the clean coal technology program. We need to tap America’s strength.

I'd like to take a look for myself at the numbers and pitfalls. I'm not as immediately sanguine as Kerry is. Coal? Will a solar/coal program solve the ``dangerous dependence''? I've read Matt Savinar and his numbers suggest not. I need to find out for myself. It will be a big project.

Meanwhile in Edinburgh
The Guardian reports today (Tuesday) on a conference in Edinburgh on oil resources that formed an alarming counterpoint to the Saudi-White House good news front. It quotes heavily from Matt Simmons, an energy industry analyst who is concerned about the true status of the Kingdom's production capacity and author of the upcoming book, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. The Guardian quotes Simmons from Monday, just as President Bush and Crown Prince Abdullah were sharing their stroll through the garden:

One of the world's leading energy analysts yesterday called for an independent assessment of global oil reserves because he believed that Middle Eastern countries may have far less than officially stated and that oil prices could double to more than $100 a barrel within three years, triggering economic collapse.

Matthew Simmons, an adviser to President George Bush and chairman of the Wall Street energy investment company Simmons, said that 'peak oil' - when global oil production rises to its highest point before declining irreversibly - was rapidly approaching even as demand was increasing.

``This is a new era,'' Mr Simmons told a conference of oil industry analysts, government officials and academics in Edinburgh. ``There is a big chance that Saudi Arabia actually peaked production in 1981. We have no reliable data. Our data collection system for oil is rubbish. I suspect that if we had, we would find that we are over-producing in most of our major fields and that we should be throttling back. We may have passed that point.''

I don't know. What is real? Obviously the good news front has some shakiness, as nothing the Saudis or White House officials say suggest large additional quantities of oil can come quickly onto the market in any sustainable way. In the long term, are the Saudi promises of 15 million barrels realistic, or even enough? Simmons says no. And no one now making cheery official pronouncements will be in any position where they could be held responsible when it comes time to find out the truth.