George Bush Won't Be Able to Limit Oil Imports
// No more Russian oil in America
The Market
U.S. President George W. Bush signed a law on energy, four years in the making, on Monday. The law's goal is to reduce oil imports. Western analysts think that American imports will increase in any case. But Russian still won't be able to take advantage of the situation.
George Bush Blunders
More than half of the oil used in the United States is now imported, and 70 percent will come from abroad by 2025, if current trends continue. No less than a quarter of the imports come from OPEC countries. Senate majority leader Bill Frist has stated that “as long as more than half our oil supply comes from other countries, our national security is under treat.” A new law has been signed to spend between $12 billion and $66 billion, depending on how things go, on U.S. energy security over the next ten years. Natural gas and oil production will be subsidized. The American oil industry will receive $3.6 billion from the federal budget for use on geological exploration plus $2.8 billion in tax benefits. The American consumer may receive a tax break of $3000 for buying a hybrid car (with an engine that runs on both hydrocarbons and electricity). The Japanese automaker Toyota controls 64 percent of the American market for those cars. And the consumer who installs a solar water heater in his house (with the exception of swimming pool heaters) will receive a $2000 tax credit.
Under the new law, American oil refineries are to increase their use of ethanol (ethyl alcohol) gasoline production to 8 billion gallons a year by 2012 to reduce oil imports, which will stimulate American grain and potato growing, as well as the ADM Co., the country's largest ethanol producer.
Bush's law foresees numerous measures for state intervention in the economy for the sake of national oil security. Those measures are, of course, hardly in keeping with the ideals of a free market. Congressman Ed Markey (Democrat, Massachusetts) said that “today Adam Smith is spinning in his grave so fast that he could be considered an energy source himself and given a subsidy under the new law.”
Unfortunately, Russian citizens will not receive tax benefits from the American government if they buy solar water heaters and the Russian auto industry does not produce hybrid cars, but the main idea of Bush's law – reducing oil imports – is of great interest to Russia. The potential volume of oil exports to the American market is a worry for the Russians, as are world oil prices, which this law may have some influence on. If the United States, the world's largest oil consumer, real cuts down on its consumption, world oil prices will fall notably. Russia may be interested by the clause about state financing for geological exploration as well. Negotiations are now underway on the involvement of American companies in the development of the Russian portion of the Arctic shelf. It is possible that some of the promised funding will be used by American companies there.
Western analysts have expressed doubts that U.S. oil consumption will be reduced in the next few years to such an extent that it will be reflected in world oil prices. Theoretically, they allow that consumption could fall and prices with it. But, paradoxically, American dependence on foreign oil would rise in that case, because oil produced at the highest cost would be the first to be eliminated. That is oil produced in North America. The most promising oil fields in North America are in the states of Utah and Wyoming, the Canadian province of Alberta and the Gulf of Mexico. In all of them, the average production cost of a barrel is $15. The production cost in Iran and Saudi Arabia is $1.50, a dramatic contrast. Thus, reduced consumption will hit American oil and raise imports.
Russian Oil Will Not Make It to the American Market
One might think that Russian oil producers stand to benefit from the new law, since Russian oil production prices ($8-10 per barrel), while not as low as the Iranian, are still lower than American prices. So Russian oil has a chance on the American energy-saving market as well as Near Eastern oil.
It is a delivery issue, of course. Near Eastern oil is delivered to the U.S. in supertankers and it is produced near ports. Deliveries from Russia are only possible now from Sakhalin. The Sakhalin 1 and 2 projects have finally reached industrial proportions. The American giant Exxon Mobil is not there by accident. Baltic ports may be used in the future. Although the Baltic pipeline was built with an eye to the European market, LUKOIL is planning to deliver up to 10 million tons of petroleum products to U.S. per year from the recently opened port of Vysotsk. Deliveries to the U.S. also might be made from the ice-free ports of the Barents Sea. At one time, a number of large Russian oil companies, including YUKOS, proposed using their own money to build a new pipeline from Western Siberia to Murmansk and to build a large oil terminal there.
In the “Russian Energy Strategy through 2020,” approved by former prime minister Mikhail Kasyanov on August 28, 2003, it says, “Strengthening Russia's position on the international oil and gas market is of strategic importance in order maximally to realize the export opportunities of domestic the fuel and energy complex and contribute to the economic security of the country while remaining a stable and reliable partner for European states and the world community. Russia's participation as a major supplier of energy resources to guarantee international energy security will be a new factor in the period up to 2020.” The United States is mentioned in the strategy in a short paragraph where the necessity of opening an energy dialog with it is discussed. The developers of the strategy clearly did not consider it a major buyer of Russian oil, although YUKOS considered the U.S. oil market as attractive at that time. But plans relating to new ports were effectively quashed. The state forbade the building of private oil terminals and Murmansk thus did not become an oil port.
Thus, even if the American law does lead to an increase of oil imports (even if at lower prices), Russia will not be prepared to take advantage of the situation for technical reasons and because of domestic policy.
by
Konstantin Smirnov, Sergey Minaev
All the Article in Russian as of Aug. 10, 2005
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