Tommorrows Wars may Just Be About Raw Materials – Especially Energy
Once again China moves its pieces on the chess-board. China looks far into the future and secures its needs today – the west spends its time trying to better swindle its own citizens.
China lines up 100,000 bbl/day using hard-earned U.S. Dollars
By: Michael Lynch
Venezuela will ship 100,000 bbl/day of crude oil to China for 10 years to pay off a $20 billion loan. The per barrel price was not specified but their average basket price is around $75/bbl. President Hugo Chavez announced the oil-for-credit agreement on Saturday night. Venezuela has been working for some time to foster relations with China. The loan will be used for highways, infrastructure as well as investments in the oil industry. Venezuela currently ships 460,000 bbl/day to China.
The Rigzone Newsletter today reported on this most recent oil loan from China. Venezuela, like all states that operate national oil companies (NOL), shares the common problem that with population growth, the money from oil field operations is never enough to fund non oil necessities for the people. Growing populations demand ever more in the way of food and energy subsidies to say nothing of more roads, schools, hospitals and churches. In many countries, even employment has to be created. When crude oil prices are high, the squeeze is less severe. But when they are low or in the mid-range, as seen today, the national oil company cannot fund the government’s programs and still have sufficient capital to develop new oil fields. Mexico is perhaps the most glaring example of a strapped NOL but Venezuela is not far behind. Sonatrach is also coping with this problem. When coupled with the natural decline of older oil fields, the problem quickly becomes acute. So far Saudi Aramco, Kuwait and the United Arab Emirates have enough production to cope but populations grow relentlessly and the time when they too feel the squeeze is not far distant.
Iran feels pinched right now and that explains their interest in nuclear power to take pressure off the natural gas-powered electric grid. The lack of funds for oil and gas development is just one facet of the general so-called “rebalancing and consolidation” now taking place in the U.S., the U.K., Greece (famously), Italy, Portugal, Ireland, Iceland and Spain. Argentina “rebalanced” a decade ago and remains in the doldrums as a result. Japan too “rebalanced” and is now coping with the consequences. Iceland, instead of going on to the gold standard, is going on the “ice” standard. Most of Central America “rebalances” all the time. With little more than coffee and bananas to export, universal poverty is the result. Even the rich are poor. That is why they are called “Banana Republics”. Today, the U.S. is well on the way, if not already there, to becoming the world’s largest banana republic. The U.K is treacherously close to becoming the Banana Empire except that they have no bananas. And soon, they will have no crude oil either.
Many of the Western nations have amassed excessive public debt that has been supported by excellent credit ratings. The basis for the credit ratings is the state’s ability to tax the people without limit. Today that ability is coming into question. In Greece, the recent large demonstrations and strikes by public servants point directly at the citizens anger. When the people do not have sufficient funds to cover personal necessities, increasing their taxes is a tough sell. revolutions result. Heads roll. China is making hay while the sun shines. They are laying in precious oil supplies using U.S dollars to pay for it. China knows the end of this largesse is coming quickly. The greater truth is that the world is caught on the horns of a Kondratieff downswing. Until the overarching indebtedness is written off, an extremely difficult and painful process, hard times lie ahead.
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