Scraping the Barrel… 30 July 2012

As today’s barrel scrapes reveal: China plants a city in a disputed oil-rich area, the US eyes an end to its reliance on foreign oil, and Argentina tries to gain the upper hand on foreign oil companies. Read on below the fold…

China is planting its flag in the disputed South China Sea, again, but this time in slightly more permanent form: a new city. At the ceremony marking the birth of Xansha, on the Paracel islands also claimed by Vietnam and Taiwan, the city’s mayor didn’t do much to cloak Chinese ambitions, saying the new city would help “protect the sovereign rights of China and … strengthen the protection and the development of the natural resources.” Indeed, the waters surrounding the new city contain rich fishing grounds and potentially vast oil and gas reserves. The move was criticized by the US and likely made observers in Vietnam and Taiwan grit their teeth, but hand wringing and strongly-worded statements aren’t likely to erase the supermarket, bank and hospital – and the thousand or so residents – China plopped on disputed soil and called a city. No matter how transparently opportunistic a move, go ahead and mark this in the win column for China.

What if the US were an oil exporter, not the world’s biggest importer? This blog from Platts explores the possibility that crude oil from North Dakota and natural gas from unconventional sources such as shale could, in the next decade or two, lead to an eventual surplus in hydrocarbon liquids in the country. Could the US eventually play the role of swing producer, as OPEC does now, using its spare capacity to minimize the impact of fluctuations in prices and global demand? Or would the country turn inward, effectively hoarding its reserves to create lower fuel prices at home? The answers are not yet clear; but observers quoted by Platts seem to agree that increased domestic production could lead to less US engagement (or entanglement?) in Africa and the Middle East, opening the door to even greater Asian influence in resource-rich areas of the global south. However, on the question of whether the US will relinquish its role as the protector of global supplies – its role as Team America: World Police, as some have termed it – one expert boldly declared: “I’m not so sure.”

Is big oil not spending enough? In Argentina, evidently not. After nationalizing its largest oil company, Repsol subsidiary YPF, in April, Argentina has taken its national energy goals a step further by creating an oil planning commission with a mandate to review all private companies’ investment plans. Foreign oil companies operating in Argentina aren’t exactly jumping for joy. The government needs the industry if it wants to succeed in transforming from a net oil importer to exporter, but seems to feel companies weren’t investing enough to achieve the necessary production targets. The new commission will oversee companies’ investment plans and penalize them if they fall short – essentially playing nanny to big oil, industry advocates seem to be arguing – in a bold move, but not exactly one that engenders sympathy to the industry. The activity in Argentina has had some ripple effect – Venezuela’s Hugo Chavez has already made his feelings on the YPF nationalization clear – so it will be interesting what regional impact the new oil commission might have.

To check out previous news roundups, see the Scraping the Barrel series.

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