The truth about oil
August 27, 2007
The following is the results of extensive research on why oil and gas costs are at current levels. This letter attempts to go behind the headlines to explain why that a permanent downturn in gas prices may not occur now or in the future mainly because of from where the oil is imported.
The five largest exporters of oil to the U.S. are:
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4. Saudi Arabia
These five account for more than 75 percent of U.S. crude imports. Around 70 percent of all imported oil is used to fuel the estimated 125 million vehicles on America’s highways.
A brief review of some of the problems these countries face is now presented.
There is a very serious problem with the killings and kidnappings or oil workers in Nigeria, where production levels are falling. President Chavez of Venezuela has increased royalties and forced operators to accept joint agreements with state owned company of PDVSA. The oil minister of Saudi Arabia is quoted as saying that new oil production cannot keep up with current demands.
Global drilling is at a 20-year high with over 54,000 wells due to be drilled in 2007. However, experts are saying many, if not most, will be drilled for natural gas.
Factors that contribute to the recent high cost of oil and that are likely to keep prices at current levels, if not higher, are as follows. The demand for increase production with estimates that by 2010 the world will need 14 million more barrels of oil daily than is produced today. Everything involved in the cost of drilling and production in on the increase. Steel, a major factor in developing new wells, has increased 25 percent in cost in just the last year. As drilling locations become more remote and in more difficult places, costs will increase accordingly.
Light, sweet crude is the easiest to extract, bring to market and convert to gas. Light, sweet crude is becoming more and more difficult to find. This requires more expensive types of drilling and extraction methods and creates another problem the world now faces. There just are not enough technically, computer-trained people to staff all the new oil rigs.
In the not-too-distant future, I see gas costing $5 a gallon here in the mountains.
Harry Temple III