Sobre la formación del estratégico precio del petróleo

Una nueva nota sobre energía del ingeniero Guillermo Martínez Funes publicada en la edición del Buenos Aires Herald de hoy.

Giant oilfields and supertankers

Crude oil consumer countries and world oil transit chokepoints.

By Guillermo Martínez Funes

For the Herald

No epic music, no romance, no fighter jets screeching to a halt on a flight deck, the 380-metre long, 300,000 deadweight tons sized Ultra Large Crude Carrier (ULCC) dwarfs the largest aircraft carrier afloat.

Supertankers are the long arm of the oil industry and one of the pillars of global economy.

If we were to choose one and only one single variable that influences the world economy, it would be the price of crude oil. The oil and gas industry attracts and moves more capital than any other industry and is the source of massive wealth transfers.

The price of crude oil depends on three major factors:

1. Marshallian supply and demand analysis

2. Oil trade inequalities

3. Unexpected events (wars, coups, accidents, sabotage).

The first major factor should be the easiest to determine as the Marshallian curves of supply and demand, under normal circumstances, are quite predictable.

The deficient data on one important variable, however, clouds the analysis: the information on oil reserves is a closely kept secret, thus reducing the precision of economic forecasts.

A second and less known issue should also be taken into account.

It is an obvious fact that the world crude oil production of 87 million barrels per day is not evenly delivered by the thousands of oil-producing fields, but it is seldom mentioned that the influence of the major oil producing fields (the ones containing at least 500 million barrels of recoverable oil) far outweighs the sum of the rest of the large fields.

In March 2007, defending his Doctoral thesis at Uppsala University, Fredric Robelius presented a forecast model for global oil production based on a detailed analysis of giant and large fields.

Based on 2005 data on 17,000 large oil fields, Robelius concluded that only 507, or one percent of the total number of fields, were giants, but they generated over 60 percent of the world production and contained about 65 percent of the global ultimate recoverable reserve (URR).

Therefore, a quick and simple Marshallian analysis should focus on the production records of these giant fields.

The second major factor, oil trade inequalities, has to do with storing crude oil and holding it in order to sell it, usually by means of futures contracts, at higher prices. About 10 percent of the world’s oil tankers fleet is used for oil storage purposes. This is both a highly profitable and highly risky activity that may lead to a dangerous market destabilization. Again, the lack of the detailed, withheld information could be the cause of potentially disastrous decisions.

Strict regulations and the market players’ self control can limit, but not eliminate, the effects of this factor.

The third major factor is by definition very difficult to predict. The consequences of one of such unexpected events are sudden and, either instantly or in the short term, affect oil supply.

They can happen at a production centre, in transit, or both.

The “in transit” events derive from the need to connect the oil producing fields with the consumer centres. This is done by two means: oil pipelines and maritime transport.

Oil pipelines are the most efficient way to transport crude oil over long distances on land and, in some cases, over short distances underwater. They can suffer accidents and acts of sabotage, but their effects are not long lasting, as it is easy for engineers to identify and repair damage.

Oil maritime transport, on the other hand, has different problems.

Crude oil carriers have evolved from the World War II, 16,000-ton deadweight, T2 tankers, to the modern, almost 400 metres-long, 400,000-ton deadweight ULCC supertankers, carrying more than two million barrels of oil.

In the generally used terminology for tanker classification, Panamax means the larger size a ship can have in order to cross the Panama Canal; Suezmax has the same meaning as regards to the Suez Canal while Aframax is just an acronym derived from Average Freight Rate Assessment, a tanker rate system.

Larger tankers fall into two large size categories: Very Large Crude Carrier (VLCC) and the already mentioned ULCC.

Due to their size, supertankers can’t enter most of the ports and have to deliver their cargo to specially built offshore terminals, connected to shore by pipelines.

They are built with a double hull in order to prevent the consequences of an accident and its potential spill.

As they sail around the world, connecting exporting countries with consumer centres, these ships can’t avoid passing through certain dangerously narrow channels.

These places are usually referred to as “transit chokepoints” and their crossing represent a clear risk to the safe conclusion of their voyage.

The map shows the main crude oil consumer countries and the world oil transit chokepoints, along with the volume of oil passing through them each day.

The most important chokepoint by far is the Strait of Hormuz, the only entrance to the Persian Gulf, 30 kilometres wide in its narrowest point, with two three-kilometre inbound-outbound lanes, separated by a three-kilometre buffer zone. Some 17 million barrels of crude oil pass each day through this strategic location, which was mined during the 1980’s Iran-Iraq War. If the Strait were closed the only alternative route out for oil would be the 4.8 million barrels per day capable East-West Pipeline that runs from Abqaiq, on the Gulf, to the Yanbu terminal, on the Red Sea coast.

The second most important world chokepoint is the Strait of Malacca that separates Malaysia from Sumatra and is only three kilometres wide at the Phillips Channel, in front of Singapore. Fifteen million barrels of crude oil pass each day through the Strait in its 11,000-kilometre route from the Persian Gulf to China and Japan. The risk of an accident is ever present due to the high volume of traffic and visibility problems.

The combination of the Suez Canal and the SuMed Pipeline constitutes the third chokepoint, with a daily flow of 3.8 million barrels per day. After the Six-Day War, the Canal was closed for eight years and tankers had to take a 10,000-kilometre longer route around the Cape of Good Hope.

Other major chokepoints are the Bab-el-Mandeb Strait, the southern entrance to the Red Sea (3.3 million barrels/day), the Bosphorus or Turkish Straits (2.4 million barrels/day), the Danish Straits (3 million barrels/day), and the Panama Canal (0.8 million barrels/day).

As long as the sea lanes are safe, the oil producer countries remain stable and the market retains a sound attitude, the future price of oil can be reasonably predicted. Unfortunately, this scenario is closer to a fairy tale than to our present reality.

*Guillermo Martínez Funes is an engineer and director of www.energyworld.org. He also directs a graduate course on energy geopolitics at EST/IESE, and Belgrano University.