There is a flame of hope in the dark desert of Kurdish/Iraqi oil negotiations. (image: kurdistan4all via flickr.com)

In Iraq, what promised to be one of the greatest oil bonanzas of modern times is now looking less like the proverbial spouting geyser and more like a crude-based quagmire. Since 2002 more than 30 foreign companies have set up operations in oil-rich Kurdistan, a semiautonomous region in Iraq, hoping to cash in on the immense oil reserves recently discovered there.

However, according to Sunday’s New York Times, a complex political dispute between Kurdistan and Iraq, involving the scrutiny of at least one oil contract held between the Kurdish government and an outside company, still threatens to choke off oil production and send profit margins into the red, though there are some faint glimmers of hope.

The controversy first arose in November, in the wake of revelations that a former American diplomat maintained a business relationship with Norwegian oil company DNO while acting as a political adviser to the Kurds during the drafting of Iraq’s Constitution in 2005. The scandal helped to exacerbate the more contentious issue of profit sharing between Kurdish authority and the central Iraqi government, and led some officials in Baghdad to question the legitimacy of the region’s production-sharing agreements. Kurdistan contends that it has every right under Iraq’s Constitution to sign the contracts, while Baghdad maintains that they are illegal in the absence of a national hydrocarbons law, and has gone so far as to blacklist the companies operating in the region.

However, there is some promise of reconciliation, however slight. In an effort to ease some of the immediate business concerns of the heavily invested foreign oil companies now operating in the region, the Kurdish government recently presented Baghdad with a major compromise that would permit DNO, along with a Chinese-Turkish joint venture called Ttopco, to resume exports of about 100,000 barrels a day via Iraq’s pipeline network. The proposed compromise would require the two producers to offer their oil to Iraq’s State Oil Marketing Organization, which would compensate them initially just for their costs.

While the compromise is yet to be accepted by Baghdad, it could lead to at least some oil coming out of Kurdistan. With talk of peak oil and rising demand for crude in China and India, much of the industrialized world has begun to look to Iraq to provide a major boost in supplies in the near future. Whether this happens or not may depend on how and when the dispute between Kurdistan and Iraq is finally resolved.

Blue lanterns along the waterfront in Battery Park City Section of Manhattan create in idyllic scene, but nearby buildings continue to burn dirty residual fuels for heating. (iamge: CVerwaal via flickr.com)

In December, HeatingOil.com reported on some New York City buildings’ use of residual fuel for heating and the detrimental effect of that usage on the City’s air quality. A study by the Environmental Defense Fund found that 9,000 buildings in New York still use No.6 or No. 4 heating oil—cheap, unrefined, and repellently dirty fuels that comprise only 1 percent of the city’s fuel stock but which are nonetheless responsible for 87 percent of New York’s oil-related airborne soot. Since then, city officials have begun to introduce regulations that would phase out No.6 and No.4 oil, though such efforts have been met with resistance—even from the “greenest” corner of Manhattan: Battery Park City.

According to an article published by Downtown Express, the neighborhood of Battery Park City, which occupies Manhattan’s southernmost tip and frequently touts its groundbreaking “green guidelines,” is home to at least six buildings still burning No.6 or No.4 fuels. All of the buildings were built before the implementation of the guidelines—which have helped to make BPC one of the cleanest neighborhoods in New York—and thus have expressed no intention of converting their furnaces to accommodate cleaner- burning No.2 heating oil.

Battery Park City lies on the bank of the Hudson River, on the Western side of Lower Manhattan. (image: z.about.com)

“It would make sense for them to look at [heating oil] seriously and set an example for the rest of Lower Manhattan and the city,” said Catherine McVay Hughes, vice chairperson of Community Board 1, referring to the several dozen other buildings in Lower Manhattan that burn No.6 and No.4 fuels. However, at the moment, there is little that anyone can do to force the offending buildings to replace their old furnaces with new ones.

According to Jim Cavanaugh, president of the B.P.C. Authority, the authority cannot force buildings to switch to a cleaner-burning fuel. Moreover, Milford Management, which runs five of the six buildings in BPC that still use No.6 and No.4 fuels, has shown little willingness to spend the $100,000 it would take to replace each furnace with a newer, more efficient model. Lorraine Doyle, who manages Milford’s B.P.C. properties, said she had not looked into changing the fuel type, but guessed that it would be expensive and would require an incentive. “Certainly if it came time to replace the boilers, it would be a huge consideration as to what would be environmentally friendly and what would be most efficient,” Doyle said.

One opportunity for an incentive might come in the upcoming ground rent renewals, when many BPC buildings will face sharp increases in yearly fees to the Authority. The authority could offer to mitigate those increases if buildings add green features. Furthermore, citywide restrictions on heating oil could be coming soon. Mayor Bloomberg addressed the matter in a speech he made last month, and Isabelle Silverman, an attorney for the Environmental Defense Fund, said she expects the city to release phase-out guidelines for No. 6 and No. 4 oil later this year. The Environmental Defense Fund hopes the city will pick 2020 as the deadline for all landlords to convert their buildings to cleaner heating fuel.

Despite considerable upfront costs, switching to cleaner-burning No.2 fuel has numerous benefits not only for residents, but for building owners and operators. There is much evidence to suggest that No.6 and No.4 fuels—formerly used for industrial purposes, like stoking maritime boilers and paving streets—are extremely harmful to the environment. A study released by the city’s health department shows high levels of particulate matter, sulfur dioxide, and other pollutants in areas where many buildings burn no. 4 and no. 6, also known as residual oils. In fact, another study, released only a week ago, suggests that switching away from No.6 and No.4 fuels could save 188 lives per year by lowering the level of pollutants in the air.

There are financial benefits as well. No.6 and No.4 fuels are less refined than No.2 heating oil, and thus much harder on furnaces and boilers. This means more maintenance and a greater need to replace boilers as they wear out; thus, investing in a newer boiler that burns No.2 fuel might very well pay off in the long run.

The World Economic Forum played host to a forum of the oil industry’s leaders. (image: eyeofdubai.com)

A day after Barack Obama’s State of the Union address, in which the president somberly admonished the United States for its dependence on Middle Eastern crude, an assortment of oil executives convened at the World Economic Forum in Davos, Switzerland, to pronounce their own thoughts on the matter of energy policy and, with thumbs to their noses, toast the continued predominance of fossil fuels.

According to CNNMoney.com, the forum was attended by top executives from oil giants like BP, Saudi Aramco (the national oil company of Saudi Arabia), and Royal Dutch Shell. Displeased with President Obama’s vocal endorsement of alternative fuels, and worried by Congress’s consideration of a cap and trade bill that would effectively limit demand for oil in the United States, the CEOs hoped to dispel what they consider a fanciful notion of an oil-free world. Rather, these men described a bright future for crude, which, they said, would continue to dominate energy markets for decades to come despite interference from the Obama administration.

Tony Hayward, group chief executive of BP, announced that regardless of lower demand for oil in developed countries, BP is forecasting a 40 percent increase in energy consumption among non-OECD nations over the next 20 years. He added that despite developments in alternative energy, he believes that oil and gas will remain the preeminent sources of fuel. “Even in the most aggressive climate change legislation perceived, hydrocarbons will represent 80% of energy consumption over next 20 years,” Hayward said, briefly outlining BP’s plans to boost production in their Iraqi oil field from 1 million barrels a day to 3 million barrels by 2020.

Representing Saudi Aramco, Khalid Al Falih declared the debate concerning “peak oil” to be no longer worth mentioning—an opinion common among oil executives. He dismissed the goal set by President Obama to reach energy independence as “unachievable and misleading to the public,” complaining that while Saudi Arabia continues to invest in oil production, “we don’t see reciprocal assurances from customers, by which I mean policy makers, to signal to us a long-term commitment.” Al Falih’s comments are rather more severe than those he made only a month ago, when he conceded that alternative fuels will ultimately displace crude and that, while sometimes exaggerated, the theory of peak oil was in fact supported by evidence.

Peter Voser, CEO of Royal Dutch Shell, hoped to offer a more “realistic” view of the energy industry, arguing that should alternative fuels come to replace fossil fuels, it will not be anytime soon. “It takes 25 to 30 years to gain 1% of global market share from the moment we start investing in a major project,” he said. In recent months, Shell has faced a number of challenges, including setbacks in their Nigerian operations caused by attacks by local militants and slumping third quarter profits, which forced the company to slash its workforce in December.

Amidst the oil executives, Andrew Liveris, chairman and CEO of Dow Chemical, elected himself to speak on behalf of US energy consumers. Noting that Dow has recently suffered under rising fuel costs, Liveris declaimed both the proposed carbon tax, which he said would simply pass on costs to consumers, and cap and trade system, which rewards speculators rather than energy providers. It is debatable whether Liveris, the wealthy head of the largest chemical company in the United Sates, is in fact representative of energy consumers, but his distrust of government interference in matters of energy production certainly reverberated at the World Economic Forum.

Wall Street. (image: diversityjobs.com)

Since October, the crude oil options market has appeared curiously calm. Prices have settled nicely between $70 and $80 per barrel and, early last week, the CBOE Crude Oil Volatility Index (the seismograph of the oil market) fell to its lowest point in more than two years. Unimpressed by the relative placidity of the New York Mercantile Exchange, many financial traders—like surfers looking for the next big wave—abandoned the energy markets in search of profit-generating volatility.

But perhaps they were too hasty. This week, analysts have registered some substantial seismic tics in the crude market, and many are now predicting a shake-up that will get prices moving. Worries that the Chinese economy is slowing and concerns over political turmoil in Washington have sent ripples through the financial world: at NYMEX, daily crude oil option trading activity jumped over 150,000 lots on Thursday and Friday, up nearly 50 percent from the 2009 daily average, according to the Wall Street Journal.

Investors seem to be preparing for a swing in oil prices, though exactly which direction they’ll go is anybody’s guess. Some analysts, anticipating another downturn in the global economy, expect oil prices to tumble. Deutsche Bank, for instance, predicts that, by the last quarter of the year, oil will average only $60 a barrel; and while prices will steadily rise after that, the bank doesn’t expect them to exceed $100 a barrel until 2015. Others say prices will soar because of stronger economic growth and fuel consumption. On Monday, Morgan Stanley predicted oil would reach $95 a barrel by year end.

“The need for hedging is completely intact,” says Philippe Laraison, global head of energy trading with Société Générale. The bank is seeing an influx of hedgers, eager to cash in on a shift in price, returning to the market. Indeed, at least several companies share Laraison’s outlook: Southwest Airlines, Newfield Exploration Co. and Chesapeake Energy Co. all recently said they have increased their hedging positions to protect against coming price swings. Last week, Jeff Grossman at BRG Brokerage in New York said his firm saw increased buying of put options—options that give an owner the right to sell at a certain price—as investors tried to protect themselves against a downward move in oil.

Many companies were hurt in 2008 by the swing in crude prices, when oil jumped to more than $147 a barrel before sinking again into the $30s. The unpredictable swings stirred political debate and consumer outrage, as many blamed financial speculators for roiling the energy markets. Whether investors will go about matters differently given another shift in the market is something else worth betting on.

Crude oil price chart. (image: money.cnn.com)

Amateur market-watchers frustrated by their inability to predict the course of oil prices will be pleased to learn that, according to a recent report by CNN Money, even the nation’s leading banks can’t agree on which direction crude will go this year. There are, of course, those who believe that oil will surge upwards of $100 a barrel by 2011, and those who believe that it will sink to around $60, with a great many others in between.

The first camp, which comprises corporate banks like Merrill Lynch and Goldman Sachs, predicts that oil prices will increase as the global economy recovers. Merrill Lynch, for instance, assumes that the world economy will grow by the fairly robust rate of 4.4 percent in 2010 and 4.5 percent in 2011. This means that industrially vigorous nations—especially China and India—will need more oil, straining current supplies and driving up prices. “As the private sector resumes its role as an engine of global growth in the second half of 2010, we see oil prices averaging $92 a barrel and potentially breaking through $100 a barrel as we enter 2011,” says Francisco Blanch, head of global commodities research at Merrill.

The second camp, which includes Deutsche Bank and Roubini Global Economics, tends to think that rising interest rates, a surging dollar, and recent improvements in energy efficiency will dampen oil demand, even as the economy expands. Deutsche is predicting that, by the last quarter of the year, oil will average $60 a barrel; and while prices will steadily rise after that, the bank doesn’t expect them to exceed $100 a barrel until 2015. “We remain cautious about the oil price outlook for 2010,” Adam Sieminski, chief energy economist at Deutsche, wrote in a recent research note. “The markets remain delicately balanced, we expect some weakness.”

There are, inevitably, those analysts who have chosen the middle road. Among them is the Energy Information Administration, which envisions oil at around $80 per barrel by the end of the year. The EIA assumes that sluggish economic growth and a cautious OPEC will keep prices down.

Whether the great variety in professional opinion strikes you as disconcerting or encouraging, keep in mind that, according to EIA senior economist Tancred Lidderdale, it’s not uncommon for two different oil analysts to predict oil prices going in opposite directions. Indeed, it is a testament to democratic capitalism itself that analysts can foretell with only 95% accuracy that oil will be somewhere between $46 a barrel and $162 a barrel by the year’s end. Care to place your bet?

One of many methods of growing algae. (image: Paul Francis Harrison via flickr.com)

A recent study published in Environmental Science and Technology proposes that algae-based biofuel might not be as environmentally friendly as is commonly believed. The problem is not with burning it, but with growing it: because algae production requires fertilizers, which emit nitrous oxide (a greenhouse gas), algae-based biofuel can end up producing more pollution than it absorbs.

While corn and switchgrass can draw nitrogen from soil, which reduces the amount of fertilizer needed, algae requires that additional fertilizer be added to the water in which it grows. “Nutrients are going to be the limiting factor,” said Dr. Andres Clarens, an Assistant Professor of civil engineering at the University of Virginia and an author of the study. “We’re humans. We need to eat dinner, and you can’t expect to have algae that provide a bunch of energy without feeding it nutrients.”

However, there are still several benefits that recommend algae over soil-based biofuels. For starters, algae grow atop water and do not compete with food crops for land space. Also, they have a higher energy yield than other biofuels, including corn and switchgrass. Such qualities have led some scientists to extol algae as the most promising of biofuels and the future of global energy.

Moreover, scientists have suggested a clever way of producing algae without using tons of fertilizer. Because algae can grow pretty much anywhere, or in anything, producers like Simply Green Biofuels have considered channeling municipal wastewater into algae plantations. The nitrogen-and-phosphorous-rich sewage would provide the growing algae with all the nutrients it needs. At least some fuel companies think this system will work: last summer, energy ExxonMobil devoted $600 million to the project.