China Is Reaping Biggest Benefits of Iraq Oil Boom

[sjacquemotte]

You seem to be forgetting that oil is fungible.

Even if 100% of all the oil in Iraq gets poured for free into tanks in China, we still benefit.

Every barrel they get out of this arrangement is one barrel that they aren't bidding against us for.

Lower demand = lower price point

If they want to lose money on this because they think it benefits them somehow, they are subsidizing us.

QED

Not to mention, even though it was thought of as a negative when Iraq joined OPEC, they have a pretty big say in the cartel which is a win for us.

[ElNono]

You seem to be forgetting that oil is fungible.

Even if 100% of all the oil in Iraq gets poured for free into tanks in China, we still benefit.

Every barrel they get out of this arrangement is one barrel that they aren't bidding against us for.

I didn't forget anything, but you still seem to be completely missing the point: They compete with us for those contracts, and by accepting the very thin profit margin the Iraq government demands, and getting those contracts, they drive down our oil co's profit margins, which the oil co's will try to recover from somewhere else (ie: customers).

Lower demand = lower price point

If they want to lose money on this because they think it benefits them somehow, they are subsidizing us.

QED

China's oil demand doesn't change one iota. It's actually the exact opposite of subsidizing us, which is what would happen if they bought their oil from Exxon.

If they didn't pump their own gas, the money trail would look like this:

China government --> Exxon --> Iraq government

with Exxon making a profit, and us reaping the benefits (through taxation)

When you have this picture though:

China government --> Iraq government

they simply removed the middle man (us). Overall demand hasn't changed one bit. Exxon won't have excess oil because they simply don't have access to that oil field (which is the one they would've been exploiting in the previous arrangement).

[ElNono]

Meh, we can't produce our way out of oil dependence.

I don't agree with that. I think it's both using less oil and finding better and more effective ways to extract oil than conventional oil rigs.

[boutons_deux]

I don't agree with that. I think it's both using less oil and finding better and more effective ways to extract oil than conventional oil rigs.

A few of us have posted here about "flow rate" of oil and gas being a huge limitation in the future, no matter what the actual reserves are.

And there is the expense of exploration, extraction, eROI, and the external costs of pollution.

The best working assumption/prediction is that oil/gas will be much more expensive in the future, so alternative energy, esp for transport, must be aggressively developed now, but BigCarbon has bought enough Repugs and a few Dems to impede or kill development/deployment of alternatives to fossil energy. Repugs love to sow FUD and doubt about SS 75 years in the future, but deny any problem in near future of expensive carbon energy.

[RandomGuy]

I didn't forget anything, but you still seem to be completely missing the point: They compete with us for those contracts, and by accepting the very thin profit margin the Iraq government demands, and getting those contracts, they drive down our oil co's profit margins, which the oil co's will try to recover from somewhere else (ie: customers).

um, no.

IF the margins are that thin to begin with, then any company going in is going to have a hard time profiting, by definition.

What you are saying here is:

"Our oil companies are losing out on this really really unprofitable opportunity, and will have to make up the lost profits by charging US more."

That is a directly contradictory idea.

[RandomGuy]

China's oil demand doesn't change one iota. It's actually the exact opposite of subsidizing us, which is what would happen if they bought their oil from Exxon.

No, no, and no, Nono.

FUN-GI-BLE.
http://en.wikipedia.org/wiki/Fungibility

Fungibility is the property of a good or a commodity whose individual units are capable of mutual subs ution, such as sweet crude oil, shares in a company, bonds, precious metals, or currencies.

It refers only to the equivalence of each unit of a commodity with other units of the same commodity. Fungibility does not describe or relate to any exchange of one commodity for some other, different commodity.

China oil consumption:
100 units.
Purchased imports: 80
Domestic production: 10
Iraqi plunder: 10

Amount required to purchase on open market from all non-domestic, non-iraqi sources: 80

Subtract Iraqi oil from the above, China's economy still demands 100 units of oil.

Domestic production: 10
Purchased globally: 90

China now is bidding with the US on a global scale for 90 units of oil, instead of 80 before, making the net demand on the oil markets 90.

More demanded units relative to supply = higher price point.

http://en.wikipedia.org/wiki/Supply_and_demand

[RandomGuy]

I don't agree with that. I think it's both using less oil and finding better and more effective ways to extract oil than conventional oil rigs.

FUNGIBLE.

FUNGIBLE.

FUNGIBLE.


Even if we produced 110% of all of our consuption, and exported the remainder, we would STILL be subject to price increases at home because of global supply/demand.

Do you understand why that is?

[ElNono]

um, no.

IF the margins are that thin to begin with, then any company going in is going to have a hard time profiting, by definition.

What you are saying here is:

"Our oil companies are losing out on this really really unprofitable opportunity, and will have to make up the lost profits by charging US more."

That is a directly contradictory idea.

FTA:

Notably, what the Chinese are not doing is complaining. Unlike the executives of Western oil giants like Exxon Mobil, the Chinese happily accept the strict terms of Iraq’s oil contracts, which yield only minimal profits. China is more interested in energy to fuel its economy than profits to enrich its oil giants.

If Iraq didn't have China accepting the ty terms of the contracts they offer, they would need to sit down with us and negotiate better terms. But since China isn't looking to make a buck, they happily accept whatever ty conditions. We can't compete with that, because companies like Exxon need to respond to their shareholders, which want to make a solid profit.

At the same time, Exxon needs to pump oil to meet their customer's demand. They can't just walk away from every contract bid. In time, they'll have to start accepting some of these ty deals. In order to keep up with their profit margins, they're going to have to look for them somewhere else. Either that or they somehow force China to stop driving down the contract's profit margins.

[boutons_deux]

Exacty, China's 1% primarily needs oil, while the US/UK primary concern is profit.

[ElNono]

No, no, and no, Nono.

FUN-GI-BLE.
http://en.wikipedia.org/wiki/Fungibility


China oil consumption:
100 units.
Purchased imports: 80
Domestic production: 10
Iraqi plunder: 10

Amount required to purchase on open market from all non-domestic, non-iraqi sources: 80

Subtract Iraqi oil from the above, China's economy still demands 100 units of oil.

Domestic production: 10
Purchased globally: 90

China now is bidding with the US on a global scale for 90 units of oil, instead of 80 before, making the net demand on the oil markets 90.

More demanded units relative to supply = higher price point.

http://en.wikipedia.org/wiki/Supply_and_demand

So you're agreeing that external demand hasn't changed one iota

In your example, it was 90 before signing an agreement with Iraq and it's 90 after signing an agreement with Iraq.

The difference is *who makes money* in the different arrangements.

- When they buy barrels, the guys pumping out the oil make a chunk (ie: Exxon[us]), and so does the country providing the goods (Iraq, Venezuela, Saudi Arabia, etc).
- When they pump their own, the only one making money is the country providing the goods (Iraq, Venezuela, Saudi Arabia, etc).

The second arrangement has many benefits for them. It's not only removing a middle-man, but also allows them to potentially negotiate in non-US currency for the goods.

There's simply no scenario with the second arrangement where we benefit at all. The closest you could argue is that it's neutral. It doesn't hurt us but it doesn't benefit us either.

[ElNono]

FUNGIBLE.

FUNGIBLE.

FUNGIBLE.

Even if we produced 110% of all of our consuption, and exported the remainder, we would STILL be subject to price increases at home because of global supply/demand.

Do you understand why that is?

I'm arguing we can get to the point (through technology) where there's excess supply (globally). Let me know what part you missed about that.

[RandomGuy]

FTA:

Notably, what the Chinese are not doing is complaining. Unlike the executives of Western oil giants like Exxon Mobil, the Chinese happily accept the strict terms of Iraq’s oil contracts, which yield only minimal profits. China is more interested in energy to fuel its economy than profits to enrich its oil giants.

If Iraq didn't have China accepting the ty terms of the contracts they offer, they would need to sit down with us and negotiate better terms. But since China isn't looking to make a buck, they happily accept whatever ty conditions. We can't compete with that, because companies like Exxon need to respond to their shareholders, which want to make a solid profit.

At the same time, Exxon needs to pump oil to meet their customer's demand. They can't just walk away from every contract bid. In time, they'll have to start accepting some of these ty deals. In order to keep up with their profit margins, they're going to have to look for them somewhere else. Either that or they somehow force China to stop driving down the contract's profit margins.

If the United States invasion and occupation of Iraq ended up benefiting China, American energy experts say the unforeseen turn of events is not necessarily bad for United States interests. The increased Iraqi production, much of it pumped by Chinese workers, has also shielded the world economy from a e in oil prices resulting from Western sanctions on Iranian oil exports. And with the boom in American domestic oil production in new shale fields surpassing all expectations over the last four years, dependence on Middle Eastern oil has declined, making access to the Iraqi fields less vital for the United States.

At the same time, China’s interest in Iraq could also help stabilize the country as it faces a growing sectarian conflict

Quite frankly, I think it is great the the Chinese are getting in there.

Now they have a direct interest in Middle East stability.

[RandomGuy]

I'm arguing we can get to the point (through technology) where there's excess supply (globally). Let me know what part you missed about that.

There is no such thing as excess supply in an economic sense.

Honestly, I'm going to stop here, because I am using an intellectual framework of formal economic education that you are obviuosly not, no offense.

The article doesn't quite say what you think it does, and the reasoning supporting your preferred policy solution is based on a flawed understanding of supply and demand as far as I can see.

Not sure how I can remedy or argue with that.

[RandomGuy]

Quite frankly, I think it is great the the Chinese are getting in there.

Now they have a direct interest in Middle East stability.

“Our interest is the oil gets produced and Iraq makes money, so this is a big plus,” said David Goldwyn, who was the State Department coordinator for international energy affairs in the first Obama administration. “Geopolitically it develops close links between China and Iraq, although China did not get into it for the politics. Now that they are there, they have a great stake in assuring the continuity of the regime that facilitates their investment.”

Guess I am not alone in that sentiment.

[RandomGuy]

So you're agreeing that external demand hasn't changed one iota

In your example, it was 90 before signing an agreement with Iraq and it's 90 after signing an agreement with Iraq.

The difference is *who makes money* in the different arrangements.

- When they buy barrels, the guys pumping out the oil make a chunk (ie: Exxon[us]), and so does the country providing the goods (Iraq, Venezuela, Saudi Arabia, etc).
- When they pump their own, the only one making money is the country providing the goods (Iraq, Venezuela, Saudi Arabia, etc).

The second arrangement has many benefits for them. It's not only removing a middle-man, but also allows them to potentially negotiate in non-US currency for the goods.

There's simply no scenario with the second arrangement where we benefit at all. The closest you could argue is that it's neutral. It doesn't hurt us but it doesn't benefit us either.

Even if we produced 110% of all of our consuption, and exported the remainder, we would STILL be subject to price increases at home because of global supply/demand.

Can you explain why my bolded statement is true?

[RandomGuy]

FTA:

Notably, what the Chinese are not doing is complaining. Unlike the executives of Western oil giants like Exxon Mobil, the Chinese happily accept the strict terms of Iraq’s oil contracts, which yield only minimal profits. China is more interested in energy to fuel its economy than profits to enrich its oil giants.

If Iraq didn't have China accepting the ty terms of the contracts they offer, they would need to sit down with us and negotiate better terms.

That is something of an unprovable assumption on your part, isn't it?

That is often not the case. Oil majors go in all the time into such places at really bad terms, or simply have their really expensive investments nationalized, ala BP's Russia venture.

Arguable, but not a very strong argument.

Again, I don't see the Chinese losing money on oil as a problem for the US in general, especially given that our oil majors are still solidly profitable.

Sorry. Not an issue that I care much about, other than a certain schadenfreude at China losing money subsidizing my gasoline.

[ElNono]

Quite frankly, I think it is great the the Chinese are getting in there.

Now they have a direct interest in Middle East stability.

Guess I am not alone in that sentiment.

That's a nice goal post move (we're discussing economics), but frankly, I don't even think they care. I don't think the Chinese particularly care about the stability in the region. Just my personal opinion.

There is no such thing as excess supply in an economic sense.

Honestly, I'm going to stop here, because I am using an intellectual framework of formal economic education that you are obviuosly not, no offense.

The article doesn't quite say what you think it does, and the reasoning supporting your preferred policy solution is based on a flawed understanding of supply and demand as far as I can see.

Not sure how I can remedy or argue with that.

This isn't really complicated. While under profit-motive economy (capitalism), excess supply is rare, the whole world doesn't necessarily operates under capitalism.

Both Marx (Das Kapital) and Keynes (General Theory) address/critique overproduction, Say's Law, etc, and offer their own takes on it. You can go back to economic classics of the 1800's (Augustus Kelley, Henry George, etc) addressing excess supply.

Can you explain why my bolded statement is true?

Because we operate under a profit-motive economy, where goods are priced based on what people can pay vs actual cost on supply-demand.

The part you're missing is that popular pressure when you actually are a net producer does bring prices down. Which is a huge reason why gas is much cheaper on net producing countries than anywhere else.

That is something of an unprovable assumption on your part, isn't it?

What do you mean? Iraq wants the money, there's zero doubt about that, seeing they're offering the contracts. What's an assumption about that?

The only question is: what terms can they get away with?

That is often not the case. Oil majors go in all the time into such places at really bad terms, or simply have their really expensive investments nationalized, ala BP's Russia venture.

Arguable, but not a very strong argument.

so what you're saying is that the solution for these oil co's is pull a 'china'. In other words, lose the "profit-motive" by going state-owned.

That can be a solution. I do, however, think that should the US go that route, the shareholders will be severely screwed.

Again, I don't see the Chinese losing money on oil as a problem for the US in general, especially given that our oil majors are still solidly profitable.

Sorry. Not an issue that I care much about, other than a certain schadenfreude at China losing money subsidizing my gasoline.

Well, we'll see how it plays out. Having a former DoD official in charge of oil policy in Iraq stating “We lost out", certainly isn't reassuring, tbh.

[Nbadan]

Even if 100% of all the oil in Iraq gets poured for free into tanks in China, we still benefit.

We really need to shift our thinking on oil from being a oil dependent nation to being an oil independent nation...I hate fracking...but why shouldn't American consumers benefit from living in a oil rich nation? dig here, dig now means when oil companies are shipping our oil to Europe for higher profits and leave Amercans at the mercy of world markets...

[boutons_deux]

"leave Amercans at the mercy of world markets"

that's raw, unregulated, mostly cartelized capitalism: sell the least of the tiest possible (commodity) product for the highest possible price to whomever offers the highest price.

Anybody know of any mega-corp's articles of incorporation where patriotism trumps profits?

[RandomGuy]

That's a nice goal post move (we're discussing economics).

That isn't what "moving the goalposts" means. "Moving the goalposts" is changing the standards of evidence for a particular assertion.

You have confused this with simply going off on a tangent, which happens a lot here.

[RandomGuy]

I don't think the Chinese particularly care about the stability in the region. Just my personal opinion.

They haven't until now, because we have taken care of it, and because they haven't needed to care. They were net oil exporters until the 90's so this whole thing is new to them.

They really really really care about energy security, and that means ME peace and stability. They are new to it, but I would willing to bet a great deal of money that it is starting to occupy conversations in and around Beijing.

[RandomGuy]

.

The part you're missing is that popular pressure when you actually are a net producer does bring prices down. Which is a huge reason why gas is much cheaper on net producing countries than anywhere else.

We may be getting a bit closer here.

Prove that assertion. Data, please.

Define "popular pressure".

[RandomGuy]

[a lot of non-answering]

"Even if we produced 110% of all of our consuption, and exported the remainder, we would STILL be subject to price increases at home because of global supply/demand."


Why is this true? Please explain it, or, if you don't understand why, just say so.

[boutons_deux]

The part you're missing is that popular pressure when you actually are a net producer does bring prices down. Which is a huge reason why gas is much cheaper on net producing countries than anywhere else.

huh? those countries' 1% hands out, sells cheap subsidized bread, food, gas to maintain the 1%'s power structure and keep the 99% in poverty and powerlessness. "popular pressure" is intimidated by the gun barrels of the military.

[ElNono]

That isn't what "moving the goalposts" means. "Moving the goalposts" is changing the standards of evidence for a particular assertion.

You have confused this with simply going off on a tangent, which happens a lot here.

Moving the goalposts is an informal logical fallacy in which previously agreed upon standards for deciding an argument are arbitrarily changed once they have been met. (link)

Moving the goalposts (or shifting the goalposts) is a metaphor meaning to change the criterion (goal) of a process or compe ion while still in progress, in such a way that the new goal offers one side an intentional advantage or disadvantage. (link)

It's simply a metaphor for changing the subject. Which is exactly what you did.

We may be getting a bit closer here.

Prove that assertion. Data, please.

Define "popular pressure".

http://www.csmonitor.com/World/2012/...-10-countries/

The response of "popular pressure" is in the description of the entries themselves.

"Even if we produced 110% of all of our consuption, and exported the remainder, we would STILL be subject to price increases at home because of global supply/demand."

Why is this true? Please explain it, or, if you don't understand why, just say so.

Already answered. I think you're a pretty smart fella, but if my response was too complicated for you or you didn't understand it, just tell what what you didn't get and we'll go from there.