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July 16, 2012

Israel's Oil Weapon

Seemingly out of nowhere, geopolitics have been all but turned upside down in the Middle East, thanks to the discovery of massive energy resources in Israeli territory. As a nascent Oil Power, the Jewish State is only beginning to contemplate the new dynamics of influence available to it.

The world knows Vladimir Putin as President of Russia; however, to Putin's official title, allow me to suggest a second appellation, unofficial, but no less descriptive:

Israel's New Best Friend. Until recently, one could characterize Russia's position vis-à-vis Israel as, at best ambivalent: cordial relations with Jerusalem on the one hand, while supplying weapons, nuclear technology and other assistance to her enemies on the other.

But Putin's late June visit to Israel signaled, and was meant to signal, a sea- change in Russia-Israel relations -- "sea" as in Mediterranean sea, where in 2009, 50 miles off the Israeli coast, geologists discovered "an estimated 8.3 tcf (trillion cubic feet) of highest-quality natural gas," to be surpassed just a year later with the discovery of a second field, named Leviathan, of an additional 16 tcf, "making it the world's biggest deep-water gas find in a decade" and causing Israel to go from "a gas famine to feast in a matter of months." Other estimates put the Leviathan reserves as high as 20 tcf.

Needless to say, these discoveries could not be more timely, coming at about the same time as the Muslim Brotherhood's ascension to power and acts of sabotage in Egypt jeopardize the reliability of natural gas supplies to Israel from that country. Who says that God does not retain a special place in his heart for His Chosen People?

But of more earthly, and material, concern than the Almighty's mysterious affection for an ancient tribe of itinerant sheepherders, is Russian energy giant Gazprom's love of lucrative gas extraction contracts with the Jewish state. After all, oil and gas discoveries of such magnitude are about as rare as the sight of Vladimir Putin, praying at the Western, wall in a yarmulke. Or taking the Palestinians' side against the Israelis' as energetically in the future as he has in the past. For, as Jerusalem Post columnist Isi Leibler notes, while Putin "heads a country which has ties and provides weapons to some of [Israel's] greatest enemies including Iran and Syria" and "tends to support the Palestinian position, both as a member of the Quartet and at the UN",

[Putin's] visit to Israel unquestionably sends clear signals. Even recognizing major divergence of policies in relation to Iran and Syria, and that Putin's tensions with the United States and interests in the Arab world preclude [Israel] from considering him a partner, it sends a message to the Arabs that Russia is not an enthusiastic ally in their efforts to undermine the Jewish state.

Or at least not while the rubles are flowing into Gazprom's coffers, anyway. But it's not just the Benjamins (Netanyahu or $100 bills, take your pick). Both countries share ambivalent and sometimes strained relations with Turkey; concerns about the dark side of the Arab Spring, the rise of the Muslim Brotherhood and Islamic fundamentalism; and concerns about events in Syria.

Some of Israel's European critics might also want to rethink their anti-Israel stances and the barely disguised anti-Semitism that inspires them, or at least tone it down a bit should they want, at some future time, a piece of the Israeli oil- pie. As Victor Davis Hansen asks, "Will Europe still snub Israel when it has as much oil, gas, and money as an OPEC member in the Persian Gulf?" Well, I'm pretty sure they'll want to, but as De Gaulle famously said, "France has no friends, only interests." I suppose we'll find out soon enough whether France has no enemies, either. In the meantime, Walter Russell Mead simply states the obvious when he says that "

regardless of the simple economic impact, in different ways and different degrees the Gulf countries and Russia are going to lose a lot of the political advantages that their energy wealth now gives them. They will have less ability to restrict supply and to manipulate prices than they have had in the past. Oil and gas are going to be less special when supplies are more abundant and more broadly distributed.

To which this writer would only add: especially when a major source of these "more abundant and broadly distributed" supplies is a stable, democratic friend and ally.

And finally there is America. For Russia, it's the traditional East-West rivalry. But for Israel, it is not so much America the country as it is her current, and hapless, president, Barack Obama and the Israel-hostile fellow travelers who populate his administration. For the first time since, perhaps, the Eisenhower administration, Israel has good reason, at least while Obama is in power, to question our reliability as an ally. And Putin has an obvious incentive to exploit Jerusalem's doubts by moving closer to Israel in the hope of creating a concomitant distance between Israel and the U.S. Indeed, he may already be doing so (emphases below mine):

Putin's arrival in the region must be viewed in contrast to President Obama, who

has yet to visit Israel

President Putin's visit was clearly calculated to be

....

the mirror image of Obama's last visit to the region. In a similar manner,

while Obama chose to talk to Palestinian Authority President Mahmoud Abbas in his first overseas telephone call as president, Putin and Israeli Prime Minister Netanyahu spoke on the phone immediately after Putin's return to the presidency

in May. [

]

...

What's more, not only did Putin begin his tour of the Middle East in Israel, he also made a point in visiting holy Christian and Jewish sites, while entirely skipping the Muslim shrines. He met with Christian and Jewish religious leaders but avoided meeting any Muslim clergy. Even when visiting the Palestinian

Authority, Putin chose to come to Bethlehem -- a Christian site -- rather than Ramallah. Whereas Obama chose to reach out to Islam and the

Palestinians during his famous 2009 speech in Cairo, Putin chose to

appear as the defender of Christianity in the Middle East, outreaching to

Judaism and playing down the Palestinian case. [

]

...

Indeed, when [Putin] insisted on negotiations instead of unilateral steps as the right path towards the resolution of the [Israeli-Palestinian] conflict, he practically endorsed Israel's stance on the matter.

I mention the above as a cautionary note. Israel has a lot more than oil to offer Russia -- and China, and India -- than oil. She also has brainpower and all the technological prowess that goes along with it, and here I mean, especially, military technology, which, I think we all can agree, our competitors and enemies would very much like to have. What Israel does not have a lot of, is money. But Russia, India and, especially, China, have oodles of the stuff, much of it formerly ours. And I would not count the Israelis themselves out, either: as more and more Israeli energy exporting infrastructure comes online, and the revenues start flowing in, Israel might, one day, have substantial funds of her own to put in the pot. Yes, Israel loves us -- but do they love us enough to commit national suicide for us? Israel is a tiny country, surrounded by enemies both potential and real, and like any country in such a situation, relies on alliances and partnerships with larger ones. Which country, or countries, one allies with, however, is of considerably lesser importance when survival is the issue and let's be brutally honest, here. If you were Benjamin Netanyahu, and Barack Obama were your ally, would you want to put all of your alliance eggs in one basket?

So as he continues to lambaste Israel on the one hand, while schmoozing Israel's rivals and enemies on the other, and assuming that an Israeli-designed anti- missile missile could shoot down an American missile as well as it can an Arab --

or Chinese, or Russian -- one, President Obama might wish to ponder the geopolitical implications of the day, if it ever comes, that the Israelis decide that they don't need us anymore.

But we were talking about oil, about how the new Israeli discoveries make Israel, for the first time in her history, both energy-independent and an increasingly desirable ally and partner for any number of rich, powerful and above all, energy- hungry, countries. So let's look at the military implications of Israel's emergence as an "energy superpower" and how her energy independence can benefit not just her, but us, too.

Many of us older folks remember well the Arab oil embargo of 1973, Sheik Yamani, a sweater-clad Jimmy Carter turning down the thermostat in the White House and, above all, the breathless anticipation with which the world would await the result of each price-setting meeting of the then-all powerful (or at least so it seemed) Arab oil cartel. Fortunately, we haven't heard from the cartel in a while and with an oil-rich Israel more than happy to help her Western friends -- and hurt her Arab (and Venezuelan) enemies -- by ramping up her own

production to offset any lost production from production reductions elsewhere, we may never hear from them again.

But of course, any introduction of new supply will push oil prices down everywhere and reduce revenues for everyone. Including, of course, Iran. So if you're Israel, with an enemy as implacable -- and oil-revenue dependent -- as Iran, why wait for an embargo? Why not flood the world with as much oil, as fast, and as cheaply, you can? Need oil, mister? Oy, have I got a deal for you....

And finally, regarding Iran, there is the military application: Iran's nuclear facilities are hidden deep underground, but her oilfields are not. Most, if not all, of Iran's oil production infrastructure is above ground, vulnerable to attack and, oh, by the way, oil is extremely flammable. By impairing Iran's oilfields, which the Israeli air force probably could do, Israel could bring the Iranian economy, and the Mullahs who rule it, to its and their knees. Indeed, one can only assume that the only reason the Israelis haven't already done so is the predicted effect on oil prices and the predictable cries of outrage from the "international community" guaranteed to arise therefrom. But with Israel ready, willing and able to replace any lost Iranian oil in quantities sufficient to keep world oil prices stable or even lower...?

Since the destruction of the First Temple by the Babylonians in 586 B.C., through centuries of conquest, revolt and exile, Jews have dreamed of -- and fought for, and died for -- the day when a restored, militarily strong, truly independent Israel would rise and resume her rightful place among the nations of the world.

With Israel's newfound energy supplies, and the will and wisdom to exploit those supplies to her advantage, that day may not be far off.

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production to offset any lost production from production reductions elsewhere, we may never hear from themhttp://www.americanthinker.com/2012/07/israels_oil_weapon.html#ixzz2L3GfLbE w Follow us: @AmericanThinker on Twitter | AmericanThinker on Facebook Israel has oil! Comment | Share on twitterTweet | Share on emailShare | | | | More Sharing ServicesMore | " id="pdf-obj-3-57" src="pdf-obj-3-57.jpg">
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LOS ANGELES, July 12, 2012 — Every once in awhile an event comes along that cannot be overstated. No hype is too much. Every bit of hyperbole is deserved. Every cliche is acceptable.

On July 2nd, 2012, an article describing such an event slipped under the radar. Using the caveat "if true," then a world-altering, game-changer has just taken place. Life as we know it on Earth could change. The balance of world power may be shifting.

Apparently, Israel has oil.

Let that sink in. Israel

...

has

...

oil.

Holy Beverly Hillbillies, Jed Clampett. Sweet mother of Texas tea, J.R. Ewing.

Say it again, repeatedly. Spell out every letter. I-S-R-A-E-L

...

H-A-S

...

O-I-L.

The numbers are staggering.

"Israel may have the third largest shale oil reserves in the world: something like 250 billion barrels. (The US is believed to have the equivalent of well over 1 trillion barrels of potentially recoverable shale, with China having perhaps one third of that amount. Canada may contain the equivalent of 2 trillion of barrels conventional oil, more than Saudi Arabia, Iraq and Iran combined.)"

Shale oil is not as easily recoverable as conventional oil, but because Israel has so much of it, it is still economically worth it to extract and recover it.

Israel has more than oil. They have natural gas. Lots of it.

"Drillers working in Israeli waters have already identified what look to be 5 billion barrels of recoverable oil in addition to over a trillion cubic feet of gas. Israel’s undersea gas reserves are currently estimated at about 16 trillion cubic feet and new fields continue to be rapidly found."

Not millions. Not billions. Trillions. Trillions of cubic feet of natural gas.

For those who want evidence, turn to Russia. Russian President Vladimir Putin has already flown to Israel and prayed at the Western Wall. He did everything but dance and sing Hava Negilah. His remarks were so pro-Jewish that Arab groups in the Middle East immediately moved up their weekly rage explosions by an entire day.

Mr. Putin does not do business with anybody unless it benefits Mother Russia. He does not normally praise a Western religion while maintaining control over the largest atheist nation. He has already begun cooperation between Russia and Israel. This oil boom is real.

This could end the regimes in Iran and Syria without firing an external shot. OPEC could be nothing more than a trivia answer to the question of who Donald Trump despises more than Rosie O'Donnell.

Israel is already cooperating with Canada while America snubs two of their greatest allies. Israeli and Canadian Prime Ministers Benjamin Netanyahu and Stephen Harper have completely bypassed President Obama. Even Mr. Obama's energy-killing EPA cannot stop this. What North Dakota is doing for America, Israel may now do for the world. A true potential victory over global terrorism. Honest oil markets. Prices based on value. The land of milk and honey may become the land of petroleum wealth. The miracle of the orange groves may now be the miracle of natural gas. Radical Islam may have just seen its future death, with zero power to stop it. The world is now a better place. Israel has oil.

Israel’s Emergence As Energy Superpower Making Waves

Walter Russell Mead

Walter Russell Mead Israeli Prime Minister Golda Meir famously lamented that Moses led the children ofhave just signed an agreement to cooperate on the exploration and development of what, apparently, could be vast shale oil reserves beneath the Jewish state. The prospect of huge oil reserves in Israel comes on top of the recent news about large natural gas discoveries off the coast that have been increasingly attracting attention and investor interest. The apparent gas riches have also been attracting international trouble. Lebanon disputes the undersea boundary with Israel (an act somewhat complicated by the fact that Lebanon has never actually recognized Israel’s existence), and overlapping claims from Turkey and Greece themselves plus both Greek and Turkish authorities on Cyprus further complicate matters. Yet despite these tensions, following Russian President Vladimir Putin’s surprisingly cordial visit last week, Gazprom and Israel have announced plans to cooperate on gas extraction . This suggests at a minimum that Turkish efforts to block gas development in the region will face opposition from Russia as well as from Israel. Gazprom and other Russian companies are also likely to do well in any gas exploration deals " id="pdf-obj-8-4" src="pdf-obj-8-4.jpg">

Israeli Prime Minister Golda Meir famously lamented that Moses led the children of Israel for forty years of wandering in the desert until he found the only place in the Middle East where there wasn’t any oil.

But could Moses have been smarter than believed? Apparently the Canadians and the Russians think so, as both countries are moving to step up energy relations with a tiny nation whose total energy reserves some experts now think could rival or even surpass the fabled oil wealth of Saudi Arabia.

Actual production is still minuscule, but evidence is accumulating that the Promised Land, from a natural resource point of view, could be an El Dorado: inch for inch the most valuable and energy rich country anywhere in the world. If this turns out to be true, a lot of things are going to change, and some of those changes are already underway.

Israel and Canada have just signed an agreement to cooperate on the exploration and development of what, apparently, could be vast shale oil reserves beneath the Jewish state.

The prospect of huge oil reserves in Israel comes on top of the recent news about large natural gas discoveries off the coast that have been increasingly attracting attention and investor interest. The apparent gas riches have also been attracting international trouble. Lebanon disputes the undersea boundary with Israel (an act somewhat complicated by the fact that Lebanon has never actually recognized Israel’s existence), and overlapping claims from Turkey and Greece themselves plus both Greek and Turkish authorities on Cyprus further complicate matters. Yet despite these tensions, following Russian President Vladimir Putin’s surprisingly cordial visit last week, Gazprom and Israel have announced plans to cooperate on gas extraction.

This suggests at a minimum that Turkish efforts to block gas development in the region will face opposition from Russia as well as from Israel. Gazprom and other Russian companies are also likely to do well in any gas exploration deals

developed with the strongly pro-Moscow (and very cash hungry) Greek Cypriot government.

The stakes are not small: the offshore Levantine Basin (which Syria, Lebanon, Turkey, Greece, Cyprus, Israel and even Gaza will all have some claim to) is believed to have 120 trillion cubic feet of natural gas and “considerable” oil. Drillers working in Israeli waters have already identified what look to be 5 billion barrels of recoverable oil in addition to over a trillion cubic feet of gas. (US firms were involved in these finds.) Israel’s undersea gas reserves are currently estimated at about 16 trillion cubic feet and new fields continue to be rapidly found.

The new Israeli-Russian agreement is part of a conscious strategy by the Israeli government to use its nascent energy wealth to improve its embattled political position. With Italy reeling under the impact of big wrong-way bets on Iran, Rome may also begin to appreciate the value of good ties with a closer and more dependable neighbor. Another sensible target for Israeli energy diplomacy would be India: the two countries are already close in a number of ways, including trade and military technology, and India is eager to diversify its energy sources.

Gas is one thing, but potential for huge shale oil reserves under Israel itself, however, is a new twist. According to the World Energy Council, a leading global energy forum with organizations and affiliates in some 93 countries, Israel may have the third largest shale oil reserves in the world: something like 250 billion barrels. (The US and China are both believed to have larger shale oil reserves, with the US believed to have the equivalent of well over 1 trillion barrels of potentially recoverable shale and China having perhaps one third of that amount. Canada’s Athabaskan oil sands reserves may contain the equivalent of 2 trillion of barrels conventional oil, or more than all the conventional oil known to exist in Saudi Arabia, Iraq and Iran combined.) If the estimates of Israeli shale oil are correct, Israel’s gas and shale reserves put its total energy reserves in the Saudi class, though Israel’s energy costs more to extract.

Many obstacles exist and in a best case scenario some time must pass before the full consequences of the world’s new energy geography make themselves felt, but if production from the new sources in Israel and elsewhere develops, world politics will change. The countries along both coasts of the Persian Gulf erupted into global prominence in the 1970s when world energy shortages catapulted them into previously undreamt of wealth and political influence. Those countries will still be rich; for the most part, their energy is cheaper to produce than the more unconventional sources in the rest of the world, including Israel.

But what they keep in money they may lose in clout. OPEC’s power to dictate world prices is likely to decline as Canadian, US, Israeli and Chinese resources come on line. In fact, the Gulf’s most powerful oil weapon going forward may be the ability of those countries to under-price rivals; expensive shale oil isn’t going to be very profitable if OPEC steps up production of its cheap stuff. (Brutal, dog- eat-dog price wars driving oil prices down to derisory levels: Via Meadia trembles at the thought.)

Nonetheless, the ability of the Arab governments to influence political opinion in Europe and the rest of the world is likely to decline as more oil and gas resources appear — and as Israel emerges as an important supplier. We could be heading toward a time when the world just doesn’t care all that much what happens around the Persian Gulf — as long as nobody gets frisky with the nukes.

Another big loser could be Turkey. For years the Kemalist, secular rulers of Turkey worked closely with Israel, and the relationship benefited both sides. Under the Islamist AK party, that relationship gradually deteriorated. Both sides were at fault: Turkish politicians were all too ready to demagogue the issue to score domestic political points, and Israelis did not respond with all possible tact.

But if Israel really does emerge as a great energy power, and a Russia-Greece- Cyprus-Israel energy consortium does in fact emerge, Turkey will feel like someone who jilted a faithful longtime girlfriend the week before she won a huge lottery jackpot. More, Turkey’s ambitions to play a larger role in the old Ottoman stomping ground of the eastern Mediterranean basin will have suffered a significant check.

If the possibility of huge Israeli energy discoveries really pans out, and if the technical and resource problems connected with them can actually be solved, the US-Israeli relationship will also change. Some of this may already be happening. Prime Minister Netanyahu’s evident lack of worry when it comes to crossing President Obama may reflect his belief that Israel has some new cards to play. An energy-rich Israel with a lot of friends and suitors is going to be less dependent on the US than it has been — and it is also going to be a more valuable ally.

The emerging new energy picture in Israel has the potential to be one of the biggest news developments of the next ten years. Potentially, the energy revolution and the change in Israel’s outlook has more geopolitical implications than the Arab Spring. Via Meadia will be following this story and trying to make sense of the geopolitical and economic shifts as they occur.

Even at this very early stage, the impact of Israel’s energy wealth is dramatic. On President Putin’s visit to Jerusalem, he donned a kippah and went to pray at the Western Wall of the ancient Temple. As one press report has it, at the close of his visit, Putin turned to one of the Russian Jews present and said

I came here to pray that the Temple should be rebuilt, and I wish that your prayers will be fulfilled.

Putin had more honeyed words for his Israeli hosts. Touring the Wall, he said “Here, we see how the Jewish past is etched into the stones of Jerusalem.” This is not quite a formal recognition of Israeli claims to the Old City, but it is much more than Israelis usually hear. (Many Arabs and Palestinians insist that there is no connection between the Jews and the Western Wall, known in Arabic as the Al Buraq Wall after the mysterious heavenly steed said to have brought the Prophet Mohammed to Jerusalem on his famous Night Journey.)

The reaction from the Arab side to Putin’s statement about the historically Jewish character of Jerusalem was correspondingly furious. The Al Aqsa Institute issued the following statement:

We tell Putin and people like him that the Al-Buraq Wall is exclusive Muslim Waqf property, is an inseparable part of the blessed Al Aqsa Mosque and non-Muslims have no rights at this wall or at the blessed Al Aqsa Mosque, and all historic facts and international documents stress the fact that the Al Buraq Wall is Islamic…

We stress that every stone in the Al Aqsa Mosque and its buildings shows is evidence that it is Islamic and every stone in Al Quds is testimony to Al Quds’s Muslim and Arabic nature.

If the oil and the gas start to flow in anything like the quantities experts think now may be possible, expect many more visitors to Jerusalem to say similar things to Israelis and the Al Aqsa Institute will have to issue a lot more angry rebuttals. An Israel with vast energy endowments may be less coolly received in certain circles than it is today.

In the meantime, we wonder if there was an 11th, hitherto undiscovered commandment on those tablets at Sinai: Thou shalt drill, baby, thou shalt drill.

The reaction from the Arab side to Putin’s statement about the historically Jewish character of JerusalemShutterstock . Posted in Essays , Israel & Palestine , Middle East 1679 71 623 58 Responses to Israel’s Emergence As Energy Superpower Making Waves 1. Luke Lea says: July 2, 2012 at 10:56 am Good news. From past reading I am led to understand that the costs of production make oil shale inherently risky because it requires vast amounts of capital. Since conventional oil from wells is much cheaper to produce there is always the danger that the big producers in the Middle East will force prices down below the break even point. OTH, natural gas might turn out to be as cheap if not cheaper than Middle East oil. What I am getting at is the possibility of import taxes on oil coming out of countries which do not honor the norms of Western civilization — human and civil rights, the rule of law, democratic institutions in particular. We could reduce the amount of disposable income these regimes have to do mischief around the world, whether it be nuclear proliferation of the finance of Islamicist intolerance. A sticking point is that China might not participate. Indeed, given China’s violation of these very norms, they almost certainly would not cooperate. But then that is just an argument for punishing Chinese exports with tariffs too. " id="pdf-obj-11-22" src="pdf-obj-11-22.jpg">

1679

The reaction from the Arab side to Putin’s statement about the historically Jewish character of JerusalemShutterstock . Posted in Essays , Israel & Palestine , Middle East 1679 71 623 58 Responses to Israel’s Emergence As Energy Superpower Making Waves 1. Luke Lea says: July 2, 2012 at 10:56 am Good news. From past reading I am led to understand that the costs of production make oil shale inherently risky because it requires vast amounts of capital. Since conventional oil from wells is much cheaper to produce there is always the danger that the big producers in the Middle East will force prices down below the break even point. OTH, natural gas might turn out to be as cheap if not cheaper than Middle East oil. What I am getting at is the possibility of import taxes on oil coming out of countries which do not honor the norms of Western civilization — human and civil rights, the rule of law, democratic institutions in particular. We could reduce the amount of disposable income these regimes have to do mischief around the world, whether it be nuclear proliferation of the finance of Islamicist intolerance. A sticking point is that China might not participate. Indeed, given China’s violation of these very norms, they almost certainly would not cooperate. But then that is just an argument for punishing Chinese exports with tariffs too. " id="pdf-obj-11-26" src="pdf-obj-11-26.jpg">

71

The reaction from the Arab side to Putin’s statement about the historically Jewish character of JerusalemShutterstock . Posted in Essays , Israel & Palestine , Middle East 1679 71 623 58 Responses to Israel’s Emergence As Energy Superpower Making Waves 1. Luke Lea says: July 2, 2012 at 10:56 am Good news. From past reading I am led to understand that the costs of production make oil shale inherently risky because it requires vast amounts of capital. Since conventional oil from wells is much cheaper to produce there is always the danger that the big producers in the Middle East will force prices down below the break even point. OTH, natural gas might turn out to be as cheap if not cheaper than Middle East oil. What I am getting at is the possibility of import taxes on oil coming out of countries which do not honor the norms of Western civilization — human and civil rights, the rule of law, democratic institutions in particular. We could reduce the amount of disposable income these regimes have to do mischief around the world, whether it be nuclear proliferation of the finance of Islamicist intolerance. A sticking point is that China might not participate. Indeed, given China’s violation of these very norms, they almost certainly would not cooperate. But then that is just an argument for punishing Chinese exports with tariffs too. " id="pdf-obj-11-30" src="pdf-obj-11-30.jpg">

623

58 Responses to Israel’s Emergence As Energy Superpower Making Waves

Good news. From past reading I am led to understand that the costs of production make oil shale inherently risky because it requires vast amounts of capital. Since conventional oil from wells is much cheaper to produce there is always the danger that the big producers in the Middle East will force prices down below the break even point.

OTH, natural gas might turn out to be as cheap if not cheaper than Middle East oil. What I am getting at is the possibility of import taxes on oil coming out of countries which do not honor the norms of Western civilization — human and civil rights, the rule of law, democratic institutions in particular. We could reduce the amount of disposable income these regimes have to do mischief around the world, whether it be nuclear proliferation of the finance of Islamicist intolerance.

A sticking point is that China might not participate. Indeed, given China’s violation of these very norms, they almost certainly would not cooperate. But then that is just an argument for punishing Chinese exports with tariffs too.

What I am arguing for is the West using its economic muscle to foster Western civilization, which I think we need to reclaim as the only possible basis for a true world civilization based on principles of reason, justice, equality, liberty, human and civil rights, and the rule of law. Anything less is barbarism.

I know this goes against the current consensus of multiculturalism and pluralism. But, based on a lifetime of experience, I have come to the conclusion — liberal that I am — that these are just covers for compromise with barbarism in its various forms, whether in China, Africa, or South Asia. Political correctness stands in the way, but political correctness is really thought control with origins in Marxist-Leninist-Maoist totalitarianism and extreme leftism. We forget how intellectually influential that tradition used to be in the West, back in our naive days. It’s influence continues and it threatens our civilization in my considered, humble, but well-educated opinion.

  • 2. Ed Snyder says:

This is wonderful news!

What I am arguing for is the West using its economic muscle to foster Western civilization,July 2, 2012 at 12:07 pm This is wonderful news! 3. John Barker says: July 2, 2012 at 12:21 pm I am gland to learn that Mr.Putin has found faith. God works in mysterious ways. 4. Jacksonian Libertarian says: July 2, 2012 at 12:30 pm “Both sides were at fault: Turkish politicians were all too ready to demagogue the issue to score domestic political points, and Israelis did not respond with all possible tact.” Since Israel is embattled on all sides, if tact was going to protect the relationship, they would have used it. The fact is the Islamists were never going to continue the Kemalist relationship, and their dreams of Ottoman level influence required making Israel an enemy. “Prime Minister Netanyahu’s evident lack of worry when it comes to crossing President Obama may reflect his belief that Israel has some new cards to play.” No way, this was about Obama’s weakness. Take a look around, everyone in the world is ignoring Obama, he just isn’t a threat. He fails at everything, if you just ignore him he will fail again. The world’s leaders see him as a Kowtowing Pussy and they are not afraid. 5. Mrs. Davis says: July 2, 2012 at 12:46 pm " id="pdf-obj-12-14" src="pdf-obj-12-14.jpg">
  • 3. John Barker says:

I am gland to learn that Mr.Putin has found faith. God works in mysterious ways.

  • 4. Jacksonian Libertarian says:

“Both sides were at fault: Turkish politicians were all too ready to demagogue the issue to score domestic political points, and Israelis did not respond with all possible tact.”

Since Israel is embattled on all sides, if tact was going to protect the relationship, they would have used it. The fact is the Islamists were never going to continue the Kemalist relationship, and their dreams of Ottoman level influence required making Israel an enemy.

“Prime Minister Netanyahu’s evident lack of worry when it comes to crossing President Obama may reflect his belief that Israel has some new cards to play.”

No way, this was about Obama’s weakness. Take a look around, everyone in the world is ignoring Obama, he just isn’t a threat. He fails at everything, if you just ignore him he will fail again. The world’s leaders see him as a Kowtowing Pussy and they are not afraid.

  • 5. Mrs. Davis says:

The lower cost to lift Arab oil merely means they will run out of it before we run out of our higher cost shale oil. Peak Arab oil will happen. Encouraging Chinese oil utilization today will hasten the westernization of both cultures.

  • 6. Tom Holsinger says:

typo here – change shale gas to shale oil:

“Gas is one thing, but potential for huge shale gas reserves under Israel itself, however, is a new twist.”

  • 7. Jim. says:

This is remarkably providential, coming as it does as countries decide whether their energy portfolio depends on Iranian oil.

By the way, for those of us who enjoy neither unlimited free time nor the services of interns, could you provide a more specific link to the World Energy Council’s report on the new Israeli shale finds? News this big deserves some follow-up.

  • 8. Fred says:

It’s nice to see oil in the hands of civilized people. Anything that can help a)lower the price of oil hence reduce the flow of money to people who wish us ill and b)provide a source of supply other than from people who wish us ill is a good thing.

encouraging stuff, Walter. What I don’t understand is why the EU has not helped Greece develop its undersea oil. As you know, Turkish threats and naval intervention have retarded Greek oil & gas extraction in Greece’s maritime economic zone. Why didn’t the EU stand up to Turkey on this matter which, if Greece could have developed its oil & gas, would have made it another source of hydrocarbon energy for the EU within the EU itself? That would also have made Greece a more solvent country which the Eurozone claims to want to foster. Instead of worrying about Greek debt, development of Greece’s undersea resources would have made it an asset to the Eurozone and the whole EU.

10.Bob N says:

Not all shale deposits have the same yield per square mile and some of Israel’s deposits are offshore, but these numbers seem overstated. The Bakken formation

is 200,000 square miles and Israel’s area is 8000 square miles. The highest estimate for Bakken is 24 billion barrels. So with 96% less area, Israel may have 10 times as much oil? It would be great, but I’ll wait for more data. Also, these “finds” don’t always pan out. Exxon-Mobil just pulled out of shale development in Poland.

11.RJSUSA says:

Wow – file this one under Good News!! This would be amazing if it pans out. Only thing better I can think of would be that the world stops funding the Arabs in Judea, Samaria and East Jerusalem and they’re forced to emigrate!

12.Kris says:

As per Bob@10, I’m adopting a wait-and-see attitude. Or rather, wait-and- comment. Onwards!

Ah! So now we discover the reason for the location of the Western colonialist enterprise known as Israel! Though given recent developments, I wouldn’t be surprised to discover that this entire planet is one huge shale oil deposit.

“Gazprom and Israel have announced plans to cooperate on gas extraction.” Turkey let loose very bellicose words regarding Israeli/Cypriot extraction plans. Gazprom’s involvement ensures that these words will remain just that.

“Many Arabs and Palestinians insist that there is no connection between the Jews and the Western Wall, known in Arabic as the Al Buraq Wall after the mysterious heavenly steed said to have brought the Prophet Mohammed to Jerusalem on his famous Night Journey.”

‘Twas indeed a mysterious steed; I still haven’t figured out why it brought His PBUHness to this particular location which has absolutely nothing to do with Jews or their mythical Temple.

But as is unfortunately (or not) all too common in that area, the Jews get on with it, while too many Muslims such as the Al Aqsa Institute specialize in heated rhetoric.

“Thou shalt drill, baby, thou shalt drill.”

Smite that rock! 13.memomachine says:

“Under the Islamist AK party, that relationship gradually deteriorated. Both sides were at fault: Turkish politicians were all too ready to demagogue the issue to score domestic political points, and Israelis did not respond with all possible tact.”

You are kidding me right? “tact”?? Is that how you would describe the jihadist flotilla?

14.Golda says:

We here in Israel have a great natural resource – brain power. Despite a poor educational system and not enough government funding for research and higher ed, our high-tech sector is second only to America. The world will eventually need to move to clean sources of energy that dont contribute to global climate change – and the sooner the better. I hope we will be a major contirbuter to that effort

15.thibaud says:

Let’s hope it works out. From our lips to G-d’s ears, as they used to say. But some of us who had similar hopes for the Poles are going to temper our enthusiasm until the reserves are proven.

Poland shale: Exxon exit June 18, 2012

“There have been no demonstrated sustained commercial hydrocarbon flow rates” in two test wells in eastern Poland, said an ExxonMobil spokesman, in a statement issued over the weekend which said the US energy major had “completed its exploration operations in Poland”.

“The doubters point to the rapidly shrinking estimates for Poland’s shale gas deposits as geologists get a firmer grasp of exactly what may lie several kilometres below Poland’s flat green fields.

“Just a year ago, the Polish government was brimming with enthusiasm over the prospect of the country becoming a new Norway after the US Energy Information Administration said Poland might have 5.3tn cubic metres of shale gas – the largest reserves in Europe.

“Then, earlier this year, the Polish government’s geological institute used newer data to come up with an estimate of reserves of 346-768bn cubic metres, only about 10 per cent of the earlier guess.

“In its two test wells, ExxonMobil found little of interest. Drilling by other firms has also been inconclusive – finding gas but with flow rates that left investors disappointed….”

16.Randy says:

Dr. M,

It gets even better. The moonbat is losing his faith. But you knew that.

17.WigWag says:

As a big supporter of Israel (I lived in Beersheba for a brief period), I hate to rain on this parade; but there is a counterargument to be made.

As much as I don’t like Tom Friedman, he’s made an interesting point when it comes to energy resources and development. He’s suggested that the more oil a nation has, the more primitive its economy. What he’s suggested is that oil wealth might actually hinder economic development.

Friedman cites numerous examples from Iran and Saudi Arabia to Russia and Venezuela. Each of these four nations are blessed with some of the greatest energy wealth beneath their sovereign territory of any nations on earth yet Israel, a nation that until recently had no energy wealth, has a per capita GDP that exceeds all of them.

In fact, without extracting any energy, this year, for the first time, Israel’s per- capita GDP will exceed the per-capita GDP of the European Union as a whole. In 2010 Israel’s per capita GDP was almost double that of Russia; it was more than double that of Iran and Venezuela and it was 25 percent greater than that of Saudi Arabia.

Friedman’s thesis may not be right; but it is at least worth contemplating whether Israel would have developed the high tech economy that it has had it discovered its energy resources earlier in its history. It is also worth contemplating whether Israel’s trajectory of economic growth might be altered in potentially negative ways by the discovery of oil and gas.

Many nations with oil and gas wealth handle these resources in a more than adequate manner; the United States, Canada and Norway come to mind.

My only point is that Israel’s discovery of energy resources might be a double- edged sword that has drawbacks as well as advantages.

18.Kris says:

WigWag@17:

It does you credit to credit Friedman, but he’s hardly the originator of this thesis. (I was reminded of this quote from one of the founders of OPEC: “Ten years from now, twenty years from now, you will see: oil will bring us ruin … Oil is the Devil’s excrement.”)

Regarding Israel’s per-capita GDP, it is even more astonishing given its substantial unproductive population and its off-the-books sector (Ultra-Orthodox and Arabs).

I agree that Israel’s economic trajectory would likely have been different; remember that for its first decades, Israel was a somewhat socialistic country.

IF it were to come into carbon-wealth now? From Fiddler on the Roof:

Perchik: Money is the world’s curse. Tevye: May the Lord smite me with it. And may I never recover. 19.WigWag says:

“Regarding Israel’s per-capita GDP, it is even more astonishing given its substantial unproductive population and its off-the-books sector (Ultra-Orthodox and Arabs).” (Kris)

That is a very good point, although it’s probably only fair to point out that Israel’s Arab population probably contributes more to Israel’s GDP than the Ultra Orthodox do.

20.thibaud says:

Wig – good points about the “oil curse,” but fwiw, I think those nations that had strong democracies and traditions of effective governance – such as Norway and Canada – prior to discovery of their oil windfalls have managed to avoid the curse.

I’d guess that Israel, having strong democratic traditions and reasonably effective governance, could avoid the curse. Also, as technology development is the handmaiden of military advancement, I’d expect that the IDF would have incubated nearly as many entrepreneurs even if there had been an Israeli version of Gazprom or Pemex.

OTOH, the high degree of corruption in Israeli politics would seem to make oil wealth into a tar baby, as it were.

21.valwayne says:

I suppose Israel is dealing with Russia instead of U.S. companies because of Obama’s open hostility to Israel. Another success of “The Amateur”!

22.Bill says:

This may never materialize, but it is worth thinking through. Some things worth speculating on:

  • 1. Can Israel end the conflict with the Palestinians by just buying them out the

way that other countries have made substantial land purchases? Sure the Palestinians would try to drive the price above fair market value based on current use, but they do need the money.

  • 2. The emergence of green anti-Semitism. When Israel becomes an oil exporter,

watch the ethnic caricatures fly.

  • 3. A last ditch Arab regional attempt to seize resources they cannot buy.

  • 4. Utilization of proceeds. Will tax revenues be placed in the types of trusts that

Norway and Canada have or will some of the smaller parties find the feed trough?

23.Ted James says:

In regards to post #1, well done. You covered a lot of ground but the point I like the most is placing tariffs on OPEC oil to protect shale oil producers in liberal countries.

In regards to post #17, the logic employed by Mr. Friedman seems flawed but you recognize that. I don’t think Israel will devolve into a autocratic regime because of their new found wealth. However there may be second and third order of consequences they suffer because of it. I’m sure the anti-semites in the region will use this to feed their hatred. That may in turn hasten a conflict between Israel and its neighbors, especially if the region unites as a caliphate. Then the disputed claims that one country has with Israel can be used as additional reasoning to attack Israel under one flag from many directions (Iran’s Hamas/Hezbollah from North and East, Muslim Bros from the South and East if they take Eygpt, which is likely, and if they take Syria, which is possible).

This confrontation is probably inevitable, which makes it imperative that Israel develop these resources because of the new friends they will gain because of them. The Indians seem like natural beneficiaries for Israeli energy. The Europeans would change their tune on Israel if they could rely upon Israeli energy instead of having to rely upon Russia and OPEC.

Also, getting the Russians on board is a smart move by the Israelis. The Russians exert control over their neighbors and sell them most of their military assets. In a

conflict with Israel, the hypothetical Arab, Persian, and other Islamic forces would rely upon Russia for replenishment of their militaries. If Russia has a large interest in Israeli energy, I don’t think they will be interested in supplying the forces that would take that interest away from them.

24.happy says:

Good news, for a good people.

Maybe one day other peoples will mature enough to realize Israel already has. 25.neill says:

thibaud says:

July 3, 2012 at 1:19 pm

I agree. Undeveloped and corrupt societies tend to squander their oil wealth without developing sustainable economic infrastructure. Take away the oil etc and they don’t have much going for them.

Israel has built by far the most dynamic economy in the middle east, without oil riches. While they will need to be more vigilant in regard to the corruption, this would seem to a super turbocharger for an already dynamic economy.

That the leader of Russia (infamous for its pogroms) would make comments for public consumption like these, met with predictable arab/muslim rage, is game- changingly huge.

26.John Nelson says:

Liberals (and their islamo-fascist friends) do not look forward to the day when the West can give it’s middle finger to the 7th century theocrats and leftist tyrants who dominate the muslim world.

27.Chris Mallory says:

If Israel comes up with oil shale, can the U.S. stop shoveling them billions of borrowed dollars every year and get a refund of the billions we have given them over the past 40 years? If Israel has oil, can we finally get some American politicians who will put America first?

28.Emes says:

# 22 Pt 4: Israel already has ongoing reviews re projected state Med/ gas revenues, and seems likely to adapt the Norway trust funds structure. PM B. Netanyahu months ago declared much of those funds will be used for “Education,education, and education” About 1/2 will be used for education,research,health care,social projects,and some limited infrastructure projects.Other 1/2 of projected gas revenues from Mediterranean gas for future generations use of that invested interest income.The shale gas lies under around 2/3 of Israel including Negev and Arava deserts.Test shale fields underway for several months in Israel using new tech developed by ex Shell research chief which is far less environmentally-& less costly

29.Emes says:

# 22 Pt 4: Israel already has ongoing reviews re projected state Med. gas revenues, and seems likely to adapt the Norway trust funds structure. PM B. Netanyahu months ago declared much of those funds will be used for “Education,education, and education” About 1/2 will be used for education,research,health care,social projects,and some limited infrastructure projects.Other 1/2 of projected gas revenues from Mediterranean gas for future generations use of that invested interest income.The shale gas lies under around 2/3 of Israel including Negev and Arava deserts.Test shale drill fields exist now in Israel using new technology developed by ex Shell Oil research chief which is far less environmentally damaging-& much less costly

30.Buck O'Fama says:

“Though given recent developments, I wouldn’t be surprised to discover that this entire planet is one huge shale oil deposit.” It is. The old theory that OIL( Organic Industrial Lubricant) is composed of dead dinosaurs is pretty much dead itself. The new theory is that Hydrocarbons are formed by the crust of the Earth sliding over the molten interior core. It is the lubricant the earth depends on to keep from seizing up. The new theory explains why there are huge lakes of OIL on various other solar bodies. The dead dino theory doesn’t cover that. So basically, drill down anywhere and you will find hydrocarbons. The issue is ‘how deep’.

31.Kris says:

Bill@22: “The emergence of green anti-Semitism. When Israel becomes an oil exporter, watch the ethnic caricatures fly.”

True ‘dat.

Buck@30: “Hydrocarbons are formed by the crust of the Earth sliding over the molten interior core. It is the lubricant the earth depends on to keep from seizing up.”

OMG! You malignant despoilers of the Earth are recklessly using up this lubricant! Earth will seize up! We’re all gonna die!!11!!!1

[/sarc]

J-Libertarian@4 is right – if Israel could have done anything to maintain its relationship with Turkey, it would have. Netanyahu and Co. can’t change the fact that the AK Party is becoming increasingly militant in both its domestic and foreign policies.

That being said, this is fascinating news. I completely agree with Professor Mead that the vast oil reserves being discovered in the West will undermine OPEC in years to come. It’ll be interesting to see how this works out for the Israelis.

33.Mgrinch says:

Interesting analysis. Israel cozying up to Russia? Not so far fetched.

First, Russia has influence in Iran, and the US has none. If Netanyahu is going to send a message to Iran, it’s got to be through Putin.

Second, Russia is on Israel’s doorstep in Syria, without a peep of protest from Obama. Does Israel have a choice? Why would the Israelis choose otherwise? Playing nice with the Big Power in the area has a long history to the Jews, going back to the days of the Kingdom of David.

34.doc feelgood says:

good news? Well very relative as usual for all sort of egocentrically based statements. It depends on what sort of goals mankind as a whole is trying to achieve.

We are far from reaching a solution to that “tumor” like problem with the resurgence of grandiose feelings of so called superiority.

The world needs a great deal of humility instead of that kind ethnocentric/religious/industrial babble on old stones and economic power, That ´s diving deeper into darkness than ever.

35.ala schechter says:

That’s what Israel really needs. Cheap gasoline so that even more and bigger cars can further clog the highways\\

36.Fred Scherlinder says:

The Hebrew word for ‘truth’ connotes “the big picture” — emet connotes “aleph to taf”, first-and-last-and-everything-between. So it’s remarkable that this otehrwise excellent and hope-inducing article (and discussion thread) never once raised the truly ‘big picture’ regarding long-term oil trends: climate change.

Not only is a carbon-based economy truly a dinosaur, but it’s also leading us in the same direction — to project decades more of massive drilling (especially of shale oil which is even more carbon-intensive than the regular stuff) is to consign our children to a denuded future.

There’s an ethical component here for the damage done to the world’s poorest people and most endangered species. There’s also a short-signed element for Israel itself: as the US Department of Defense already recognizes, extreme weather and droughts and refugees driven by climate change are a major and growing security threat — and nowhere is this more pronounced than in the Middle East.

Israel can buy a short-term economic and political boon at the cost of its long- term security and its moral compass. Or, it can embrace the stewardship ethic of the Book at the center of the people(s) of Israel — and be a light unto the nations by pursuing its abundant solar and wind and geothermal resources rather than its unsustainable carbon deposits.

37.Albin says:

Cheap energy is good for the global economy but not necessarily for producers – the simultaneous development of so many shale oil fields could easily lead to a glut of the kind natural gas is facing in the USA. Two other things: the map here:

Shows much of the onshore local shale is under Palestinian land, and of course in a water-starved place the water table may be at risks that

38.John says:

Huh? According to your map almost none of it is in Palestinian areas. In fact if you read stories about this almost zero is in areas claimed by th PA

39.Eyal Fuhrer says:

םשה ךורב

40.crypticguise says:

This is indeed wonderful news for Israel and the world. Muslims will simply have to grit their teeth and continue their hateful rants.

Israel will continue to be an Oasis of Freedom and modern economic growth in a Sea of Islamic Intolerance and 7th Century Backwardness.

41.crypticguise says:

@FredSherlinder, regarding your worship of the Green Idol – I suggest you pick up a book on Science and stop the nonsensical search for a magical wind and sun delivery of energy.

Ultimately, fission will be delivering unlimited energy for Israel, the United States and those Nations that have not been inundated with the Islamic hordes.

42.SamC says:

Golda, you are correct. Israel needs to improve its educational system. Proof positive – people like you think that mankind, even if tried its best, could change the climate if it wanted to.

Climate change is natural. That is a lesson that needs to be added to the lessons. 43.Patrick Armstrong says:

By the way, John Barker, Putin is a believing Christian watch this

As to “surprisingly cordial visit”, Mr Meade, Russia and Israel have quite good relations.

I wish conservatives would stop believing what they read in the NYT, WaPost, Economist et al.

44.CR says:

“As to “surprisingly cordial visit”, Mr Meade, Russia and Israel have quite good relations.”

Well, there ARE about 1.5 million recent immigrants from the former Soviet republics and their children living in the country. Most of whom still have cordial relations with the communities they left behind and many travel back on a regular basis.

45.teapartydoc says:

I also think that oil is not just dead dinosaurs. If it was, I think we would have run out long ago. I think it is the result of placing high organic content rock under extreme pressure. In other words: it is a combination of organic waste and plate tectonics.

46.cubanbob says:

Chris Mallory says:

July 3, 2012 at 9:51 pm If Israel comes up with oil shale, can the U.S. stop shoveling them billions of borrowed dollars every year and get a refund of the billions we have given them over the past 40 years? If Israel has oil, can we finally get some American politicians who will put America first?

Agreed but why stop there? Lets also demand that the Saudi’s and the Gulf Arabs do the same along with the Japanese, South Koreans and the NATO countries also.

Fred when you invent a car that runs on unicorn flatulence, I will be the first to buy it. Until then, lets stick to what is known to work and not waste time and money on fantasies.

In the meantime while new oil and gas discoveries, especially in friendly countries are always welcome, cheap energy being the single greatest way to eliminate world poverty, lets not get to excited until enough wells are drilled and a realistic production estimate can be arrived at.

If this does turn out to be true, I hope the Israeli’s are wise enough to learn from the other energy produces and learn from their mistakes.

47.Roger Zimmerman says:

I am hopeful about the positives here, but worry that Israel’s quasi-socialist (more properly, “cronyist”) economic system will kill this goose in its crib. The possibilities for corruption and interference are great.

The best way to develop these resources would be for the government to get out of the way as quickly as possible and let the ingenuity and drive of individual Israelis take over. To the extent that reserves exist on government “owned” land, they should be auctioned off in reasonably-size tracts. Then, the government’s role would be to enforce private property rights, and nothing else. The ambitious entrepreneurs of Israel would take care of the rest.

48.bsl says:

Re: Destructive effect of oil on economies

The actual picture is a bit more complicated. Essentially, the distinction is between countries which have working economies and political systems when they discover major petroleum deposits and those which don’t. The former generally exploit their resources without destroying their economies or preventing them from developing. For the latter, oil is generally destructive of everything else.

It’s not a difference in honesty. Major oil draws corruption like manure draws flies. But, well developed systems can weather a degree of corruption without falling apart where more primitive systems are crushed.

Israel has a robust economy and a stable political and economic system in place. Large scale oil development will create tensions and corruption. It will not cause more trouble inside Israel than it has in the US or Norway or Canada. There are any number of remarkable, sometimes amazing stories of corruption even murder around American oil development. Didn’t trash the American economy or destroy American politics on the macro scale. So it will turn out for Israel.

The real dangers to Israel from oil are external, from jealous neighbors and ambitious competitors.

49.Paul says:

Progress in Israel web site

http://iei-energy.com/ 50.Freedomlover says:

Perhaps Israel will finally be able to convince US and EU that in order for there to be a safe and durable peace, the so-called “moderate” Palestinians needs to subsitute their jihadist ideology for an ecumenical one.

Encouragement and justification for murdering Jews is one leg of the official, four- legged narrative of the so-called “moderate” PA/PLO/Fatah/Abbas//Erekat The three others are: terror worship and adulation of terrorists, promise of endless war, never peace with Israel, delegitimization of Israel by lying about the region’s history and any and all Jewish connection to ANY part of Israel – even Haifa is taught to be rightly “Palestinian”. This is NOT the exception to the rule. This IS the rule. There is NO ecumenical counter narrative.

For more on what the so-called “moderate” Palestinian leadership advocates, what it tells its own people vs what it tells the US/West, see Palestinian Media Watch online. PMW principal, Itamar Marcus, has made presentations to US Congress and Parliaments around the world. http://www.palwatch.org

51.Freedomlover says:

Perhaps Israel will finally be able to convince US and EU to adopt the only policies that will lead to a true peace and not just a piece of paper peace: The Policy of the Four No’s.

NO direct or indirect funding of any Palestinian faction and NO negotiations until every Palestinian faction abandons its supremacist ideology in word and deed, recognizes Israel as the Jewish State and makes a 180 degree change in its curriculum and political/media rhetoric.

NO Palestinian Authority mission in Washington D.C. The current mission is to be closed because PA’s goal of Israel elimination, its curriculum and political/media rhetoric is the same as Hamas’.

NO discussion of ever dividing Jerusalem. No part of Jerusalem has EVER in history been the capitol of ANY Arab/Islamic/Palestinian entity. Even discussing the possibility of dividing Jerusalem is an act of appeasing Arab irredentism and a reward for Arab ethnic cleansing of Jews residing in East Jerusalem during illegal Jordanian rule 1948 – 1968. The US is to initiate move of our Embassy from Tel Aviv to Jerusalem forthwith, with all Euro Zone nations following quickly behind.

52.Freedomlover says:

Turkey needs to apologize to Israel for the 2010 flotilla-hate-illa event. Turkey collaborated with IHH, the al-Qaeda offshoot responsible for the attack, in every way possible including giving it permission to plot and plan in, and depart from, Turkey.

Below, THE report on IHH from The Investigative Project on Terrorism, a must read for anyone still “confused” about where responsiblity for ine incident lies. As we condemned the Taliban for giving al Qaida refuge, we must condemn Turkey for giving refuge to IHH.

IHH’s Deep, Longstanding Terror Ties IPT News June 9, 2010

The Turkish-based charity that helped drive last week’s deadly confrontation with Israeli commandos has deep ties to Hamas and other terrorist groups. The Hamas ties are not in question. Turkish Prime Minister Recep Tayyip Erdogan and IHH officials simply do not acknowledge that Hamas is a terrorist group.

IHH’s web site is filled with stories and pictures showing its support of Hamas. The coffins of the dead flotilla members were covered by both the flags of Turkey and of Hamas. On Monday, the NEFA Foundation published a picture showing IHH officials, along with former British MP George Galloway, who leads a similar organization that partners with the Turkish group, at a memorial for Hamas leader Mohammad Said Seyam that was sponsored by IHH.

U.S. officials have expressed concern over the fact that “IHH representatives have met with senior Hamas officials in Turkey, Syria, and Gaza over the past three years,” but IHH is not a designated terrorist organization in the United States.

It’s fair to ask, why not?

Coffins from those killed on the Mavi Marmara bear the flags of Turkey and Hamas.

Hamas is a designated terrorist organization in the U.S. and the Department of Justice spent years of investigation and millions of dollars to successfully prosecute a Texas-based charity that sent millions of dollars to it anyway.

The U.S. Treasury has designated an umbrella organization of which IHH is part due to its fund-raising activities on behalf of Hamas and Hamas-controlled organizations in the West Bank and Gaza. The Union of Good is a collection of charities run by Muslim Brotherhood spiritual leader Yusuf al-Qaradawi.

And IHH has had operations in the United States. According to a Turkish news article, IHH spent up to 10 weeks delivering relief supplies in Louisiana after Hurricane Katrina struck in 2005. In doing so, Yildirim was harshly critical of the U.S. In a news release by IHH, President Bulent Yildirim said his organization was partnering with the Islamic Center of Baton Rouge and Louisiana State University, despite the evils of the American government:

“We distinguish between the occupier American administration and the people. Our aid is being distributed among the Blacks, the poor and the Muslims who are being discriminated against by the Bush administration.”

In addition, this report from Global Terror Alert indicates that an Illinois charity called the Zakat Foundation of America coordinated with IHH on two convoys sent to Iraq. Before the war, Yildirim and his charity organized mass demonstrations

that included the burning of American flags. Later, Yildirim “lobbied hard to prevent Turkish troops from joining the renewed coalition against the Baathist regime in Baghdad.”

Fox News’ Ben Evansky reported last week that IHH has been a United Nations- accredited non-governmental organization since 2004. That status gives IHH “access to U.N. diplomats and enables them to speak at sessions of a number of U.N. bodies that are streamed online around the world and translated into six languages.”

This continues despite the findings of independent investigations from the 1990s and 2006. They found that IHH, or İnsani Yardım Vakf, engaged in arms dealing with militant groups and communicated with an Al-Qaida guesthouse in 1996. Evidence emerging from the flotilla also indicates that the group deliberately instigated the confrontation with Israeli commandos by recruiting a special corps of fighters who snuck knives and other weapons on board the Mavi Marama.

U.S. Sen. Charles Schumer (D-NY), wrote to Secretary of State Hillary Clinton this week, asking that IHH’s terrorist connections be investigated:

“I believe it is crucial that the State Department attempt to determine which organizations are dedicated to providing humanitarian aid and which groups are providing support to terrorist organizations. The distinction should be clear and unambiguous and if there is any reason to believe that an NGO is providing support to terrorist organizations, then appropriate measures should be taken.”

A Washington Post editorial noted that all nine men killed on the Mavi Marmara were IHH members or volunteers. A subsequent Israeli military report claimed a number of flotilla activists had ties to terrorist movements. The statement offered no details to substantiate the claims. As noted, however, previous aid trips by IHH, some in tandem with the UK-based Viva Palestina, resulted in supplies and money given directly to Hamas officials.

According to a report by the Intelligence and Terrorism Information Center, which has close ties to the Israeli military, the violence was planned by “a hard core of 40 IHH operatives” briefed in advance by IHH chief Bulent Yildirim. The report is based on statements flotilla participants later gave to Israeli security officials. One ship’s officer said crew members were told to ensure no weapons were brought on board. However, the 40 IHH activists skipped the security check before boarding.

Some passengers on the Mavi Marmara were found with “exceptionally large sums of money” on them, which the report said were “meant to be transferred to Hamas (the passengers claimed the money was for their own personal use).”

The Middle East Media Research Institute (MEMRI) cites a Hamas newspaper report that the grandson of Abdullah Azzam, a mentor to Osama bin Laden and an icon to Hamas, was aboard the ship.

Erdogan’s Close Ties

The confrontation with Israel was the flotilla’s true objective, the Intelligence Center report said, and it indicated that the mission was blessed by Turkish Prime Minister Erdogan.

Erdogan owes his position to IHH, the report said. Computer files found on board reinforce the connection between IHH and Erdogan’s government. Turkey is likely the only NATO member that does not view Hamas as a terrorist organization. Hamas is not a “terrorist movement,” Erdogan said, but instead is a resistance group defending its land.

IHH and Erdogan receive continuous support from Galloway and Viva Palestina, particularly after VP partnered with IHH during its last convoy to Gaza in January.

“The IHH organization was founded by the Turkish leader and hero of the Islamic world, Tayyip Erdogan,” Galloway said during a fundraiser in Brooklyn May 21. Turkish writers indicate this is not true, but Galloway seems intent on heaping praise on the Turkish leader:

“How I wished, as we entered the Arab world, that the Arab countries had a leader like Erdogan. What a difference the Muslim world would be in if they were all led by Erdogans! I have never forgotten the performance at Davos, where in the face of the killer Peres, Erdogan called him a child killer, told him how good he was at killing children, and stood up, unhooked his microphone, and began to walk off the stage.”

IHH has an office in Gaza, headed by part, Mohammed Kaya, who works with Hamas. According to a separate Intelligence Center report, IHH transfers money to Hamas in the West Bank and Gaza, including the Islamic Charitable Society in Hebron and the Al-Tadhamun Charity Society in Nablus.

Federal prosecutors in the U.S. say the Islamic Charitable Society of Hebron was “part of the HAMAS’ social infrastructure in Israel and the Palestinian territories.” That assessment came in the successful prosecution of five former Holy Land Foundation officials for illegally routing more than $12 million to Hamas. It was based, in part, on the presence of Hamas propaganda discovered inside the charity’s office and from this internal HLF report detailing Hamas control of various Palestinian charities.

During Viva Palestina’s third convoy to Gaza that ended in January, IHH gave keys to 145 vehicles to local authorities, including Ahmad al-Kurd, Hamas minister of social affairs. The U.S. Treasury designated al-Kurd as a terrorist in 2007, noting his longstanding leadership in Hamas. Al-Kurd now is the Hamas point man in refusing to allow the IHH aid into Gaza after Israeli officials searched it for banned material.

In February 2009, Yildirim gave a speech at a Hamas rally held in Gaza. “From here, I call upon all the leaders of the Islamic world, and upon all the peoples… Anyone who does not stand alongside Palestine – his throne will be toppled,” he said.

Hamas Prime Minister Ismail Haniyeh, in turn, has heaped praise on IHH. According to IHH’s website, Haniyeh discussed IHH’s support in early 2010:

“The IHH has particularly delivered substantial amount of aid to the people of Gaza. IHH President Bulent Yıldırım offered help and stood beside our side during the war. This is an example of Islamic fraternity, an indication that we are all parts of the same umma [nation]. Muslims are like walls reinforcing each other. Welcome. Gaza is proud of you. I pray to Allah that we will pray together in al- Quds freely one day.”

More than Hamas

IHH’s work in support of terrorists already was known by the time it set up shop in Louisiana.

A 2006 report from the Danish Institute for International Studies on terror recruiting by Islamic charities cited a Turkish investigation from the late 1990s which found guns and bomb-making manuals in IHH offices and concluded IHH members were preparing to fight in Afghanistan, Bosnia and Chechnya:

“An examination of IHH’s phone records in Istanbul showed repeated telephone calls in 1996 to an Al-Qaida guesthouse in Milan and various Algerian terrorist operatives active elsewhere in Europe – including the notorious Abu el-Ma’ali, who has been subsequently termed by U.S. officials as a “junior Osama Bin Laden.”

Meanwhile, a French judge is sticking to his assessment that IHH played an “important role” in the Al-Qaeda planned Millennium bomb plot. Jean-Louis Bruguiere participated in a 1998 raid on IHH headquarters in Istanbul. There, investigators found evidence the charity was “a facade for moving funds, weapons and mujahedeen to and from Bosnia and Afghanistan.”

Testifying in the 2001 trial of Millennium bomb suspect Ahmed Ressam, Bruguiere said:

“The IHH is an NGO, but it was kind of a type of cover-up in order to obtain forged documents and also to obtain different forms of infiltration for Mujahideen in combat. And also to go and gather these Mujahideens. And finally, one of the last responsibilities that they had was also to be implicated or involved in weapons trafficking.”

In an interview last week, Bruguiere stood by his original assessment. “They were basically helping al-Qaida when (Osama) bin Laden started to want to target U.S. soil,” he told the Associated Press.

It’s worth repeating that the Mavi Marmara was one of six ships in the flotilla. A seventh, the Rachel Corrie, was intercepted June 4. Yet violence broke out only on the one ship in an orchestrated attack by IHH, which knew it would not be allowed to land in Gaza.

Following the incident, Egypt has opened its border and there is talk Israel has eased some of the restrictions on goods flowing in.

Yet the “Freedom Flotilla” will not be the last of IHH’s efforts to enter Gaza. Galloway, after engaging in an “extensive discussion in Istanbul,” announced to thousands of protestors in London on Saturday his plans for a land and sea convoy to Gaza in September.

53.Saul says:

The first commenter discussing the ethis of oil producers may find this Canadian website interesting

http://www.ethicaloil.org/ 54.kent hytken says:

This is great news for Israel that Canada will be engaging in Israel’s oil and gas development.” Israel and Canada have just signed an agreement to cooperate on the exploration and development of what, apparently, could be vast shale oil reserves beneath the Jewish state.” Canada has a lot of expertise to develop heavy oil and oil sands and the technology and expertise will be a huge benefit for the extraction of the vast shale oil in the Negev Desert.

55.David says:

This is all very nice, but have we forgotten climate change? We need to get off the dirty fuels!

We have discovered accessible reserves of fossil fuels, that far exceed what we “intend” to exploit if we offer any credence to COP and IPCC underpinnings.

It seems either that industrial superpowers are completely naive or that they have no intention of stopping.

It appears we must stop ourselves. 57.Stormy says:

I am really happy that Israel may become not only self sufficient with oil and gas reserves, but hopefully they will become an exporter. I do fear that sudden

interest in Israel from Russia and other countries may very well be self serving, but time will tell. I have come to wonder is this oil and gas will not be the hook in the jaws that Ezekiel 38 & 39 tells about. Russia, Iran, and Turkey are mentioned specifically to be involved in the attack.

58.Yitzhak says:

That even Gaza will have some claim to? Excuse me?

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From the January/February 2013 issue <a href=Broken: A Primer on American Political Disorder Adam Garfinkle: It’s no one thing: Rapid global economic change, institutional deficiencies in governance and plutocratic smarm have reinforced each other to create one huge tangle of a problem. The Federal-State Crack-up Mario Loyola: For decades, both Democrats and Republicans have been invested in governance schemes that have eroded the Constitution’s separation of powers. The End of the University as We Know It Nathan Harden: The higher ed revolution is coming. Just a few decades hence, half the colleges and universities in the United States will have disappeared, but schools like Harvard will have millions of students. The Math Behind the Meltdown Chris Taylor: The history of the renowned Black-Scholes formula on options pricing weaves through several centuries and many countries. That history, were it better known, would have inspired a little of the humility that was in such short supply in the world of finance before September 2008. The Math Behind the Meltdown Chris Taylor Pricing the Future: Finance, Physics, and the 300-Year Journey to the Black-Scholes Equation by George G. Szpiro Basic Books, 2011, 320 pp., $28 T he financial product known as an “option” matters. Many people never hear of one on an average day, but they are everywhere. Ask a modern participant in or scholar of finance about options, and he will readily tell you that the world he lives in is inconceivable without them. Ask anyone investigating what went wrong " id="pdf-obj-37-2" src="pdf-obj-37-2.jpg">
From the January/February 2013 issue <a href=Broken: A Primer on American Political Disorder Adam Garfinkle: It’s no one thing: Rapid global economic change, institutional deficiencies in governance and plutocratic smarm have reinforced each other to create one huge tangle of a problem. The Federal-State Crack-up Mario Loyola: For decades, both Democrats and Republicans have been invested in governance schemes that have eroded the Constitution’s separation of powers. The End of the University as We Know It Nathan Harden: The higher ed revolution is coming. Just a few decades hence, half the colleges and universities in the United States will have disappeared, but schools like Harvard will have millions of students. The Math Behind the Meltdown Chris Taylor: The history of the renowned Black-Scholes formula on options pricing weaves through several centuries and many countries. That history, were it better known, would have inspired a little of the humility that was in such short supply in the world of finance before September 2008. The Math Behind the Meltdown Chris Taylor Pricing the Future: Finance, Physics, and the 300-Year Journey to the Black-Scholes Equation by George G. Szpiro Basic Books, 2011, 320 pp., $28 T he financial product known as an “option” matters. Many people never hear of one on an average day, but they are everywhere. Ask a modern participant in or scholar of finance about options, and he will readily tell you that the world he lives in is inconceivable without them. Ask anyone investigating what went wrong " id="pdf-obj-37-4" src="pdf-obj-37-4.jpg">

From the January/February 2013 issue

Adam Garfinkle: It’s no one thing: Rapid global economic change, institutional deficiencies in governance and plutocratic smarm have reinforced each other to create one huge tangle of a problem.

Mario Loyola: For decades, both Democrats and Republicans have been invested in governance schemes that have eroded the Constitution’s separation of powers.

Nathan Harden: The higher ed revolution is coming. Just a few decades hence, half the colleges and universities in the United States will have disappeared, but schools like Harvard will have millions of students.

Chris Taylor: The history of the renowned Black-Scholes formula on options pricing weaves through several centuries and many countries. That history, were it better known, would have inspired a little of the humility that was in such short supply in the world of finance before September 2008.

The Math Behind the MeltdownChris Taylor

Pricing the Future: Finance, Physics, and the 300-Year Journey to the Black-Scholes Equation

by George G. Szpiro

Basic Books, 2011, 320 pp., $28

The financial product known as an “option” matters. Many people never hear of one on an average day, but they are everywhere. Ask a modern participant in or scholar of finance about options, and he will readily tell you that the world he lives in is inconceivable without them. Ask anyone investigating what went wrong

with the U.S. economy in autumn 2008, and you’ll probably hear that the buying and selling of options contributed to the meltdown. But what is an option, and, assuming that it was not among the original flora or fauna in the Garden of Eden, where did it come from?

An option is a financial contract in which a buyer purchases the right, but not the obligation, to buy or sell something at an agreed upon time in the future at an agreed upon price. Instead of buying or selling an equity share, foreign currency or commodity outright at its present market price, you buy the option of buying or selling it in the future at a certain stipulated price. As esoteric a financial concept as this may seem, options contracts have existed for centuries. How and why they arose, and how options trading evolved into a mathematical science in the form of the Black-Scholes equation, is the subject of an illuminating and entertaining new book by George Szpiro.

Szpiro, an Israeli Ph.D. in finance and mathematical economics, has worked in business (McKinsey & Co.), academia (the Wharton School, Hebrew University and the University of Zurich) and now journalism (Neue Zürcher Zeitung). He aspires in Pricing the Future to tell the history of the Black-Scholes equation, focusing on the history of markets and mathematical discovery, along with the biographical elements of the story, rather than on its recent adventures within the world economy. Those looking to further fix the global financial system will find little to help them here, but those in search of the essential background to the problem will be rewarded.

Szpiro begins by introducing the concept of options for those who are not familiar with it. Imagine, he advises his readers, a farmer who needs to buy fertilizer every year for his fields. Then imagine that the price of fertilizer is volatile, exposing the farmer to fluctuating profit margins based on fertilizer costs. If the fluctuations in fertilizer prices are higher than the farmer can tolerate, he could for a relatively modest transactional fee buy an option for fertilizer at a set price for six months in the future. When six months has elapsed, if the open-market price is below that of the option, the farmer can simply let the option expire and buy on the open market. If the open-market price of fertilizer is higher than the price contracted in the option, the farmer can exercise the option and buy below that price. Through the use of an option contract, the farmer has thus established a maximum price he will pay for fertilizer. An option is therefore a kind of insurance policy against input price increases, helping the farmer lower his risk.

For examples in modern business news, a reader might think of Southwest Airlines and its jet fuel strategy. Southwest has upended the air travel industry in recent decades, helping to guarantee its profitability by famously “hedging” (insuring) against rising fuel prices in a more aggressive and skillful way than other airlines. Southwest used a combination of simple and complex options and other contracts to lock in lower fuel prices. On November 28, 2007, the New York Times reported that Southwest’s hedging gains were $455 million in 2004, $892 million in 2005, $675 million in 2006 and $439 million for the first nine months of 2007. This compares to Southwest’s net income (as filed with the Security and Exchange Commission in 2008) of $215 million in 2004, $484 million in 2005,

$499 million in 2006, and $645 million in 2007. If Southwest had not hedged skillfully, it would have been exposed to volatile returns and potentially high losses. Southwest might have gone belly up despite its well-focused business strategy, simplified fleet and more productive workforce.

Other examples of options in the modern economy can be found in international trade. Imagine a U.S.-based investor who wants to buy shares of a company listed on the stock exchange of Thailand, but he is afraid of currency risk— namely, the fluctuation of exchange rates that can affect the terms of investment. The investor can buy currency insurance in the form of a foreign exchange option.

The use of options is not always so simple or benign, however. We know all too well about large financial institutions that have made investments in or proffered loans to a company and, at the same time, bought options in the opposite direction. This is standard procedure and is not necessarily problematic; in this case a financial institution is simply controlling its downside risk in case the investment or loan takes a turn for the worse. If it becomes clear that the financial institution won’t need to exercise its options, it can trade them to someone else who might want them. An option contract has a market price just like any other financial product, and in general, these practices lower lending costs and allow more precise control of risk. Things start to flow into ethical gray areas, however, when one branch of an investment firm advises a client while another branch buys options that bring in money when the client does poorly. Is information truly separate? Can conflicts of interest be managed?

It is against that reality that the scale of options trading comes as such a shock. In 2011, the CIA estimated world GDP at approximately $79 trillion. According to the Bank for International Settlements, in that same year over $1 quadrillion worth of derivatives were traded. 1 The sum of $1 quadrillion sound like a big number, and it is: It’s almost 13 times as much as the value of total world output of final goods and services. The notional amount outstanding of over-the-counter derivatives (non-standard contracts that are not openly traded on exchanges) in 2011 was more than $645 trillion, up from just below $400 trillion in the first half of 2006, amounting to roughly eight times the value of world output. Finally, the gross market value (cost of replacing existing contracts) was around $27 trillion, roughly a third of world output. Over 24 billion derivative contracts were traded on exchanges in 2011 alone.

What accounts for the very rapid popularity of such financial products, and, some agree, the concomitant risks they pose to global economic order if they are mismanaged? Very simply, confidence. Options proliferate in proportion to the confidence the buyer has in the value of the product, which is by definition something that can only be ratified by the future. The Black-Scholes equation has enabled buyers of options to accurately predict the future with vastly more confidence than had previously been the case.

B

efore the 1970s, even though options contracts had existed for centuries, there was no scientific, agreed-upon way to price them. How much should the farmer pay for that fertilizer option? How much should the investor fork out for protection against currency fluctuations? It took hundreds of years of progress in mathematics, physics, statistics and other disciplines for Fischer Black, Myron Scholes and Robert C. Merton to create their formula, which, to put it simply, projected the price of an option by feeding five variables into a partial differential equation: the strike price of the option, the current price of the underlying asset, the risk-free rate, the time to maturity and the volatility of returns of the underlying asset. As it happened, their discovery coincided with the rapid rise of computing power, which enabled traders to apply the formula quickly and inexpensively. The market for options exploded as a result, as contracts could be more confidently priced and then traded as commodities themselves.

Obviously, Black, Scholes and Merton stood on the “shoulders of giants”, as the great sociologist Robert K. Merton, Robert C.’s father, put it in a famous 1985 book. Szpiro takes us back to the origins of modern financial exchanges, and their respective disasters: the Dutch Tulip craze and the Dutch East India Company, the first publicly traded company; and the Paris Bourse, the first French stock exchange, created to boost the disastrous finances of the French monarchy. Both histories richly describe the speculative trading on margin, efforts to get around bans on short-selling, runs, counterparty failures, and market crashes that are now so uncomfortably familiar to us.

But Szpiro soon gets to the meat of the book in his investigation of the lives and research of three French pioneers of financial analysis. Jules Regnault, born in 1834, was the first to attempt a mathematical understanding of bourse activity, and the first to make foundational assertions about efficient markets and the potential for abuse of information. Henri Lefèvre, a secretary to the banker James de Rothschild, created the first known graphical representations of option payouts. And Louis Bachelier, a professor ignored and spurned, laid the foundations for much of modern options analysis. Bachelier was the first to apply Gauss’s bell curve and heat diffusion equations from physics to stock price movements, the first to assert that an option’s value would depend on the volatility of a stock, and one of the first to attempt mathematical and statistical explanations of economic theory.

Szpiro then leaves the world of early financial analysis to describe important innovations elsewhere in science and mathematics that eventually became foundational for the options pricing formula. He shows how the British army doctor and botanist Robert Brown applied the Gaussian error distribution to the irregular, random movement of particles suspended in fluid—Brownian motion. He also dives into the work of Albert Einsten, Marian Smoluchowski, Paul Langevin, Theodor Svedberg, and the politics of Nobel Prize selection. All eventually influenced the emergence of Black-Scholes. He spends a bit more time on Andrei Kolmogorov, who, in a life of prolific mathematical discovery, wrote the axioms that eventually defined the foundations of probability theory, and on the Japanese mathematician Kiyoshi It?, who made breakthroughs in stochastic

differential equations. We also learn of the tragic life of Wolfgang Doblin, who died an early death as a soldier fighting the Nazis in World War II. Doblin independently created prototypes of It?’s work that he had hidden for decades in a pli cacheté (a sealed envelope) in the Academie des Sciences in Paris to prevent his work from falling into the hands of the Nazis.

Having surveyed the relevant scientific and mathematical inputs that eventually came together to produce Black-Scholes, Szpiro returns to financial theory in the modern era and specifically to the discovery of the options pricing model. He describes the career of Paul A. Samuelson, the modern origin of mathematical rigor in economics, the politics of Harvard University economics department appointments, and the eventual revival of Bachelier’s work. Then we are introduced to the academic, personal and career histories of Fischer Black, Myron Scholes and Robert C. Merton themselves. We follow them from various departments at Harvard and MIT to the private sector and other destinations beyond. We witness serendipity in science: Their discovery coincided with the opening of the Chicago Board Options Exchange and the explosion of options markets.

The Black-Scholes formula quickly became the industry standard, so much so that it was directly programmed into Texas Instruments calculators for traders. Fame, new professorships, and work on Wall Street quickly followed. Fischer Black died of cancer in 1995 at the age of 57, two years before the Nobel Prize was awarded to the creators of the options pricing formula. Thus, Scholes and Merton, both still very much alive, won the award. (The formula is most frequently called Black-Scholes because these two originally teamed up to work and publish on the subject together, while Merton’s work basically confirmed and expanded upon theirs.)

P

ricing the Future is essentially a math and finance history book—or, put a bit more generously, a treatise on the history and sociology of science. It is as much a demonstration of how scientific progress is made as it is specifically about the Black-Scholes equation. In the process, Dr. Szpiro shows a fondness for sometimes superfluous anecdote, and he is clearly enraptured by the mystical beauties of mathematics.

Yet Szpiro, journalist that he is nowadays, doesn’t ignore the present. He discusses the failure of Long-Term Capital Management, the hedge fund that Scholes and Merton joined that eventually required a federally coordinated private sector bailout. Nor is he mute about the pitfalls of the model, particularly when those using it generate large market distortions of scale the theory was never meant to account for. For the model to function as intended, Szpiro points out, the equation assumes risk-free borrowing and lending at a fixed rate, no transaction costs, constant forward-looking volatility, liquid markets and normal distributions of price movement. This last point in particular has caused trouble in many financial models, as “rare” events happen with greater frequency than the models assume: the 1997 Asian financial crises, the 1998 Russian financial crisis,

the popping of the internet/tech bubble and, of course, the current financial mess following from the housing bubble collapse. The model’s assumptions are clearly stated, but most users of the formula are not as mindful of these limitations as they should be. Put a bit differently, the world seems to behave in ways a bit less normal than the risks accounted for in the Black-Scholes model.

Clearly, mistakes happen. Let’s go back to Southwest Airlines for a moment:

According to Forbes, hedging “saved Southwest Airlines over $3.5 billion and made up almost 83 percent of the company’s total profits between 1998–2008.” 2 This description, by itself, makes hedging seem like a no-brainer, so why don’t all firms do it? Because hedging isn’t free; it’s a game that costs tens of millions of dollars to play at that scale, meaning that only large-sized players can really take advantage of it. And what if you’re wrong? Firms must account for the value of their options portfolio, and what happens when their value crashes? Fuel hedges that lost value caused the majority of Southwest’s $140 million third-quarter loss in 2011.

In addition to the potential for firm-level failure, risk exists at the system level when interconnectedness is not adequately understood. For example, “over-the- counter” (OTC) options, the customized options contracted directly between two parties, open up both sides to counterparty risk. There is no intermediary in such arrangements to help guarantee the settlement of the trade. When a single firm enters into a large number of OTC options contracts, it quickly becomes difficult to understand who is exposed to risk from what firm and what event or class of events. If a firm at the center of many OTC options contracts were to fail and default on its contracts, default could spread when other firms no longer get the money they expected from Peter to pay Paul. This is the “contagion” risk that sparked government intervention to prevent an uncontrolled default by Long- Term Capital Management and, later, AIG. The failure of a large and very active firm at the nexus of complex webs of lightly disclosed options transactions can and most likely still will cause a systemic crisis.

On the whole, greater market efficiencies enabled by a more accurate pricing of risk is a good thing. So is the ability of a firm to insure against risk, especially if this insurance allows a firm to take on more projects and grow. Black-Scholes only turns into a formula from hell when its users either glibly or unknowingly violate the parameters of its assumptions, or when the internal controls at firms fail to contain trading that was intended to reduce risk rather than increase it. When that happens, hedging can produce great losses, as last summer’s events at J.P. Morgan have illustrated.

With the enormous volume of derivatives being traded and the gargantuan value they represent, the stability of the financial system depends on participants understanding the details and pricing of the options contracts in which they engage. These contracts, the risk they mitigate and the risks they create, must be properly monitored by all participants, including but not restricted to regulators without and corporate risk managers within. The stability of the financial system depends on a proper understanding and monitoring of interconnectedness and the systemic risk raised by large players in these

markets. This understanding is aided by a better grasp of the history behind it all, including the history of the Black-Scholes formula. Thanks to George Szpiro, we now have that history.

Two Sides of the Same Flag: How Israel's Natural Gas Will Change the World By Marin Katusa07/18/2012 Print

Relations amongst the countries of the Middle East revolve around religion and historic allegiances. The region's Muslim countries are divided into Sunni and Shiite camps while Jews and Christians are in a constant battle for representation. The historic Camp David peace accord between Egypt and Israel has provided a cornerstone for regional relations for years (though it is showing signs of strain in the post-Mubarak era), and the United States has long supported these two nations alongside Saudi Arabia and its allies while Russia shored up Iran, Syria, and those in the opposing group. Grievances often go back decades, if not longer, and there are so many interested parties that it is nigh impossible to move without stepping on someone's toes.

But there is one force that is more powerful in the pulsing Middle East than even religion: energy.

Oil and gas mean money and power, two great enablers that make anything possible. Why else would one of the world's most conservative Muslim countries - Saudi Arabia - align itself so closely with the United States, a showcase of liberal thought and personal freedom?

As the birthplace of three major religions, the Middle East was destined for conflict, but the presence of vast energy wealth has amplified and complicated those tensions a hundredfold. It's a global truth that those with energy resources hold the cards and those without domestic energy supplies have to do whatever is necessary to ensure they are dealt a hand. The Middle East is home to a disproportionate number of countries in the former category - countries bloated with the power that comes with oil wealth.

Not every country in the region fits that bill, however. For years Israel's Achilles heel has been energy - or a lack thereof. Netanyahu's old joke is that Moses led his people through the desert for 40 years to the only place in the Middle East without any oil. Decades of drilling and digging yielded no significant hydrocarbons, leaving Israel with no choice but to spend 5% of its GDP buying

fuel from neighboring suppliers relations were uneasy at best.

...

with whom its interests conflicted and its

Now that is all changing. In recent years, trillions of cubic feet of natural gas have been discovered in Israeli waters while 250 billion barrels of shale oil have been outlined in the country's rocks. Whether Israel will become a significant oil producer is still very uncertain, as the economics of its shale deposits are far from proven, but the nation is already preparing for a future funded by natural gas exports.

This shift will generate welcome cash flow for Israel, but even more significant than the country's newfound wealth will be its newfound political might. Israel is already receiving visits from new friends and potential business partners, some of them countries that have avoided or even opposed Israel until now. Russia is leading that pack, having pointedly placed itself at the front of the line of nations wanting to secure a piece of Israel's gas pie - and this is the same Russia that usually supports two of Israel's greatest enemies, Iran and Syria.

In the boiling, roiling Middle East, new allegiances are never simple. Befriending one nation almost always requires you to turn your back on another, and changing camps is not easily forgotten. Those wanting access to Israel's natural gas will also have to navigate a treacherous international obstacle course, as contested maritime borders mean that Syria, Lebanon, Turkey, Greece, Cyprus, and even Gaza all lay some claim to Israel's vast offshore gas fields.

But remember: the wealth and power that come with energy are a great enabler. Israel will develop its gas riches. To do so, the country will need partners and buyers, and those who line up to participate will be doing so in the full knowledge that an Israel with energy wealth represents a completely new player in the Middle Eastern game (a development that could well ignite a "Cold War" over energy).

Israel's Natural Gas Revolution

The story of Israel's romance with natural gas starts in 2000, when a consortium led by Noble Energy drilled into an offshore target called Mari-B. A few holes later, the group had defined 1 trillion cubic feet (TCF) of recoverable natural gas, and by 2004 the Mari-B field was in full production. Israelis embraced a domestic energy resource: natural gas consumption rose as quickly as the country could build infrastructure to produce and transport it.

One good discovery often prompts another, and such was the case with Israeli gas and Noble Energy. In 2006, the American firm snapped up the chance to earn into the nearby Tamar block, which had not yet been drilled because the previous operator had shied away from the area's exceptionally high underground pressures. Noble's geologists ran every test they could and decided Tamar's potential was worth the risk. They were right: with two wells, Noble defined 9 TCF

of gross natural gas resources at Tamar, of which 6.3 TCF are considered recoverable. It was the largest deepwater natural gas discovery in the world in 2009, and it came just in time.

As the graph above shows, Israel's natural gas revolution quickly pushed demand from almost zero to beyond Mari-B's ability to supply it. Fortunately, there was a country close by with lots of natural gas for sale: Egypt. In 2005, the East Mediterranean Gas Company pipeline opened, connecting the Egyptian city of El Arish to the Israeli port of Ashkelon. By 2008, Israel had 170 MCF of gas pouring in from Egypt every day. Mari-B supplied the rest, and Israel became dependent on natural gas to produce 20% of its electricity. However, all good things must come to an end.

Today, Mari-B is running dry, and relations with Egypt are on rough ground. The peace accord between Egypt and Israel only thinly concealed the never- extinguished Egyptian enmity towards Israel, and the Egyptian opposition - everyone from Islamists to Arab nationalists and leftists - has long regarded the Camp David accord with disgust. The gas deal that built and filled the pipeline was a tangible product of that hated peace accord, and the opposition has declaimed it since the day it was signed, certain that Israel and Mubarak had conspired to cheat Egypt out of its gas revenues.

Those opposition parties are now filling the seats of Egypt's parliament. The parliament itself is frozen, caught in a complex legal limbo, but no matter - a series of bombings disabled the gas pipeline to Israel last year, and it has not been operational since. The days of Israel relying on Egypt for gas - and of Egypt pocketing a nice stream of revenue from Israel - are over.

Thankfully for Israel, timing is everything. Development work at Tamar is running on schedule, and the first wells are expected to come online before the end of the year. A smaller field called Noa was sped into production to bridge the gap until Tamar can start supplying Israel's needs.

It won't be long, however, until Israel is pumping far more gas than it needs.

Beyond Tamar

Mari-B was a big discovery and Tamar was even bigger, but they both pale in comparison to the reservoir that Noble drilled into next. Shortly after delineating 9 TCF at Tamar, Noble spudded a drill into a nearby field call Leviathan and hit a home run. The Leviathan field is absolutely enormous, home to 17 TCF of gross natural gas resource.

Adding in a 7-TCF discovery in offshore Cyprus and several other, smaller discoveries near Leviathan, Noble has now discovered no less than 35 TCF of gross natural gas resource in the region. It is far more gas than Israel could ever use.

Export plans are already afoot. Noble and partners aim to build a liquefaction plant so that Tamar's gas wealth can be exported globally in the form of liquefied natural gas (LNG). They actually hope to build a floating facility, in large part because land is so precious in Israel, and to that end they are watching Royal Dutch Shell's progress as it builds and commissions the world's first floating LNG plant for use in a field off Australia.

Even though it will be years before any LNG is produced in Israel, Russia is so keen to get its hands on Israeli LNG that state energy giant Gazprom has already signed a letter of intent with the Noble group to discuss a deal to buy 2 to 3 million tonnes of LNG annually, starting in 2016. A few months later, Russian President Vladimir Putin visited Israel, and among the announcements associated with that historic trip came news that Gazprom is setting up an Israeli subsidiary to help develop Leviathan.

Once the massive Leviathan field also gets into production, Israel will need every natural gas export avenue it can find. To that end, the country has been carefully cultivating its relationships with Cyprus and Greece, through which pipelines to Europe would pass (Turkey will not allow Israeli gas to cross its lands). It seems Israel's gas wealth is already generating new international allegiances: Israel, Russia, Cyprus, and Greece seem to be gravitating towards each other to form a new team in the Middle Eastern game.

New Camps in the Old Battleground

That things are changing so quickly is no surprise. The countries along both coasts of the Persian Gulf erupted into global prominence in the 1970s when world energy shortages catapulted them into previously unimagined wealth and political influence. If Israel emerges as a new power, those Arab countries will remain rich, especially because their energy is cheaper to produce than the more unconventional sources being outlined elsewhere in the world, including in Israel.

But what they keep in money, they may lose in clout. With other oil and gas streams coming on line, such as Canadian oil-sands crude and Arctic oil, we may be heading into a time when the world doesn't care all that much about what happens in the Persian Gulf (as long as nobody gets frisky with nukes).

OPEC nations will not be the only ones to cede ground to an energy-rich Israel - Turkey could be another big loser. For years Turkey was governed by a secular party, which actively sought out closer relations with Israel. Now the Islamist AK party is in charge, and relations with Israel are on the outs. If Israel does emerge as a new energy powerhouse and establishes a cozy circle with Russia, Greece, and Cyprus, Turkey will feel like someone who ditched a long-time friend right before she won the lottery. More generally, Turkey's ambitions to play a larger role in the politics of the eastern Med will have suffered a significant setback.

Egypt will also struggle with Israel's rise. As much as many Egyptians decried the deal to sell their gas to Israel, the fact is the deal generated considerable incomes for state coffers. That income has now evaporated, just as the country convulses through the aftermath of a revolution. Moreover, Egypt's role as a

regional powerhouse stemmed almost exclusively from its secular governance and its peace with Israel - these factors were so important in the old Middle East that the US government supported Egypt to the tune of $3 billion annually. Now Islamists are in power, and the path forward in Egypt's relationship with Israel is very uncertain. We see the country's power waning in the coming years as it finds footing in the new Middle East.

Then there's the United States, which will find its importance to Israel fade if the Jewish state becomes an energy giant with a dance card full of suitors. In the long run, the US could be hurt most of all if its best Middle Eastern friend, Israel, turns away from its embrace and towards the strong, strategic arms of Vladimir Putin.

It's a real possibility - Russia has already wooed Israel into several waltzes. In fact, the two nations have been growing closer for several years despite Russia's support for Iran, Syria, and even Hamas. Bilateral trade is approaching $3 billion annually; Russian immigrants make up 20% of Israel's population; Israel sold military drones and other high-tech weapons to Russia after Russia's poor military performance in Georgia in 2008; and following the Arab Spring, Israel and Russia share an interest in preventing the spread of radical Islam in the Middle East. If Israel can help stem the rising tide of radical Islam and provide Russia with another steady supply of natural gas, Putin must be thinking that perhaps this new friendship is worth the turmoil it will cause.

And cause turmoil it will, because even though alliances in the Middle East are forged over decades, they can also change overnight, especially when the new global currency of energy is at work. Russia is walking a tightrope in its efforts to woo Israel while still supporting Iran and Syria, and Putin may soon have to make a choice between old friends and new. If Russia abandons Iran and Syria, the Sunni-Shiite balance in the region will destabilize just as Islamists are taking power in several countries for the first time.

The old camps of the Middle East are changing. Transitions are rarely smooth, and these transitions in who holds power in the volatile Middle East will almost certainly provide some very rough patches.

Israel clearly sees the potential for trouble as it develops its newfound energy riches. The Israeli Defense Forces recently approved a navy request for four new warships, at a cost of about $750 million. The navy is concerned that the gas rigs being built in Israeli waters will be an attractive target for terrorist attacks, especially if Israel were to find itself in another war.

Israel knows Hezbollah has the capability to fire missiles from land to the gas fields. And Hezbollah may not be the only terrorist group with such lethal capacity - in February, the Israeli navy found an Iranian ship carrying six Nasr-1 radar-guided anti-ship missiles to Gaza; the navy believes the weapons were destined for al-Jihad. In addition, Syria also has its hands on an anti-ship missile that could reach the gas fields. Just imagine what a missile attack by an Islamist foe on an Israeli gas rig would mean for global politics (not to mention the environmental health of the Mediterranean Sea).

Of course, Israel's new warships will only add to a region that is packed with military capacity. Continued tensions over Iran's nuclear program have recently prompted the Islamic Republic and the United States to beef up their already impressive presence in the region. Just yesterday, those tensions led a gunnery team aboard a refueling tanker in the Persian Gulf to fire 0.50-cal rounds at a small, fast-moving boat, killing one person. It now seems the boat was a fishing vessel whose crew did not understand warnings to change course, but the navy personnel who decided to shoot were concerned it could have been an explosives-laden suicide skiff heading for an American warship.

While that altercation was seemingly unrelated to Israeli natural gas, in reality everything that happens in the Middle East is about energy. After all, the United States is drawn to the Middle East to protect its oil interests, and the reason it can act there with such force is because it buys billions of barrels of oil from Saudi Arabia and others in the region.

In a region that revolves around energy resources, Israel has long been at a major disadvantage, scrambling to secure supplies of the oil and gas it needed. Today, all that is changing, and Israel's newfound natural gas wealth will generate a sea change not only for the Jewish state but for the entire region and everyone involved in it. Israel is gaining clout, Russia might be changing sides, Iran is feeling vulnerable, Egypt is losing a major customer, regional and global allegiances are shifting, and we are being reminded that energy resources hold the real power in the world's most volatile region.

Additional Links and Reads

(Financial Post)

Oil is trading near its highest level in seven weeks because of estimates that US supplies declined last week, concern that tensions with Iran will worsen, and signs that the Federal Reserve may boost stimulus measures. US crude stockpiles fell for the fourth straight week, helping to slowly erode the biggest glut since 1990. Meanwhile, Secretary of State Hillary Clinton said from Jerusalem that the US will use "all elements" of American power to prevent Iran from obtaining nuclear weapons. But in his semi-annual report to Congress, Ben Bernanke stopped short of providing stimulus, instead telling lawmakers the central bank was considering a range of tools to help the economy, but for now would continue to wait and assess. Nevertheless, the spot price of WTI crude for August delivery rose to US$88.92 a barrel.

Next year, for the first time on record, the wealthy nations of Europe, North America, and Japan will account for less than half of the world's oil usage, according to the latest projection from the International Energy Agency. The shift reflects both growing efficiency in wealthy nations and growing prosperity in poor countries, but a world in which the majority of oil consumption is happening in

China, India, and Latin America is a world in which America's energy fate is driven by forces beyond its control.

With the price of gas in the US now a third of that in Western Europe and a fifth of that in Asia, interest in developing liquefied natural gas (LNG) export capacity is growing rapidly. Proponents argue that exports will help drain a glutted market; detractors argue that competition from exporters will drive domestic prices up. And since a chunk of those exports would go to countries with which the US does not have free-trade agreements, the government can only approve LNG projects if they do not harm the public interest, which increased fuel costs would. The Department of Energy is now studying whether the harms of exports outweigh the benefits, and no new liquefaction projects will be approved until they come to a conclusion.

After falling significantly in recent weeks, thermal coal prices are now down 30% year-over-year, weighed down by slowing Chinese growth, a shift to cheap natural gas, and tough environmental regulations. The US thermal coal market has now moved into surplus, and miners that do not respond by cutting production and delaying spending plans could well meet the same fate as Patriot Coal, which filed for bankruptcy last week.

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China, India, and Latin America is a world in which America's energy fate is driven byLNG: US Weighs the Cost of Gas Exports to Economy (Financial Times) With the price of gas in the US now a third of that in Western Europe and a fifth of that in Asia, interest in developing liquefied natural gas (LNG) export capacity is growing rapidly. Proponents argue that exports will help drain a glutted market; detractors argue that competition from exporters will drive domestic prices up. And since a chunk of those exports would go to countries with which the US does not have free-trade agreements, the government can only approve LNG projects if they do not harm the public interest, which increased fuel costs would. The Department of Energy is now studying whether the harms of exports outweigh the benefits, and no new liquefaction projects will be approved until they come to a conclusion. Thermal Coal Weakens Further (Calgary Herald) After falling significantly in recent weeks, thermal coal prices are now down 30% year-over-year, weighed down by slowing Chinese growth, a shift to cheap natural gas, and tough environmental regulations. The US thermal coal market has now moved into surplus, and miners that do not respond by cutting production and delaying spending plans could well meet the same fate as Patriot Coal, which filed for bankruptcy last week. Cleaning The Confusion About Exporting U.S.Crude Oil & Refined Products Ads by Google Trade Oil Futures Online www.optionshop.com Cutting Edge New Broker Great Tools, No Exchange Fees The oil & gas industry has continued its search for new deposits of oil and gas. Federal regulations have put many parts of the Gulf of Mexico, the East and West Coast and other areas off limits. Thus the U.S. is forced to import foreign oil. " id="pdf-obj-49-21" src="pdf-obj-49-21.jpg">

The oil & gas industry has continued its search for new deposits of oil and gas. Federal regulations have put many parts of the Gulf of Mexico, the East and West Coast and other areas off limits. Thus the U.S. is forced to import foreign oil.

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Clearing Up The Confusion

There are stories going around about the U.S. exporting oil and refined products and it is being labeled as a bad idea.

Let's set the groundwork. I worked for 22 years as Director of Public Affairs for the Louisiana Mid-Continent Oil and Gas Association. Yes, I wrote press releases and gave interviews. I also did a lot of research on a lot of issues.

At one time, it was absolutely illegal to export United States crude oil. That law was changed.

We do export some oil today. It makes more sense to export oil produced in North Dakota and Montana to Canada than it would to try and send it to a U.S. Refinery. North Dakota is having an oil boom and there is not enough refining capacity in the area. It would make more sense to export Alaskan oil to Japan, but we don't do that.

Our biggest source of imported oil is from Canada. OPEC as a group supplies more oil to the U.S. than any other group, but on a country by country basis, Canada is our biggest crude oil supplier.

Louisiana, where I live, has an active shrimp and crawfish industry. There is a large supply of Chinese shrimp and Crawfish available in the state. (I know most of you would spell Crawfish as Crayfish, but in Louisiana it is Crawfish).

Crude oil is absolutely worthless.

If I parked a tanker fill with oil at your house you would have a major problem. No one would buy it from you. It does not smell good and you really cannot burn it because it produces too many emissions.

However, once the oil is refined, it is turned into many value-added products, such as gasoline, aviation fuel, diesel fuel, motor oil, chemical feedstocks, waxes, solvents and other items.

In Louisiana, we have 17 refineries capable of refining almost 7 million barrels of oil each day, which is about 2.5 billion barrels per year and Louisiana ranks second behind Texas in refining capacity.

By exporting the refined products, you improve the balance of trade. You offset some of the impact of importing oil by exporting refined products. Next, all oil is not created equal. Some lighter oils cannot be turned into gasoline.

On average, a barrel of oil will yield 18 to 20 gallons of gasoline. You cannot turn a whole barrel of oil into gasoline. So, you make the other products. Europe uses more diesel than we do. We export some diesel. Their low low-sulphur demands are not as strict. When you think you have squeeze the last ounce of liquid fuel from a barrel of oil you are left with something called coke. It is similar to the asphalt that is used to pave your streets. That coke goes through a device called a Coker at a refinery, where even more liquids are extracted. The remaining product is fuel grade coke, not too much unlike coal and is used in Europe and not the United States.

I posted this on one of the forums, but for the benefit of everyone else, the United States is not in the oil production business. It leases offshore areas and onshore lands to oil companies. An upfront bonus is paid by the oil company before they drill the first well. An annual lease rental fee is paid. Then, a royalty is collected on each barrel of oil produced. Depending on location, the minimum royalty can be from 12.5 percent to more than 18 percent. The royalties are collected by the federal government before any of the other expenses are paid.

The oil and gas industry is one of the most highly taxed industries in the country. There are many tax breaks, which were originally called tax incentives. If they are removed, the industry passes the cost on to the consumer in the form of higher prices. If the government would not collect royalties the price of gasoline would be cheaper.

However, petroleum revenue is the second largest source of revenue for the country. The personal income tax is first.

Oil produced on private lands is not taxed directly by the federal government. However, the royalty owners do have to pay income taxes on the money they earn. All oil producing states have a severance tax, or a minerals-in-place tax that is collected at the state level. In Louisiana, the severance tax collected on oil produced on state lands, water-bottoms and private lands is 12.5 percent.

There have been a lot of comments, forums, etc. about recent reports. I cannot find those reports and I have considerable experience in finding that information.

Gasoline is expensive because oil is expensive. Oil should not be as expensive as it is, because the global supply meets the demand. However, stock traders, speculators, commodity traders are pushing the price up because of the instability of the global economy, the threats by Iran, the U.S. decision to deny a permit to the Keystone pipeline from Canada and the Administration's general attitude toward the oil and gas industry.

Companies cannot voluntarily reduce oil prices or take a loss by charging the consumers less. They would be faced with below cost selling laws at the federal

level and in many states. Stockholders, who include virtually anyone having an

investment in any mutual fund, would be unhappy. Major stockholders would

probably file suit against the Board of Directors. The U.S. would sue for

underpayment of royalties and the states would sue for the under payment of

severance taxes.

Finally, there is no Mr. Exxon or Mr. Chevron, those companies and the other

major companies are owned by thousands of shareholders who want the

maximum return on their investment. That is not an unreasonable demand.

Oil prices can go down if the following happens.

 

The

global economy stabilizes.

__

The

United States opens up more areas for drilling in the Gulf of Mexico, East

__

Coast, West Coast and many onshore government lands.

 

The

situation with Iran and its threats settle down.

__

__

Finally,

OPEC could either lower its benchmark price or increase its production.

All or most of the easy oil that OPEC could produce has been found. Therefore,

the drilling and production costs for OPEC oil have increased.

I am trying to present facts. My primary sources are the U.S. Energy Information

Administration, the American Petroleum Institute and my own studies of the

industry over the past 22 years. Some will say I am bias because I worked for the

industry. The same industry was the one that said my job had been eliminated

after 22 years of faithful service. Therefore, some could say I have an

antagonistic attitude toward the industry. Neither is true. The information I have

presented here is accurate to the best of my knowledge and ability.

In conclusion, I know the oil industry is not perfect. There are probably some

stations charging more than they should. The industry has had accidents, such as

the BP blowout where 11 people were killed. However, overall, the industry has

an outstanding safety record. It is constantly striving to do better. When

hurricanes Katrina and Rita roared through the Gulf of Mexico, the U.S. Coast

Guard commended the industry for its responses and noted that only a small

amount of oil was spilled. The onshore spills, when the levees broke, were

greater.

There is one last thing to mention. Someone is soon going to suggest that the

President order the use of the Strategic Petroleum Reserves to lower the price of

gasoline. There is not enough oil in the SPR to have an impact on global prices.

The government does not give the oil away. it sells it to the oil companies at

market prices, or the companies borrow the oil and then replace it.

This is what happened after Katrina and Rita. Many offshore wells were not

producing. Many pipelines were not functioning because of the lack of electrical

power. By using the SPR, the nation was supplied with gasoline. All of the

borrowed oil was replaced by the respective companies. There were some

gasoline shortages in some places, but for the most part the nation had an ample

supply of gasoline--we also imported gasoline from foreign countries. The oil and

gas industry is a global industry and we must think of it that way, otherwise, we

will face higher prices, shortages and other problems.

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gasoline shortages in some places, but for the most part the nation had an ample supplyAds by Google Big Data in Oil and Gas www.HDS.com/IDC-Energy Learn About Big Data and Analytics in Upstream Oil & Gas. Free Report. Path of Oil Prices Can Be Confusing Ads by Google 3rd Offshoring Conference offshoreconf.be Are offshore dev teams interesting? How do I maximise my offshore ROI? Natural Gas Forecast 2013 www.InvestmentU.com/Natural-Gas Natural Gas Price Forecast: Where We Are and Where We're Going. David Melasky Tx Attorney www.melaskylaw.com Regulatory Taking: When are public restrictions on your land illegal? Trying to Clear the Confusion About Oil By Using Facts Recently, in commenting on a couple of Hubs, there have been a couple of people questioning my knowledge of the oil and gas industry and claiming I needed to do more research. They may never see this because they are not among my followers. They have the First Amendment constitutional right to their opinions and I would argue on their behalf if anyone said they did not. Never, have I claimed to know everything about the oil and gas industry. The two persons offering criticism includes one person who worked in the industry and one who has a son, who worked in the industry. " id="pdf-obj-53-18" src="pdf-obj-53-18.jpg">

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Trying to Clear the Confusion About Oil By Using Facts

Recently, in commenting on a couple of Hubs, there have been a couple of people

questioning my knowledge of the oil and gas industry and claiming I needed to

do more research. They may never see this because they are not among my

followers. They have the First Amendment constitutional right to their opinions

and I would argue on their behalf if anyone said they did not.

Never, have I claimed to know everything about the oil and gas industry. The two

persons offering criticism includes one person who worked in the industry and

one who has a son, who worked in the industry.

The issue is over the price of oil. It has been my ongoing belief that any

immediate relief in lower oil prices will have to come from OPEC, because those

countries control most of the oil in the world. I am going to insert a chart further

down this Hub that shows the proven reserves in many countries and the world

total. These numbers do not include the shale oil reserves that are being

developed and I will also discuss that.

It has been argued that the U.S. has plenty of oil and all we have to do is "drill

baby drill." According to the CIA World Record Book, the U.S. has 20.6 billion

barrels of proven reserves of oil. There are more unproven reserves, but those are

only estimates and they change all the time.

According to the CIA World Record Book the total amount of oil reserves in the

world is approximately 1.5 trillion barrels of oil. That means the U.S. has a little

less than 2 percent of the world's oil supply. Now, remember, this is reserves in

the whole world. The chart below will give you a list of the countries with

significant reserves. You can do your own math if you wish.

Source: CIA--World Fact Book All right, using the chart we have a picture of where the

Source: CIA--World Fact Book

All right, using the chart we have a picture of where the oil reserves are. The U.S.

reserves rank as the 25th largest in the world. That is not a drop in the bucket.

Now, let’s discuss a few things about oil. You can only pump oil out of the ground

so fast. If you do it too fast, you will lose the pressure of the reservoir where the

oil is trapped, which is what pushes it to the surface. If you lose the pressure, you

leave a lot of oil in the ground that cannot be recovered with present technology.

Next, to get this oil you have to drill for it. Before you drill you have to get a

lease, which may be with the federal government, in the case of Gulf of Mexico

activities, national parks and other such places or from private landowners.

Usually, you pay an upfront bonus, an annual rental fee and a royalty, which is a

portion of the oil. Usually, the operating company pays the landowner money for

the oil it sales, but in some cases the landowner has the right to take the oil in

kind--actually own the oil, but then they have to find a buyer, pipeline to

transport, etc. The amount of the royalty is a percentage of what the operator

gets for selling the oil. There is a minimum royalty on federal leases, but usually

the royalty payment is higher, at least one-fourth or 25 percent of the value of

the oil.

However before you get around to drilling the well, an environmental impact

statement will have to be developed and presented to the public. You have to get

permits from either the state or federal government, depending on where you are

drilling. You have to present a plan as to how you will dispose of waste water that

comes up with the oil, used drilling mud, used drill pipe, etc.

Then if you are drilling in an area where people do not want you to drill, like those

people living on the Florida coast, you will have to deal with the lawsuits that will

be filed.

However, this is assuming that you are in an area where drilling is even allowed.

The map below shows the areas that are off-limits to oil and gas exploration. The

numbers in the shaded area represent the estimated amount of natural gas in

those areas that oil and gas companies cannot produce, because no drilling is

allowed. The white spaces you see on the east coast represent those states'

territorial waters. They are off limits as well, but are not part of the federal

moratorium.

Next, to get this oil you have to drill for it. Before you drill you have

So far figures have been supplied about oil reserves and areas where drilling is

prohibited by either federal or state governments. In addition to what is shown on

the map of the lower 48, drilling is also prohibited in the Arctic National Wildlife

Reserve (ANWR), which holds tremendous potential for oil production.

Now, let’s look at shale oil. Most people have probably heard about shale gas and

have probably noted that their utility bills, if the local utility company is using gas

for its fuel source, has dropped significant, because natural gas prices are

extremely low. In fact we have so much gas that we are exporting it as liquefied

natural gas. However, the price is so low, that many companies are giving up on

gas and looking to spend their money on shale oil production.

According to a story published in the New York Times on May 27, 2011, a 17 mile

stretch of road between Catarina, Texas and the Country Seat, Carrizo Springs is

"the hottest new oil play in the country, with giant oil terminals and sprawling RV

parks replacing fields of mesquite."

The article states that this field, known as Eagle Ford is just one of 20 new

onshore oil fields that "advocates say could increase the nation's oil output by 25

percent within a decade." That amounts to a 2.5 percent increase per year. Also,

early estimates of these types of finds are usually slightly exaggerated, because

nobody knows for sure how much oil is recoverable. Also the future of shale oil

and gas development has its problems, because both involve using the "fracking"

method. Fracking has its detractors because it uses a lot of water to push the oil

or gas out of the ground. Some fear aquifers may be damage or rivers and

streams could be polluted.

The link for the New York Times article is posted below just above the next

map.

.

The article adds, "The new drilling makes economic sense as long as oil prices

remain above $60 a barrel, according to oil companies. At current oil prices of

about $100 a barrel, shale wells can typically turn a profit within eight months —

three times faster than many traditional wells"

Therefore stories about $10 oil are not accurate. Granted, $60 is better than

$100, but the oil is going to be sold at market price. If the global market price is

$100, the shale oil is going to sell for $100, which is great for the oil companies,

many of which will be independents and not majors, and the people who have

royalty rights. For the rest of us, it will still mean the continuation of higher

gasoline prices.Oil companies are going to charge what the market will bear, just

like any other business. Also, remember, these are early predictions, which in my

experience, usually prove to be a little too optimistic.

Finally, the other point I was called on was the fact that there are not enough

drilling rigs or drill ships available to drill in all the places that are off limits and in

the new shale plays. Also, there are not enough trained personnel.

According to Baker Hughes, which is the company that keeps track of drilling rigs

as part of its business, The United States has 1,968 rigs working at this time.

Canada has 352 and the rest of the world has 1,204. There are a few idle rigs and

some being overhauled and a few being built. However, some of the older rigs

will be taken out of service. If every off limits area was opened to exploration, you

would probably need at least another 2,000 rigs. Rigs are expensive and you do

not build them overnight.

There is one more point to make. Many people like to blame the President for the

high gasoline prices. Well, it is an election year, so that is not unusual. Others are

blaming the political parties.

This is one point my old boss and I agreed upon, views about oil and gas

exploration are based more on geography than on party politics.

The map below shows here are only 55 votes in the producing states. That is

going to drop by one because Louisiana has lost a congressional seat. However, it

takes 218 votes to repeal the Congressional moratoriums. That is not going to

happen any time soon. So a lot of our 20 billion barrels of reserves are not going

to be produced any time soon.

some being overhauled and a few being built. However, some of the older rigs will beOil in Shale Sets Off a Boom in Texas - NYTimes.com There are not enough Congressional votes in the oil and gas producing states to force the lifting of the offshore moratoriums. The attitude toward offshore drilling is based more on geography than on political party affiliation. Well, that about wraps it up. There are many other issues associated with oil and gas exploration and production and refining has its own set of issues. For example, according to the Energy Information Administration, U.S. refineries are " id="pdf-obj-58-34" src="pdf-obj-58-34.jpg">

There are not enough Congressional votes in the oil and gas producing states to

force the lifting of the offshore moratoriums. The attitude toward offshore drilling

is based more on geography than on political party affiliation.

Well, that about wraps it up. There are many other issues associated with oil and

gas exploration and production and refining has its own set of issues. For

example, according to the Energy Information Administration, U.S. refineries are

operating at about 90 percent of total capacity. If we increase our production, and

the price of oil does drop, we are going to increase our consumption, which

means we may someday have to import gasoline in order to meet demand. The

last new refinery built in this country was in Garyville, LA in the 1970s. That

refinery recently underwent a major onsite expansion. Expansions are possible.

Building a new refinery from the ground up is highly unlikely, because of

economic reasons and the anticipated environmental protests.

Finally, if we increased our production, the alternative fuel initiative will suffer a

serious setback. That is not going to sit well with a lot of people.

For those of you who do not know, I was Public Affairs Director of the Louisiana

Mid-Continent Oil and Gas Association for 22 years where one of my

responsibilities was research along with media relations. I never mislead media

and was never accused of doing that. I assure you, what I have presented here is

truthful and accurate to the best of my ability.

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Oil groups set to export US crude

By Gregory Meyer and Ed Crooks in New York

Some of the world’s biggest oil companies and traders are poised to export

substantial amounts of crude from the US for the first time in decades, as

booming output there promises to reshape global energy markets.

Royal Dutch Shell, BP and Vitol, the world’s largest independent oil trading house,

are among the six companies known to have applied to the US government for

export licences, the Financial Times has learnt.

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A surge of exports from the US would affect oil trading patterns between Europe,

west Africa and North America. Greater supplies in the Atlantic basin are likely to

put pressure on physical prices of other crudes in the region, particularly Brent,

the North Sea benchmark.

Oil prices have this year soared to well above the $100 per barrel level that many

governments consider a drag on economic growth.

US federal rules and the country’s dependency on imports have kept all but a

trickle of crude from leaving the US. But a surge in supplies from states such as

Texas and North Dakota have prompted companies to seek out refinery

customers in Canada.

As rising crude volumes reach the coasts, “pressure should build and will trigger

policy debates about whether to expand the list of allowable countries beyond

Canada”, said Ed Morse, head of commodities research at Citi.

Domestic oil output in the US has rebounded strongly, to its highest level since

1995, after drillers pioneered new techniques to coax oil from reserves previously

regarded as uneconomic. Rising exports are likely to influence debates on energy

independence in the US, whose petroleum import bill was $436bn last year.

Exporting US crude requires a licence from the Bureau of Industry and Security, a

branch of the US Department of Commerce. The US has exported less than

100,000 barrels per day of crude in the past decade, a fraction of the 9m barrels

imported daily. “It’s generally prohibited except for a whole host of exceptions,”

said John Felmy, chief economist at the American Petroleum Institute. By

Shell confirmed it recently applied for licences to export domestic crude. “Crude

oil trades on a global scale and imports/exports will follow supply and demand,” it

said.

BP received a licence to export to Canada but has not yet used it, while Vitol has

applied for a licence, people familiar with the matter said. Both BP and Vitol

declined to comment.

The Department of Commerce refused to confirm or deny the existence of

licences or licence applications, citing US law. But it said exports to Canada had a

“presumption of approval”.

Until now, only minimal amounts of US crude have been exported overland from

the north of the country to Canada. Traders, though, now want to export crude by

tanker from the Gulf of Mexico to the Atlantic coast of Canada, where Imperial Oil,

Irving Oil and a unit of Korea National Oil Corp each own a refinery. In the Eagle

Ford “shale” of Texas, production has jumped to 280,000 b/d from almost nothing

four years ago and its low-sulphur crude is ill-suited for many refineries nearby.

One advantage of exporting the crude to Canada is that the US’ Jones Act

demands more expensive US-flagged ships for domestic routes. Poten & Partners,

a ship broker, estimates it would cost less than $1.50 per barrel to ship crude in a

foreign-flagged medium-sized Aframax tanker from Texas to the largest Canadian

refinery at St John, New Brunswick. A shorter journey from Texas to refineries in

Philadelphia recently cost $4.55 a barrel.

“This is not about exports or imports,” said Lucian Pugliaresi, president of the

Energy Policy Research Foundation in Washington. “It’s about transportation and

processing efficiency.”

Refineries in Canada are important fuel suppliers to US markets. Irving says its St

John refinery supplies 20 per cent of total petrol and diesel imports to the US

northeast. Under longstanding policy, the US government is authorised to issue

licences for crude exports to Canada for use in Canada or the US.

At the port of Corpus Christi in Texas, locally produced crude is being loaded for

outbound shipment for the first time since the 1940s, said Frank Brogan, deputy

port director. Thus far tankers have sailed only to other US ports, he said.