GWB: WHAT DID HE LEARN AT HARVARD BIZ SCHOOL?

The Financial Times has a couple of articles on the reaction to the SOTU call by GWB to cut back on Middle East oil imports. The Economist is even more biting, but the FT takes Bush to the woodshed over the simplistic notion that one can selectively choose upstream vendors in a market where all crude is more or less priced at the same rates and distributed from the same centers. The first FT article:

The president’s plan to cut US consumption of Middle East oil by 75 per cent by 2025 was neither achievable nor prudent and could make investment in the industry more difficult, they said. Investment was the most critical factor in deciding whether there would be enough oil to meet future demand.
"America is addicted to oil, which is often imported from unstable parts of the world," Mr Bush said in his State of the Union address. "By applying the talent and technology of America, this country can dramatically improve our environment, move beyond a petroleum-based economy and make our dependence on Middle Eastern oil a thing of the past."
Only last year, Ali Naimi, Saudi Arabia’s oil minister, called on the US and other oil-consuming countries to give producers a road map of future demand to help petro?states decide how much to spend on new production capacity. Such a road map would also help the industry avoid the pitfalls of the 1970s and 1980s, when producers spent billions of dollars on new oil production only to see demand drop – in part because of new US and European energy policies – and capacity lie idle for nearly two decades.
Mr Bush has not heeded that call, Opec delegates said. Experts are sceptical that the US can liberate itself from dependence on Middle Eastern oil producers. Even though only some 20 per cent of oil used in the US comes from the region, Middle Eastern countries account for two-thirds of the world’s proven reserves.
If global energy consumption continues to increase, so too will the market power of these producers.
“Even if America doesn’t import a drop of Middle Eastern oil, these countries will still play an increasingly important role in determining how much we pay for oil,” says Frank Verrastro, director and senior fellow in the Center for Strategic and International Studies energy programme. "You pay the global price and it doesn’t matter where you buy it from."
Opec delegates said yesterday they were aware that much of Mr Bush’s speech was political and aimed at US citizens and not at petro?states in the Gulf.
Perhaps the most fervent reaction came from within traditionally Bush-friendly territory. Myron Ebell, director at the Competitive Enterprise Institute, a conservative think-tank, said: "The president’s hackneyed and dangerous energy rhetoric that we are addicted to oil is an indication that the administration is addicted to confused thinking about energy policies. [His goals] will be hindrances to creating a bright energy future for American consumers."

Privately, Opec officials were more direct in warnings about Mr
Bush’s declared intention to reduce America’s dependence on Middle East oil by 75 per cent by 2025. But they emphasised Opec would avoid a confrontational tone in its commentary.
An Opec delegate said: "Comments like that are unrealistic. Everyone knows the world will continue to depend on Middle East imports." The organisation would raise concerns about such statements damping investment at meetings with the European Union and other organisations “more aligned with Opec’s view."
Opec’s concern was shared widely across the industry. John Felmy, chief economist of the American Petroleum Institute, which represents the US oil and gas industry, said: “If one of your big customers tells you they do not want to buy from you in the future, then of course this will impact how much you invest."

This is taught in Business 101. If your vendors are not happy, don’t get them angrier.

The International Energy Agency, the industrialised countries’ energy watchdog, forecast the Middle East will have to invest heavily to ensure the world’s energy thirst is satisfied. On Wednesday Martin Bartenstein, economics minister of Austria, which holds the EU presidency, said the Middle East, with two-thirds of the world’s oil reserves, would become more rather than less important. He told the FT: "As the person responsible for EU energy policies, I would not see myself in a position of talking about such a significant decrease in demand from a certain region. We know that the oil import dependency of the EU will ever increase, not decrease. Opec is neither evil nor an empire. It is a partner with about 35 per cent market share. It is a partner with by far the largest oil and gas reserves, so it will increase in importance in the future. Everyone . . . will have to deal with oil and gas, especially from the Middle East."

Opec delegates and Mr Bartenstein place responsibility for oil price volatility mainly on consuming countries that have failed adequately to invest in refineries and pipelines needed to get oil to their consumers. The United States has not built a new refinery in decades, as the NIMBY mentality and enviro-nuts tried to mandate shoe sizes and everything else about refineries and their operators. Bush’s grandstanding call for more energy security is belied by his administration’s efforts in salient areas, as the FT points out

Even those who agree that less oil is good questioned the speech. Jim Footner of Greenpeace, the international environmental pressure group, said: "We’ll wait and see what concrete action [Mr Bush] takes before getting our hopes up. After all, there is a treaty to reduce America’s dependence on oil – it’s called Kyoto, and Bush walked away from it."
The administration has made much of its investment in energy efficient technology. However, much of this has been a reallocation of research funds, says Bill Prindle, the deputy director of the American Council for an Energy-Efficient Economy. "The budget requests from the White House for funding on energy efficiency has actually fallen 14 per cent in real terms since 2002," he said. Mr Felmy added that shifting oil imports from the Middle East could be costly for America. "As long as America has a diversified range of oil suppliers it has a lot of security of supply. If you reduce this diversification it could be costly." About 20 per cent of oil sold to the US comes from the Middle East, with Canada and Mexico supplying more than 30 per cent of imports.

It is apparent that any decrease in the US dependence on oil from the Middle East can only really be achieved by a decrease in its dependence on all foreign oil – either by conservation, alternative energy or domestically produced oil and gas.
But it is a truism that Mr Bush doesn’t like asking people to make sacrifices.

This is another guns AND butter situation where he chooses both sides.