US warned of east-west oil bidding war

The head of ChevronTexaco yesterday called on the US government to build growing competition for Middle East oil with Asian consumers into a new national energy policy, or risk harming future economic growth.

Dave O’Reilly, chairman and chief executive of the second largest US oil and gas group, pointed to the closer ties between consumers such as China and India and Middle East producers at a time when cheap-to-find oil was becoming more scarce.

“We’re seeing the beginnings of a bidding war for Middle Eastern oil between east and west,” said Mr O’Reilly in a keynote address to a Houston energy conference.
“[And we’re seeing] the beginning of alliances between Asian entities and Middle East entities for the long term,” he said. “It’s very important that our government recognise that.”

Mr O’Reilly said greater access to energy had become “a strategic imperative” for Asia, which had become a far larger importer of oil and gas than north America, where US imports were countered by domestic production and output from Canada and Mexico.

National oil companies, notably those from China and India, have become far more active in pursuing overseas assets. The Middle East still offers some of the lowest exploration and production costs, and one of the shortest transport routes to the main Asian markets.

US companies also face political difficulties in some Middle East markets, despite their recent success in the award of new exploration licences in Libya following the lifting of sanctions.

While companies such as ChevronTexaco and its larger rival ExxonMobil are investing billions of dollars to develop Qatar’s natural gas fields, they are effectively barred from the even larger resources in neighbouring Iran, a major supplier to India.

Mr O’Reilly also used his speech to make the clearest call to date from the head of a major oil company for a comprehensive US energy policy which encompassed environmental, national security and trade issues. “A constructive national discussion would bring a better understanding of energy issues, particularly to the general public.”

“The time when we could count on cheap oil and even cheaper natural gas is clearly ending,” he said, adding that a shortage of gas had led some industry to relocate from the US, while higher energy and transport costs could lead to a shift in consumer spending patterns.

President George W. Bush is expected to make his third attempt to push an energy bill through Congress, following disagreements over the proposed level of subsidies to energy producers on previous attempts.

By Doug Cameron in Houston
Published: February 16 2005 02:00 | Last updated: February 16 2005 02:00
Financial Times