Thursday, January 14, 2010

Flight 253






I am not going to support the usual conspiracy chatter in this article, but it is very troubling.  This perpetrator was red hot and glowing.  More critically, intelligence gathering was superb.  I simply fail to see how it could have been improved upon. The man was identified as a threat four years ago, and he clearly did not lose interest or go away.

We are not talking of a man who came to notice only once by accident.  In fact, this clown was picked up on multiple times and his own father came in to warn folks.  This was not intelligence failure.

In fact, any part of the intelligence acquired was actionable.  He was already banned from entering Britain and they were slow.

My point is that he should have been subject to extreme scrutiny since 2004 every time he got near an airplane. Why was he not?

This all begs the question of who is minding the shop.  We had real battlefield intelligence that was clearly actionable and it was not available to the front line of defense for four years.

I spoke of turf wars.  Everyone who was in the line of responsibility needs to be removed or demoted from the top down.  Doctrine needs or be revamped and personnel need retraining.  This can never happen again.

If we have learned anything it is that these clowns need to access a real support network that is naturally wide open to intelligence penetration for their need to access the rare individual who is prepared to blow himself up.

Flight 253: Anatomy of a Cover-Up

A Failure to "Integrate and Understand," or a Thin Tissue of Lies

By Tom Burghardt



New revelations about the failed Christmas Day attack on Northwest Airlines Flight 253 continue to emerge as does evidence of a systematic cover-up.

With the White House in crisis mode since the attempted bombing, President Obama met for two hours January 5 with top security and intelligence officials. Obama said that secret state agencies "had sufficient information to uncover the terror plot ... but that intelligence officials had 'failed to connect those dots'," The New York Times reports.

The latest iteration of the "dot theory" floated by the President, aided and abetted by a compliant media, claims "this was not a failure to collect intelligence" but rather, "a failure to integrate and understand the intelligence that we already had."

"Mr. Obama's stark assessment that the government failed to properly analyze and integrate intelligence served as a sharp rebuke of the country's intelligence agencies," declared the Times uncritically.

While the President's remarks may have offered a "sharp [rhetorical] rebuke," Obama's statement suggests that no one will be held accountable. Indeed, the President "was standing by his top national security advisers, including those whose agencies failed to communicate with one another."

While the President may be "standing by" his national security advisers, the question is, are the denizens of America's secret state standing by him? One well-connected Washington insider, MSNBC pundit Richard Wolffe, isn't so sure.

Wolffe, the author of a flattering portrait of Obama, Renegade: The Making of a President, when asked on MSNBC's Countdown with Keith Olbermann January 4 what is the White House "focus here right now?" Wolffe's startling reply: "Is this conspiracy or cock up? It seems that the president is leaning very much towards thinking this was a systemic failure by individuals who maybe had an alternative agenda." (emphasis added)
"I will accept that intelligence by its nature is imperfect" the President said, "but it is increasingly clear that intelligence was not fully analyzed or fully leveraged."

The question is why? And more pertinently from a parapolitical perspective, what "alternative agenda" is playing out here that would put the lives of nearly 300 air passengers at risk?

British Evidence: Down the Memory Hole

As Antifascist Calling reported last week, The Sunday Times and The Observer newspapers disclosed that MI5 had built a dossier on Abdulmutallab which showed "his repeated contacts with MI5 targets who were subject to phone taps, email intercepts and other forms of surveillance."

It has since emerged, the Associated Press reported January 4, that British authorities began assembling a security file on Abdulmutallab shortly after his arrival the UK in 2005 when officials claimed he was in contact with "known radicals."

Prime Minister Gordon Brown's spokesperson Simon Lewis said on Monday, "Clearly there was security information about this individual's activities, and that was information that was shared with the U.S. authorities. That is the key point."

In an climb-down from Lewis's admission, The Wall Street Journal reported that Home Secretary Alan Johnson, whose brief includes MI5, said in an appearance before Parliament Tuesday, "Whilst we did provide information to the U.S., according to standard operational practices, linked to the wider aspect of this case, none of the information we held or shared indicated that Abdulmutallab was about to attempt a terrorist attack against the U.S."

The Brown government has steadfastly refused to say just when the file on Abdulmutallab was passed to the U.S., letting stand the implication it was sent before the aborted Christmas Day attack.

The cover story being floated by MI5 now mendaciously claims the agency did not send Abdulmutallab's security dossier on to American officials "because of concerns about breaching his human rights and privacy," The Sunday Times reported January 10.

"MI5 has privately conceded that as early as 2006 its surveillance operations had picked up 'multiple communications' between the 23-year-old Nigerian student and suspected terrorists in Britain," The Sunday Times disclosed.

Despite these concessions, we're now to accept at face value the absurd claim that information on a terrorist suspect wasn't passed along by British spooks to their closest ally "because of guidance from [MI5's] legal department."

Trying selling that fairy tale to Republican victims of the secret state's "human rights and privacy" campaign in Northern Ireland as The Sunday Herald revealed during their multiyear investigation into Britain's dirty war!

Under intense pressure by the United States about these disclosures, the Brown government has gone to great lengths to stress "the importance to Britain of close intelligence cooperation with the United States."

Still reeling however, from U.S. threats to cut-off intelligence sharing last summer if torture evidence was disclosed to the public by the British High Court, the government is moving to avoid a similar controversy over the Abdulmutallab affair.

In late July, The Guardian revealed that "Hillary Clinton, the US secretary of state, personally intervened to suppress evidence of CIA collusion in the torture of a British resident, the high court heard today." The Guardian also reported that MI5 chief Jonathan Evans said in a speech in October that the "Security Service had been 'slow to detect the emerging pattern of US practice in the period after 9/11'."

While the torture files were eventually released in late October by a High Court order, it is certainly reasonable to ask: what other "U.S. practice(s)" are being suppressed today by the Brown government?

The Independent confirms this and states, "The Downing Street comments were reported to have angered the US government, but after talks with the White House, Mr Brown's spokesman tried to lower the diplomatic temperature. He said relations remained 'excellent' between the two countries."

As part of a new and improved sanitized narrative, the Home Office now claims that Abdulmutallab's transformation into an erstwhile suicide bomber began only after he left Britain. This, despite revelations by The Sunday Times last week, that he stoked MI5's interest precisely because of his repeated contacts with individuals "who were subject to phone taps, email intercepts and other forms of surveillance."

In a further development that can't please the British state, The Guardian reported January 7, that Yemen's Deputy Prime Minister for Defense and Security, Rashad al-Alimi, told a news conference that "information provided to us is that Umar Farouk joined al-Qaida in London."


The Wall Street Journal reports that al-Alimi said Thursday, that Abdulmutallab had "no links" to al-Qaeda "when he first came to Yemen in 2004 and 2005 to study Arabic" and that he "was radicalized during his time in the U.K., where he had studied between his two stints in Yemen," charges that "senior British counterterrorism officials" dismiss, claiming "there was no evidence to back them up."

Why then, would Abdulmutallab's web browsing habits, cell phone conversations as well as "other forms of surveillance" on "targets of interest" to British spooks indicate a "lack of evidence"? It would seem to suggest just the opposite.

Indeed, Abdulmutallab had been in "close contact" with "a key suspect in an Al-Qaeda plot to murder British citizens," according to MP Patrick Mercer, the chairman of the parliamentary counter-terrorism committee. Mercer told The Sunday Times January 10, that the alleged airline bomber "had been in touch" with the suspect, currently a resident in a high-security British prison awaiting trial, "while both men were students in London."

Feeling the heat, Lewis has backtracked from his initial statement and now claims that information revealed Monday was simply a "routine exchange of information," and not specific warnings that "Abdulmutallab posed a terrorist threat."

This beggars belief. Indeed, the Brown government's climb-down is clearly intended to "disappear" inconvenient evidence from the official record, thus suppressing the actual content of MI5's security dossier on Abdulmutallab, and will only heighten suspicions that a transatlantic cover-up of the affair is in full-swing.


A Failure to "Integrate and Understand," or a Thin Tissue of Lies

Making the rounds of the Sunday talk shows last week, John O. Brennan, President Obama's top counterterrorism advisor, claimed that U.S. intelligence officials "had snippets of information" about the suspected bomber but "we didn't have any type of information that really allowed us to identify Mr. Abdulmutallab."

The Washington Post reported January 4 that Brennan mendaciously claimed, "We may have had a partial name. We might have had an indication of a Nigerian. But there was nothing that brought it all together."

Indeed, the 25-year CIA veteran and former CEO of The Analysis Corporation, the firm which built and maintained bloated watchlists for the Office of the Director of National Intelligence's National Counterterrorist Center, went so far as to cheekily proclaim "there is no smoking gun piece of intelligence out there that said he was a terrorist, he was going to carry out this attack against this aircraft," or that America's multibillion counterterrorist apparatus only had "bits and pieces of information."

Let's take a look at those informational "snippets" and summarize what is quickly emerging as growing evidence of U.S. foreknowledge of an imminent attack on an American passenger plane:

* May: the British government withdrew its student visa for Abdulmutallab, a graduate of the prestigious University College London and placed him on a watchlist, barring his entry into the UK. MI5, and presumably their MI6 military intelligence colleagues in Yemen, compiled a dossier on the would-be bomber, citing his "political involvement" with "extremist networks" that have enjoyed on-again, off-again ties with NATO military intelligence organizations across the decades. This information, as Brown government spokesperson Simon Lewis, who let the cat out of the proverbial bag, was shared with their American counterparts.

* August: U.S. intelligence agencies, including the CIA and NSA, intercepted cell- and satellite phone traffic which revealed that a Yemeni affiliate of the Afghan-Arab database of disposable Western intelligence assets, also known as al-Qaeda, were finalizing preparations for an operation that would utilize a "Nigerian."

* October: Newsweek revealed in their January 11 issue, that the dodgy cleric, the American-born Anwar al-Awlaki, who communicated extensively with the disturbed Ft. Hood shooter, Maj. Malik Nadal Hasan, posted "a provocative message on his English-language Web site: 'COULD YEMEN BE THE NEXT SURPRISE OF THE SEASON?'" According to Newsweek, "Al-Awlaki seemed to hint at an upcoming attack that would make Yemen 'the single most important front of jihad in the world'." The Washington Post reported in 2008 that al-Awlaki had extensive contacts with 9/11 hijackers Nawaf Alhazmi, Khalid Almihdhar, and Hani Hanjour and was suspected of having assisted the 9/11 plot. According to the Post, "three of the hijackers had spent time at his mosques in California and Falls Church." Despite, or possibly because, of these dubious connections "he was allowed to leave the country in 2002." According to the History Commons, it is only in 2008 that the U.S. government concludes that the shady imam "is linked to al-Qaeda attacks." However, Al-Awlaki's provenance as a new "terrorist mastermind" should be viewed with suspicion, given well-documented links known to have existed amongst the 9/11 hijackers and American, Saudi and Pakistani secret state agencies.

* October: the same month Al-Awlaki was hinting at a "surprise," Newsweek revealed that John O. Brennan "received an alarming briefing at the White House from Muhammad bin Nayef, Brennan's Saudi counterpart. Nayef had just survived an assassination attempt by a Qaeda operative using a novel method: the operative had flown in from the Saudi-Yemeni border region with a bomb hidden in his underwear. The Saudi was concerned because he 'didn't think [U.S. officials] were paying enough attention' to the growing threat." A familiar trope we've heard in the aftermath of other terrorist strikes.

* Early November: Newsweek published an exclusive report January 4, that two U.S. "intelligence agencies and the Department of Homeland Security circulated a paper within the government last fall that examined in some detail the threats that bombs secreted in clothing--or inside someone's body cavities--might pose to aviation security." According to information leaked to the newsmagazine by anonymous "national-security officials," the report "was prepared by the National Counterterrorism Center in conjunction with Homeland Security and the CIA," and that "one principal point of discussion in the document was whether the detonation of a bomb hidden in clothing on an airliner would have a different explosive effect than the detonation of a bomb secreted in a body cavity under similar circumstances." (emphasis added) This chilling report, prepared in the wake of intelligence information provided U.S. security agencies by Saudi Arabia's counterterrorism czar, should raise provocative questions. No other media outlet however, has followed the trail.

* November 19: Abdulmutallab's father, a prominent Nigerian banker and former high state official, visits the U.S. Embassy in Abuja, telling State Department and CIA officials he believes his son is a threat. A cousin tells The New York Times that the father told U.S. officials, "Look at the texts he's sending. He's a security threat." Although Embassy personnel promise "to look into it," the cousin told the Times that "they didn't take him seriously."

* November 20: the CIA prepares and files a report on Abdulmutallab that is sent to agency headquarters in Langley, Virginia "but not disseminated to other intelligence agencies," unnamed "officials" tell the Times. Embassy staff also wrote and sent a cable known as a "Visa Viper," to the State Department and National Counterterrorism Center and a security file is opened on the suspect.

* December 9-24: Abdulmutallab travels to Ghana from Ethiopia and pays cash, $2,831 to be precise, for a ticket on a Northwest Airlines flight from Lagos through Amsterdam to Detroit, landing on Christmas Day. "It is now known" The Independent on Sunday reported January 10, "that the Ghanaian hotel he listed on his immigration form was not the one where he was actually staying." According to IoS, although the FBI "has officers on the ground in Ghana and believe it is likely the terrorist may well have had his final al-Qa'ida briefing, and supplied with equipment and explosives, there," no steps are taken to apprehend the suspect. "All this" IoS comments, "was more than a month after his father, a wealthy Nigerian banker, had met officials at the US embassy in Abuja to share concerns about his son."

* December 22: during a White House Situation Room briefing Newsweek reports that "a document presented to the president titled 'Key Homeland Threats' did not mention Yemen, according to a senior administration official."

* December 25: Abdulmutallab boards Flight 253 in Amsterdam with only a carry-on bag for his international flight; the would-be lap bomber holds a 2-year entry visa into the United States. As is standard procedure, the Department of Homeland Security is notified an hour prior to departure that he is a passenger on the plane.

* December 25: the Los Angeles Times disclosed January 7 that "U.S. border security officials learned of the alleged extremist links of the suspect in the Christmas Day jetliner bombing attempt as he was airborne from Amsterdam to Detroit and had decided to question him when he landed." Homeland Security officials "declined to discuss what information reached the U.S. border officials in Amsterdam on Christmas Day." Despite suspicions by Customs and Border Protection agents, who had accessed NCTC's TIDE database, the flight crew is not notified of Abdulmutallab's presence aboard the airliner and additional security precautions therefore, are not made.

Preliminary White House Review: Crafting the Cover-Up

In remarks January 7 announcing the White House's preliminary review of alleged "intelligence failures" responsible for the near detonation of a bomb aboard Flight 253, President Obama said that "America's first line of defense is timely, accurate intelligence that is shared, integrated, analyzed, and acted upon quickly and effectively."

Echoing remarks made Tuesday, Obama reiterated the trope that the secret state "failed to connect the dots in a way that would have prevented a known terrorist from boarding a plane for America."

In a maneuver to deflect public attention from the glaring similarities between the 9/11 provocation and the near-tragedy Christmas Day over Detroit, Obama claimed that "intelligence reforms" instituted under the previous regime had "largely achieved" the goal of generating said "timely intelligence."

Leaving aside overwhelming evidence that secret state agencies and a Pentagon data mining program had amassed terabytes of data on the 9/11 hijack team, including detailed profiles and intelligence dossiers, and that the Bush administration had been repeatedly warned by elements within their own counterterrorism agencies as well as their foreign counterparts in Britain, Egypt, France, Germany, Italy, Jordan, Morocco and Russia, in other words possessed "timely intelligence" that an attack was imminent, the "connect the dot" meme, as with 9/11, is handmaiden to today's transparent cover-up.

The President then alleged that despite knowledge of the "al Qaeda affiliate in Yemen," and that secret state agencies had amassed considerable information on Abdulmutallab's ostensible Yemeni confederates, and that "we knew they sought to strike the United States and that they were recruiting operatives to do so," as with 9/11, "the intelligence community did not aggressively follow up on and prioritize particular streams of intelligence related to a possible attack against the homeland."

The preliminary review released by the White House presents an even more damning indictment of these purported "intelligence failures."


According to the declassified version of the report, "The U.S. Government had sufficient information prior to the attempted December 25 attack to have potentially disrupted the AQAP [Al-Qaeda in the Arabian Peninsula] plot--i.e., by identifying Mr. Abdulmutallab as a likely operative of AQAP and potentially preventing him from boarding flight 253."

The document further charges that "the Intelligence Community leadership did not increase analytic resources working on the full AQAP threat."

Despite evidence to the contrary, the administration claims that "the fundamental problems ... are different from those identified in the wake of the 9/11 attacks" and that "firmly entrenched patterns of bureaucratic behavior as well as the absence of a single component that fuses expertise, information technology (IT) networks, and datasets ... have now, 8 years later, largely been overcome."

However, as I documented last week in "The Strange Case of Umar Farouk Abdulmutallab," as with 9/11, a similar pattern of concealing information from relevant counterterrorism officials who might have intervened and rescinded the suspect's U.S. visa, and thus preventing him from boarding Flight 253, were replicated.

Indeed, the CIA's Nigerian station had prepared a dossier on Abdulmutallab that included biographical details and texts handed over by the family, an analysis of NSA electronic intercepts, reports from their own on-the-ground operatives in Yemen that were sent to the agency's Langley headquarters "but not disseminated to other intelligence agencies," as The New York Times revealed December 31.

The CIA says it is now taking steps to "improve" its handling of "terrorist-threat" information. Agency spokesperson, George Little told the media that CIA Director Leon Panetta specifically ordered the Company to implement several "new measures," including "formally disseminating information on suspected extremists and terrorists within 48 hours," expanding "name traces" and "reviewing information" on individuals from "countries of concern" to determine whether the Agency should recommend "changes in status on U.S. government watch lists."\

One would have thought these were precisely the policies already implemented after the September 11, 2001 attacks! And yet, here we are eight years later and the CIA, perhaps more concerned with protecting their intelligence assets--a motley crew of killers and sociopathic riff-raff that include neofascists, mafia kingpins, drug traffickers and terrorists--from scrutiny by law enforcement officials, have to be ordered by the reputed head of their Agency to protect something as trivial as the lives of airline passengers, is stark commentary on the state of affairs in an allegedly democratic republic!

It cannot be ruled out that the CIA was interested in recruiting Abdulmutallab as an asset. After all, the Nigerian youth came from a prominent family, was a graduate of an up-scale British university and was well-versed in the close relationships amongst British and Yemeni Islamist networks. Indeed Abdulmutallab, like MI6's man during the Yugoslav destabilization campaign of the 1990s, the reputed 9/11 bag man, ISI asset and al-Qaeda leader, Omar Saeed Sheik, a graduate of the London School of Economics, would seem to fit the bill quite nicely.

On the face of it, however you care to slice it, the "connect the dots" conspiracy theory floated by the White House doesn't pass muster.

Two separate agencies, the CIA and NCTC, had all the information required to identify the would-be bomber and yet both, if we are to believe the official narrative, failed to do so. This despite the inconvenient fact that NCTC was stood up precisely as a central repository to collate, fuse and "connect" each seemingly minute piece of intelligence, the "dots," flowing into the U.S. security apparatus.

The White House cover story, accepted uncritically by the media, suggest that a mass of disparate data points--raw intelligence--when taken separately, is not incriminating in and of itself. However, after each fragment is subjected to the massive data mining and analytic capabilities of the U.S. Government which "fuse" these datasets into a coherent whole, only then will a dodgy pattern emerge.

In Abdulmutallab's case however, each seemingly innocuous piece of information on its own should have set alarm bells ringing. That this didn't happen Christmas Day cannot be explained away as either incompetence or "firmly entrenched patterns of bureaucratic behavior" but rather, by conscious action, or if you prefer, sinister inaction by factions within America's secret state.

Conclusion

As of this writing, it is not yet possible to provide a comprehensive answer as to why these events unfolded as they did. I am however, certain of one thing: the Obama administration, the security agencies presumably under its control and the corporate media, johnny-on-the-spot when it comes to covering-up imperialism's multitude of crimes, are lying to the American people.

There are however, several preliminary hypotheses which can be advanced, all of which raise further troubling questions worthy of additional investigation.

Were the Christmas Day events a pretext to expand the "War on Terror" into yet another strategic petroleum chokepoint as analyst F. William Engdahl suggests in an excellent piece published by Global Research?

Nor can we dismiss out of hand the analysis offered by the World Socialist Web Site that the failed Christmas Day airline plot was a maneuver by extreme right-wing elements deeply embedded in the U.S. National Security State "to destabilize and undermine the Obama administration." To this can be added Richard Wolffe's provocative statement that factions within the secret state may have had their own "alternative agenda," and thus failed to act.

Add to the mix, the systematic outsourcing of intelligence and security functions to a host of giant defense firms, outside of democratic control; in other words, rightist grifters who answer to shareholders and not the American people, and suddenly another piece of Wolffe's "alternative agenda" comes into sharp focus.

Chock-a-block with ex-CIA officers, NSA analysts, FBI agents and U.S. Special Forces veterans of America's dirty wars who now staff the privatized U.S. security complex, in other words well-paid mercenaries who know a thing or two on how to run a clandestine operation, and we just might have another plausible theory why a "dot" or two was ignored Christmas Day.

Tom Burghardt is a researcher and activist based in the San Francisco Bay Area. In addition to publishing in Covert Action Quarterly and Global Research, his articles can be read on Dissident Voice, The Intelligence Daily, Pacific Free Press, Uncommon Thought Journal, and the whistleblowing website Wikileaks. He is the editor of Police State America: U.S. Military "Civil Disturbance" Planning, distributed by AK Press.

Cap and Trade Tales







Cap and Trade is an attractive idea that looks like it might work until one gets into the details.  It certainly was my first choice as a putative solution.  It is just not that simple.

The major problem is that the energy industry does not operate a level playing field when it comes to properly monetizing its costs to society.  If this were changed, the problems would likely begin to go away.

A huge part of the cost of coal based power has been the impact of the stack gas on adjacent communities.  Cleaning them up is possible and costly.  It is far cheaper to politically engineer you way around the problem than to actually fix it.

That is why Chinese cities presently suffer from debilitating air and it derivative health costs.

Far better than cap and trade would be a treaty that progressively begins to charge back those costs to those that fail to remedy the situation.  An outright ban is impractical but leveling the playing field over twenty years allows the better solutions to be quickly implemented.

 

Severin Borenstein on Cap and Trade

http://www.greentechmedia.com/articles/read/severin-borenstein-on-cap-and-trade

“There is a ticking time bomb under these cap and trade models.”

Dr. Severin Borenstein is an outspoken economist and thought leader in carbon economics and energy matters.  He serves as the Director of the University of California Energy Institute as well as in a number of other distinguished roles 

His talk at the
 CalCEF Angel Fund monthly meeting was a viewpoint on Cap and Trade policy and its impact on Green House Gases (GHGs) and the price of oil, coal, and natural gas.  He summed up his speech last night with these words: "What a downer."   


For a bit of background on cap and trade you can go
 here.  Note that there is already a market for GHG permits - The EU has been trading GHG permits for 4 years, RGGI in Eastern US is a carbon market and California has passed legislation in this regard.


But according to Borenstein, "There is a ticking time bomb under these cap and trade models. Most studies ignore the supply elasticity of fossil fuels."  "Analysis to date hasn't focused on resource price change in response to cap and trade - resource scarcity and price changes are likely to be central."


Here is the argument:

Pricing GHG permits at $30 per ton does not impact coal usage.
"If GHG permits are at $30 to $40 per ton - will that cut down coal production or oil production?  The answer is almost certainly "no"" according to Borenstein.


He adds that, "At $60 per ton, coal usage goes down but the cost of coal actually gets cheaper. It's a pretty disturbing result."  
 


According to Borenstein, it may take GHG permits priced at $80-$100 per ton to drive coal out of the market.

"You have to drive coal out of the market. You have to drive the price of coal down until it isn't worth mining anymore," adding "Or you drive the price of natural gas so high that it is not competitive with other renewable sources."

Strikingly for an economist, Borenstein essentially punted on the value of Cap and Trade  - he abandoned the value of cap and trade and carbon taxes and suggested that the main instrument in reducing GHGs is going to have to be technological change.  He added that we probably need more money channeled to energy R&D and that we need more technological "hail mary passes."


Here are some choice quotes from his speech:

·                        "The numbers we hear for tradable permits are substantially too low."
·                        "If you don't get China and India on board - none of this works."
·                        "None of the current technologies can compete with fossil fuels."
·                        "It's worse to subsidize Green than to tax Brown."
·                        "Subsidizing green power essentially taxes energy efficiency."
·                        "We're going to have to have higher prices to have any impact on GHGs."
·                        "None of this changes if you are talking taxes instead of cap and trade."

He concluded by saying that $80-$100 per ton GHG prices, whether by cap and trade or taxes, is "so politically unpalatable" that only a technological fix might work to lower GHGs.


Iraq Oil Optimism







I think it remarkable that bidders accepted such extraordinary targets.  They must believe that they are achievable for at least the short term.  I certainly find it hard to believe it will promote best practice.

More importantly, putting a new 12 million barrels of oil on the market over the next several years will offset developing declines everywhere else.  Thus the intent is to postpone a major decline in global oil deliveries.  This is not a real problem for the developed world since they can simply buy their way past those without the money.  It is a monster problem for everyone else who rely on oil to fuel their own industrial revolution.

We have posted a lot on the solutions that will work in North America.  Unmentioned was the reality of these solutions been much more difficult to implement elsewhere.  Their best solution initially is to simply divert the oil industry to the third world preferentially as the developed world swiftly transitions out of the business.  Then once the developed world has completed the transition it is simple for the rest to follow.

I think that the necessary solutions are presently to hand or certainly will be in this decade.  This Iraqi oil surge will provide the necessary cushion.

It obviously also provides convincing evidence for the war conspiracy types that the major motivation for disposing of the inconvenient former government was this oil and our present clear need of it.

However, if EEStor or its equivalent emerges shortly, then oil will be worthless in a decade or so and it does not matter at all.  Besides, who wants to go to war over a completely uneconomic goal like peace in Afghanistan.

 

 

Contractual Incentives and Penalites to Motivate Oil Companies Increase Iraq Oil Production to 12 million barrels per day

https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6VFyjeej5LivsjMy8sZxx1B4TPwV3_ozacKKnkwuWOqKzFS0tbESZGAjCPxZi4Y8ki8NY7EeTLUqj1wYtEYk2lD04hYOY5Fie229TzGMymkHQ7pQfGFIGMJfH5c1jhzXKJLtoP4lT6yt5/s1600-h/iraqoilss.jpg

 

Stuart Staniford chart on Iraq Oil 
Jay Park describes why he thinks Iraq can achieve its 12 million barrels per day in 6-7 years This was a comment on an article (crossposted to the Oil Drum) by Stuart Staniford of Early Warning blog.
He is the instructor of the "International Petroleum Transactions" course at the Faculty of Law of the University of Calgary. He co-instructs the five day training course, "World Legal Systems and Contracts for Oil & Gas", which is held semi-annually in London. He also co-instructs the five day courses, "Global Gas Transportation and Marketing" and "International Petroleum Joint Ventures", which are presented annually in London and other locations.


Jay Park's Analysis of the Likely Development of Iraq Oil 

I [Jay Park] have been involved for a number of years with the Iraqi oil industry, and I am familiar with the Technical Service Contracts (TSCs) which were awarded in the First and Second Petroleum Licensing Rounds by the Petroleum Contracts and Licensing Division (PCLD) of the Iraq Ministry of Oil (MoO). I have met Dr. Al-Shahristani and many of the other MoO executives. Consequently, some of what I know can shed light on the opinions and comments above. 

It seems to me that the possibility that Iraq may actually succeed in doing this should be taken seriously. 


Let me explain why I agree with this sentiment. In 2004 and the years that followed, MoO entered into a number of "Memoranda of Understanding" with various major international oil companies (IOCs) to study the discovered Iraqi fields, both producing and non-producing, and share this information with MoO. Extensive analysis work was done by the IOCs, in the hopes that the work would lead to an award of a contract for the fields, or at least, the knowledge gained would give an upper hand in a bid process. Neither proved to be the case; all contracts have been awarded by bidding, and all information was shared with prospective bidders. The consequence is that all IOCs went into the bid process with good knowledge of the fields. 


The Technical Service Contracts impose an obligation on the IOC (who becomes a a "Contractor" for the relevant Iraqi regional oil company, such as the South Oil Company, or the North Oil Company) to increase production to the Plateau Production Target. This must be done within 6 years (for First Round fields) or 7 years (for Second Round fields). The PPT must be maintained for 7 years. 


The Plateau Production Target was one of two factors which the IOCs bid during the rounds. The second bid factor was the Remuneration Fee, expressed in dollars per barrel. The winning bid was determined using a formula involving (in the First Round) the product of the production target and the remuneration fee, or (in the Second Round) a point system that put 80% of the weight on the Remuneration Fee.


In either case, there was a tremendous incentive on the bidding IOCs to propose a VERY high Plateau Production Target. It has been said that MoO was amazed at the PPTs that were bid. MoO had hoped to get commitments for 6 million bbl/day of production; instead, they got 12 million bbl/day, even though less than all of the fields were awarded.



Can these production rates actually be achieved in Iraq? On the 'yes' side of this case are the following arguments: 


1. The IOCs had good information about these fields

2. The Contractor's remuneration fee is based on a per-barrel fee which creates an economic incentive to achieve the PPT 
3. The Contractors have a contractual obligation under the TSCs to reach the PPT. If they fail to do so, there are non-performance penalties under the TSC that grind down the already-modest remuneration fees, and other possible consequences
I don't make it my business to bet against some of the world's most capable companies achieving objectives that they are contractually bound to perform, and with economic incentives that encourage such performance, when they voluntarily set those objectives with all the relevant information they needed.
The following are reasons why these production levels may not be achieved: 
  1. Iraq may choose to comply with an OPEC quota at less than 12 million bbl/day. The TSCs expressly permit MoO to take less than the PPT. This triggers certain other consequences under the TSC to protect the Contractor's interest (such as relief from the penalties associated with failing to acheive the PPT, and the right to extend the contract term so that the expected total remuneration fees can ultimately be earned at lower production rates). There is now an active debate in Iraq regarding what might happen with its OPEC quota. Some Iraqis think that OPEC will give Iraq a generous quota in recognition that it has underproduced for more than a decade. Personally, I think that is an unrealistic expectation-- I don't see Hugo Chavez cutting back Venezuelan production rates to compensate Iraq for problems of its own making. Other Iraqis think that they will quit OPEC if they don't get all the quota they need; but others point to the fact that Iraq was one of OPEC's founders, so quitting will not be a decision to be taken lightly.


2. While IOCs are very good at achieving their committed goals, the TSCs (particularly for the First Round fields) give them quite limited control over ensuring that operations are successful. It is up to MoO to develop the transportation and export infrastructure to take away all the produced oil, and MoO's performance record since 2003 in increasing Iraqi production is less than stellar. 


3. Security issues in the fields or attacks on pipelines may prevent the Contractors from being able to fulfill the PPT. 

In a presentation I heard from Mr. Thamir Ghadhban, a former Iraqi oil minister, and now an oil advisor to the Iraqi Prime Minister Maliki, he doubted that 12 million barrels/day could be achieved. He believes that the IOCs bid too high, just to get the contracts. However, others have suggested to me that a really good oil field can be very forgiving-- and have no doubts, these are some of the world's best oilfields. Kirkuk has been producing since the 1930s, and shows no signs of stopping.
Indeed, production capability could conceivably go over 12 million bbl/day, once the Kirkuk field contract is negotiated (probably with Shell), and if Kurdistan region production is added. The Kurdistan Regional Government's Minister of Natural Resources, Dr. Ashti Hawrami, predicts that there could be 1 million bbl/day from Kurdistan within the decade. In my view, it is only a matter of time before there is resolution of the political wrangling that prevents Kurdistan production from being exported (I can explain my reasoning for this in another post if anyone cares).
Also, the First and Second Bid Rounds were dealing only with discovered fields. There are 430 geological anomalies in Iraq; only 130 have been drilled, with a 70% success ratio. There is bound to be some oil in the 300 or so that haven't yet felt a drill bit. 
The remuneration fee is the 'profit' to the Contractor. And it is less than many people understand. The table in Stuart's post that lists the fields and the remuneration fee shows the gross fee. There is an Iraqi state partner in the Contractor consortium who gets 25% of that remuneration fee, and then there is income tax of 35% on the remainder. So the $2.00 per barrel fee that BP and CNPC agreed to receive for Rumailah becomes only $0.97 after those deductions. At $80 oil, that is 98.7% government take-- a new world high.
Please remember that Iraq's situation is unique. In 2003, they had six discovered fields with reserves of over 5 billion barrels of proven reserves-- and only three of them were producing. They had 21 discovered fields with between 500 million barrels and 5 billion barrels of proven reserves, and only nine of them were producing. And they have 35 fields with less than 500 million barrels of proven reserves, and none of them were producing. It is this significant discovered but non-producing capacity that is the source of the potentially large increase in production. This is not comparable to the development profile of other basins, because no other country has ever kept so many fields offline for so long.