China Gets Aggressive in the South China Sea

China warned Asian neighbors to stop searching for oil near disputed islands in the South China Sea and vowed to assert its sovereignty over the area despite rival claims.  China also accused the United States of trying to provoke disputes between China and its Asian neighbors.

China, Vietnam, the Philippines, Malaysia, Brunei and Taiwan have each asserted claims to all or part of more than 750 reefs, islets, atolls, and islands in the South China Sea.

The combined land mass is less than four square kilometers spread out over more than 425,000 square kilometers of the South China Sea.  The islands have very little economic value on their own, but they are important to establish international boundaries and the rights to exploit rich fishing grounds and potentially significant reserves of oil and natural gas.

China's warning to its neighbors follows on a series of incidents in which China has used harassment and property damage to assert its presence.

In February of this year, a Chinese navy vessel allegedly fired warning shots to disperse Filipino fishermen from Jackson Atoll, which is claimed by the Philippines and close to its shore.  The Philippine government has cited five other instances in its complaints to China, including one in March when two Chinese patrol boats tried to ram a Philippine survey ship.

Last month, Chinese vessels cut a cable on a Vietnamese ship conducting seismic surveys in waters well within Vietnam's exclusive economic zone and more recently harassed a Vietnamese vessel conducting seismic surveys within Vietnam’s continental shelf.

Adding to the concerns in the region, China confirmed this week that it will launch its first aircraft carrier.

China has become very sensitive to criticism of its actions in the region, most recently complaining that  the U.S. Central Intelligence Agency Director, Leon Panetta, was trying to interfere with China's relations with his neighbors by frightening them.  In testimony before a Congressional panel considering his nomination to be the next U.S. Secretary of Defense, Panetta said that China appears to be building the capability "to fight and win short-duration, high-intensity conflicts" along its borders.

John Howley

Second Largest US Oil Refinery Threatened by Flood

All eyes are on the Mississippi river and the decision to open nine floodgates in an effort to save the cities of Baton Rouge and New Orleans.  While most attention has properly been focused on the innocent people in other towns and farming communities who will be flooded by this action, the flood also poses another significant threat.

The second largest oil refinery in the United States is within the area subject to mandatory evacuation and is threatened by the rising waters from the spillway.  The refinery in Krotz Springs is owned by Alon USA Energy Inc.  It refines 83,000 barrels of oil per day.

So far the company has been granted an exemption from the mandatory evacuation order and is building a temporary levee to protect the refinery and surrounding homes and buildings.  While the refinery has not yet been forced to curtail operations, the prices of oil and gasoline rose in trading early on Monday on fears that flooding could affect refinery operations in Krotz Springs and elsewhere.

John Howley
Woodbridge, New Jersey

Who's Really to Blame for $4 Gasoline?

Faced with blistering criticism from Senators this week, Exxon Mobil CEO Rex Tillerson blamed "speculators" for the high price of gasoline at the pump.  He claimed that the market price of oil really should be $60 to $70 per barrel, and that the extra $30 to $40 per barrel being paid right now is the result of speculation by traders making bets on margin.

Bloggers on Forbes picked up the cry, calling speculators "social parasites, gamblers who produce absolutely nothing of value."

Think about what this means for a moment.  It means that the CEO of Exxon Mobil said that we do not have a supply problem.  Or a demand problem.  The only problem we have -- a problem that costs $30 to $40 per barrel -- is speculators using margin to run up the price of oil and make a profit at society's expense.

How I wish someone would have pushed him on this point.  How I wish someone would have said:

"So, Mr. Tillerson, are you saying that we have adequate supplies?  That the moratorium on drilling in the Gulf following the BP Deepwater Horizon catastrophe is not giving traders legitimate reason to hedge against increasing prices for oil?  That your inability to drill in the Arctic National Wildlife Refuge is not affecting the price of oil?  That increasing demand from China, India, and other developing nations is not affecting the price of oil?  That unrest in the Middle East is not a legitimate cause for concern in oil markets?"

"Are you really saying, Mr. Tillerson, that speculation is the only reason why prices are above $60 to $70 per barrel?"

Obviously, he would never have agreed that speculation is the only reason why oil prices are so high.  He threw that out there because we live in a world of soundbites, where blaming speculators on Wall Street will shift the blame and get you good press in certain circles.

So why did Senators not press him on these points?  Because that Senate hearing was not about finding solutions to our energy problems.  It was about creating soundbites that Senators could use in the next election.

Which points out the real problem we face as a nation.  Neither our corporate leadership nor our political leadership is willing to have a serious conversation about the real problems and tough solutions we need to create a viable and sustainable energy policy.

John Howley
Woodbridge, New Jersey