Oil will break $100. Energy companies will battle with federal regulators over drilling and emissions. Natural gas prices will remain low but natural gas shale projects will continue unabated.

Those are among predictions for energy in the New Year, according to a survey of guest writers for the Chronicle’s energy news site, fuelfix.com.

Amy Myers Jaffe, a senior fellow with Rice University’s Baker Institute, said the many projections of $100 oil in 2011 appear to be a self-fulfilling prophecy.

“Wall Street is betting on $100 oil, so it happens from their trading of it,” Jaffe said.

Read More Here

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Environmentalists push job creation as safety initiative at refineries

The labyrinth of tubing, flashing lights and smokestacks at the

ExxonMobil Chalmette Refining facility represents an opportunity for

economic development for Anne Rolfes.

While it seems an unlikely stance for the founding director of the

Louisiana Bucket Brigade, a nonprofit aimed at reducing pollution

affecting communities near refineries, Rolfes says the Chalmette

facility and 16 others in the state represent an opportunity to merge

environmental goals of groups such as hers with industry objectives.

The Bucket Brigade this month released a report on more than 2,500

upset reports refineries submitted to the Louisiana Department of

Environmental Quality between 2005 and 2009. Upset reports are oil

refineries’ letters to the LDEQ describing facility disturbances where

emissions may have been released.

The group is calling on the industry to hire more trained full-time

workers and install updated emissions reduction technology to decrease

incident rates and emissions at refineries.

Industry met the criticism with concern that the analysis inflated

refinery incident rates, but some companies have attended meetings

with the Bucket Brigade to discuss its ideas.

Rolfes said the recommendations point toward jobs and business for

Louisiana, but refineries as a whole need to lend an ear.

“We actually think that industry could discover that they could be

more productive and more profitable,” Rolfes said.

Others say the effort could fit into larger efforts to position the

New Orleans region as a hub for sustainable business. While the focus

has been on attracting green industries, they say another part of the

equation is sitting down with regulators and industries already here

to grow jobs based on sustainable ideas.

Curry Smith, a Greater New Orleans Inc. spokesman, said the

organization is “looking at intersections of the environment and the

(regional) economy” to determine how sustainable jobs and industry

could be developed through its Green N.O. initiative.

Smith said that could mean helping encourage sustainable initiatives

among industries not traditionally considered green, such as oil and

gas.

But he said GNO Inc. and other economic development bodies can’t jump

into the conversation until there is a better understanding of the

role sustainability plays in the local economy.

One idea both sides of the refinery debate seem to agree on is the

adoption of flare gas recovery systems, which capture chemicals

released at refineries instead of burning them.

Environmental advocates like the idea because it nearly eliminates

emissions from seeping into the air from the flare. The benefit for

oil companies willing to invest in the systems is keeping and reusing

valuable chemical product.

Rolfes added

that design and construction of the systems creates work for hundreds

of contractors and exposes the local economy to newer technology.

“Industry doesn’t deny that it’s a benefit,” said Richard Metcalf,

director of environmental affairs at the Louisiana Mid-Continent Oil

and Gas Association, but the upfront cost is a barrier to adoption.

However, tighter regulation on emissions in states such as California

has made the cost worthwhile, he said.

Metcalf said the industry is willing to sit down and discuss economic

development options for quicker adoption and points to a handful of

Louisiana refineries that have already started the process.

Bob Kent, vice president of refining at Citgo Petroleum, said the

company installed recovery systems on two of more than 10 flares at

its Lake Charles refinery after weighing the multimillion dollar cost

against long-term savings and factoring in the likelihood of Louisiana

developing stricter emissions regulation in the future.

“We said, ‘Rather than wait until there’s a law that forces us to do

this, we should start doing this sooner,’” Kent said.

The decision process was the same when Marathon Petroleum installed a

vent gas recovery system during the $3.9 billion expansion of its

refinery in Garyville, spokesman Robert Calmus said.

“We are considering and looking at the rest of our operations and how

to push out those controls,” Calmus said, adding that Marathon has

participated in discussions with the Bucket Brigade.

Environmental groups and refinery workers say emissions control and

safety can be as simple as designing programs that encourage companies

to hire more skilled workers. In its analysis of LDEQ upset reports,

the Bucket Brigade traced about 30 percent of problems to piping or

tubing and equipment failure.

An emphasis on cost savings has consolidated jobs at refineries, which

means maintenance is prioritized and sometimes put off, causing

accidents, said John Link, a staff representative for United

Steelworkers in Louisiana. The union partnered with the Bucket Brigade

for its December report.

Link said more skilled hires would prevent those decisions from having

to be made.

“More people in our community working in those plants is good for the

community, the tax base and the reliability of the facilities,” he

said.

The union points to positive initiatives such as the Incumbent Worker

Training Program, a state program that pays for training of hired

workers. Partially funded apprenticeships and high school vocational

programs might encourage more skilled hires, Link said.

Metcalf with the Oil and Gas Association said refineries size their

staff to the work that needs to be done and hiring contractors gives

them flexibility. He added that maintenance decisions are a complex

formula of cost and risk.

For Rolfes, breaking the cost-driven mentality is the Bucket Brigade’s

largest obstacle.

“The incentives given to the refinery management are all about

quarterly profits and production,” Rolfes said. “They’re thinking

three months down the line … what we’re saying is take the long view

here.”

Original Article

A federal panel that investigated the fatal 2005 Texas refinery blast that resulted in a $50 million fine for BP Plc hasn’t got the authority to probe the company’s April deep-water drilling disaster, according to rig owner Transocean Ltd.

Under federal law, floating rigs are exempt from oversight by the U.S. Chemical Safety and Hazard Investigation Board, Rachel G. Clingman, an attorney for Transocean, said in a letter to the agency obtained by Bloomberg. Transocean owned the Deepwater Horizon that burned and sank after BP’s Macondo well erupted April 20, triggering the worst U.S. offshore oil spill.

The chemical board’s power to investigate accidents aboard permanently moored offshore installations such as oil-production platforms doesn’t extend to rigs, which move from site to site, Clingman, from Sutherland Asbill & Brennan LLP in Houston, said in the letter. While Transocean plans to continue answering questions and providing documents to the chemical board on a voluntary basis, the company won’t respond to subpoenas from the agency, she said.

“Transocean always has sought cooperation over confrontation in responding to reasonable government inquiries,” Clingman wrote to Donald Holmstrom, a chemical board investigator, in the letter dated yesterday. “Please also advise if CSB would like to accept Transocean’s many offers to meet and confer.”

Blowout Preventer

The chemical board is one of several federal agencies and Congressional panels looking into what went wrong when a plume of gas and crude from BP’s well off the Louisiana coast engulfed Transocean’s rig, killing 11 workers, injuring 17 and bringing offshore energy exploration in U.S. waters to a standstill.

In the letter, Vernier, Switzerland-based Transocean also asked the chemical panel to turn over correspondence with U.S. Representatives Henry Waxman and Bart Stupak regarding the rig catastrophe, along with internal board procedures for conducting investigations and interviews. Waxman and Stupak, Democrats from California and Michigan, respectively, helped lead Congressional probes of the disaster.

Daniel Horowitz, a spokesman for the Washington-based chemical board, said the agency has jurisdiction to investigate the incident.

“The source of the flammable gas was the fixed well installation on the seabed, and the Deepwater Horizon itself was also functioning as a fixed facility during the drilling operation,” he said in e-mailed comments.

‘Disappointed’ at Transocean

The board also has broad authority to conduct studies of actual or potential safety issues under its statute. Most companies are cooperating with the board in its investigation, which is non regulatory and is aimed at preventing future accidents, he said.

“We are therefore disappointed with Transocean’s statements and have asked the Justice Department to enforce the CSB’s subpoenas so the investigation can move forward without interference,” Horowitz said.

Last week, the chemical panel criticized a joint U.S. Coast Guard-Interior Department board for allowing employees of Transocean and Cameron International Corp., maker of the blowout preventer installed on the well, to participate in inspections of the device. The preventer, a 50-foot (15-meter) stack of valves, failed to halt the surge of gas and oil when workers attempted to activate it from the bridge of the burning rig.

Public Trust

The chemical board said the involvement of Transocean and Cameron employees created a conflict of interest that “diminishes the credibility of the entire process and jeopardizes the public’s trust in the examination results,” Rafael Moure-Eraso, chairman of the Chemical Safety Board, said in a Dec. 23 letter to Michael Bromwich, who oversees the Interior Department’s Bureau of Ocean Energy Management, Regulation and Enforcement.

In 2005, an explosion occurred at BP’s Texas City, Texas, refinery when an octane-boosting unit overflowed as it was being restarted. The blast killed 15, injured thousands and was powerful enough to shatter windows five miles away. The Chemical Safety Board found numerous safety lapses that created “a catastrophe waiting to happen,” according to John Bresland, the board’s chairman.

Original Article

NEW ORLEANS (AP) — BP money is being used to pay $950 an hour to a law professor who has declared the administrator of the $20 billion claims fund for Gulf oil spill victims independent of the oil giant.

Fund czar Ken Feinberg said Thursday he has agreed to pay New York University professor Stephen Gillers for his advice. Since being hired, Gillers has written a letter stating that Feinberg is neutral and not subject to BP’s direction or control.

Feinberg said the Gulf Coast Claims Facility, created to administer payments from the fund to people and businesses, is billing BP for Gillers’ services.

Some victims, lawyers and state officials unhappy with the claims process have questioned Feinberg’s independence and suggested he is a pawn in a BP effort to limit its liability.

A statement Thursday from the Gulf Coast Claims Facility said Feinberg asked Gillers for advice about a Nov. 24 letter from Louisiana Attorney General James “Buddy” Caldwell questioning the independence of the fund and Feinberg’s role as the independent administrator.

In a letter to Feinberg, Gillers wrote: “You are not in an attorney-client relationship with BP. You are an independent administrator and owe none of the attributes of the attorney-client relationship (e.g., loyalty, confidentiality) to BP. By ‘independent’ I mean (and I think the context is clear) that you are independent of BP. You are not subject to its direction or control.”

The total amount Gillers will be paid is unclear. He told The Associated Press he is billing $950 an hour for his services and an assistant is billing $475 an hour. Gillers said he and the assistant have not calculated exactly how many hours they spent on the work, which Gillers said is now finished.

GCCF spokeswoman Debra DeShong Reed said neither Feinberg nor the fund have any past relationship with Gillers. She said he was chosen because he is a nationally recognized expert in the field of legal ethics.

Gillers said his work for Feinberg included reading the letter Caldwell sent Feinberg, reading court papers filed by lawyers suing BP, and researching rules governing lawyers in Gulf Coast states and in Washington, where Feinberg’s law firm is located.

Both Gillers and Feinberg said they don’t believe there is anything wrong with using BP money to pay for the advice.

“Is he being paid by BP money? Yes,” Feinberg said. “Who else is going to pay for the entire cost of this program? You can’t ask claimants to pay, you can’t ask states and federal governments to pay. The buck stops with BP and BP has agreed to pay the entire cost of the infrastructure of this program.”

But Anthony Kennon, mayor of Orange Beach, Ala., has questions about the relationship between Feinberg and BP.

“He can proclaim independence as much as he wants,” said Kennon, whose community was hard hit by the oil spill. “The only thing that will show true independence is if he makes those people whole who were harmed by the oil spill. We have not been made whole by a long shot.”

Lawyers who have already filed more than 300 lawsuits on behalf of Gulf residents and businesses say Feinberg should stop calling himself independent.

They asked a federal judge last week to order changes to the release form people must sign if they accept a final payment from Feinberg.

Feinberg currently requires people who accept final payments to agree not to sue BP or any other responsible party, including companies involved with the Deepwater Horizon rig that exploded April 20 off Louisiana’s coast.

The blast killed 11 workers and led to 200 million gallons of oil spewing from BP’s well a mile beneath the Gulf of Mexico, according to government estimates that BP disputes.

The lawyers say people should only have to give up the right to sue BP for compensatory damages, but they should still be allowed to go after BP in court for punitive damages. And, the lawyers say, people who accept final payments from the fund should be allowed to sue other responsible parties for both compensatory and punitive damages.

So far, the fund has paid out roughly $2.6 billion.

Money left over in the fund is expected to be returned to BP.

Original Article

With Republicans controlling the House and ramping up oversight and investigations of the Obama administration, focus at least initially in the next Congress will be on the Senate to lay a potential pathway for legislative compromise on energy and environmental policy.

“The Senate will set the energy agenda especially at the beginning,” said Paul Bledsoe, a senior adviser with the Bipartisan Policy Center and a former Senate Democratic aide.

“We are going to have a run at energy legislation,” Majority Leader Harry Reid said on CNN on Dec. 22.

Lawmakers in both parties have shown interest in establishing a new federal renewable power mandate or a broader one that includes not just sources like wind, solar and geothermal but also nuclear and cleaner uses of coal.

With mandatory carbon controls seemingly off the table, more emphasis may be placed on longtime bipartisan efforts to reduce other major air pollutants stemming from power plants. Oil-state lawmakers will continue to seek the right balance between government oversight and private enterprise in drilling off the nation’s coastline in the aftermath of this summer’s Gulf of Mexico oil spill. And first will be an effort to curb greenhouse gas regulations at the Environmental Protection Agency.

With that in mind, here are 10 senators in particular who could be major players on energy and environmental policy:

Sen. Harry Reid (D-Nev.)

As the majority leader and leading gatekeeper for what does and does not make it to the floor for debate, Reid automatically earns a spot on any such list. But even beyond that inherent power, he has shown particular interest in trying to forge deals on natural gas-powered vehicles, renewable energy key to his sun-drenched state and granting the federal government greater authority in siting a new green electric transmission network. Reid “has invested more effort in energy issues than most majority leaders,” said Dan Weiss, senior fellow and director of climate strategy for the Center for American Progress Action Fund. “Nothing on clean energy will be done in the 112th Congress without Harry Reid’s active support.”

Republicans — especially in the House — may not be quick to give him many victories though. “If you wanna blow something up, alert people it is a priority for Reid,” GOP strategist Mike McKenna said.

Lamar Alexander (R-Tenn.)

The third-ranking Senate Republican has shown the most willingness among GOP leaders to working with Democrats like Delaware Sen. Tom Carper on legislation reducing industrial emissions of nitrogen oxide, sulfur dioxide and mercury. Now that carbon dioxide mandates have been shoved aside, three-pollutant legislation — which has broader bipartisan backing already — could finally gain attention and traction. Alexander also sees the potential for compromise on nuclear power and electric vehicles. “Divided government should help,” he told POLITICO. “Nobody has a big majority. So we have a check in the balance, and we’ll have to have cooperation.”

Sen. Jeff Bingaman (D-N.M.)

Unlike the broader Senate, the Bingaman-chaired Energy and Natural Resources Committee managed in the 111th Congress to pass two major bipartisan energy bills, including a response to this summer’s Gulf of Mexico spill. A second bill — the so-called ACELA package — included a first-time federal renewable power mandate, a host of energy-efficiency standards, a new federal energy financing office, an “Interstate Highway System” for electricity transmission and opened the eastern Gulf of Mexico to oil and gas exploration. The bill passed Bingaman’s panel with the support of three returning Republicans — including ranking member Lisa Murkowski of Alaska. Bingaman, for the moment, has not offered any clarity on any changes to that package in the next Congress. “There’re lots of pieces to it, and some of them, I think, probably are worth doing again. And some of them may need some modification,” he told reporters recently.

Sen. Lindsey Graham (R-S.C.)

Graham is largely a pariah in his own party on energy and environmental issues after trying to work out a bipartisan climate and energy deal this past Congress — and then abandoning the effort days before a scheduled news conference to unveil the bill. “He’s a man without a country at this point,” McKenna said. But he could still be an influential player in the development of a so-called clean energy standard requiring power companies to increase production of low-carbon electricity. Graham said the trade-off would be linking that idea to proposals preventing EPA from “overly” regulating carbon and other air pollutants. “The EPA regulation of carbon looms large. So what you could do with a CES is just put the EPA on hold as the CES is being developed so business can live with one set of rules,” he said in an interview.

Graham also is interested in looking at new ways to finance federal highway coffers, a subject that will come up as part of a broader effort to reauthorize surface transportation legislation. “As people drive less on gas, we need to think about how do we get money into the highway trust fund in the future of a low carbon world. Let’s put that on the table,” he said.

Sen. Joe Lieberman (I-Conn.)

A major role Lieberman undertook in his “tri-partisan” climate and energy talks with Graham and Sen. John Kerry (D-Mass.) in the 111th Congress was to lead the drafting of a section boosting the production of nuclear power. Next year, Lieberman said he wants to get a potentially wider group of senators, such as Alexander, together on energy issues. He might also propose a nuclear power measure. “It’s time to refashion and start again with the broadest possible coalition,” he said recently. Scott Segal, an energy industry lobbyist at Bracewell & Giuliani, referred to Lieberman as a bee that pollinates flower after flower. “He goes back and forth across the aisle to get people talking,” Segal said.

Sen. Lisa Murkowski (R-Alaska)

Murkowski — like Bingaman — has led her party on an Energy and Natural Resources panel with more bipartisan comity than most and has joined with oil-state lawmakers in both parties to try to influence discussions on Obama administration and legislative efforts to respond to the Gulf of Mexico oil spill. “Her star is rising,” Segal said. “She has served notice that she’s not afraid to take independent positions.” Murkowski may be pivotal in efforts to enact a clean energy standard and at least force a delay of EPA climate regulations. Murkowski said recently that the abandonment of cap and trade should help facilitate talks. “We got so hung up on carbon and carbon emissions, and then that takes you into the world of cap and trade, and then all the barriers go up, and nobody’s talking,” she said.

Sen. Mary Landrieu (D-La.)

Landrieu is practically only a Democrat by name on energy issues and a prime example of how the debate can be shaped largely along regional instead of partisan lines. “She’s often a lone voice in the wilderness on very complicated oil and gas issues,” Segal said.

A fierce defender of her state’s oil and gas industry, she has readily partnered with Republicans like Murkowski and fellow Louisiana Sen. David Vitter on efforts to speed up dormant permitting of offshore drilling in the Gulf of Mexico since this summer’s BP spill as well as fight what she would deem excessive liability placed on the shoulder of companies.

“There may be a place where we can find a way to move forward more aggressively in the western and central Gulf, limiting some expansions elsewhere but actually getting our production back up and running,” Landrieu said about offshore drilling.

Landrieu is working with fellow Gulf-state senators on a restoration bill for the region and other legislation that would include compensating families affected by the BP spill, “a new liability regime for the companies and potentially some clarification on regulations,” Landrieu said. “The Congress may take a more active role and not just let the Department of Interior decide all of this in the back office.”

Sen. Barbara Boxer (D-Calif.)

While Boxer helped shepherd an overtly partisan cap-and-trade bill through her Environment and Public Works Committee in the 111th Congress that got nowhere fast, she and EPW ranking member Jim Inhofe (R-Okla.) have worked very well together on crafting infrastructure bills. The next transportation reauthorization bill being worked on this next Congress would bring with it energy and environmental policy implications. “When you’re dealing with the highway bill, you’re dealing with the issue of reducing congestion. And when you reduce congestion, you reduce pollution,” Boxer told POLITICO. That could mean anything from increasing public transportation use to increasing highway capacity, the latter of which, in turn, may not end up helping reduce oil use.

Boxer is also continuing to co-lead with Kerry a group of Democrats that gets together every Tuesday to discuss ways to tackle climate change and energy issues more broadly and to defend efforts to delay EPA climate and other rulemakings.

Sen. Max Baucus (D-Mont.)

The Finance Committee chairman would be in the middle of the now-annual effort to extend or modify a suite of energy tax incentives that are now set to expire at the end of 2011. This may include a push by ethanol manufacturers to enact a new production tax incentive linked to the greenhouse gases needed to produce ethanol-blended fuel to replace a 45-cent ethanol excise tax credit extended for one year in the recent tax deal between the White House and Senate Republicans. As a key member of EPW, Baucus also would be a key player on the highway and 3-P bills.

Sen. Bob Corker (R-Tenn.)

Corker may be a placeholder on the list for the Republican who ends up taking a strong lead on efforts to reduce federal energy loan guarantees, tax credits and other subsidies as part of broader efforts to reduce overall federal spending and balance the budget. “The debt ceiling increase might be the most significant energy vote we get because there’s no way Republicans are going to let that vote go without taking a huge chunk of spending cuts,” McKenna said. “The only question is, what, where and how much?”

“As we went through the tax expenditures and looked at things that have been on the books for decades, how could that be advancing energy policy in this country?” Corker told POLITICO, signaling out ethanol tax credits and tariff. “The fact is, we’ve got a lot of outdated subsidies. And a lot of energy subsidies would fall in that category.”

Original Article

Before starting today’s essay, I have to thank Rick Rule of Global Resource Investments for his insights on the following issues.

Rick has been involved in natural resources investing since 1974. He founded Global in 1994 and has been behind many of the largest deals (Silver Standard (SSRI) being one) and the largest profits (between 1998 and 2006 he grew $15 into $460 million) the industry has ever seen.

I spent the better part of a recent morning discussing oil and the energy sector with him over the phone last week.

Rick began:

Most people believe that most oil in the world is produced by the big oil companies, the Exxons (XOM), the Shells, the BPs, the Totals (TOT) of the world. That is not true. Most oil in the world is produced by national oil companies… companies owned by the state or government.

I asked Rick what percentage of world oil production is controlled directly by governments. His answer: “at least 70%.” Rick went on to explain that this creates a situation similar to the Peak Oil theory based not on lack of resources, but lack of competence on the part of political leaders.

Much of the cash flow generated by these state owned companies is spent on government spending programs. Now, oil and gas are capitally intensive businesses. If you do not continually reinvest, you impair your ability to produce.

It is my opinion that this lack of reinvested capital will create a situation in which it is inevitable that in five years the world supply of export crude from several key exporting countries will be greatly constrained of not stopped altogether. Those countries include Mexico, Venezuela, Peru, Ecuador, Indonesia and perhaps Iran.

According to the International Energy Administration worldwide demand for crude oil imports is growing at a rate of 1.5-1.6% a year. When you combine this growth in demand with a major cut in 20-25% of world exports you have makings of what Rick calls, “a MAJOR price dislocation.”

This is something I’ve yet to hear anywhere else, especially in the mainstream media. All talk of higher oil prices that I’ve seen focuses on speculation on Wall Street (true), the view that the world is running out of oil (false), or the view that war in the Middle East will disrupt supplies (probably will be true). Nowhere is anyone talking about a cut in exports due to government misallocation of resources.

I asked Rick if his “price shock” forecast was a certain thing. He responded,

There is one potential solution which may or may not work. The Gulf States, most notably Saudi Arabia, Kuwait, and Abu Dhabi, are aggressively reinvesting in building production capacity. The issue is whether or not they can expand capacity enough to shelter the shock of the decrease in exports coming from the other countries I listed before.

So the one group that could stop a spike in oil prices is the Middle East?

Yes, paradoxically, the people who talk about supply issues in the US are concerned about the very nations that are our most reliable suppliers: the Persian Gulf countries. The Saudis are spectacularly reliable suppliers. They have invested tens of billions of dollars maintaining a surplus capacity of two million barrels per day specifically to level out price shocks. This suggests to me that American consumers have been massive beneficiaries of a region that they are being taught to dislike, namely the Middle East.

Combine these insights with recent comments from a former Shell Oil (RDS.A) executive that gas will be at $5 per gallon by 2012, and you’ve got a serious argument that energy prices will be soaring in the future.

Energy’s not the only sector set for higher prices.

Indeed, inflation is already erupting around the globe. We’ve already seen commodity prices spike across the board in the US in the last year:

The next stage is the paper currency collapse: the stage at which inflation accelerates as the US Dollar collapses, destroying purchasing power while inflation hedges EXPLODE higher.

Some, like the most popular picks (Gold an Silver bullion) will records strong gains. However, others, (the ones that 99.9% of the investment world are currently clueless about), will go absolutely parabolic.

Original Article

Big Jump in Capital-Expenditure Budgets for 2011 Signals Rising Demand, Rebound in Fuel Prices

By RUSSELL GOLD

The global oil industry—far from chastened by the catastrophic U.S. Gulf of Mexico spill—is planning record spending next year, including a large amount for deep-water projects.

From giants Saudi Aramco and Exxon Mobil Corp. to wildcat outfits, the industry plans to spend nearly a half-trillion dollars next year to find and extract oil and natural gas, according to a new survey by investment bank Barclays Capital.

For the first time in several years, large Western oil companies are leading the industry’s charge, increasing their budgets faster than the state-run national oil companies that have dominated recent spending.

“This is being driven by the appetite to find more oil, comfort that today’s oil prices will be sustained and companies getting out of a hunker-down, recession mode,” said James West, an energy analyst with Barclays.

Barclays estimates spending on new wells, producing platforms and other energy infrastructure will total $490 billion next year, up 11% from 2010. In part, the planned spending increases reflect the higher costs for finding and extracting oil in harder-to-access areas.

Crude oil closed above $90 a barrel on the New York Mercantile Exchange last Wednesday for the first since October 2008. On Tuesday, crude oil for February delivery finished 49 cents higher at $91.49 a barrel.

The largest producers, a club that includes Exxon, Royal Dutch Shell PLC, Chevron Corp. and BP PLC, are expected to increase spending by 16% to $108.6 billion, according to Barclays. A decade ago, these companies were slow to ramp up spending after an oil-price slump and ended up paying more for drilling rigs and other services.

Chevron disclosed a 29% spending increase earlier this month, citing a desire to develop several large, offshore projects in Western Australia, the South China Sea and the Gulf of Mexico, despite a slowed regulatory-permitting process in the U.S.

Deep-water drilling is expected to swallow an ever greater portion of oil companies’ spending. A couple years ago, as oil prices soared above $100 a barrel, the industry ordered many new drilling rigs capable of operating in thousands of feet of water.

Twenty five new deepwater rigs came out of shipyards this year—and another 35 are expected in 2011. A moratorium stopped deep-water drilling in the Gulf of Mexico for five months and new drilling is still slow to get approved. But activity in other parts of the globe continues largely unabated.

Rio de Janeiro-based Petroleo Brasileiro SA is expected to budget $28.2 billion for capital costs—the most of any company, according to Barclays. The lion’s share is for development of its recently discovered deep-water fields off its Atlantic coast.

Oil companies are spurred by rising crude prices. The Organization for Petroleum Exporting Countries, meeting earlier this month in Ecuador, showed no desire to boost production, a move the group typically considers if it felt high oil prices could stymie economic growth.

And a recent survey of oil companies indicated an increasing confidence that prices in 2011 will be robust. Many analysts now expect crude to move above $100 a barrel next year.

As the global appetite for energy rises, led by Asian economies, the increased spending for new supplies is being seen as a good sign.

“Higher investment now will mean lower prices than they would otherwise be in the future,” said Michael Levi, a senior fellow at the Council on Foreign Relations. “I am more worried about low capital investment than high capital investment.”

Original Article

NEW ORLEANS (AP) — The owner of the rig that exploded in the Gulf of Mexico is refusing to honor subpoenas from a federal board that has challenged the company’s involvement in monitoring the testing of a key piece of equipment that failed to stop the oil spill disaster.

Transocean said the U.S. Chemical Safety Board does not have jurisdiction in the probe, so it doesn’t have a right to the documents and other items it seeks. The board told The Associated Press late Wednesday that it does have jurisdiction and it has asked the Justice Department to intervene to enforce the subpoenas.

Last week, the board demanded that the testing of the failed blowout preventer stop until Transocean and Cameron International are removed from any hands-on role in the examination. It said it’s a conflict of interest. The request is pending.

Testing at a NASA facility in New Orleans is on hold for the holidays anyway and isn’t expected to resume until Jan. 10, according to officials monitoring the tests and a status update distributed to interested parties.

Besides documents, the board said Transocean has also denied it access to witnesses — specifically a half-dozen of the rig company’s employees the board wants to question.

The jurisdiction dispute surrounds whether the Deepwater Horizon rig was a stationary unit or a mobile vessel. The rig exploded on April 20, killing 11 workers and leading to more than 200 million gallons of oil being released from BP’s undersea well, according to government estimates

The board’s primary jurisdiction to investigate serious chemical accidents and make recommendations involves hazardous releases to the air by fixed industrial facilities. The board’s managing director, Daniel Horowitz, asserted in an interview that the rig was tethered and not functioning as a moving vessel at the time of the accident, making it a stationary site.

Transocean argued in a Dec. 2 letter to the Chemical Safety Board that was obtained by the AP that because its rig was a mobile offshore drilling unit, it was a vessel, and not fixed.  Horowitz said the Interior Department indicated months ago that it thought the board had jurisdiction, and he noted that the well that blew out was a fixed unit and that his agency has been allowed to monitor the blowout preventer testing. But he also acknowledged that more recently the board has heard contradictory statements about its jurisdiction from aides to the director of the Bureau of Ocean Energy Management, Regulation and Enforcement.

BOEMRE declined to comment. The Interior Department did not immediately respond to requests for comment.

The blowout preventer was raised from the seafloor on Sept. 4, and testing began Nov. 16. Technicians have mostly been disassembling it so far and have made no determination about why it didn’t work.

Blowout preventers sit at the wellhead of exploratory wells and are supposed to lock in place to prevent a spill in the case of an explosion.

The safety board complained in a letter to the BOEMRE last week that having Transocean, which maintained the blowout preventer, and Cameron, which made it, involved hands-on in the forensic analysis undermines the investigation’s credibility.

An employee of Transocean has been removed as a consultant for the Norwegian firm conducting the testing, but the ocean energy bureau has said that otherwise the companies have provided their expertise appropriately. The safety board claims conflicts still exist. Transocean has said the accusations are “totally unfounded.”

A Joint Investigation Team that includes BOEMRE personnel is leading the blowout preventer probe along with the U.S. Coast Guard.

Original Article