What does the Iraq war have to do with a Colombian pipeline?

All roads lead to Rome. And in the ideal U.S. policy world, all pipelines would lead to Houston. China, Russia, Iran, Iraq and Venezuela have struggled against oil shipment hegemony. Part of the reason is just a desire for independence. But there is also the growing demand in China, India and the rest of East Asia, which drives up prices and invites profit-seeking tankers. From Valparaiso to Vladivostok, the Pacific basin tends to have higher fuel prices than the Atlantic, and much higher than the Gulf Coast. The easiest way to see this is on this table from the U.S. Energy Information Administration, which shows recent fuel prices around the world. Compare the prices of “residual fuel oil” in Los Angeles and Singapore to those in the Gulf Coast, New York and Antwerp. I would do it for you but Excel keeps crashing. Trust me, Pacific basin prices are usually higher*, to the point that it is sometimes worth it to pay the extra 3 weeks of tanker travel to Singapore rather than ship crude from, say, Nigeria, to the States.

Now let’s game out how Colombia should play this racket. Colombia is the only South American country with both Pacific and Caribbean or Atlantic coasts. So it’s the only place that can reasonably choose between shipping to China or to the States. A couple years ago, when Venezuela and Colombia were in one of their recurrent love-fests, an official of Colombia’s energy ministry told me that they had worked out a few possible routes for a pipeline from the Venezuelan llanos to Colombia’s Pacific coast. This seems like a win-win — Venezuela gets Chinese prices while saving weeks of shipping, and Colombia gets both transshipment fees and a boot on Venezuela’s neck. (Oh did I say boot on the neck? I guess that’s why the Chinese and Japanese project backers decided to abandon the concept.)

Anyway Colombia itself is also an up-and-coming oil producer, aiming to pump a million barrels a day by 2012. So where should it send that oil? A look at the country’s pipeline map shows that it could really go either way. The Andes are formidable but Chinese demand is more formidable. Ecopetrol, Colombia’s state oil company, announced today that it would spend U$4.2 billion on pipeline upgrades to (drumroll!) the Caribbean port at Coveñas.

Now reread the title of this post.

*Got Excel to work. On days when both Singapore and the Gulf Coast traded, the Singapore price averaged 5.9 cents a gallon higher over the past year. Los Angeles was 16.5 cents higher.

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