But record high prices will not have the same impact on oil demand as in the past few years since consumers have grown accustomed to it.

“It looks like prices are going to move even higher because of geopolitical tensions and tightness in the US,” said Christopher Bellew, senior vice president of Bache Commodities. “We could easily get to $80. $10 is nothing in these markets.”

Analysts said little has changed since last summer when oil prices surged to a record $78.65 for Brent and $78.40 for US crude.

Worries over Iran’s nuclear programme, militant attacks in Nigeria and China’s breathtaking economic growth remain key drivers for the market.

One significant change since last summer has been Opec’s decision to curb supplies by 1.7 million barrels per day, or about six per cent.

“The world needs more oil than Opec seems willing to supply, making it difficult to avoid another surge in oil prices over the coming summer,” the Centre for Global Energy Studies said in its monthly report.

Consumer nations have called on Opec, source of more than a third of the world’s oil, to pump more crude to help ease prices and replenish fuel stocks. But oil ministers insist crude supplies are adequate.

“We don’t see any particular reason why it couldn’t hit an all-time high,” said Paul Horsnell of Barclays Capital, adding that the physical crude markets, where oil is sold for immediate delivery, were already at or near record levels.

Even if prices surge to record territory, the effect on global oil demand will most likely not be as severe as past rallies.

“This time around you need a really big price spike to really damage demand because people’s budgets have adjusted and they have gotten used to it,” said Jeffrey Currie, analyst at Goldman Sachs investment bank.

Analysts said global oil demand took a hit in 2005 when average crude prices soared more than 35 percent from the year before.

Average prices for this year so far have actually fallen about nine percent from last year’s record average of around $66 a barrel.

“It’s not the price level of oil that matters, but rather the year-over-year change in prices,” Currie said.

According to BP Migas, OPEC believes that Indonesia’s oil production will rise along with a significant increase in oil and gas investment.

The city-state has decided to proceed with LNG imports to meet future energy demand, with a terminal planned by 2012, while countries with Kyoto Protocol targets are looking to buy credits from greenhouse gas emissions-cutting projects in Asia.

“The key is to seek a critical mass of LNG players that will conduct LNG trading out of Singapore,” Minister for Trade and Industry Lim Hng Kiang said at a conference on trading in Singapore.

He added that Australia’s Woodside Petroleum had already started spot trading out of Singapore.

Lim said LNG trading income would get a special tax rate of 5 percent for the next 10 years.

The number of LNG cargoes sold on a prompt basis is increasing, though the development of a liquid spot market has been slowed by fears supplies from major producers could run short, leaving big users such as Japan preferring long-term contracts. Rising production costs also stand in the way.

But as more countries build regasification plants, and the number of tankers increases, it will be easier for spot cargoes to reach new markets. Short-term deals grew to around 13 percent of LNG traded in 2005, from 6 percent in 2000, BP says. China received its first spot cargo of LNG last month.

LNG, natural gas super-cooled to a liquid state for tanker transport, is normally sold years before production begins on a long-term basis to lock in revenues for multi-billion-dollar projects.

Singapore has long sought to diversify its gas supplies, all of which come via three pipelines from Indonesia and Malaysia, to fuel growing power generation.

Lim said the country also saw opportunities in emissions trading, with most carbon dioxide (CO2) emissions credit deals between buyers in Japan and Europe and sellers in countries like China done on an opaque bilateral basis.

“We are attracting emissions trading activities, as well as supporting industries such as carbon-related consultancies, verifiers and fund managers to Singapore,” he said.

Benchmark London Brent crude was up 30 cents at $70.90 a barrel by 0357 GMT, a fresh nine-month high. U.S. crude traded 10 cents up at $65.87.

Prices climbed after nine U.S. warships put on a show of force off Iran’s coast on Wednesday, coming at the same time as a United Nations report that said Tehran had expanded its nuclear programme.

“Iran has come back to the forefront and it’s definitely having an impact,” said an oil broker in Tokyo.

U.S. officials said the navy buildup was the largest daytime assembly of ships since the Iraq war began in 2003, adding Iran had not been notified of plans to sail the ships through the Strait of Hormuz, a major artery for global oil shipments.

Iran is making substantial advances in uranium enrichment in defiance of world demands, U.N. monitors said on Wednesday, opening the way to harsher sanctions against the world’s fourth-largest oil exporter over fears it is seeking atom bombs.

The heightened Iran tension added to concerns about summer fuel supplies in the world’s top consumer the United States, where gasoline inventories have been rising but remain below average levels ahead of summer demand.

U.S. government data on Wednesday showed gasoline stockpiles increased by 1.5 million barrels last week, exceeding a 1.4 million barrels forecast. [EIA/S]

Despite record prices, year-on-year demand surged 1.2 percent over the past four weeks.

“Two big things are keeping pricing up, the Nigerian and gasoline situation,” said Tony Nunan of Mitsubishi Corp. “Inventories are too low for this time of year.”

Supplies of gasoline-rich crude from Nigeria, the world’s eighth-largest oil exporter, have been cut since February 2006 due to militant attacks on its oil industry.

Chevron Corp. said on Wednesday it had restarted normal production at its Pennington oilfields in Nigeria, after shutting in 15,000 barrels per day (bpd) on May 1, leaving about 695,000 bpd or 23 percent of the country’s output shut.

U.S. Navy officials said Iran had not been notified of plans to sail the ships, which include two aircraft carriers, through the Straits of Hormuz, a narrow channel in international waters off Iran’s coast and a major artery for global oil shipments.

Rear Admiral Kevin Quinn, who is leading the group, said the ships would conduct exercises as part of a long-planned effort to reassure regional allies of U.S. commitment to Gulf security.

“There’s always the threat of any state or non state actor that might decide to close one of the international straits, and the biggest one is the Straits of Hormuz,” he told reporters on board the USS John C. Stennis aircraft carrier.

“What is special about this is that you have two strike groups. Everybody will see us because it is in daylight.”

Most U.S. ships pass through the straits at night so as not to attract attention, and rarely move in such large numbers.

Navy officials said the decision to send a second aircraft carrier was made at the last minute, without giving a reason.

The group of ships, carrying about 140 aircraft scheduled to participate in the exercises that will take place over the next few weeks, crossed at roughly 0355 GMT.

Tension between the United States and Iran over Tehran’s nuclear ambitions and Iraq has raised regional fears of a possible military confrontation that could hit Gulf economies and threaten vital oil exports.

SHOW OF FORCE

On the way to the straits, a public announcement called on crew to witness “some of the most powerful ships in the world”, whose tight formation against a backdrop of the setting sun created a dramatic image of American naval might.

The move comes less than two weeks after U.S. Vice President Dick Cheney, speaking aboard the Stennis during a tour of the Gulf, said the United States would stand with others to prevent Iran gaining nuclear weapons and “dominating the region”.

On a visit to Abu Dhabi a few days later, Iranian President Mahmoud Ahmadinejad threatened “severe” retaliation if the United States attacked his country, which is locked in a standoff with the United States over its nuclear programme.

He also urged Gulf countries to “get rid of” foreign forces, blaming them for insecurity in the region.

The United States accuses Iran of trying to produce nuclear weapons, and has sought tougher U.N. sanctions against Iran. Iran says its nuclear ambitions are for energy purposes only.

U.S. and Iranian ambassadors are due to meet on Monday in Baghdad to discuss security in Iraq, where the United States has accused Iran of fomenting violence by backing Shi’ite militia there, and of providing weapons and the technology for roadside bombs. Iran has denied the accusations.

Last month, the U.S. Fifth Fleet base in Bahrain conducted its biggest crisis response drill and in March, the U.S. navy conducted its biggest war drills in the Gulf since 2003.

This time the drills will involve air defense exercises and boarding other ships posing as suspect vessels, navy officials said. The vessels will also drop off 2,200 marines in Kuwait to take part in unspecified natural disaster exercises, they said.

“It’s absolutely ridiculous,” said Rebecca Veenstra of Mancelona at the gas pumps at Forward Shell on Old South 27 Tuesday where regular unleaded was selling for $3.49 a gallon.

“Look at the wages compared to gas prices,” she added. “Most people drive at least 15 miles to work and have to work a half hour to pay for their gas.”

Veenstra, filling up a rental car, was returning from a trip to Seattle where gas cost $3.59 per gallon.

“It’s crazy — blew my mind,” Veenstra said, “you hear they’re making record profits.”

Marty Holtzmon of Dayton, Ohio agreed.

“It’s sad,” said Holtzman. “They’re reporting record quarter profits last quarter.”

According to the Energy Information Administration Web site, www.eia.doe.gov, the retail gas price per gallon is up 8.3 cents from this week last year.

According to the Exxon Mobile Corp. Web site, www.exxonmobile.com, the corporation reported first quarter net income of $9.28 million, up 10 percent from the 2006 first quarter profits of $8.4 million.

These profits leave a sour taste in the mouths of many consumers.

President Susilo Bambang Yudhoyono last year announced that the government planned to start building the 4,000-megawatt plant by 2010. Construction tenders for the US$1.6 billion facility may be held as early as this year, and the government says it has a total of $8 billion earmarked for four nuclear plants aimed at generating 6 gigawatts of power by 2025.

Energy Minister Purnomo Yusgiantoro said in a speech last month that Indonesia would have to turn to nuclear power as fossil fuels dwindled, adding that in the future, “nuclear power will play a more important role in our energy mix”. According to Energy Ministry projections, total demand in the country is projected to reach 450.3 terawatt-hours by 2026 (a terawatt is a trillion watts, or 1,000 gigawatts).

Under its current energy blueprint, the government is aiming to contribute some 17% of power demand by 2017 from renewable sources, including nuclear and geothermal energy. “The role of nuclear plants is to stabilize and secure the supply of electricity,” Yusgiantoro said, “and protect the environment from harmful pollutants as a result of the massive use of fossil fuels.”

Indonesia’s nuclear watchdog, Badan Tenaga Nuklir Nasional (BATAN), is adamant that constructing the first nuclear plant should go ahead on the foothills of Mount Muria, a dormant volcano on the north coast of Java. BATAN says the plant will be equipped eventually to generate some 2% of national power needs, expected to reach 175 terawatt-hours per year by 2017.

Government officials have consistently brushed away complaints about the region’s unstable tectonics and the project’s high costs, contending that the country can ill-afford to forgo atomic energy. Environmentalists warn that on top of frequent earthquakes and occasional tsunamis, Indonesia has more environmentally sound sources of alternative power to chose from, including geothermals and natural gas.

Other states in Southeast Asia may not be far behind Indonesia, with the entire region facing a forecast growth in power demand of up to 16% per annum over the next 20 years. Malaysia foresees two nuclear plants by 2020, and Vietnam has plans for its first nuclear power plant by 2017. Thailand began feasibility studies for nuclear power in March, with the apparent aim of having a plant operational by 2020.

Across Asia, energy-hungry countries, including Japan and China, are ramping up their quests for energy security, prompted by record-high oil prices in 2005-06 and rising competition for natural resources. Oil prices of above $60 a barrel were for Indonesia a sharp reminder of the dangers of over-reliance on fossil-fuel imports for national energy needs.

A string of power shortages across Indonesia have already stoked fears that over the longer term the country’s ample supplies of coal and natural gas won’t be adequate to ensure a steady supply of power for its more than 220 million people. Since 2005, Indonesia’s most populous island of Java has been flirting with a power-generation crisis, with the state utility PLN dangerously running into reserve supplies on several occasions.

Safety debate
Dramatic disasters such as the 1986 Chernobyl explosion in the old Soviet Union have shrouded nuclear power with controversy. Plumes of radioactive clouds drifted over Ukraine, Belarus and Russia, resulting in the relocation of more than 336,000 people and radioactive poisoning to this day. The 1979 Three Mile Island nuclear accident near Harrisburg, Pennsylvania (in which no one died), inspired a movement against nuclear power in the United States.

Indonesia’s most vocal environmental group, WALHI (Wahana Lingkungan Hidup Indonesia, or the Indonesian Forum for Environment), says even a small leak or nuclear accident at the proposed site of Java’s Mount Muria would potentially affect tens of millions of people. (Java, home to 65% of Indonesia’s population, is one of the most densely populated islands in the world.)

WALHI’s main complaint is that Indonesia sits on the seismically unstable “Pacific Ring of Fire”. Meanwhile, geologists note that 83% of Indonesia’s total land area is prone to disasters, including earthquakes, landslides and floods. WALHI also says the proposed nuclear plant’s operations could result in radioactive waste being pumped into nearby waterways.

Environmental scientists at the Australian National University in Canberra have devised models forecasting possible regional fallout across Singapore, Malaysia and northern Australia in the event of a nuclear meltdown in Indonesia, though they assert they weren’t trying to assess the probability of such a disaster.

Sukarman Aminjoyo, head of BATAN, bristles at academic suggestions that nuclear power wouldn’t be safe in Indonesia. He points to several other countries with nuclear power programs on the Pacific Ring of Fire, including Japan, China and the US. One of its research facilities, he notes, withstood a 5.9-scale earthquake last year in Yogyakarta, Central Java – where it even served as a temporary shelter for refugees from the quake.

Both Parliament and the International Atomic Energy Agency (IAEA) have already approved Indonesia’s first designs for a nuclear power plant. “We will assist Indonesia so that all safety considerations will be properly addressed,” said IAEA chief and Nobel laureate Mohamed ElBaradei on a visit to Jakarta in December.

The IAEA has so far granted Indonesia a total of $1.34 million in technical assistance to develop eight programs in 2007 and 2008 connected to the safe harnessing of nuclear power. ElBaradei said huge progress in nuclear safety had been made over the past 20 years. “Chernobyl,” he said during his Indonesia visit, “was the result of the less-than-optimal reactor design, combined with mismanagement.”

However, cost factors have been the main driver behind Indonesia’s nuclear-power plans, which were first shelved in 1997 amid the Asian financial crisis. A nuclear power plant can produce 1 kilowatt-hour of power for about 4.3 US cents, less than fuel-oil-generated power at 4.5 cents.

BATAN says several safety systems will be in place to keep Indonesia’s plants safe. The International Nuclear Safety Advisory Group claims that pressurized water reactors (PWRs) are currently used by 443 of the nuclear power plants worldwide and have multiple security systems designed to prevent disasters. The group claims that a PWR has a leakage risk of only one in 10,000; in contrast, Chernobyl had a one-in-1,000 possibility of leakage.

For Indonesia’s government, however, the safety debate over nuclear power is over. The 550-seat, multi-party Parliament passed the nuclear law last year, including reviewing the current energy blueprint. In the end, however, red tape and unforeseen setup costs could still delay the region’s first atomic-energy plant. Potential investors in Indonesia’s other large-scale infrastructure projects have complained that only three out of 91 projects tendered two years ago have actually gone ahead.

The South Korean businessmen met with 50 Indonesian business partners to follow up on the agreement between the two countries to enhance cooperation.

“Korea is Indonesia`s important trade and investment partner. Two-way trade in 2006 reached US$10.57 billion, up 6.17 percent from 2005,” Secretary General of the Indonesian Trade Ministry Hatanto Reksodipoetro said in his address to the meeting here on Monday.

South Korea was the sixth biggest market for Indonesia`s non-oil/non-gas commodities last year with total imports reaching US$3.4 billion. Meanwhile, Indonesia imported US$2.8 billion worth of commodities from South Korea last year.

We think this has very positive ramifications for coal, clean coal technology, coal/natural gas to liquids technology, as well as nuclear energy… Clearly, solar, wind, thermal, etc. will also benefit from oil’s envisioned production peak, but as stated they cannot possibly ramp fast enough to sate the world’s increasing demand for gasoline…

U.S. oil rose 56 cents to $62.93 after rising 56 cents on Friday when oilfield outages in Congo and Nigeria added to investor concern over U.S. gasoline stocks at their lowest in 16 years for the time of year. Peak gasoline demand in the world’s top consumer kicks in for summer.

London Brent, more representative of global prices than U.S. oil, climbed 57 cents to $67.40 a barrel after gaining more than $1.50 over the previous two sessions.

The International Energy Agency (IEA) called on OPEC on Friday to raise oil output before the summer to prevent a sharp decline in consumer nations’ crude oil stocks.

“For sure, there will be strong pressure on OPEC to raise production,” Kuwait’s oil minister Sheikh Ali al-Jarrah al-Sabah told Kuwaiti daily al-Qabas.
6 ways to lower gas prices

With major world economies still humming along and prices yet to breach the $70 mark this year, however, analysts saw little to suggest the group might quickly bow to pressure. Its next scheduled meeting is in September.

“I think OPEC is treading very cautiously since they have been quite successful at holding prices at about $60 and they wouldn’t want to jeopardize that,” said ANZ Bank’s analyst Andrew Harrington.

Top exporter Saudi Arabia informed its Asian and European customers at the weekend they would receive the same amount of crude in June as in May. Asia, Saudi Arabia’s biggest export market, is receiving roughly 10 percent below full contractual supplies, sources said on Monday.

Supply concerns in Congo and Nigeria both contributed to pushing up oil prices last week.

Production from the 60,000-barrel-per-day (bpd) Nkossa oilfield in the Congo Republic will be restored within three weeks after a fire halted output, though analysts said fears of further supply cuts in Nigeria, the world’s eighth-largest oil exporter, would continue to support prices as long as militant attacks persist.

Nigerian labor unions called for a two-day strike to protest against vote-rigging in last month’s elections, an umbrella body of unions said on Sunday, giving a potential short-term boost to oil prices.

A surge in violence in Africa’s largest oil producer has shut off more than 750,000 bpd, a fifth of the country’s supply.