Mind boggling and interesting!
Politics and still more politics continue to dominate energy issues — making them still more confusing and daunting!
As Minister of Petroleum and Mineral Resources Ali Al-Naimi was preparing to start a visit to Washington, as part of regular consultation between the world’s largest oil producer and the largest global oil consumer, on a one-to-one basis, disturbing news appeared on the horizon.
A US Senate panel last week revoked the sovereign immunity of OPEC’s members from US legal action. Although the chances of this getting approved by the administration were remote, yet if approved, this would allow the US Justice Department to initiate suing OPEC in the US courts — indeed if they desire. The legislation as proposed now allows the US attorney general to sue oil producing members of the OPEC, if they try to limit production or set prices, for price setting. The so-called “NOPEC” provision however, must be approved by the full Congress and President George W. Bush before taking effect.
The legislation is apparently directed at domestic audience, yet, in a world beset with energy issues, the move, in the least, pollutes the overall atmosphere still more.
And while this was being consumed by the energy fraternity, another ominous development appeared on the scene, as Russia threatened to divert its oil riches to energy hungry Asia, ‘if Europe does not become more accommodating toward its efforts to expand to the west.’
For now, Putin’s threat is an empty one, since Russia does not have oil or gas pipelines connecting it to Asia and can only deliver limited supplies by rail. However, first steps have now been taken in that direction too. Last Friday construction work started on a 2,550-mile pipeline linking Siberian oilfields for the first time to China and the Pacific coast. Once completed, by 2009, the pipeline is expected to carry 1.6 million barrels of oil a day — some 30 million tons of oil a year — to China, Japan, South Korea and other Asian markets.
“When it’s coming to us, its investment and globalization, and when we intend to arrive — it’s the expansion of Russian companies,” Putin said. “We should agree on common rules of the game.”
Indeed Putin had a point!
The European Union is largely dependent on external sources, particularly Russia, but also Norway and Algeria, for its energy needs. Russia is a heavyweight in the arena. It’s state-run gas giant Gazprom provides around one-fourth of the gas supply to Europe. Flush with cash, Gazprom now wants to enter the downstream European energy markets. And here lies the problem. Gazprom is now complaining loudly that its efforts are being constrained. West on the other hand, accuses Russia too of not opening up its own monopoly to foreign competition.
Russia, in the meantime, is playing its energy cards well, apparently in a bid to regain some of the lost glory of the USSR days. It is teaming up with other players in the market to increase and enhance its clout in the energy markets.
Recently it teamed up with Algeria, enhancing the collaboration between the two states in the energy sector; Algeria has the eighth largest proven natural gas reserves in the world. It accounted for one-fifth of natural gas imported into the EU in 2000, second only to Russia.
As per the deal, Russian companies have been given monopoly rights for oil production in the Sahara desert; Russia’s Gazprom would now be participating in the development and production of Algeria’s gas sector; and Algeria will share with Russia its sophisticated Western technologies in gas liquefaction.
With Algeria as Europe’s only viable alternative source of gas at present, the deal with Algeria provides Moscow with additional clout in the energy sector.
The increasing Russian clout is a cause of concern to some. International Energy Agency (IEA), the OECD energy watchdog is warning Europe against relying too heavily on gas supplies from Russia. Its chief economist Fatih Birol told Financial Times Deutschland, “Europe must change its energy policy in order to avoid a dangerous dependence on Russian natural gas.” The latest comments from Moscow are, according to him, “an alarm signal and should open the eyes of European politicians.”
While alarm bells going rounds in European capitals, the Americans also do not appear much behind in trying to scuttle Russian efforts. Secretary of State Condoleezza Rice dashed to Greece and Turkey, to ensure that Russians are left out of the new $746 million gas pipeline under construction between the two Mediterranean neighbors. The pipeline project is a joint venture between the Greek and Turkish state-owned gas companies, Depa and Botas. During a recent visit to Athens, Alexei Miller, Gazprom CEO, offered to invest in tripling the capacity of the Greek-Turkish pipeline and to provide long-term supply agreements. At the same time, energy-rich Azerbaijan has also stated its interest in participating in the project. Neither Athens nor Ankara has made a decision about whether to accept the Russian or Azerbaijani bid.
In a bid to outmaneuver the Russians, during her April 25 stopovers in Greece and Turkey, Rice made it clear that Washington wants to see both countries reduce their reliance on Russian gas supplies. This, naturally, meant excluding Gazprom from the new project. The two states are yet to make up their mind on the issue.
Then the Azerbaijani President Ilham Aliyev, despite his shaky democratic credentials, was finally invited to Washington apparently in order to prevent the South Caucasus country “from coming under Russia’s sway and eliminating ... the last chance to give European countries an alternative route for energy.”
Almost a script of a best selling, thriller!