Diminishing Marginal Utility

Source: Houston Chronicle.com

Dec. 21, 2006, 11:18AM
By ALEX NICHOLSON AP Business Writer
© 2006 The Associated Press

MOSCOW — A golden statue of Saparmurat Niyazov rotates on a pedestal in Turkmenistan's capital to always face the sun _ a testament to the leader's personality cult and a garish product of the Central Asian nation's vast energy wealth.

Now, the autocratic president's death on Thursday is set to fuel a rivalry between Russia, the United States and China for access to the former Soviet republic's massive gas reserves in what analysts call a repeat of 19th-century rivalries in the region.

"Turkmenistan has returned as a key piece in the new Great Game," said Alfa Bank strategist Chris Weafer, referring to Russia and Britain's jostling for pre-eminence in Central Asia in the 1800s. "It is a big prize."

Over the past year Niyazov, who personally brokered the country's energy deals, had sought to balance Russia's influence _ courting Turkish and, in particular Chinese companies, to help explore and develop its nearly 3 trillion cubic meters of proven gas reserves.

Russia's state-controlled gas monopoly OAO Gazprom controls the only transit route for Turkmen gas exports to other former Soviet states and Europe.

Keen to lock in fresh energy sources to feed its exploding economy, China saw its efforts rewarded with Niyazov's promise to pipe 30 billion cubic meters of gas beginning in January 2009. It also won an invitation last month to tap the giant Iolotan fields, which the late president declared, to international disbelief, to contain 7 trillion cubic meters of natural gas _ or more than even Saudi Arabia's proven reserves.

Washington, meanwhile, has lobbied for a pipeline out of Turkmenistan across the Caspian Sea to the west, bypassing Russian territory. That would meet a U.S. strategy of tapping sources of crude and gas outside the Middle East, and drawing Caspian states away from Russia and closer to the West.

Niyazov ultimately proved "too difficult" for U.S. officials to deal with, Weafer said.

The Turkmen leader used revenues from energy investments to nourish lavish construction projects _ a huge, man-made lake in the Kara Kum desert, a vast cypress forest to change the desert climate, a ski resort and a 40-meter (130-foot) pyramid to celebrate the anniversary of the country's independence from the Soviet Union.

"Russia will want to retain its political influence in the country and one assumes that the U.S. will try to use the opportunity (of Niyazov's death) to get back in there, increase its influence and resurrect the plan for the pipeline across the Caspian," Weafer said. "But my guess is that the Chinese will have the biggest delegation at the funeral."

Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, says that multinational oil companies will prick up their ears at the news of Niyazov's death, but serious reforms would need to be undertaken before they could enter the promising market.

"The big guys, the people who might be interested, can't touch the place _ it doesn't come close to meeting the standards of corporate responsibility," he told The Associated Press.

"Obviously they can't afford not to look that this place and the possibility that it might open up _ it's obviously clear that they need to consider this," he said. "I just don't think we'll see any rapid developments. We need to finds out if there will be real change in status quo."

That could come in the form of some indication of democratization in the capital Ashgabat or open auctions of its hydrocarbon reserves.

"Given the resource base, it's always been at the back of peoples minds, but it's become increasingly difficult to work there because of the centralized decision-making and dominance of state-run monopolies," said analyst Hilary McCutcheon of energy consultants Wood MacKenzie. "That may be on the brink of changing."

Turkmenistan's burgeoning relationship with China has also rattled Ukraine, which relies on cheap Turkmen gas supplies to keep its domestic bill down.

Gazprom has a contract until 2009 to buy 50 billion of the 60 billion cubic meters that Turkmenistan produces annually, most of which it then re-exports to Ukraine.

While a recent price hike secured by Niyazov just months before his death suggests that pact is unlikely to be reconsidered in the near future, analysts say little will be clear until a successor is named.

Turkmenistan's State Security Council named Deputy Prime Minister Kurbanguli Berdymukhamedov the acting president, even though the Constitution required Parliament Speaker Overzgeldy Atayev to take over as acting head of state. The council said the Prosecutor General's office has opened a criminal investigation against Atayev, making him ineligible to fill in as president. The move could herald a battle for succession between rival groups in the Turkmen administration.

If Ashgabat makes good on its deal with China, and if fresh reserves are not developed apace, supplies to Ukraine could be cut, analysts say.

If that happens, Kiev would be forced to buy more expensive Russian gas, potentially putting it into a situation similar to a price fight with Gazprom last winter, which resulted in some cuts in supplies to some European cities.

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Source: Eurasia Daily Monitor
By Igor Torbakov
Friday, September 8, 2006

Russia’s ambitious attempts to cast itself as the principal energy supplier to world markets explain the new deal on an oil pipeline linking the Black Sea with the Aegean. During his September 4 visit to Greece, Russian President Vladimir Putin made a seemingly attractive offer to the Greek and Bulgarian leadership to turn their countries into energy transit hubs for Russia’s oil exports. The main result of the negotiations in Athens between Putin, Greek Prime Minister Costas Karamanlis, and Bulgarian President Georgy Parvanov was the decision to revive a long-stalled project aimed at carrying Russian crude from Bulgaria to Greece.

Following the talks, the leaders of the three countries told journalists that the final deal on the 280-kilometer $900 million pipeline linking Burgas on the Black Sea coast and Alexandroupolis on the Aegean is to be signed by the end of this year. Although no concrete dates were given as to the beginning of construction work on the pipeline, the Russian side believes that oil could start flowing by 2009. Plans call for the pipeline to initially transport 15 million tons of crude per year and increase to its full capacity, 35 million tons, by 2012. “I don't think anybody can stop [the pipeline] now,” Karamanlis asserted.

First advanced some 12 years ago as a way to reduce tanker traffic through the overcrowded Turkish Straits, the project was abandoned over disputes related to transit tariffs, ownership, and construction contracts. Furthermore, in the 1990s Russian oil companies were reluctant to make a firm commitment to supply 35-50 million tons of oil yearly to fill the pipeline: in 1996-98, oil prices on the world market went down to $8-12 dollars per barrel, and under these conditions it did not make much sense to spend additional costs on increasing supplies and conquering new markets.

Nowadays the situation has changed; there are several reasons that make Russia particularly interested in the realization of the trans-Balkan pipeline project.

First, the current sky-high oil prices, in the range of $70 dollars per barrel, have significantly boosted the financial attractiveness of the Burgas-Alexandroupolis route.

Second, the U.S.-backed Tbilisi-Baku-Ceyhan (BTC) oil pipeline, which began operating this summer after four years of construction, likely acted as a catalyst for the revival of the trans-Balkan project. When the BTC came on stream, some Russian analysts say, Moscow started worrying that it might lose the strategic competition over exports to the Balkans and Southern Europe.

Third, the congestion in the Bosporus is being exacerbated by the growing rivalry between Russia and Kazakhstan and the problems related to the throughput capacity of the pipeline operated by the Caspian Pipeline Consortium (CPC) that transports the Kazakh crude from the Caspian oilfields to the Black Sea port of Novorossiysk. The Kazakhs have long pushed Moscow to double the capacity of the CPC pipeline to 67 million tons per year. Kazakhstan has said it plans to triple its crude exports within a decade, most of which travel through Russia via the Caspian pipeline. If Russia eventually agrees to expand the CPC pipeline, the pressure on the Bosporus will rise dramatically as a further 700,000 to 1 million barrels per day will be shipped through the Straits.

Finally, Moscow is keen to open new energy export routes to reach the lucrative European markets and reduce dependence on such “unreliable” transit countries as Ukraine.

But despite the tripartite agreement reached in Athens, there is a significant amount of uncertainty and hidden tension that might eventually derail the Burgas-Alexandroupolis project.

Energy analysts note that the shareholdings in Trans-Balkan Pipeline, the project developer, are still being negotiated. The Russian side, represented by GazpromNeft, Rosneft, and TNK-BP, is pushing for the controlling stake as the oil supplier. But other participants -- Bulgaria’s state-controlled Bulgargaz and Greece’s oil refiner Hellenic Petroleum, and pipeline constructor Prometheus -- appear to be in favor of all partners having equal stakes.

Furthermore, Bulgaria is reportedly interested in expanding the number of project participants. “We are talking about an inclusive project, not an exclusive one,” Bulgarian leader Parvanov was quoted as saying. A well-informed source close to the Athens talks told the Moscow-based daily Vremya novostei that the Bulgarian team had suggested inviting the Kazakh energy company KazMunayGaz and U.S. Chevron into the Trans-Balkan consortium. Their reasoning appears to be quite simple: as a transit country, Bulgaria is interested in guarantees to fill the pipe, and having the Kazakh and U.S. oil majors participate in the project seems to provide such guarantees, as these companies would get transit privileges for transporting their crude through the pipeline. Indeed, some energy experts suggest that Chevron could be looking to access new European pipelines to move its Kazakh crude.

The idea of Kazakh oil competing with Russian fuel on the European markets cannot look very attractive to Russia’s oil majors. “An alternative to the Bosporus needs to be found, of course without leaving the competition from Kazakhstan the chance to take the place,” a TNK-BP spokesperson told the Moscow Times on September 5.

(Krasnaya zvezda, September 7; Vedomosti, Vremya novostei, Izvestiya, Moscow Times, September 5; Strana.ru, Gazeta.ru, September 4)

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Source: The Pioneer [India]
By Sandhya Jain

If Iranian President Ahmadinejad is serious about opening a Euro-based oil bourse in Tehran to undermine the US dollar, now is the time to strike. Strategic experts believe that internationally, the mega strategic energy deals are slipping away from corporate America, whose strong arm tactics are alienating growing nationalist sentiment across the world.

Washington's use of the September 2001 New York terror strike to cynically assume a commanding position in oil and gas rich Central Asia has startled the international community, especially after the unwarranted invasion of Iraq and takeover of its economy by cronies of the White House. This has forced a major rethink in world capitals, and resource-rich regimes in the Gulf and Central Asia are responding to Russia and China, who are cooperating to combat America's monopolistic ambitions.

Pakistan is Washington's non-NATO ally in the war against terror, but has turned to China for economic development, as evident in troubled Balochistan. It is keen on an energy deal with Iran, bete noire of Uncle Sam, but the tripartite energy deal with India cannot take off due to Pakistan's status as the epicentre of jihadi terrorism. As a rising Asian economy, India is also engaging with the Central Asian Republics for better energy security, though its anxiety for American goodwill has upset Iran and caused a stalemate over the price of LNG.

Saudi Arabia, however, is moving out of the American orbit by sewing up energy deals with China and India, though Washington has compensated itself with the oilfields of Libya. Yet the unmistakable geo-political trend among oil and gas producing nations of the Gulf, Latin America, Africa and Central Asia is to avoid US oil companies in favour of nations that do not interfere in their internal affairs. America's high comfort levels with dictatorial regimes on one hand, and promotion of puppet democracies on the other, as per its corporate convenience, has diminished its value as a desirable economic and strategic global partner.

Central Asia is alert after the string of 'coloured' revolutions. America currently retains bases in Kyrgyzthan, Tajikistan, Ukraine, Georgia and Azerbaijan. But Uzbekistan asked it to vacate the crucial Karshi-Khanabad (K2) base after the failed Andijan riots. President Islam Karimov was warned by ousted Georgian leader Eduard Shevardnadze against American financier George Soros and West-funded NGOs; he promptly expelled the Open Society Institute, stifled other NGOs, and courted Russian President Putin. A gas deal with Russia's Gazprom is expected to affect America's hydrocarbon pipeline over Afghanistan to the Arabian Sea. Karimov has invited India to share an energy partnership along with Russia and China, a move that makes profound geo-political sense.

Meanwhile, the Shanghai Cooperation Organisation (SCO) is pressing America to wind up its bases in Central Asia, especially as heightened tensions with Iran raise fears of another regional misadventure. Kazakhstan, which has enormous hydrocarbon resources, is also upset with President Bush, and even allies like Kyrgyzstan and Tajikistan favour a security relationship with Russia. Tajikistan made the Russian military base there permanent after President Putin's visit in October 2004, while Russia has a base at Kant in Kyrgyzstan.

China is very proactive in the region. There is a thousand kilometre pipeline from Kazakhstan's central Karaganda region to Xinjiang, part of an ambitious three thousand kilometre link to the Caspian Sea. China has also invested heavily in Russia's energy sector, especially Siberia's coal and oil. It is active in Uzbekistan, Tajikistan and Kyrgyzstan.

Experts opine that Russia is leading the attempt to marginalise Western multinational oil companies. The move strikes a chord because the White House is dominated by a cartel of the oil and gas industry and some banker-financiers, and the oil-rich nations of Central Asia, the Gulf and Latin America prefer joint ventures with State enterprises rather than these rapacious multinationals. Thus, a very basic economic nationalism drives their tilt towards Russia and China. The West, used to more than a century of de facto imperialism in the oil and gas sector, finds itself on a sticky wicket.

The new oil-and-gas producer States and the key consumer Asian economies (China, India) are joining hands to forge State-to-State joint ventures and arrive at strategic energy security. Analysts say this could eventually diminish the role and status of OPEC in future. Russian leaders had cleverly positioned the Russian Federation to take advantage of global energy trends, and is now emerging as natural leader of the world's key producing and consuming powers.

Washington facilitated this process by its unacceptable oil greed in Iraq. In a path-breaking work, "The Bush Agenda: Invading the World, One Economy at a Time," Antonia Juhasz exposes the US corporate invasion of Iraq. So far, 150 US corporations have received a staggering $50 billion worth of contracts for the failed reconstruction of Iraq, even as a new oil law has opened the oil sector to private foreign corporate investment.

Copyright © 2006 Nick Anderson, Houston Chronicle

Under the Geneva Convention, it is completely illegal for an occupying power to change the laws or political structure of the occupied country. Yet the United Nations and the international community have been idle bystanders as the Bush Administration has changed all basic economic and political laws, while totally failing in the primary task of providing for the security and basic needs of the Iraqi people. Thus, as many as 30 oil contracts signed by President Saddam Hussein with oil companies from all around the world, except the US, were simply cancelled. Iraq oil is now being guzzled by Chevron, Exxon and Marathon. And when you consider that some geologists believe that Iraq's oil reserves are larger or at par with those of Saudi Arabia, you can envisage a very slow American pullout from the region. No wonder the Central Asian nations with American military bases are no longer keen to play host to Uncle Sam.

America's obduracy has reinforced the global preference for State-to-State long-term agreements and contracts which serve the energy-security interests of nations, rather than private corporate entities. Russia's domination of oil and gas flowing to the West has helped it re-emerge as a global power in concert with its strategic partners. And, surprising as it may seem, Washington lacks the global leverage to refashion events in its favour.

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