Exxon Mobil has considerably raised its forecast for the global switch to natural gas from far-dirtier coal. Exxon -- whose energy models have much influence because of the intellectual firepower the company's forecasters brings to bear -- says that not only will natural gas surpass coal use in the next two decades, but it will also start to come close to oil consumption, as Angel Gonzales reports at the Wall Street Journal. The big takeaway from Exxon's 20-year forecast, released today: China's natural gas demand will rise six-fold.
These are enormously consequential forecasts. We've been discussing what we think is coal's dim future for some months. Energy forecasts going forward are almost entirely founded in China's voracious appetite; it's been presumed that China will account for some 90 percent of the increase in global coal use over the coming two or three decades. But that's never made sense, unless you presume that China's Communist Party has a death wish. Unrest has already broken out in China over pollution, and it is simply absurd to conclude that the population will tolerate an order of magnitude greater coal smoke, or even more.
As we've discussed, the direction of the global energy supply will relatively soon trigger a sectoral shift in how China produces electricity. We will have supply-push demand: So much natural gas is sloshing around the world -- from Qatar, Australia, Yemen, and now possibly liquefied natural gas from the United States -- that China will shift massively to gas-fired electricity plants. This has enormous implications in terms of climate-change forecasts. In a nutshell, global warming may be less of a problem than a lot of people currently think because natural gas emits one-third of the CO2 as coal.
Drilling anywhere, any time: When in a negotiation, ask for the sky; perhaps you'll get half of it. So it is with the U.S. oil industry's chief lobbyist, Jack Gerard of the American Petroleum Institute. Interviewed by the Financial Times, Gerard says that the entire United States should be open for oil drilling, without exception. Just months after the unprecedented spill in the Gulf of Mexico, some might regard the position as a bit nervy. Not Gerard. "It is difficult to quantify how much increased production would affect imports," he told the FT, "but if companies had access to all U.S. areas now off limits, a substantial increase in domestic production would be possible." President Barack Obama has revived restrictions on offshore drilling on the U.S. East Coast, and new drilling in the Gulf of Mexico has been effectively frozen awaiting a decision on regulation of the area.
Another step toward speculation regulation: Three years ago, investor speculation rapidly drove global oil prices up to $147 a barrel, before it created a plunge to $32 a barrel. Amid another speculation-driven commodities price run-up, U.S. regulators have voted to impose caps on how much speculation a single investor can carry out. The vote in the Commodity Futures Trading Commission is not final -- that has to come later. But it would place position limits on bets on 28 commodities including oil, gas, gold, and certain foods. Such limits are required by financial-industry regulation approved by Congress last year.
Rare earths workaround: Toyota is trying to bypass a Chinese stranglehold on rare-earth elements by making cars that don't require them. Last year, China imposed a blockade on shipments of the elements to Japan, which uses them for high-tech products including missiles, windmills, advanced batteries, and hybrid vehicles. But blockades, sanctions, and shortages tend mostly to trigger inventiveness, and Toyota now says that it's close to a breakthrough in hybrid-electric motors that won't require rare-earth magnets, reports the Wall Street Journal. Rather than so-called permanent magnets, the motors would rely on electromagnets.
A new sultanate: Elections in the former Soviet Union are almost always scripted affairs -- in most cases, everyone knows who is going to win by a landslide before it happens. Such has been the case for the last two decades in oil-rich Kazakhstan, whose winner has always been President Nursultan Nazarbayev. But Nazarbayev appears to be dissatisfied with this state of affairs, and so a move is afoot to allow him to rule for another decade without the formality of the intervening two elections that are on the official calendar. The Parliament has voted to change the constitution to allow a public referendum on the question. If the referendum passes, Nazarbayev would be the first former Soviet leader to wholly dispense with the election charade.
Resource curse theorists say that oil inherently creates evil within states. What they actually mean is that how oil revenue is shared -- or not -- often creates the evil. Such is the subtext in this week's referendum in southern Sudan on whether to secede.
In order for the breakaway from Sudan proper to go through, and in a relatively happy way, the oil-rich southerners must conceive a profit-sharing formula that satisfies the northerners, and the northerners mustn't be greedy. The region's long history of violence -- including the ambush of 10 would-be voters today -- makes many people doubtful, reports the Arab News. But international attention may help - for example, my colleague Joshua Keating weighs in on the import of the on-site presence of actor George Clooney.
For O&G purposes, one of the most interesting angles is the role of China, which in Sudan has tried unsuccessfully to appear inconspicuous as it violates its long-declared dictum against interfering in the internal politics of other states. At Al Jazeera, Donata Hardenberg writes that China's huge Sudanese oil interests make it the country's most self-interested international player, and notes that Beijing recently hedged its bets by upgrading its two-year-old local mission in the breakaway south to a full-fledged embassy.
ROBERTO SCHMIDT/AFP/Getty Images
Duke Energy's proposed $13.7 billion purchase of Progress Energy announced this morning could be a blow to Big Coal, which has ambitions to remain the planet's preeminent fuel for electric power. Both Duke and Progress have big ambitions for nuclear-fueled power plants, and Duke CEO Jim Rogers is among corporate America's loudest advocates for sharply slashed CO2 emissions.
Here is Rogers getting grilled by comedian Stephen Colbert:
|The Colbert Report||Mon - Thurs 11:30pm / 10:30c|
Much in the climate change arena has gone topsy-turvy in the last two years. Back in 2009, China and India seemed to be among the main roadblocks to a global accord on reducing the emission of heat-trapping gases; now, China is aggressively lowering its growth of CO2 emissions absent corresponding cuts in the United States. Back then, it was an article of faith that the U.S. -- the world's second-largest CO2 emitter -- was going to put a price on carbon, and lead a global campaign against Arctic melting; among the leading such voices were corporate giants including ExxonMobil. Now, climate skepticism is ascendant, Republican leaders vow to halt Obama Administration policy to begin regulation of CO2 emissions, and corporate green-speak is heard much less in the halls of power, as Anne Mulkern reported at Greenwire.
China Photos/Getty Images
Whoops -- Alaska is pouring more cold water on oil-futures traders with its latest pipeline mishap. Over the weekend, a leak shut off virtually all oil coming to the United States through the Alaska pipeline, which amounts to 3 percent to 5 percent of the total U.S. oil supply.
In 2008, such events were responsible for oil soaring to $147 a barrel and a huge increase in gasoline prices. Today -- the first day the market could provide its own response -- all we heard was a big yawn. Traders so far today have not even managed to push prices to $90 a barrel from their close at $88.03 last Friday.
As we have discussed, almost all the smart money is on oil prices going beyond $100 a barrel this year, with all the corresponding impact on the power and attitude of petrostates like Russia, Iran, Venezuela, and so on, not to mention the burden on already-weak economic growth and our own wallets. But price moves in that direction have been timid despite restrictions on Gulf of Mexico drilling and now this almost complete cutoff of Alaskan supplies. We are not quite back to 2008.
Fatih Birol, chief economist for the International Energy Agency, is among the most respected voices in energy. When he speaks, he can even get the OPEC folks to listen. So it is notable that Birol has hit the panic button on oil prices, not-so-subtly suggesting that OPEC increase production -- and that oil-consuming nations moderate their appetites. "Oil prices are entering a dangerous zone for the global economy," Birol's told Sylvia Pfeifer in today's Financial Times.
Translation: Oil prices approaching $100 a barrel could take the wheels off the just-recovering global economic cart. Oil traders are driving such talk by upping the number of bets on higher prices that they're making in the futures market, reports Bloomberg's Asjylyn Loder. At one point on Monday, Brent crude -- the variety benchmarked in Britain -- soared to $96.07 a barrel on such bets, its highest price since October 2008.
Phil Flynn at PFGBest, for example, thinks that government stimulus spending over the last couple of years has pumped up oil prices by $15 to $20 a barrel. So while speculators are driving up prices in a frenzy to cash in, politics are working against them -- there isn't political support for sustained stimulus spending any longer, so Flynn expects that air to go out of the price this year. Another moderating factor, according to Flynn, is that a lot of investors piled onto oil as a shelter from tanking stocks and bonds; now they will go the other way. "Even with all the bullish mania that has gripped the [oil] complex in recent weeks, the 2011 outlook, while still bullish, is obviously not as wildly bullish as recent market action might have you believe," Flynn told clients today.
Then there is Barclays Capital. The FT reported yesterday that Barclays is forecasting oil hitting $100 a barrel this year. But the Dec. 30 Barclays report that the newspaper quotes goes on to suggest that its analysts don't expect oil to average $100, but only to touch that price -- namely because OPEC will step in with higher production:
In our view, while it is probably already too late to prevent the market from hitting $100 per barrel at points in 2011, OPEC is likely to have to play a far more proactive role to dampen any potential explosive upside that may arise and ensure that quarterly and annual averages do not reach $100 per barrel. Indeed, we do expect OPEC to exercise control of that upside earlier in the cycle compared with 2008.
Then there are the outright bears. Petromatrix, a Swiss-based firm, looks at the fall in oil prices yesterday and so far today, and sees timidity. Petromatrix Managing Director Olivier Jakob told Bloomberg that prices could plunge to $80 to $82 a barrel if speculators flee the market in droves. "If there is some genuine profit-taking from large speculators, then we need to consider the risk for further downside," Jakob said.
I said the price of oil could hit $200 in 2012, not 2011, and $300 in 2013. It's a normal mistake, nothing earth-shattering. I agree that prices currently are too high and the hedgers are getting carried away. But if the US and European economies start picking up by 2012, and assuming all things stay equal in the big emerging markets, then I think at one point we see at least a doubling of oil prices from current levels, driven by both fundamentals and by super-bullish fund managers. For the average American consumer, let's hope speculative oil prices are just a blip.
We regret the error, and side with Meyer on consumers.
Texas Energy Museum/Newsmakers
One of our most prevalent current canards is the mantra that we must "get off foreign oil," by which we invariably mean Saudi Arabian crude -- and that we must generally distance ourselves from the kingdom and its leaders. Here is a rare issue that finds bipartisan traction. Last summer, for example, the comedian Jon Stewart looked and found that eight consecutive U.S. presidents starting with Richard Nixon, rolling through Ronald Reagan, both George Bushes, and finally Barack Obama have used the phrase in more or less the same formulation. Usually, the mantra is stated in the context of either the environment -- promotion of green industries -- or national security, meaning a way to confound terrorists who, it is said, are largely financed by Saudi and other Middle Eastern oil receipts. But ultimately they mean the same thing -- Saudi Arabia is bad, bad, bad.
|The Daily Show With Jon Stewart||Mon - Thurs 11p / 10c|
|An Energy-Independent Future|
I become suspicious of phrases that roll off the tongue and get me riled up, because often they are intended to accomplish just that outcome. Such is the case with the get-off-foreign-oil sloganeering, as I write in the latest issue of Foreign Policy. News from the Middle East and elsewhere exhorts the United States not to distance itself from Saudi Arabia, but in fact to more fully embrace this definitively central relationship. The reasons include top-tier U.S. strategic priorities regarding Iran, terrorism, Afghanistan, and of course oil.
WikiLeaks showed that the Saudis, unsurprisingly, have been in lock step with Western policy on containing Iran's nuclear program. The most dramatic recent example of the Saudi alliance paying off came in October, in the form of abortive terrorist attacks that were halted in Europe before they could reach the United States. Last summer and fall, U.S. intelligence agencies received three progressively more unnerving warnings from Saudi Arabia, all suggesting that al Qaeda was preparing to set off bombs in either Europe or the United States. The final alert, sent Oct. 28, was the most explicit, providing tracking numbers for two suspected explosives-laden packages on their way to Chicago from Yemen. A day later, police intercepted the packages at FedEx and UPS facilities in Dubai and Britain and defused bombs containing enough of the explosive PETN to take down the cargo planes on which they were to be shipped. Al Qaeda's Yemen affiliate claimed responsibility and warned of more such attempts. The take-away: Short of Saudi Arabia's insistent calls to the Central Intelligence Agency, there is almost certainly no chance that the bombs would have been detected.
What about the other main theater of current U.S. strategic interest, Afghanistan and Pakistan? With its long close ties to all parties in the region -- Pakistan, including the Army's jihadi-linked Inter-Services Intelligence directorate; Afghanistan; and the Taliban -- Saudi Arabia was asked early last year by Afghan President Hamid Karzai to help mediate a political settlement with the Taliban. In February, the Saudi foreign minister, Prince Saud al-Faisal, agreed to receive a delegation of former Taliban, but in November he froze contacts after the Taliban refused to repudiate Osama bin Laden and al Qaeda. Riyadh's position is not new: The Saudis adopted a similar posture position prior to 9/11, when they severed ties with the Taliban after its leader, Mullah Omar, refused to force bin Laden out of Afghanistan. Yet it is yet another example of crucial alignment in U.S.-Saudi policy.
All the while there is oil, although many people seem to suggest that as a source of strategic importance it is a temporary artifice. What are the facts? Not only will Saudi Arabia's predominant oil market position not shrink over the coming decades -- it will grow. Consider the current activities of Chevron, the original developer of Saudi oil, in the partition zone that the kingdom shares with Kuwait. Vice Chairman George Kirkland told me about Chevron's findings in the Wafra field, a reservoir of highly viscous, heavy oil in which the company is using a method of steam-injection drilling to recover an expected 10 billion to 15 billion barrels of petroleum. (For perspective, the industry regards a 1 billion-barrel field as a supergiant.) Saudi Arabia, Kirkland says correctly, is "at the top of the mountain as it is. [Wafra] reinforces a longer future delivering liquid hydrocarbons to the world economy." Meaning probably far into the second half of this century, adding up to another pinion of U.S. strategic interest. Here, Bloomberg's Wael Mahdi reports on Chevron's current progress at Wafra.
Those who suggest getting off Saudi oil are violating the basics of economics. As the pithy Anthony Cordesman of the Center for Strategic and International Studies expressed it to me: "What is the benefit for the U.S. of 'deplete America first'?"
FP's editors are rounding up predictions for 2011 from their bloggers, so here are a couple thoughts from me on my beat:
First, with Russia's petro-driven geopolitical power shaken underfoot by uncertainty in its key European natural gas market, Vladimir Putin will step up his two-year-long public relations campaign and announce that he will seek to return to the Russian presidency in elections scheduled in 2012. In a swap of the so-called "tandem" of Russian power, current President Dmitry Medvedev will declare that he will be honored to serve as prime minister.
Meanwhile, oil prices will flirt with $100 a barrel, but stay generally in the $80 to $95 range because global crude oil stockpiles will remain at historic highs. This will temper the price of gasoline at the pump, and help the global economic recovery advance. But another global speculative bubble will form, this time in metals, driven by these same expectations of economic growth. What these traders always seem to forget is that all bubbles eventually burst -- but no one knows precisely when.
Vladimir Putin had a relaxing "year of adventure," as my colleagues call it, impressing Russia and entertaining the rest of the world with populism -- motorcycle riding, whale harpooning, fire-fighting -- and coquettish flutters of the eyelids regarding his political intentions or lack thereof in 2012. But the most telling events happened in the closing days and weeks of the year, in which the Russian prime minister revealed his more familiar dark side.
I don't necessarily mean today's harsh prison sentence of 13.5 years against oligarch Mikhail Khodorkovsky -- enough to keep him in jail until 2017, factoring in the time he's already served -- which reflects hard-nosed Putin re-election strategy rather than unadulterated venality on his part. Rather, the more instructive event of 2010 is his embrace this month of racist hoods with chilling power on the street, a thread of extremism that Putin himself kindled and now is racing to get ahead of. Putin's December suggests that, for the moment at least, Russia prefers to remain an unnerving outsider.
ALEXEI NIKOLSKY/AFP/Getty Images
For the last year, Deutsche Bank's Paul Sankey, one of the best long-range energy minds on Wall Street, has been distributing a series of provocative, deeply researched, and forward-looking notes to clients under titles like "The Peak Oil Market" and "The End of the Oil Age." Last week, Sankey produced a sixth note called "2011 and Beyond -- A Reality Check." Among the takeaways: As of 2010, the new electric car age is coming upon us faster than expected -- far beyond this year's conspicuous arrival of the General Motors Volt and Nissan Leaf, and the race among the world's industrial nations to dominate this technology. Converging even more rapidly, says Sankey, are far higher oil and gasoline prices, starting in 2012. Such shifts could have enormous geopolitical ramifications -- as a consequence, some countries will become poorer, and some richer, with corresponding impacts on their global influence.
Starting with the second forecast from this 59-page report, 2010 has seen a comparatively gentle respite in an otherwise unprecedented, decade-long period of turbulence in oil markets. According to Sankey, this calm is about to break. Sankey's forecast is based on the salient factor of "spare capacity." (If you are already familiar with the term, skip to the next paragraph. If you aren't, read on.) This refers to how much oil the world's petrostates can produce above and beyond current demand. So for instance, Saudi Arabia pumps about 8 million barrels of oil a day, but has dug enough wells in enough new fields to produce 50 percent more than that -- or 12 million barrels a day -- if it needs to. That excess Saudi productive capacity of 4 million barrels a day, plus about 1 million barrels a day of extra productive capability elsewhere, adds up to a global surplus of about 5 million barrels a day of spare oil production capacity -- the available volume above and beyond the 87 million barrels of oil a day consumed around the world.
Price-setters -- meaning oil traders -- see a lot of spare capacity as a cause for calm. They remain serene in the face of bad weather, pirate attacks, or pipeline explosions -- the sort of events that, in the 2006-2008 period (when there was much smaller spare capacity) sent them into paroxysms of panic, and accordingly sent oil and gasoline prices through the ceiling. This was because no one could say whence oil would come to fulfill demand. Since the world now has a cushion, we have the relative tranquility of 2010.
But Sankey effectively says that it's been a false calm. Reality is about to strike, he says, based on the following math: Global spare capacity is actually not 5 million barrels a day, but 4 million barrels a day when one takes into account what countries really produce, versus what they report. From there, Sankey projects that global demand will rise by 2.5 million barrels a day next year, and an equal volume in 2012. Looking at the future through this lens, you can see how we will rapidly work through our spare capacity buffer, and arrive right back on the knife's edge.
Kiyoshi Ota/Getty Images
It seems much longer than eight months since the worst oil accident in history struck the Gulf of Mexico. Certainly BP wishes it was a lot further behind it, given that it is still working to raise $30 billion that it owes the U.S. government for a victims compensation fund and additional expected bills, with the potential for tens of billions more in penalties for the worst self-inflicted corporate disaster in recent memory (we can debate comparisons in the comments section below). The spill made a fall guy of Tony Hayward, ending his short career as CEO at the age of 53 and making him the second-straight BP chief executive after John Browne to collapse in a scandal (Beware, current BP CEO Bob Dudley: disasters can come in threes).
Yet eight months later, there has been almost no major fallout from the disaster for the oil industry, apart from a tighter production regime in the Gulf of Mexico: BP and everyone else continue to do business around the world, including in offshore zones. Which signals either a perception that BP handled the spill much better than the conventional wisdom suggests, or that Americans and the rest of the world are more inured to environmental disruption than they used to be. Most probably, it's the latter. But should that be the case? We discuss that question below.
Chris Graythen/Getty Images
In the discovery and development of the Jubilee oil field in Ghana, much media coverage has focused on how the west African nation might avoid the dreaded "resource curse." Also called the "paradox of plenty," the malady is thought to explain why countries richly endowed with oil often suffer from weak economies, corruption, and instability. The resource curse, according to the popular narrative, is about as immutable as gravity.
In their new book, Oil Is Not a Curse: Ownership Structure and Institutions in Soviet Successor States, Pauline Jones Luong and Erika Weinthal call this assumption into question, and put it under the microscope for close scrutiny. Luong and Weinthal -- professors at Brown and Duke universities, respectively -- argue that such countries suffer not from their resources, but from their institutions. The deciding factor in the success or failure of a petrostate, Luong and Weinthal write, is who owns the oil.
The authors make their case with a study of five former Soviet states: Azerbaijan, Kazakhstan, Russia, Turkmenistan, and Uzbekistan. Given the numerous variables at play in any global assessment of this issue, the approach cuts down the complexity by providing a clear and level starting point for evaluation. They assess the years between 1990 to 2005 -- a period they argue is largely neglected in resource curse literature -- and explore the different outcomes when the state owns the oilfields, and when it is turned over to private hands. Their findings? When oil is in private hands, the resource curse does not rear its head -- Kazakhstan being a prime example.
While we are all ultimately cursed by the finite quantity of resources on the earth, Luong and Weinthal argue that countries can make the institutional choices necessary to optimize them -- that well-endowed states are not victims of the resources themselves, but rather of their own failure to opt for fiscally strong ownership options. Among other petrostates, this is good news for relatively well-governed Ghana, as it seeks to become Africa's seventh-largest oil producer.
Angela Osborne is a graduate student in Georgetown University's Security Studies Program.
Another reason why oil is a curse: It can force Pentagon officials to be complicit in apparent tax-dodging schemes by contractors providing crucial fuel supplies for the U.S. military.
Or at least that's the gist of a 75-page report issued today by the U.S. House of Representatives Subcommittee on National Security and Foreign Affairs, entitled "Mystery at Manas." It is the result of an investigation into Mina and Red Star Corps., shadowy companies that provide hundreds of millions of dollars a year in jet fuel to the American military's Manas Air Base in Kyrgyzstan and Bagram Air Base in Afghanistan. It is owned by a Stockton, Calif., man named Doug Edelman, who resides in London and registers his companies in the tax shelter of Gibraltar, but under the name of his French wife and Kyrgyz business partner. In the past, this blog has dubbed Edelman the "burger flipper," since his only known previous business venture was a burger joint in Bishkek.
One scoop out of the report concerns the April ouster of Kyrgyz President Kurmanbek Bakiyev. As you recall, Kyrgyz poured into the streets when gasoline prices suddenly went through the roof after Russia clamped on a substantial new customs tariff. Observers surmised that Moscow was punishing Bakiyev for reneging on a supposed agreement to expel Manas in exchange for $2 billion in aid for the country.
Not so, according to the House report -- it was because Mina and Red Star lied to Russia as to its ultimate customer. The companies said -- and Kyrgyz officials backed up the story -- that they were buying Russian jet fuel for civilian use. This was to get around a Russian policy prohibiting the export of strategic assets -- in this case jet fuel -- for purposes of war.
ALEXEY GROMOV/AFP/Getty Images
Five countries, oil entrepreneurs big and small, and activists of various types have all weighed in on the biggest remaining motherlode of energy on the planet: the Arctic. Climate change is opening up this region, which holds an estimated 25 percent of the world's remaining oil and gas, according to the U.S. Geological Survey. One principal question mark in this ballyhooed rush north has been the doubts of environmentalists, who note that in the case of a spill, the Gulf of Mexico would be child's play compared with the Arctic, where spills dissipate far less easily and cleanup efforts are far more difficult than they are on the Louisiana coast.
But this is just one of the challenges facing Arctic development. As the biggest oil companies in the world are finding, energy trends themselves are at least for now working against the Arctic. Specifically, billions and billions of cubic feet of natural gas could end up stranded in Alaska, Canada, and Russia because there is so much competing supply around the world.
In the Wall Street Journal, Phred Dvorak and Edward Welsch report on Canada's backing of a 740-mile natural gas pipeline from its Northwest Territories -- which border the Arctic -- to southern markets, including the United States. Called the MacKenzie Gas Project, this $16 billion pipeline has partners including ExxonMobil, Shell, and ConocoPhillips. The three major fields there hold the gas equivalent of 1 billion barrels of oil. Now, with the Canadian government's green light, the companies themselves must decide whether to proceed -- a matter the government says it will take up in about three years, once it figures out the precise costs and engineering requirements.
BP via Getty Images
BP owes a lot, but how much exactly? Everyone knew this was coming: the U.S. Justice Department announced that it is suing BP for this year's enormous oil spill in the Gulf of Mexico. BP has been selling off assets to pay off the $20 billion in liability it has already acknowledged to the U.S. government. Depending on the outcome of deliberations in the United States, that sum could double. But, as the Financial Times notes, that calculus excludes the possibility that a U.S. court could issue a finding of gross negligence -- that BP simply wasn't on top of the work it was doing in the depths of the environmentally sensitive gulf. In such a case, BP's bill could double yet again, to around $80 billion. If that happens, look for the vultures to begin circling the company and its management -- BP may have a large liability, but it also has extremely valuable assets in Russia, Azerbaijan, and elsewhere.
Welcome to Africa's newest petrostate! The world has a new oil exporter: Ghana, whose Jubilee offshore oilfield began pumping petroleum this week. Analysts currently think the west African country has about 3 billion barrels of oil -- Jubilee alone is a supergiant with about 1.5 billion barrels. The reserves are particularly attractive given their location on the accessible Atlantic, and Ghana's relative stability in a turbulent continent. Jubilee could produce 120,000 barrels a day, according to field operator Tullow Oil.
Pipeline hopes die last. For all of its obvious hazards, the challenges of Afghanistan seem fated to attract the bold and ultra-adventurous --including oilmen and those in the pipeline game. This week, the leaders of Afghanistan, India, Pakistan, and Turkmenistan got together in Ashkabad to sign yet another agreement vowing to push ahead with a 1,000-mile-long natural gas pipeline stretching from Turkmenistan and on into the Indian subcontinent, reports Andrew Kramer of the New York Times. There's probably no point in noting that this is not the greatest of ideas -- as we learned in the last such attempt, Unocal's ill-fated effort in the 1990s to build a similar energy transportation network, pipeline folks heed their own inner voice.
Which way oil prices? At O&G, we have run out recent posts suggesting that oil prices are not necessarily headed into the stratosphere in the coming decade. But we also recognize that such exercises are in the end foolish -- if anyone truly knew where oil prices were going, the whole wealthy phalanx of oil traders would be out of business. So we will simply note that, at the Wall Street Journal, Jerry Dicolo makes the bullish case for oil. Dicolo cites dropping global stockpiles, rising demand, and recovering economies in his prediction that oil is heading into the triple digits, and "might stay awhile" there.
Gas, gas everywhere. The U.S. Energy Department adds another data point to the now-familiar narrative that we are awash in natural gas, reports Matthew Wald at the New York Times. The department's Energy Information Administration has doubled its estimate of the volume of shale gas in the United States to a 36-year supply, given U.S. demand. The sudden appearance of shale gas has shaken up global energy and geopolitics -- in Europe alone, it has made former Soviet satellite states less worried about their winter supplies, and weakened the hold of Russia's Gazprom on the continent. The EIA report is interesting in other respects as well: It forecasts that oil prices will not explode over the coming quarter-century, and neither will heat-trapping gases.
Oil prices are up today, another apparent notch in the belt of conventional wisdom, which is that we are on the way to another historic price spike -- $200 to $300 a barrel and $5 a gallon at the U.S. pump. The way this narrative goes is that these sky-high prices finally so aggravate U.S. consumers that they act on them: switching for good to hybrids and other high-mileage cars, weather-protecting their homes and buildings, and generally using much, much less oil. On the other side of all this, a decade or a bit more from now, we get a long, slow decline in global oil demand, paradise, and other fine things.
But is this valid? Not necessarily, if one considers a pair of reports out today from Barclays Capital, the research arm of the investment bank. Start with what leads people to such conclusions. First is the theory of peak oil: the evidence that we've just about reached the apex of our capacity to produce oil, and will be on a supply plateau of around 90 million barrels of oil a day for some time before the supply begins declining (global oil demand is about 85 million barrels a day). The other factor is that oil companies have in recent years curtailed their spending to find new oilfields. Together, these trends suggest that supply will stop keeping up with demand about mid-decade.
Where Barclays takes the punch away from this pessimists' party is a semi-annual survey of 402 oil and gas companies of all sizes around the world. Barclays finds that these drillers are back in the spending game. In what Barclays calls "The Original E&P Spending Survey" (sounds like a cheeseburger ad, right?), it finds that exploration and production spending is going to rise next year to almost half a trillion dollars. In precise numbers, that means $490 billion in spending, 11 percent higher than the measly $442 billion that will have been spent by the end of 2010.
ALFREDO ESTRELLA/AFP/Getty Images
Turkmen President Saparmurat Niyazov generated yuks during the 1990s, given eccentricities such as his variable taste in hair color, his creative renaming of months, days, cities, and ports, and a megalomaniacal festooning of his photo and bust everywhere. But Niyazov also had less-amusing habits, such as truncating high-school education so that Turkmen students couldn't qualify for foreign universities -- not to mention his taste for big bribes. All of it made many people celebrate when he died of heart disease in 2006.
But as we learn in the latest WikiLeaks cables, not much has materially changed since President Gurbanguly Berdymukhamedov succeeded him. For starters, Berdymukhamedov is a dead ringer for Niyazov, as anyone visiting the country can see: The new president has taken down his predecessor's portraits and frequently replaced them with his own.
A Dec. 17, 2009 cable signed by Sylvia Reed Curran,the charge d'affaires in the U.S. embassy in Ashgabat, relates a chat with an unidentified source with apparent proximity to Berdymukhamedov. Turkmenistan's leader, Curran's source tells her, is "vain, fastidious, vindictive, a micro-manager, and a bit of an Akhal Teke nationalist." (Akhal Teke is a Turkmen tribal zone near Ashkabad. It is also a prized horse breed.) Later in the cable, Curran adds that the president is also "suspicious, guarded, strict,very conservative, a practiced liar, ‘a good actor,' and (again) vindictive." (Of course Berdymukhamedov himself might not agree with any of that, seeing as how he views himself as "an author, surgeon, pilot, sportsman [and] statesman,"Curran said.)
Last week, you'll recall, WikiLeaks brought us the story of a meeting a year ago between Jerry Lanier, the U.S. ambassador to Uganda, and Tim O'Hanlon, an executive of Britain's Tullow Oil, which was trying to buy a stake in a pair of big Ugandan oil fields at the time. Lanier's cable paraphrases O'Hanlon as saying that two other companies had somehow swooped in and grabbed the deal out of Tullow's hands. The suggestion was that a Ugandan minister had been paid off.
Not so, say almost all of those mentioned in the Lanier cable. Last Friday, O'Hanlon wrote a letter to Ugandan President Yoweri Museveni, saying that Lanier got the story all wrong. He had heard the talk circulating of such backroom dealing, O'Hanlon wrote, but he never believed it. "I have no evidence implicating the honorable ministers in corruption and have no reason to believe that the rumors sweeping Kampala at the time were actually true," O'Hanlon wrote.
Amama Mbabazi (above), Uganda's security minister and the official named in Lanier's cable -- in which Lanier told his superiors that the United States might consider revoking Mbabazi's U.S. visa -- said he was equally perplexed by what the cable had to say about his relationship with Italy's Eni and Britain's Heritage Oil. He said:
These allegations are absolutely untrue. I have never received even an offer let alone payment from Heritage or ENI of that kind or for anything. However at that time there was report in The Times of London which did not name anyone but talked about corruption over the deal. What surprised me is that the embassy believes that the allegations are true and concluded that the deal showed signs of high level corruption in Uganda's oil sector. This is incredible. I am surprised they would make a statement like that without cross checking with me about my alleged involvement.
Eni also said that Lanier was far off the mark, and that it intended legal action against WikiLeaks. "ENI denies the serious allegations which are completely without foundation and has instructed its lawyers to initiate legal proceedings to compensate for any damage caused to the company's reputation," a spokesman told Agence France-Presse.
U.S. Defense Department via Wikimedia Commons
There is no graduate-level course in princeling etiquette that I know of, but the latest WikiLeaks cables suggest that diplomatic schools should perhaps offer one. Consider Azerbaijan's first lady, Mehriban Aliyeva (above), and her family, who according to a cable written in January control a bank, insurance, construction, media, telecommunications, real-estate and cosmetics companies, in addition to Baku's only Bentley dealership.
The cable, sent January 27 by Charge Donald Lu, is an impressive profile of Aliyeva. One section relates a story regarding her "substantial cosmetic surgery." During a 2008 visit to Baku by Lynne Cheney, the wife of then-Vice President Dick Cheney, the youthful-looking Aliyeva and her two daughters mingled with White House, U.S. embassy and security staff while they awaited the arrival of the Cheney vehicle. "Which one of those is the mother?" a puzzled U.S. Secret Service agent asked of his colleagues, referring to the three Aliyeva women. No one could figure it out on sight, before one finally decided, "Well, logically the mother would probably stand in the middle." On the other hand, Lu found a downside to the facelift: "On television, in photos, and in person, she appears unable to show a full range of facial expression."
Of course, the bluebloods include not only the Aliyev family, but extend to old pals of late President Heydar Aliyev, the father of current president Ilham Aliyev. Such people are the equivalent of dukes. Topping the list is Kamaladdin Heydarov, the minister of emergency situations, whose father, Fattah, was a close associate of the late president, according to a followup cable that Lu sent to Washington on February 25. Heydarov, Lu writes, is Azerbaijan's second most-powerful titan next to Aliyeva.
Francois Durand/Getty Images
Italy's oil company Eni has long enjoyed a privileged position in oil and gas deals in both Russia and Kazakhstan. The company enabled Russia's dismantlement of Yukos, and has been Gazprom's top-tier partner in tightening its grip on gas supplies to Turkey and Europe. Allegations in one WikiLeaked cable that Italian Prime Minister Silvio Berlusconi and some pals have profited personally from this intimate relationship are not entirely surprising -- nor is it particularly shocking to read allegations of similar Eni activity in Uganda.
The details come in an unusually descriptive new cable released by WikiLeaks. The cable describes a Dec. 14, 2009 meeting between U.S. Ambassador Jerry Lanier and Tim O'Hanlon, vice president for Africa for Britain's Tullow Oil. We have written previously about scrappy Tullow, a serious player around Africa's Lake Albert region, which is believed to potentially contain more than 1 billion barrels of oil.
Here is the backdrop: Tullow was wishing to exercise a right of first refusal to buy the second half of two Ugandan oilfields in which it already held a 50 percent interest. But Eni somehow stepped in and, right around the time of the Lanier-O'Hanlon meeting, announced that it, and not Tullow, would secure the $1.35 billion purchase. O'Hanlon asserted that he knew just how Eni had managed it -- the Italians had created a London shell company through which they were funneling money to Uganda's security minister, Amama Mbabazi.
This bit of news really irritated Lanier, who suggested that he was sick and tired of hearing of "corruption scandals" involving Mbabazi. From the cable:
Depending on the outcome of this major deal, we believe it could be time to consider tougher action - to include visa revocation - for senior officials like Mbabazi who are consistently linked to corruption scandals impacting the international activity of U.S. businesses, U.S. foreign assistance goals, and the stability of democratic institutions.
Lanier said in the cable that he planned to confer with the local British High Commission, plus the Irish ambassador, and talk about writing a joint letter to President Yoweri Museveni expressing their dismay "about these very troubling signs of high-level corruption in Uganda's oil sector, and advocating for the open and transparent sale of oil assets and management of future oil revenues."
We do not know if those meetings took place or if the letter was written. However, the deal was overturned just seven weeks later and given to Tullow under the same terms as Eni.
DAMIEN MEYER/AFP/Getty Images
One of the latest WikiLeaks scoops is that Royal Dutch/Shell managed to infiltrate employees into every important Nigerian ministry, and obtain regular inside intelligence on government doings, as my colleague Beth Dickinson wrote late last night. My question is, if Shell is so capable and has Nigeria so well wired, why does it continue to be the main target of attack by local militants?
This is a company that three weeks ago yet again declared force majeure to protect itself against lawsuits for non-delivery of some 125,000 barrels a day of oil because of militant attacks on its pipeline network in the country. It could take until next month to repair the Escravos-Warri pipeline, the company says.
All in all, Shell produced 629,000 barrels of oil a day last year, which sounds like a lot until you consider that its facilities are capable of producing more than 1 million barrels a day. Much of that difference is accounted for by massive attacks on its installations. In 2008, Shell also had a bad year, with militants attacking and shutting down its flagship 200,000-barrel-a day Bonga oil platform. Two years before that, Shell threatened to pull out of the Niger Delta entirely after a spate of attacks on its installations resulted in numerous deaths and kidnappings.
This is not meant to be snarky. But is the Nigerian government all that important in this case? Given the stakes, one does wonder if Shell is putting as much effort into infiltrating the Movement for the Emancipation of the Niger Delta, the group responsible for much of the mayhem. A five-year-old story by Michael Peel, the Financial Times' former Nigeria correspondent, reported that militants and others were stealing somewhere between 275,000 barrels a day and 685,000 barrels a day of oil from Shell and other pipelines, at the time worth between $1.5 billion and $4 billion a year. They were spending much of that money on weapons -- which in their business counts as reinvestment into future attacks.
DAVE CLARK/AFP/Getty Images
If you want to make some enemies in Nigeria, just say you're from Shell -- especially after Wednesday's WikiLeaks release. Cables from 2009 and 2010 indicate that the oil company -- the firm with the longest history and the most tarnished reputation in Nigeria -- has infiltrated government ministries, speaks of its Nigerian colleagues as amateurs, and seems to have U.S. diplomatic help in pushing its agenda through the national assembly.
Shell has been operating in Nigeria since 1936, and over the decades, it has been the most prominent international oil company operating in the resource-rich Niger Delta. Its mishaps are almost as old, but things took a particular turn for the worse in the early 1990s, when Shell was allegedly complicit in the government assasination of local environmental activists who were protesting the oil pollution in their communities. Shell was kicked out of those communities and only recently let back in.
Yet in a series of cables discussing Nigeria's Petroleum Industry Bill (PIB), an effort at sector-wide reform that has been held up in the assembly since 2008, it becomes clear just how much influence Shell still wields.
Shell -- and, according to the cables, all international oil companies operating in Nigeria -- are adamantly opposed to the legislation, as it stands to "reduce the corporation's [Shell's] overall value in Nigeria." As such, Shell told the U.S. ambassador that the company and its peers would be reaching out to diplomats from the United States, Britain, and Denmark to "convey points on the bill to GON [government of Nigeria] policymakers," a Feb. 10, 2009 cable recounts. In a meeting in October 2009, the U.S. ambassador asks "what the Embassy could do to help" with the congressional committee working on the bill. The ambassador also reminds Shell Managing Director Ann Pickard "that the U.S., U.K., Dutch and French Embassies had already made a joint call on [Nigerian national oil company] NNPC General Managing Director Dr. Mohammed Barkindo" regarding the bill. (Nigeria is was the fourth-largest OPEC oil supplier to the United States in September, the most recent month for which data is available.)
But more disquieting is the influence Shell wields within the Nigerian government. Pickard recounts direct meetings with former Nigerian President Umaru Yar'Adua as well as other top oil officials. This isn't unexpected. But in a meeting between the U.S. ambassador, Pickard points out that Shell is able to keep tabs on the Nigerian government's dealings with other oil partners China and Russia in part because "Shell had seconded people to all the relevant ministries and that Shell consequently had access to everything that was being done in those ministries."
Of course, there are damning revelations about the government of Nigeria's role in the slippery oil business as well. Shell alleges in the February 10 meeting that illegal oil sales go all the way to the top of the govenment: "Oil buyers would pay NNPC GMD Yar'Adua, Chief Economic Advisor Yakubu and the First Lady Turai Yar'Adua large bribes to lift oil."
Still, the revelations about Shell will likely overshadow those pertaining to the Nigerian government -- at least in Nigeria, where corruption in the government is a well-recognized fact. There, the cables will hammer one more nail into Shell's coffin as far as public opinion is concerned. It doesn't help that the company refers to its local colleagues in incredibly demeaning terms. A cable recounting a Feb. 23, 2010, conversation with the U.S. assistant secretary of state for African affairs, Johnny Carson, recalls: "Amateur technocrats run the oil and gas sector according to Shell’s Peter Robinson. They believe that they can control the industry via spreadsheets and pushing through the PIB."
For a population that has lived for decades with oil -- to little benefit -- Shell's political obituary writes itself.
PIUS UTOMI EKPEI/AFP/Getty Images
Some people are becoming excited, and others agitated, over the leap in oil prices -- they will average over $100 a barrel next year, say venerable voices such as Goldman Sachs, and gasoline will cost more than $3 a gallon. Over at Seeking Alpha, Joseph Meyer predicts $200-a-barrel oil next year and $300-a-barrel in 2012. And indeed, oil yesterday surged to $90.76 a barrel, its highest price in two years. Shares of ExxonMobil, a proxy for oil prices, are well out of the troughs of July and trading near a 52-week high. So are we at an inflection point from which oil spirals into the stratosphere?
Not if one listens to the coolest voice on the street, which belongs to Ed Morse at Credit Suisse. It's true that oil demand is up, and record storage of crude oil is down. But Morse -- the only major Wall Street voice courageous enough to challenge the herd in the absurd, speculator-driven price runup of 2008 to $147 a barrel, and Goldman's forecast of $200 a barrel -- cautions that this time what we are seeing is a blip.
A confluence of "a series of one-off re-enforcing factors" is driving up prices, he wrote in a note to clients yesterday. Morse predicts that, once these factors go away, oil prices will return to Earth and average just about where they were prior, or $85 a barrel next year (which is still pretty expensive when you consider historical prices). Over at the Wall Street Journal, Liam Denning agrees that the fundamentals conflict with the oil bulls.
Javier Blas plays out Morse's reasoning at the bottom of an otherwise bullish oil price story in today's Financial Times, but here essentially is what Morse argues:
Seeing all of this taking place, oil traders have jumped in to profit. Says Morse:
There is no doubt that the daily volume of trading increased dramatically over the five days of last week - but this was not the only five-day period in the recent past in which this was the case.
As in 2008, traders -- the folks who watch for events impacting global supply even on a minuscule scale in order to bet short or long on price movements -- have been all over this temporary supply disruption, resulting in the current price runup.
ALAIN JOCARD/AFP/Getty Images
John Jennings, a former Shell chairman, once remarked, "Oil breeds arrogance because it's so powerful." And where arrogance and power meet stand the world's top oilmen, wielding obscene amounts of money and influence while providing the world with its most critical resource. Tom Bower's new book details how their behavior over the last two decades has made them some of the most hated and mistrusted people on the planet, and why that has had little effect on the world price per barrel.
In Oil: Money, Politics and Power in the 21st Century, journalist Tom Bower accepts and admires the logic behind the production and consumption of oil, and resists the temptation to proselytize about fossil fuels, peak oil, or the environment. Though some of his conclusions seem inevitable, he simply presents the evidence for readers to judge themselves.
Among his subjects are the senior leadership of the four major oil corporations (BP, ExxonMobil, Chevron and Shell), oil traders, politicians and Russian oligarchs. These heavyweights and their interactions provide the drama in Bower's narrative. Looming large above all are Lee Raymond of ExxonMobil and John Browne of BP, both of whom, Bower argues, possess the quintessential qualities of a good oil executive: intelligence, vision, vanity, and arrogance.
But it is John Browne who occupies center stage in Bower's work, and it is easy to see why. Ousted in a 2007 boardroom coup, Browne famously rebranded BP as "Beyond Petroleum." Browne sought to remake BP through aggressive cost cutting and an environmentally friendly vision. At the height of his renown in 2001, Browne was granted the title "Baron of Mattingley" by Prime Minister Tony Blair and, in addition to taking a seat in the House of Lords, began to sign his correspondence "Lord Browne." An employee absorbed from Amoco in BP's 1998 merger with the U.S. company responded to this perceived affectation, "I only believe in one lord."
Apart from the BP oil spill last spring, no global energy story has eclipsed the perennial Ukraine-Russia natural gas spat in terms of global attention, drama, nasty accusations, and pure impact -- the relegation of a dozen European countries into the dark and cold. But there has also been mystery, as in, Why does this keep happening? Russia's Vladimir Putin told us it was all a very simple matter of unpaid gas bills, but experts pointed to the role of personal gain and a little-known intermediary company called Rosukrenergo. This company, putatively controlled by a Ukrainian oligarch named Dmitry Firtash, had somehow positioned itself smack in the middle of the natural gas deal, and appeared to be earning some $4 billion a year for the privilege. But what was Rosurkenergo, and who was Dmitry Firtash to get such a deal? Politicians linked them to an alleged organized crime boss, and suspicious experts and journalists resorted to phrases like "shady" and "secretive" to describe this apparent sweetheart deal.
So it was that William Taylor, the U.S. ambassador to Ukraine, was surprised when, uninvited, Firtash elected to walk into the mission on Dec. 8, 2008, and explained himself, according to a cable filed two days later by Taylor and released by WikiLeaks. Provided this incredible opportunity, Taylor came right out with the main question on everyone's mind: What was his relationship with Semyon Mogilevich, an alleged Russian mob boss wanted by the Federal Bureau of Investigation, and now under arrest in Russia?
As the Financial Times and the Wall Street Journal report, the answer to the question provides fascinating firsthand insight into the way business is really done in Ukraine and the region as a whole. In a nutshell, Mogilevich had indeed given his blessing to Firtash's foray into Ukrainian business, but that did not mean they were business partners, Firtash said. Instead, he went on, he was simply observing "the law of the streets." From the cable:
Firtash answered that many Westerners do not understand what Ukraine was like after the break up of the Soviet Union, adding that when a government cannot rule effectively, the country is ruled by ‘the laws of the streets.' He noted that it was impossible to approach a government official for any reason without also meeting with an organized crime member at the same time. Firtash acknowledged that he needed, and received, permission from Mogilevich when he established various businesses, but he denied any close relationship to him.
Firtash's bottom line was that he did not deny having links to those associated with organized crime. Instead, he argued that he was forced into dealing with organized crime members including Mogilevich or he would never have been able to build a business. If he needed a permit from the government, for example, he would invariably need permission from the appropriate ‘businessman' who worked with the government official who issued that particular permit. He also claimed that although he knows several businessmen who are linked to organized crime, including members of the Solntsevo Brotherhood, he was not implicated in their alleged illegal dealings. He maintained that the era of the ‘law of the street' had passed and businesses could now be run legitimately in Ukraine.
Firtash was just warming up. He stayed in Taylor's office for two and a half hours. Much of the time, he was pouring scorn on Yulia Timoshenko, the former Ukrainian prime minister. But he also seemed intent on polishing up his own image.
Among the most literary of the diplomatic cables released this week by WikiLeaks come from the U.S. embassy in Kazakhstan. Of those, most interesting for me is the unusual, realtime window into the emotion, the ambition and the palpable anger embedded in the struggle for control of the country's oil and the power that goes with it in this nascent petrostate. Front and center on stage are among the biggest oilfields in the world -- Tengiz, Kashagan, and Karachaganak -- in addition to Chevron and Shell, President Nursultan Nazarbayev, and his powerful son-in-law, the princely Timur Kulibayev.
The takeaway: Not much has changed since Richard II.
One main pawn in the dramas is Maksat Idenov, a super-competent administrator who was put in charge of the Kazakh oil company KazMunaiGas, or KMG, but who is exposed in a pair of cables to be slow to grasp political reality: Nazarbayev obviously had flattered Idenov by telling him that his job was to administer the state's crown jewels -- its oilfields. And Idenov -- willfully ignoring the history of Nazarbayev conveying just such nonsense to one foolish minister after another over the last couple of decades in order to keep the trains running on time, while in fact his trusted son-in-law, Kulibayev, actually ran things -- had chosen to believe him.
Oleg Nikishin/Getty Images
Tell me what's wrong with this picture: China burns half the six billion tons of coal consumed globally each year, a vast hunger that's ignited a free-for-all among coal suppliers and dealmakers for a piece of the action, and pushed coal prices to a two-year high. In just one week this month, U.S. and European companies signed $15 billion in deals for coal properties, Javier Blas writes in the Financial Times. Going forward, the United States appears likely to be a special focus of such mergers-and-acquisitions attention, report the FT's Ed Crooks and Helen Thomas. Yet China is barely in the dealmaking -- none of this new action involves Chinese companies. Blas quotes Melinda Moore of Credit Suisse on the topic: "I'm surprised that China has not had a greater presence in the latest round of M&A in coal, or at least not been financing more of the expansions."
That is quite an understatement. How is one to interpret why the most aggressive resource-buying force on the planet -- a country that derives most of its electricity from coal, and has a fixation on energy security verging on the paranoid -- is lying low in a buying frenzy?
China Photos/Getty Images
In the coming weeks, we will see the rollout of the two most-watched entries in the global electric-car race, the Nissan Leaf and the Chevrolet Volt. Both are in the headlines today, and here is the detail that caught my attention: The Leaf, writes Nick Bunkley in the New York Times, will get the equivalent of 99 miles per gallon.
For months, a drumbeat of pessimism has threatened to drown out earlier optimism about the possibility of an electric-car juggernaut over the coming decades. Electric cars and hybrids will overwhelm power grids, we are told. Governments, specifically President Barack Obama and the leaders of most of Europe, Japan, and China, are too far ahead of consumers, warns the Economist. Few will buy a car that could stall on the way home from work, U.S. News predicts. At 24/7 Wall Street, Douglas McIntyre writes, "The dream of a highway populated by electric and other low emissions cars may be no more than hope. If wishes were horses, all the beggars would ride."
And yet, that figure -- 99 miles per gallon, calculated using an Environmental Protection Agency formula in which 33.7 kilowatt hours equals a gallon of gasoline -- tips the scales a bit in my eyes. We've all been on the showroom floor, and after admiring the design lines of this or that model, we take a sharp look at the sticker, and the prominent display of the premier maintenance cost we will face, which is fuel. Consumer psychology is a tricky thing, but suffice it to say that the number 99 is a lot different from 28 or 36. The EPA hasn't certified what the Volt will get on the road, but it's going to be in the same ballpark, and I think that is going to turn a lot of heads.
In the Financial Times, Ed Crooks writes that Nissan CEO Carlos Ghosn is already doing a victory lap, arguing that his $5 billion bet on electric cars has been vindicated. That's a bit premature. But pay attention to the number 99. It's important.
Kiyoshi Ota/Getty Images
I was surprised to learn on a visit to Brussels last week that the confusion is worse than I had thought among Europeans regarding Nabucco, the object of a long and thus-far-quixotic effort to connect Central Asian natural gas supplies with Europe.
Nabucco, a proposed natural gas line intended to reduce Europe's reliance on Russia's Gazprom, has seemed to me until now primarily an American fixation. But it seems that the Europeans are obsessed as well -- and also a bit in denial. In a nutshell, there seems to be a serious need for a primer on Turkmen politics.
BURHAN OZBILICI,/AFP/Getty Images
Peak coal in China. First it was rare earths, now it's coal: Ravenous China is using so much coal that it's considering a cap on production of the fuel, writes David Winning in the Wall Street Journal. China accounts for some 47 percent of the world's coal consumption at the moment, and its 2010 imports of the fuel are already higher than all of last year. In fact, here is an area of unaccustomed Chinese global weakness: Wholly fixated on energy security to the extent that it's willing to burn domestic coal with abandon, China is facing a coal deficit -- it will run out of the fuel sometime in the next two to three decades at current rates of consumption, according to Winning's sources. The United States, meanwhile, has some 240 years of reserves, and India has about a century's worth. As a result, China may turn more fully to imports, while capping production at current levels.
The oil boom town of Havana? Moscow was Cuba's closest ally for decades until the Soviet collapse, when Russia simply didn't have the money any longer to support its foreign friends. Now, Gazprom is moving in to fill the gap. The Russian gas giant is joining a half-dozen other companies in a rush to explore for oil in Cuba's waters, writes the New York Times' Andrew Kramer. Since Gazprom has no actual experience drilling offshore, its oil arm, Gazprom Neft, has bought a 30 percent share of acreage controlled by Malaysia's Petronas, which will handle the actual work. Other companies drilling include Spain's Repsol, India's ONGC, Norway's Statoil, Venezuela's PdVSA, and Vietnam's Petrovietnam. China's Sinopec is working onshore in the country. No U.S. companies are present because of a 48-year-old trade embargo. President Barack Obama has been allowing a thaw in relations, but that is likely to slow given the composition of the new Congress, in which more members are opposed to closer contact with Havana.
Peak confusion. The Saudi kingdom is reacting to a fresh spate of reports predicting a waning of global oil supplies and a corresponding spike in prices. In a talk at Rice University, Prince Turki Faisal said that, regardless of China's and India's growing demand, Saudi Arabia will use its massive resources to keep global oil prices stable, according to Business Insider. "As the demand for oil continues to rise, especially in China and India, the kingdom has every intention of meeting that demand," Turki said. His remarks came the same week as an International Energy Agency report that conventional oil production has peaked, and higher prices are on the way.
Tony Hayward's next chapter. Run out of BP after mangling the company's public message during the Macondo oil spill in the Gulf of Mexico, former CEO Tony Hayward is setting up a private oil consulting firm, called 3E Capital, writes James Quinn of London's Daily Telegraph. Hayward is also serving on the board of TNK-BP, BP's Russian joint venture.
Tariff-supported ethanol industry boosts exports. The U.S. agricultural lobby and its congressional supporters have long argued that American corn ethanol producers cannot stand on their own feet -- they need a government subsidy, which currently stands at 45 cents a gallon. Yet it turns out that U.S. producers have been churning out so much of the fuel additive that there is a surplus, and they have been exporting this bounty at record volumes, writes Gregory Meyer of the Financial Times. Nearly four in 10 bushels of this year's corn crop will become ethanol fuel, according to the U.S. Department of Agriculture. Of that, government mandates add up to 12 billion gallons of the fuel, but the industry is on track to produce some 13.6 billion gallons this year, while Americans are driving less. So it is that, according to government data, the industry had exported some 250 million gallons of ethanol as of Sept. 30, more than double the entire figure for 2009. Rob Vierhout of ePure, a European ethanol trade association, said the subsidized exports are not fair, and that the group may seek to stop the United States from allowing them.
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.