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.

The green jobs debate: President Barack Obama is to tour a General Electric plant today and tout the era of green jobs, one of the primary mantras of his presidency. Yesterday, U.S. Energy Secretary Steven Chu said that the United States needs to get its "groove back" in order to compete in a green energy technology race, Darrel Samuelsohn reports at Politico. But is there in fact a massive number of green jobs waiting on the other side of the hill if the United States -- and the rest of the world -- goes that direction and creates a green-based economy? And, as a subtext, is China stealing that rainbow from Americans? At the New York Times, Harvard Professor Edward Glaeser argues that green energy will improve economic growth, but will not be a U.S. jobs-making machine for the average American. He says that low-wage Asian countries including China will always win the jobs game. Similarly, Michael Levi, writing here at Foreign Policy, argued that there is no clean energy race -- only the United States creating intellectual property, and the Chinese manufacturing the resulting products at low wages.

Coal vs. gas: BP released its annual 20-year energy outlook yesterday, and among the interesting topics was coal. The takeaway is that China will begin to burn less coal and instead use cleaner fuels to produce electricity; BP just can't say when that shift will occur. The subject is pivotal to the majority of the world that is convinced that the rise of global temperatures is problematic, because a major Chinese shift to natural gas-burning power plants will change global temperature projections. As it stands, China accounts for 47 percent of global coal consumption, a share that BP projects to rise to 53 percent by 2030. But that trend actually cannot hold, as we've discussed: Unless you believe that the Communist Party is suicidal, it understands that China's already-restive, smog-choked population will rise up and throw Party leaders out of office. The Financial Times' Kiran Stacey notes that the report projects a European shift to natural gas. This shift is accelerated not just by climate and other pollution concerns, but rock-bottom natural gas prices, which the U.S. Energy Information Administration this week forecast would remain under $5 per thousand cubic feet through 2022. Here is specifically what the BP report says: "There is a clear recognition within China that it needs to move away from its heavy dependence on coal. Environmental constraints (local air pollution as much as climate change concerns) and the rising cost of domestic coal resources are expected to curb Chinese coal growth." Again, timing is the issue. BP does not suggest a date when "China will begin making its "transition to less coal-intensive growth."

Oil price whiplash: For the last couple of weeks, we have heard frenzied talk of imminent $100 oil, with the usual implications -- global inflation, revived petrostate geopolitical demands -- all of it driven by Alaska's pipeline rupture and rising global demand as economic metrics improve. Oil sold according to the Brent benchmark was a particular target for get-rich-quick traders, who drove the price to $99.20 a barrel, its first time above the $99 mark since October 2008. The more widely used West Texas Intermediate benchmark stayed closer to $92 a barrel, but it, too, looked likely to puncture the symbolic three-digit price mark. Yesterday, the cavalry arrived. Traders seemed to realize that, though they may yet get there, it's not back to go-go year of 2008 quite yet. Brent prices dropped to $96.58 and WTI to $88.86, Bloomberg writes. One reason is that OPEC -- led by Saudi Arabian caution -- appears to have decided to throw up a firewall at around $100 a barrel; the Saudis recall everything that happened in 2008 -- not just the windfall profits of the rise of prices to $147 a barrel, but the painful plummet when consumers got fed up, stopped buying gasoline, traders panicked, and prices dropped to $32 a barrel. Never fret. Traders have another play -- the huge gap between Brent and WTI provides a gaming board on which to gamble before the main show resumes, as Izabella Kaminska writes at FT.

Pipeline mania: Europe has contracted a serious case of pipeline fever. European Commission President Jose Manuel Barroso made a pilgrimage to the Caspian Sea states of Azerbaijan and Turkmenistan to get their supply pledges for the proposed Nabucco natural gas pipeline to Europe. Turkmen President Kurbanguly Berdymukhamedov gave only the usual smiles and handshakes, writes Reuters' Marat Gurt, but Barroso got Azerbaijan actually to sign a paper expressing support for the line. Of course, as those who have followed the pipeline game for the last two decades know, there is a huge difference between a pledge and the construction of a pipeline. One can be safely skeptical about Nabucco. But Barroso is certainly committed to his cause. Next week, he welcomes Uzbekistan President Islam Karimov to Brussels and hopes to obtain a gas supply agreement from him, too. That has put Barroso a bit on the defensive, as Karimov has the worst human rights record in Europe at the moment. At European Voice, Andrew Stroehlein offers up some satire on that score. Barroso responds to the criticism by saying that it was NATO, and not he, who invited Karimov, Deirdre Tynan writes at Eurasianet.

With Hu Jintao in Washington, and China's clean energy manufacturing juggernaut among the thorniest subjects between the U.S. and China, Steven Chu is doing his part to bring down the temperature. In a decade or two, the U.S. energy secretary asserted at a joint dinner last night, the symptoms of climate change will become so apparent that they will wash away the divisive politics we currently see in the United States on the issue. Most everyone will agree there is a serious problem, and the discussion will turn elsewhere, specifically to How Can I Get Rich in Global Warming. And somewhere in the race for wealth, said Chu, the two countries can find collaborative common ground.

It was hard to discern how many people in the packed ballroom at the Mandarin Oriental Hotel bought all that. Friendship? Hard to say. There is much acrimony over China's green subsidies, and Beijing's assertion that the U.S. does the same thing. But if there is agreement between the sides, it's on Chu's point that there is the potential for incredible economic growth for the country that best manages the green-energy manufacturing space, huge sums of cash. As we have discussed previously, the advanced battery and electric car industries alone may become large enough to drive economies.

It seems to me that, given the stakes, it will be hard to collaborate seriously, as Chu suggests. Yet the show of comradeship was there.  Earlier yesterday, Wan Gang, China's celebrity minister for science and technology, called clean energy cooperation a potential "bright spot" in the two countries' relations, Reuters' Timothy Gardner and Ayesha Rascoe write. One possible area of cooperative business is the development of nuclear power - Bill Gates is talking up the deployment of a new U.S.-designed reactor in China that would not make it past U.S. regulators given years and years of trying, as Matthew Wald writes at the New York Times. If it's tried and works in China, it can be rolled out internationally.

The two sides orchestrated the signature of business deals. Yet one got the impression that at least some of this was of the Potemkin type - much nice talk without many of the details worked out. For example, Alcoa announced a $7.5 billion agreement to work with the China Power Investment Corp., but the sides actually have not agreed on any specific projects, nor any specific dollar amounts, Natalie Doss, Xiao Yu and Feifei Shen report at Bloomberg.

Chu, a Nobel laureate, said that some of his greatest scientific rivals have become his best friends. But he also noted a stark fact, which is that it's easy to be gracious once one wins the race: "The second person to say that E=MC2 doesn't get much credit." Which is why some of the rough edges can be shaved off, but the highly emotional atmosphere is likely to continue.

The math of BP's $7.8 billion share swap with Russia's Rosneft has been long clear: To survive as we know them, the major oil companies known as Big Oil must form serious tie-ups with their largely state-owned counterparts in the petro-states, and Western governments will have to go along with it. The difference now is the shock of an actual benchmark for the cost of such a marriage: 5 percent of your company. BP's example suggests that the titans of Chevron, ExxonMobil and Shell will think hard before similarly tying the knot because it would take few such covenants before one's shareholder structure is fundamentally changed.

In both the United States and Great Britain, politicians are asserting a possible nefarious geopolitical outcome from Rosneft becoming the largest shareholder in BP, which still obtains a quarter of its worldwide production from the United States. In a widely repeated remark, U.S. Rep. Edward Markey called BP "Bolshoi Petroleum"; in Britain, Labor Leader Ed Miliband said BP ought to be diversifying out of oil and not reinforcing its investment in fossil fuels. In addition, the Financial Times' Catherine Belton concludes that Russia scored a trifecta -- it for the first time won a stake in a member of the elite club of Big Oil; it demonstrated that its imprisonment of Mikhail Khodorskovsky -- whose oil assets make Rosneft as rich as it is -- is really no big deal; and Rosneft Chairman Igor Sechin, a confidante of Prime Minister Vladimir Putin who is usually described in dark terms by foreigners who deal with him, arose triumphant and with much prestige.

Is there reason for genuine concern outside Russia, or is this just the usual reflexive stuff we hear at the time of unconventional ownership agreements?

On paper, the deal is attractive: BP obtains access to an area of the South Kara Sea "comparable to the U.K. North Sea -- which contains some 60 billion barrels of oil and gas -- in terms of its size and potential," reports Guy Chazan of the Wall Street Journal. BP would own a third of the operating company that developed the reserves, for which it will cost up to $2 billion for initial seismic and drilling tests.

TNK, BP's long-time Russian oligarch-owned partner, has publicly reminded BP that, under their partnership, it has an option to participate in any such deal on Russian soil. A senior TNK source told me that the key factor in whether the oligarchs choose to join the Rosneft deal is the high expenses -- the billions of dollars in costs will be a mighty deterrent; one wonders whether BP in fact will end up having to carry Rosneft's expenses, as has often been the case in other oil deals on former Soviet soil.

Then, is the deal smart? After all, BP's neck is stuck out further than any of its rivals - it now will much add to the one-fourth of its global production currently obtained from Russia, probably making it, and no longer the United States, its most strategic geographical holding. I asked Nick Butler, a former BP vice president and senior strategic adviser to John Browne when he was CEO of the company. "I think I would sum it up with the motto of the British SAS: Who Dares Wins," Butler replied in an email.  

At the FT, Stefan Wagstyl notes that BP is doubling down on a place where it has competitive advantage, and on a technology -- deepwater drilling -- in which it has much experience. "The prize is worth it -- the Arctic is one of the last huge reservoirs of undeveloped hydrocarbon reserves," Wagstyl concludes. "It will be complex and costly, but if it weren't, Rosneft wouldn't need BP."

The Wall Street Journal's Liam Denning writes that, "The risks are high; this is Russia after all." But Denning also says that "the deal sends a powerful signal that newly installed Chief Executive Bob Dudley is remaking BP in radical fashion."

There are grounds for geopolitical concern to the extent that, like Italy's Eni, BP becomes a stalking horse for Russian policy abroad. As for BP's perspective, it is taking a mighty risk - we have previous examples of Putin showing a willingness to be open to dealmaking with foreigners at times, such as now, when he feels Russia is relatively weak economically, only to revisit them at a later date when the country is stronger. But BP as a company and Dudley as its CEO arguably are in a position where they must roll the dice or wither away as a major player.

Choose your allegory: the story of the woman who shouts at her husband, who then kicks the dog? Or the tale of who gets the $585 million? Which better explains the troubles of MTS, the Russian telecom company whose business has fallen apart in natural-gas-rich Turkmenistan?

In October, Russia's silver-tongued energy czar, Igor Sechin, flew down to Turkmenistan, and immediately ignited a firestorm by announcing that the country's natural gas (the world's fourth-largest reserves) wasn't needed in Europe -- Russia would handle that business. That sounded a lot like intimidation to Turkmenistan, whose main cash market has traditionally been Europe, and which relies on Russian pipelines to get its gas there. So it was that, in the subsequent weeks, Turkmenistan offered expanded gas shipments to China -- and informed MTS that it would not extend its five-year mobile phone license, which expired Dec. 21. Until then, MTS had some 2 million Turkmen subscribers, or 80 percent of the market.

That covers the dog allegory -- MTS suffered because of the dark and clumsy Sechin, who has used such blunt language as a matter of course while directing Russia's energy sphere for Prime Minister Vladimir Putin.

The alternative refers to the sum that MTS expects to lose over the next five years from the demise of its Turkmen business. One is tempted to blame Sechin, but as for myself, the latter best explains MTS's troubles. As I heard from a buddy whose business it is to watch Turkmenistan, "If you made me guess, it was because [the mobile phone business] is an awesome cash cow to get. Too much for those close to president's aides to resist."

In short, President Gurmanguly Berdymukhamedov's apparat wants the $585 million.

This should be no surprise to MTS, which is controlled by Vladimir Yevtushenkov (No. 93 on Forbes' list of the world's billionaires). (Pushing the dog-kicking metaphor further, Yevtushenkov's holding company, Sistema, yesterday launched a product called Glonass that challenges U.S. control of the GPS market, which drove Putin to crow that the technology targets "women so they can always know where their husbands are, identify their position precisely on the map," Reuters reports.) Yevtushenkov is no child. In Russia, the telecom business is superlatively brutal, and slash, burn, pummel, and sue have defined the route to success.

But someone needs to tell MTS that that's not how things work in Central Asia. In general, MTS has gone about its Turkmen problems all wrong. First, it's clear that the answer lay between the numbers 1 and 585 million, meaning how much of its revenue it was willing to share with the Turkmen. Perhaps the only figure the Turkmen would accept all along was 585, but one suspects that at some point, earlier in the game, the number could have been smaller. Judging by a talk with an MTS representative yesterday, and by MTS press releases, the company was simply out of its depth: Come November and December, MTS thought it was still negotiating, even though the game had shifted dramatically.

Then MTS compounded its error -- it immediately filed a complaint with the International Court of Arbitration in Paris. Yesterday, Joshua Tulgan, MTS's director of investor relations and acting director of corporate finance, sought political support in Washington, making the rounds of the State Department and Congress to lay out MTS's complaints. I met with Tulgan over coffee.

Tulgan explained the injustice of MTS losing out after investing $200 million in Turkmenistan, plus the injustice to its 1,500 employees in Turkmenistan. But I kept thinking -- and told Tulgan -- about the disconnect between what he was saying and how business is really done in Turkmenistan. There simply is no record that I know of in which an aggrieved foreign investor achieved its aims in foreign arbitration -- Turkmenistan doesn't recognize any such body, and even if it did, it wouldn't necessarily comply with any foreign judgment. Furthermore, gripes from Washington and other foreign capitals have traditionally been ignored in Ashgabad.

Instead, if Turkmen grievances are resolved, it is usually done in the sauna, over vodka, and over a cash split. You work your contacts. Tulgan said that his guys had a lot of experience in Turkmenistan, a "different experience" from my own. Fair enough. But he also said that Turkmenistan has the world's second-largest gas reserves (it has the fourth); that Turkmen landlines and Internet don't work, so that without MTS the country was left isolated (Turkmen landlines work just fine, as does its Internet); that without Russia, Turkmenistan has no alternative natural gas export route (Turkmenistan ships gas through China and Iran as well), and also that MTS is not a Russian company (no comment). Basically, Tulgan doesn't know much about Turkmenistan.

Which returns us to a basic rule of frontier investment: One can get into an ultra-emerging economy like Turkmenistan and earn a bonanza, but eventually locals will catch on to the largesse and want much more -- or all -- the business themselves. So one has to have a ready exit strategy.

As we've discussed, that's been the case with fuel sales in Kyrgyzstan, and Big Oil's experience in Russia. Now it's MTS's turn.

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:

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.

Read on

Up or down? Oil spent much of last year climbing, climbing until the irrationally exuberant among us began to rub their hands together with glee (that would be the traders). This week, the market placed a speed bump in the road to $100-a-barrel and beyond. Today, oil closed with its biggest one-week fall in five months, plunging to $88.03, Bloomberg reports. As we discussed earlier this week, prudence is called for in the oil markets. Traders might want to look at some arbitrage between crude varieties, however -- that $88.03 price refers to West Texas Intermediate. Brent crude is selling at a $5 premium, closing at $93.44 a barrel, notes Gregory Meyer at the Financial Times.

The trouble with subsidies: In response to a demand from the International Monetary Fund, Pakistan raised the price of gasoline by about 9 percent on New Year's Day. Eight days later, the government reversed the increase. In between those two moves, Punjabi Gov. Salman Taseer was assassinated, a key government ally pulled out of the government, and there was general mayhem in the street. I discuss this in an interview at CNN. A lot of the turmoil stemmed from a poisonous debate over the country's so-called blasphemy law, which prohibits insults against the Prophet Mohammed. But the gasoline subsidy was also a primary player in the turbulence, which may yet return. The IMF wants the subsidy lifted as a condition of providing $11 billion to Pakistan. But a subsidy, once given, is hard to take away.

Price of the spill: President Obama's Gulf oil spill commission returned an early verdict on last year's massive blowout in the Gulf of Mexico, with a stinging rebuke of BP and its partners in the Macondo well. As is usually the case with such reports, one could read into it almost whatever one wished to. That might explain how Wall Street treated the report. The shares of both BP and Transocean ended the week just about where they were before the report was issued, as though investors in the aggregate couldn't decide whether the results were good or bad for the companies.

Electric spying: The world's electric-car combatants take their war seriously, the French no less than the Chinese, the Americans, and the Japanese. So it is that Renault suspended three senior managers for allegedly passing on secrets about the company's electric car plans to China. Renault is partners with Nissan, whose Leaf was launched last month. The probe has been ordered all the way up the chain of command, by President Nicolas Sarkozy himself, the Guardian's Kim Willsher reports.

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.

Birol can't be ignored, and recovering global demand has most analysts agreeing with him. Yet, as this blog did last month, let's also consider the less-excited voices.

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.

Finally, Joseph Meyer, a current bull who writes over at Seeking Alpha, messaged yesterday to correct an O&G post quoting him on oil prices:

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.

Whither Ahmadinejad: Has it been a good or bad year for Iran President Mahmoud Ahmadinejad? A mysterious computer worm called Stuxnet confounded the work of Iran's nuclear centrifuges; unknown assassins targeted Iranian nuclear scientists; and Iran was forced to slash fuel subsidies in the face of tighter western banking sanctions.  But whether Ahmadinejad's political power waned is another matter. As Bruce Walker suggests, history is replete with leaders making hay while crippling their country. Meanwhile, one of the few nations still officially doing business with Iran - India - joined those tightening a financial grip on the country, Lydia Polgreen and Heather Timmons write at the New York Times. India conducts some $11 billion a year in oil and gas trading with Iran, but now India's central bank has halted the use of a key method of making payments for the fuel, known as the Asian Clearing Union.

The Greenhouse Gas Conundrum: One victim of 2010 was climate science. The second-biggest emitter of CO2 on the planet, the United States, opted out of internationally negotiated mandatory carbon cutbacks, reversing what had appeared to be sure passage of legislation that for the first time would put a price on carbon emissions. As the year wound down, the Obama Administration advanced a detour strategy of which it had warned since it took power two years ago: If Congress would not regulate carbon emissions, the White House would do so administratively through the Environmental Protection Agency.  As John Broder reports in the New York Times, EPA regulation begins to take effect Sunday. Yet, that strategy, too, will face a collision with new U.S. politics - the strengthened potency of the Republican Party, vocally powerful swaths of which question the science underlying climate policy.

The Power of the Energy Market: China, holding a corner on the market for rare-earth elements, in 2010 began to slowly capitalize on that leverage to squeeze technology-based countries around the world. This story - one of the most important economic developments of 2010 - looks likely to overlap into next year, as Japan and South Korea are especially reliant on the rare-earth minerals for their key export industries including advanced batteries, solar and wind. Next year, China will cut exports of the 17 elements by another 11 percent, calling it a move against illegal mining. At the New York Times, Keith Bradsher writes that the folks doing the actual mining are often the victim of gangsters who control China's rare earths black market.

Gas, Gas, Gas: The most important wild card in global energy is natural gas, as we learned in 2010. A ramp-up in shale gas production in the United States shook Europe, and reduced Russia's gas-fueled hold over the continent, as this blog reported. Next year looks likely to carry the trend forward. Many analysts think that environmental concerns such as water pollution make it unclear how much shale gas will end up actually produced. But the market thinks otherwise - 2010 was marked by tens of billions dollars in domestic and foreign investment in the U.S. shale gas patch. As Telis Demos reports in the Financial Times, 2011 is shaping up similarly, as BHP Billiton may buy Anadarko Petroleum, one of the biggest shale-gas players in the world. A new venue for the gas frenzy is Israel, Charles Levinson and Guy Chazan report in the Wall Street Journal. This week, Noble Energy confirmed that it had found 16 trillion cubic feet of gas in a field called Leviathan underneath the Mediterranean Sea, "the world's biggest deepwater gas find in a decade, with enough reserves to supply Israel's gas needs for 100 years," Levinson and Chazan report.

Happy New Year, Matt Bryza:  Matthew Bryza's wait has seemed interminable, but this week he got what he had sought patiently: the ambassadorial post in petro-state Azerbaijan. This blog has chronicled Bryza's woes as he battled State Department intramurals (insiders who thought Bryza's rise was too fast) and local politics (Armenian groups who thought him too glib on the question of the 1915 massacre of Armenians in Turkey). All that comingled with poisonous election-year politics to confound Bryza's Senate confirmation, as two senators up for re-election (Barbara Boxer in 2010 and Robert Menendez in 2012) and vulnerable to Armenian politics placed holds on his nomination. But, as James Morrison reports in the Washington Times, President Barack Obama included Bryza on his list of recess appointments. The appointment allows Bryza to serve for a year while the White House attempts to navigate Senate politics.

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.

Read on

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.

Read on

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.

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.

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."

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