The last time we heard from Russell Zanca, a Central Asia expert at Northeastern Illinois University, he was reporting on the failures of Uzbek President Islam Karimov. Here Zanca suggests where the United States should go from here.
-- Steve LeVine
For some two years, U.S. diplomatic efforts in Uzbekistan have been oriented toward ensuring that the Uzbeks allow the U.S. military to transport all manner of supplies to Afghanistan safely and cheaply, an alternative to poorly safeguarded routes through Pakistan. As a result, the United States is loath to complain of the Uzbek regime's continued cruel behavior toward its population -- if it does, the risk is that President Islam Karimov, as he did in 2005, asks the United States to leave his country.
If the United States were expelled, would we completely compromise our effectiveness in Afghanistan? Alternative supply routes are few: Turkmenistan has the most to offer in terms of geography and terrain, but the United States has never enjoyed ideal relations with the Turkmen, who make matters difficult with their official policy of "neutrality." Tajikistan is also impractical -- infrastructure such as railroads and roads are undeveloped, its mountains are in the way, and it has too many Russian troops on its soil. With Uzbekistan, the U.S. trades one tyranny for another -- liberating the Afghans while leaving the Uzbeks at the mercy of Karimov -- but it also gets an excellent road-and-railroad network between Termez and Mazar-i-Sharif, along with friendly relations with the Uzbeks of northern Afghanistan.
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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.
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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:
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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.
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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.
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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'?"
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.
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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.
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In my archive of all-time great oil pieces is a 2002 opus by Norimitsu Onishi in the New York Times which, in addition to taking us deep into the Niger Delta, noted the country's rise from backwater to crucial U.S. strategic interest. Following 9/11, the Bush administration had launched a systematic effort to shift U.S. oil dependence from the Persian Gulf to Africa. From 15 percent of the U.S. supply, the Bush administration aimed for Africa to supply a full quarter of U.S. oil by 2012. Nigeria would be the biggest component, adding a million barrels a day to its production of 2 million barrels a day of among the lightest, most valuable petroleum on the market.
Today, the United States is nowhere near that target. Africa supplies about 18 percent of total U.S. oil imports, or just 11 percent of total consumption. Of that, Nigeria supplies only about 960,000 barrels a day, equivalent to 10 percent of U.S. imports, or 5 percent of total daily consumption.
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James Giffen, the oil dealmaker at the center of what was once the largest foreign bribery case in U.S. history, is officially a free man.
The 69-year-old former oil adviser to Kazakhstan's president, accused of diverting $78 million from oil companies to the Kazakh government, waited out more than a dozen federal prosecutors and sat through some two dozen court appearances and five trial dates over the course of seven years. Today, the effort paid off. Three months after prosecutors announced a stunning capitulation, dropping all foreign bribery, money laundering, and fraud charges against Giffen in exchange for a guilty plea on a misdemeanor tax charge, U.S. District Judge William Pauley ordered no prison time and no fines in sentencing proceedings at a Manhattan courthouse.
In handing down the non-sentence, Pauley seemingly validated the argument to which Giffen's lawyers had clung since 2003: that whatever crimes Giffen had allegedly committed occurred while he was a highly valued foreign asset of the American intelligence. "Suffice it to say, Mr. Giffen was a significant source of information to the U.S. government and a conduit of secret information from the Soviet Union during the Cold War," Pauley said today.
Giffen may have been lesser-known than the other businessmen-cum-criminal-defendants of recent decades, but he was equally colorful, a swaggering, coarse-talking, heavy-drinking womanizer and a charismatic fixture on the Caspian Sea. He arrived in Kazakhstan in 1992, but the trajectory that ultimately landed him there began in 1969, when he started traveling to Moscow as an aide to a Connecticut metals trader. Giffen worked his way up to become a major player in a U.S-Soviet business association with top-level political ties in both Washington and Moscow. When the Soviet Union collapsed in 1991, business in Russia dried up, and Giffen moved on to Kazakhstan, which was quickly becoming one of the hottest oil plays on the planet.
Giffen managed to ingratiate himself with a man he called The Boss: Kazakh President Nursultan Nazarbayev. He became Nazarbayev's chief oil negotiator and, prosecutors alleged, his personal banker. While honchoing some of the era's biggest oil deals, he also diverted some $78 million in payments made to Kazakhstan by now-dead companies like Mobil, Amoco, and Texaco into Swiss and other bank accounts that he set up in the name of Nazarbayev, other senior Kazakh officials, and their relatives, prosecutors alleged. (U.S. diplomats said that Nazarbayev, an unindicted co-conspirator in the case, so dreaded being tarnished by a Giffen conviction that both he and his envoys pleaded repeatedly for the George W. Bush Administration to order the case dropped.)
The case seemed open and shut, since the prosecutors presented a detailed paper trail -- provided by a Swiss magistrate -- of Giffen slicing payments into tiny discrete pieces for transfer into secret Swiss bank accounts, rather than shifting them as a whole, a classic method of money laundering. Even at their most voluble and expansive in court, Giffen's lawyers made no attempt openly to dispute the prosecution's facts. They simply kept repeating that, whatever Giffen may have done, he was taking orders from the Kazakh government -- a sovereign state entitled to its own ideas of legality -- and otherwise serving the patriotic interests of the Central Intelligence Agency.
It was an audacious defense that many thought verged on the preposterous. For one thing, CIA officers of the era deny that Giffen was anything of the sort -- he walked into CIA headquarters on his own volition and talked to agency officers about Kazakhstan, they said, but that was very different from being a trusted asset on an informal assignment. In short, they asserted, Giffen was simply another dude talking.
The CIA, however, appears to have refused to hand over many -- if any -- documents sought by the defense. Judge Pauley had ruled that such documents were obligatory if Giffen were to have access to his rights to adequately defend himself. So the prosecution was left with having to drop the charges.
In his sentencing remarks, Pauley said that he had had access to classified documents that no one else in the courtroom had seen, and that they largely validated Giffen's claims. "He was one of the only Americans with sustained access to" high levels of government in the region, Pauley said. "These relationships, built up over a lifetime, were lost the day of his arrest. This ordeal must end. How does Mr. Giffen reclaim his reputation? This court begins by acknowledging his service."
In the weeks before President Barack Obama took his oath of office, Exxon Mobil CEO Rex Tillerson determined to get a march on the new, less greenhouse-gas-emitter-friendly world that he and almost everyone else believed was coming, in the form of some sort of carbon-trading system. Tillerson was so certain of facing this new set of circumstances that he went to Washington to push publicly for something that Exxon opposed constitutionally: A straightforward tax on carbon.
As we all know now, the political sausage machine on Capitol Hill chewed up cap and trade, and the conventional wisdom now is that if such a system ever does materialize, it may be decade or more down the road. So it's surprising to find that Tillerson's lobbying wasn't just a matter of short term political triage -- he actually believes this stuff.
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Worries about geopolitical bogeymen can overwhelm good sense. Case in point: today's melee over the discovery that Iran has been regularly handing Afghan President Hamid Karzai fistfuls of cash. Just who is Tehran endangering by keeping Karzai lubricated with pocket change? For one, the fellows U.S. troops are fighting: the Taliban. Karzai calls the payments "normal," and he is right. In the case of Afghanistan, Iran is in effect a U.S. ally.
It's useful to keep in mind that Iranian influence in Afghanistan is traditional. The two countries share a language, after all -- making it easy for the Iranians, for instance, to be particularly close to the leaders of the populous Herat and Balkh provinces, in the west and north of the country. Since the mid-1990s, the Iranians have served a useful balancing purpose to the Pashtun Taliban.
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The rare earths imbroglio continues. The New York Times' Keith Bradsher has another report on the slowdown of rare-earth exports from China: This time, he wrote, the flow of the strategic elements has slowed to not just the United States but also Europe. The Obama Administration ordered an investigation into the report. Two weeks before the U.S. mid-term elections -- in which the dastardly Chinese are already emerging as a popular bogeyman -- the elements are likely to come up as a political issue.
Sanctions tighten on Iran. The United States succeeded in further tightening oil sanctions on Iran this week, when Japan's Inpex said it would join European companies and halt its relationship with Tehran, which Washington is attempting to push to the negotiating table over its nuclear development program. (The Iranian government, meanwhile, played down Inpex's announced withdrawal from development of the Azadegan natural gas field.) That now leaves China as the last major country with significant energy investments in Iran, John Pomfret reported in The Washington Post.
Did Britain just institute a carbon tax? Earlier this year, Britain's Department of Energy and Climate Change launched a carbon emissions reduction policy that would have levied a pollution charge -- about $22 per ton of carbon -- on Britain's 4,000 biggest energy users, then paid the money back to the same companies in the form of energy efficiency incentives. It was a revenue-neutral approach -- until Wednesday, when the government quietly decided to keep the money, on the order of $1.58 billion a year. David Roberts at Grist explains.
China braces for a flood of LNG. If you want to gauge how much liquefied natural gas a country plans on using in the coming years, look to the shipyards. Case in point: The Chinese shipbuilding company that has built all of China's LNG tankers to date is ramping up its tanker construction efforts in preparation for what it anticipates will be a quadrupling of LNG imports between now and 2015, one of the company's top executives told Bloomberg News on Thursday. China's LNG consumption, if it lives up to the current projections, will have ramifications far beyond the country's shores -- just ask the companies building pipelines in Alaska.
Another $1.5 billion for biofuels in the United States. After the collapse of efforts to pass cap-and-trade legislation and hopes fading for even more modest renewable energy legislation, these are not the best of times for the clean energy industry in Washington -- unless, of course, you're in the biofuels business. Reuters reports that the U.S. Department of Agriculture is throwing another $1.5 billion at the industry in an effort to meet congressionally mandated targets for the production of still-commercially-unproven advanced biofuels by 2022. As for the 54-cents-a-gallon tariff on imported ethanol -- a reliable source of teeth-grinding for Brazil's government and sugar cane industry -- Agriculture Secretary Tom Vilsack says it's probably sticking around, though it's likely to be phased out in the future. File that in the "I'll believe it when I see it" folder.
Chevron drills deeper. Well, that didn't take long -- barely a week after the Obama administration lifted its moratorium on deepwater drilling in the Gulf of Mexico, Chevron announced Thursday that it would develop two fields in the Gulf estimated to contain some 500 million barrels of oil. The project is pegged at $7.5 billion, and would involve drilling wells deeper than BP's ill-fated Macondo operation. "In the end, the United States needs the oil and gas and other countries need the oil and gas, and some of the best places to explore are deepwater environments," Bobby Ryan, Chevron's vice president for global operations, told the New York Times' Clifford Krauss.
The supply of so-called strategic rare earth metals -- needed for wind turbines, advanced batteries, disc drives, flat-screen TVs, and smart bombs, among other things -- has definitely either slowed or stopped from China. The question is why: Has China cut off Japan in a pique of ill-will triggered by festering resentment over World War II or over the maltreatment of a fisherman? Is the U.S. now suffering because it has dared to challenge China's clean-energy industry subsidies? Or are there more benign reasons, such as the possibility that widely announced quotas for the minerals have run out in the late part of the year?
Chinese Premier Wen Jinbao says that China isn't using its near rare-earths monopoly as a "bargaining chip," China Daily reports. Beijing also says it is not violating its pledges under the World Trade Organization, as the Financial Times' Leslie Hook and Mure Dickie write.
The rare-earth hullabaloo is reminiscent of the alarm bells raised over Middle East control of oil -- it is inherently concerning, after all, when one country or a set of countries wield leverage over a desperately and widely needed product. The more so when those holding that near-monopoly shrink the product's availability, as China has done. China retorts that it's a bunch of Sturm und Drang: It is not embargoing anyone, and if shipments are down, it is because China must husband a limited resource, protect its environment, and supply its own industries.
A few days ago, the United States responded to a United Steelworkers suit by announcing an investigation of China's alleged gargantuan subsidizing of its clean-energy industries -- something regarded by many countries, including China, as a strategic priority. Today we get China's apparent reply: Beijing is cutting off its exports of rare-earth minerals to the United States, according to the New York Times' Keith Bradsher.
The 17 rare-earth minerals are crucial to the manufacture of high-tech products such as advanced batteries and flat-screen televisions, and in military equipment such as missiles and jets. China mines about 95 percent of the world's rare earths.
The news comes the same day that China announced that it is further reducing the export of the minerals to all countries next year. In July, Beijing said it would reduce its rare earth exports by about 40 percent. Next year, it's set to reduce that volume by another 30 percent, according to another report by Bradsher.
The issue of rare earth availability has alarmed numerous companies and countries. Japan got cut off Sept. 21 after one of its naval cutters arrested a Chinese fisherman for ramming Japanese patrol boats. Since then, several companies have announced plans to accelerate the re-opening of rare earth mines in Australia, the United States, Mongolia, and Kazakhstan, but bringing such projects to fruition can take years.
This latest move significantly escalates a steady increase in economic and trade moves by both countries. If confirmed, the Obama administration might have no choice but to reply with some similar action, particularly given the poisonous mid-term election atmosphere in the United States.
CNOOC, Statoil Invest $1 billion in south Texas' Eagle Ford oil shale. Guess who will be scrutinized and who won't? The betting is that the Chinese National Offshore Oil Corp. will not suffer another fiasco like in 2005, when it lost in its attempt to land Unocal. This time it will manage to hold on to its investment, in this case a $1.1 billion buy-in into the scorching hot shale bonanza. Yet some analysts say that election-year jingoism in the United States could again leave China out in the cold. Ditching the deal will be difficult, however, since it was announced on the same day -- Oct. 10 - that Norway's Statoil unveiled its own, $1.3 billion deal with Talisman involving another section of the Eagle Ford field. Given the continued interest of U.S. energy companies in China, the Administration and Congress may have to tough out any instinct to scuttle the CNOOC project.
IEA Bumps Up Oil Demand Forecast for 2010, 2011. The Paris-based International Energy Agency lent credence to those who believe that the global economy is slowly recovering with its much-watched oil report. The agency said increased demand in both developing and industrialized countries means the world will use 86.9 million barrels a day this year, 300,000 barrels a day higher than previously forecast, and a full 1.5 million barrels a day more than last year's recessionary pullback. Next year, the IEA predicts, demand will rise another 1.3 million barrels a day. What does this mean? Not lower gasoline prices at the pump, that's for sure. Possibly, however, that the record inventories of oil around the world will start falling, and put a floor under what this year has been a volatile market. Reports by Deutsche Bank, France's Total and a couple of think tanks have foreseen comparatively high oil prices headed into the middle of the decade, before falling again, and this could be the start of that climb.
Oil: another target in the Afghan war. Militants linked to the Taliban have spent much of the last 10 days or so blowing up NATO oil and fuel tankers plying routes from Pakistan into Afghanistan. Today there was another attack in the Khyber Pass leading from the Pakistani city of Peshawar into eastern Afghanistan near Jalalabad, where two died in an attack on a NATO fuel truck. It is a time-tested strategy -- war combatants have been targeting each other's fuel supplies ever since Winston Churchill triggered the age of strategic oil just before the outbreak of World War I. Over at Wired's Danger Room blog, Katie Drummond writes of a three-mile-long jam of NATO fuel trucks on the very same route (the piece includes must-see satellite images of the bottleneck by DigitalGlobe).
Moratorium lifted in the Gulf of Mexico. Taking no chances with control of Congress on the line in Washington, President Barack Obama lifted a moratorium on drilling in the Gulf of Mexico more than a month before scheduled. Six months after five million barrels began spilling into the Gulf from BP's Macondo well, the administration said that oil companies again can drill in both shallow and deep water, though under a tighter regulation regime, and with more surprise inspections. At Investing Daily, Jim Fink calls it Obama's "October Surprise." But Obama was wrong if he thought the move would silence the hecklers. Over at the State Column, a still-dissatisfied Louisiana Gov. Bobby Jindal took a swipe at Obama and his "harsh," "job-killing," "arbitrary," and "capricious" decisions regarding the Gulf.
Is China still sore over the humiliation of tuna fisherman Zhang Qixiong? Is it China's 32 rare-earth metals exporters -- are they, as Chinese Commerce Minister Chen Deming suggests, so wound up over Japan in general that they have decided collectively to strangle Japan's electronics and hybrid-car industries, as Keith Bradsher and Edward Wong report at the New York Times?
China's ban on the export of the 17 so-called rare-earth metals -- indispensable as of now in the manufacture of high-tech products like wind turbines, advanced batteries and flat-screen TVs -- has now passed three weeks in length. Chinese Prime Minister Wen Jiabao says this isn't political: Beijing, he says, isn't attempting to demonstrate its dominance over Japan. That sounds right. Instead, this looks like standard economics.
What hasn't received much attention is that, while no rare-earth metals have gone -- at least legally -- to Japan since Sept. 21, China has continued to freely export finished products such as advanced magnets in which rare-earths are embedded.
Beijing Review has an interesting interview with Lin Donglu, of the Chinese Society of Rare Earths, and Wang Hongqian, of China's Foreign Engineering and Construction Co. In it, the two men discuss China's efforts to develop advanced rare-earth industries, and not be simply a raw-materials supplier to the world. They also cite western complaints about China's hardball incentives for western companies to relocate in China -- these companies are facing restrictions on rare earths that they can import, but are offered all the metals they wish, at lower prices, if they move their factories to China.
This may explain the China-Japan rare-earths standoff: Beijing is signaling more forcefully now that, if Japanese companies want broad access to rare earths, they should move to China, or buy their rare-earth components from Chinese companies.
Beijing is telling companies in the rest of the world the same thing: You could be next.
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Add another country to the short list of former Soviet nations holding free and fair elections. Yesterday, Kyrgyzstan held a parliamentary election, and by all accounts there was little if any rigging from the top. (The neighbors in the same club are Georgia and Ukraine, in addition to the Baltics. Russia held a local election yesterday, too, with the traditional results: The pro-Putin bloc won.)
But it's also a perhaps more important first for the former Soviet space: Kyrgyzstan jettisoned the strong president model, and shifted to a parliamentary system. The United States may lose its military base, but, if successful, Kyrgyzstan will demonstrate that autocracy isn't the only workable ruling model in the region.
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Tianjin climate talks get underway -- but does anyone care? A new round of international climate talks opened on Monday, as delegates from 177 countries met in the northeastern city of Tianjin for preliminary discussions on a carbon emissions agreement to replace the Kyoto Protocol, which is set to expire in 2012. The talks are to be followed by a more formal climate summit in Cancun set to open on November 29, and the Tianjin meeting was a chance for delegates to discuss the complex legal framework and cost estimates that will come with instituting a global emissions reduction scheme. The finger-pointing that plagued the abortive Copenhagen talks last December resurfaced, as Chinese officials accused developed countries of not doing enough to reduce their own carbon emissions and argued that those countries should accommodate the growth of emerging economies such as China. The conference stalled as Beijing repeatedly refused to discuss a global emissions reduction scheme, favoring a system of varying individual commitments. Although China has great ambitions in clean energy development, it has long been reluctant to adopt any globally-binding set of carbon reductions for fear of curbing its economic growth.
Shale gas boom could turn U.S. into exporter. The U.S. is continuing to experience a shale gas boom, as companies sunk $21 billion into the shale gas investments for the first half of 2010, according to a report by consultancy Wood Mackenzie. High-profile investments in gas have also come this week, as Barclays paid $1.15 billion for some of Chesapeake Energy's shale assets and General Electric announced its $3 billion acquisition of Dresser, which makes gas engines used in natural gas production. As new extractive technologies have made shale gas commercially viable, U.S. gas supplies have continued to grow ever larger, pushing prices down to some of their lowest levels in the last decade. But despite the adverse pressures of a domestic gas glut and low prices on U.S. gas production, companies are eager to enter the market for what they see as a potential growth prospect. As Sheila McNulty reports in the Financial Times, that growth could come increasingly from U.S. natural gas exports, as some companies are already looking to refit expensive liquefied natural gas import terminals for export. Natural gas exports would give a boost to U.S. gas producers by raising the price slightly at home and thus discouraging cutbacks in production. While natural gas prices in Asia remain high thanks to strong demand, U.S. gas exports could join those from Russia, Qatar, and Australia in bringing down world natural gas prices for years. The upside from this domestic gas glut? Lower prices could see gas continue to become a highly attractive and cleaner alternative to coal and oil as a power source, though admittedly, as McNulty writes on the FT's Energy Source blog, U.S. energy policy and infrastructure have a way to go before that happens. So for now, look for exports to be the path to profitability for U.S. gas producers.
First U.S. wind farm finally moves forward. The Cape Wind development off the coast of Massachusetts, the first U.S. offshore wind farm project, cleared the last regulatory hurdle this week nine years after it was submitted for approval, as Interior Secretary Ken Salazar signed the federal lease for the project on Wednesday. The project is expected to generate enough electricity to power 400,000 homes, but it had faced stiff opposition from wealthy landowners and local businesses on Cape Cod and neighboring islands. The Obama administration is expecting news of the project's green light is shore up its commitment to green energy, particularly after an accompanying announcement this week that the Interior Department has approved the first solar power plants to be constructed on federal land.
How the Senate energy bill was lost. Ryan Lizza at the New Yorker has a detailed and comprehensive piece out this week chronicling the failure of the Senate's climate change bill. According to Lizza, the Senate and the Obama administration had a golden opportunity to pass a comprehensive climate change bill in 2009 and early 2010, especially as bipartisan support in the Senate seemed likely. Sens. John Kerry, Joe Lieberman, and Lindsay Graham had formed a working partnership to getting a bill passed. But the bill foundered as the administration's commitment to climate change took a backseat to healthcare reform, and the White House repeatedly gave up concessions -- such as an easing of offshore drilling restrictions in March -- that the three senators had planned on using as bargaining chips to attract Republican support. The bill was further strained by the influence of utility special interests, and as the political atmosphere ahead of the midterm elections turned increasingly partisan, the partnership at the heart of the bill ultimately disintegrated.
Oil continues rally to new highs this week. Crude oil remained above the $80 mark this week, reaching five-month highs above $83 a barrel on Wednesday and Thursday before declining late Thursday. Crude rebounded on Friday, currently trading at $82.56 per barrel in New York. The price climb has been driven primarily by a weak dollar, which hit a 15-year low against the Japanese yen this week. Contributing to the dollar's decline was speculation that the Federal Reserve would act soon to print more money in order to bolster the economy, a procedure known as quantitative easing. The release of the Labor Department's jobs report on Friday, which detailed no change in the unemployment rate for September 2010, only fed that speculation, lessening the appeal of the dollar and boosting the appeal of crude, which are denominated in dollars and become attractive when the currency weakens. As OPEC prepares to meet next week in Vienna, the cartel is unlikely to respond to the recent price rise by increasing production quotas.
Some of the big U.S. newspapers -- the Wall Street Journal, The Washington Post -- are unhappy with how ambassador-designates are being treated in the vetting process for posts in the oil- and geopolitics-soaked lands of Eurasia.
U.S. designees to this region are, in fact, experiencing unusual turbulence. In the midst of the turmoil that has engulfed Kyrgyzstan over the last few months, Tatiana Gfoeller will be replaced as U.S. ambassador by Pamela Spratlen, currently the deputy chief of mission in Kazakhstan. An unexplained bureaucratic snafu is preventing Douglas Hengel, a deputy assistant secretary of state, from occupying the long-vacant slot in Turkmenistan. And Frank Ricciardone's move to the embassy in Ankara is being held up in the Senate, as my colleague Josh Rogin has written.
Yet the main reason for these newspapers' angst is the ambassador's post in Azerbaijan, which has been empty for some 14 months now. Perhaps not since the kitty-cat John Bolton was nominated to the United Nations has a designee attracted at turns such adoration and venom as Matthew Bryza, the choice of the George W. Bush and now the Obama administrations for the Baku post, as Laura Rozen has reported at Politico.
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Who is Vladimir Putin trying to impress with his various feats of machismo in recent months: The Russian populace, or his own inner circle?
In today' Moscow Times, Vladimir Frolov, a government relations consultant, argues that Putin's current road show is not aiming to return to the Kremlin. Newsweek's Owen Matthews stakes out a contrarian posture as well, writing that Russian President Dmitry Medvedev is no longer simply Putin's protégé, but his own man -- and one who is definitely running for a second term, whether Putin likes it or not. Similarly, Charles Clover suggests in the Financial Times that the earnest Medvedev is a fashionable fellow, what with his insistently edgy notions of finally helping Russia make a true leap into modernization.
News loves to zag after zigging for awhile, and I myself continue to believe that Putin will decide the identity of Russia's next president, and that he will choose himself. But these writers by implication remind us of a much-disregarded fact of autocratic life: No strongman rules in a vacuum. They each have their own elite circle that they must bring along with them, using such tools as fear, charm, love and persuasion. Indeed, some of the most engaging leaders I've met have been autocrats: Pervez Musharraf, Najibullah, Heydar Aliyev, and Nursultan Nazarbayev among them. Colleagues who interviewed Ferdinand Marcos and Zia ul-Haq were bowled over by the charm.
In Putin's case, the tool of autocratic politics is the populism of the whale and tiger hunt.
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The United States is at war in Afghanistan and Iraq. It is trying to make peace between the Israelis and the Palestinians. Washington's relationship with Russia is still fragile.
Thank goodness for the annual United Nations General Assembly, a place to meet casually, massage some shoulders, and point fingers at some chests -- in short, an opportunity to get much important business accomplished efficiently. Since time is short, and demands for face time high, fixing the bilaterals can be tricky -- these are the few people a U.S. president chooses to grace with direct, one-on-one chats. Basically there are five such meetings. But such matters are ironed out with diplomacy.
So who are President Barack Obama's bilateral five this Thursday and Friday? If you guessed Azerbaijan's Ilham Aliyev and Kyrgyzstan's Roza Otunbayeva, you would be correct (oh, and also China's Wen Jiabao, Japan's Naoto Kan, and Colombia's Juan Manuel Santos.).
How is it that two of the ‘Stans won the beauty contest? Bluntly speaking, it's because of their status as war entrepots.
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We know Iran as a nuclear story -- Israel, the United States, and much of the rest of the West are convinced that Tehran is uncomfortably close to deploying a workable atomic weapon, while President Mahmoud Ahmadinejad delights in tweaking his detractors with, at turns, vows to continue the country's nuclear activities, and to attack Israel. The latest installment is a dust-up over access rights for international inspectors.
But Iran is also an energy story. The United States spent much time trying to prevent Iran from activating its long-in-the-works Bushehr nuclear power station, which, with Russian expertise, will begin to produce electricity in the next month or so.
Having lost that game, the Obama administration is working to shut down Iran's life-blood oil and gasoline complex, testing whether the Iranian government is prepared to sustain an economic body blow -- and thus risk local public support -- in order to preserve its presumed nuclear program. The Financial Times' Roula Khalaf reports that the U.S.-advanced sanctions are biting: Iran is being forced to stop making potentially crucial chemicals, and instead convert those plants to gasoline production. Likewise, Javier Blas reports in the FT that banking and shipping restrictions are making it harder for Tehran to sell its oil abroad.
But let's face facts: Around the world, nuclear weapon capabilities play well to domestic audiences -- in India, Israel, Pakistan, and in Iran. So does confounding the desires of great powers. Karim Sadjadpour, of the Carnegie Endowment for International Peace, told Khalaf that a plummet in oil prices under $50 a barrel might turn Iran's head, since it wouldn't be able to pay its bills. There is something to that -- Vladimir Putin and Hugo Chavez have become more agreeable negotiating partners when oil prices have dipped. But given Ahmadinejad's record, and his apparent support within the senior clergy, it's hard to see these measures resulting in a nuclear stand down.
Finally getting Russia to turn on Bushehr has been a key public relations development for Iran's leadership. I talked to Dan Byman, an Iran expert and my colleague at Georgetown University. "It showed [Iranians] that they are escaping from isolation," Byman told me. "It's something that you play up domestically."
So we have the continuing game of chicken. Iran says its nuclear efforts are peaceful; the Obama administration says "prove it," and meanwhile threatens to make the country go dark.
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It's time to halt the false, uncertain tone of the current analyses of Russian politics. Repeat after me: Vladimir Putin is running for, and will win, the 2012 race for president. That's what happens after you tranquilize a Siberian Tiger; help put out a hellish fire; ride along with Russian Hell's Angels under the moniker "Abbadona"; fire a crossbow at a gray whale; and slam judo opponents half your age on the mat, then suggest you will join the next Russian judo Olympics team. Body slamming, it turns out, gives one a reputation for control and power, attributes that play exceedingly well in Russia.
Not so much in the United States, where such attempts can go very wrong. Michael Dukakis learned that when, as the Democratic presidential nominee, he was famously ridiculed after rolling around in a tank; John Kerry won almost no positive return after proving exceptionally proficient at hunting and skeet shooting during his own year as a Democratic presidential nominee. And of course, George W. Bush has yet to live down his 2003 "Mission Accomplished" landing on the aircraft carrier Abraham Lincoln.
Is it possible to translate the Putin magic to America? After all, if you pay attention to the polls, you are probably aware that President Barack Obama is in political trouble at the moment. For an answer, I shot emails around to select O&G readers with one question: How could Obama acquire a Putin-like image?
After the jump, the top 10 responses:
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What is the thrust of BP's internal investigation on what went wrong at the Macondo oil well last April? That as the company has suggested from the beginning, it is only at fault in the sense of shared culpability. It's a risky strategy that badly backfired from a public relations standpoint -- by appearing to be pointing fingers elsewhere in order to escape blame, outgoing CEO Tony Hayward offended American tradition, in which sins are confessed, then forgiven. But BP is betting that its bigger threat is elsewhere, specifically in the courtroom. BP knows that Hayward lost the PR battle and the battle for hearts and minds in Washington last spring and summer; its black eye can't get any worse. As Ian Urbina writes in the New York Times, the company is aiming to reduce its legal exposure.
In the bare facts of what happened in the Gulf of Mexico, yesterday's report isn't materially different from a leaked version that we posted in June. In a nutshell, the well blew because of a perfect storm of faults.
But it does signal with whom BP wishes to share the blame. BP knows that other investigative reports are under preparation, and by coming out of the gates with its version first, it gets to "shape the narrative," as the Financial Times writes in an editorial. The Wall Street Journal's Russell Gold suggests that, in the courtroom, BP intends to point its finger at a reliable punching bag, Halliburton, the contractor for the well's crucial cement job.
The stakes are high. BP, which has already paid out $8 billion in cleanup and other costs, may be on the hook for many more billions in legal judgments. That would be a burden to the company's ledger and, though it could bear the costs, it would like to tamp down the size wherever it can. But the risk is higher for others in the mix: Depending on what happens in the courtroom, Transocean and Anadarko could end up sold, bankrupt or both.
The Gulf of Mexico can't catch a break. Just as BP crews tried to remove the Macondo well's blowout preventer, an offshore oil rig operating some 200 miles to the west of the spill site exploded this morning. Fortunately, all thirteen members of the rig crew survived and were rescued successfully. But uncertainty remains over whether we're facing a second catastrophic oil spill in less than five months. Mariner Energy, the company operating the rig, told CNBC today that no oil was leaking from the facility. However, the Coast Guard reported sightings of a mile-long oil sheen near the rig, though it's unclear whether the oil is coming from the rig itself or the well.
Although the story is still developing -- it's unclear what caused the explosion -- the blast is sure to be embarrassing for the oil industry and those opposed to the Obama administration's deepwater drilling moratorium. The Mariner platform, known as Vermilion Block 380, was situated in only 340 feet of water -- shallow compared to the 5,000-foot depth of the Deepwater Horizon well -- and as such was unaffected by the drilling ban. The accident also comes a day after the American Petroleum Institute organized a series of rallies against the moratorium by industry workers in Houston and two other Texas cities. One Mariner employee told the Financial Times's Sheila McNulty that "this administration is trying to break us." API has repeatedly cited the millions of industry jobs that the drilling ban puts in jeopardy, but it's becoming clear that the moratorium will not even cost the 23,000 jobs that the government projected, according to John Broder and Clifford Krauss at the New York Times.
API and other industry advocates participating in the rallies, including ex-Shell Oil president John Hofmeister, continue to remind the public of oil's importance to the American economy. They are correct to do so, but they cannot act as if the industry has always had a stellar safety record prior to the Deepwater Horizon disaster. Even the Vermilion rig, located at a low-risk and almost routine offshore drilling site, has had a history of accidents before this explosion. Accidents happen, but it will be up to the oil industry and its partners to work with regulators to make sure they happen less often.
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Greenland or bust! On Tuesday the U.K. exploration firm Cairn Energy revealed that it has discovered natural gas in Baffin Bay, just off the west coast of Greenland. It's too early to tell whether the area contains commercial quantities of oil and natural gas, but the find is encouraging. The U.S. Geological Survey has estimated that the waters off the island could contain as much as 50 billion barrels of oil and gas, while melting ice has suddenly made a once-inhospitable area more viable for offshore drilling. Edinburgh-based Cairn is optimistic that the basin could be a major find, and other energy companies have hurried north to apply for exploration licenses. One company that won't be joining them is BP, whose less-than-stellar recent reputation with offshore drilling has forced it to back off. But despite mounting environmental groups' opposition to the drilling and the presence of a renegade ice island floating south, energy companies are likely to continue to flock to what could be the next frontier in oil and gas.
Nigeria's electricity privatization gamble. Nigerian president Goodluck Jonathan announced yesterday that the country plans to privatize the state-owned power monopoly and attract foreign investment in the electricity sector. Electricity demand in Nigeria, the most populous country in Africa, has always strained the country's inadequate national grid thanks to heavily-subsidized prices, and power outages are common. Abuja hopes to drum up some $10 billion in foreign investment to make the necessary upgrades, and already investors from Canada, Turkey, Saudi Arabia, India, and China have expressed interest. In keeping with his other energy reform efforts, President Jonathan is trying to boost his reform credentials as his party heads into national elections in January 2011. Overcoming Nigeria's chronic power crisis would be a critical step forward in the government's pursuit of growth and development.
An unlikely partner in drilling safety. Lee Hunt, president of the International Association of Drilling Contractors, said on Wednesday that he would welcome Cuban state oil company Cubapetroleo (Cupet) to join the organization as "a member of the international drilling community." Hunt and other association officials were visiting Havana this week as Cuba prepares to drill a series of test wells in its section of the Gulf of Mexico over the next two years. Cupet's drilling partners in the project are all members of the industry group, which wants to bring in the Cuban company to ensure that drilling safety and technical standards are met. But the Houston-based organization will have to secure approval from the Obama administration first. While there are no signs that the 50-year old U.S. trade embargo will be lifted any time soon, informal industry cooperation over drilling safety standards could be a modest first step towards some normalization of commercial relations with Cuba.
Drilling ban's diminished impact. Concerns about the Obama administration's extended moratorium on offshore drilling may have been premature, according to John Broder and Clifford Krauss at The New York Times. After much protest from drillers and supply firms, who argued that the ban would endanger thousands of industry jobs and drive drilling from U.S. waters, the impact of the moratorium has been milder than expected. This is because oil companies have used the drilling freeze to perform needed maintenance and upgrades to their rigs, while concentrating more on onshore drilling. Job losses have been far below what the industry claimed they would be. Administration officials have also repeatedly hinted that the ban might be lifted before its November 30 expiration date. Meanwhile, the BP spill seems to have had little to no effect on the progress of other global offshore drilling projects, although other governments have announced new regulations and safety reviews.
China and South Africa ink nuclear energy deal. China and South Africa announced a series of high-profile business deals on Tuesday, one of which could see China National Nuclear Corp. construct a nuclear-power plant in South Africa. Talks are under way with the Chinese state-owned nuclear company to import nuclear technology to South Africa, while a banking partnership between the two countries would finance any joint nuclear efforts. The deals come as South African president Jacob Zuma visited Beijing this week to promote commercial relations with Beijing, South Africa's top trading partner. China has been trying to position itself as a leading exporter of nuclear technology, while continuing its broader strategy of strengthening its presence in Africa.
Could China push the world into alternative fuels? The Council on Foreign Relations' Geo-Graphics blog has an illuminating post this week depicting the potentially sobering effect of China's insatiable demand for oil. According to the chart, once a country's per capita income hits $15,000, oil consumption growth tends to increase exponentially. So far Chinese oil consumption has shown no signs of slowing down, but its per capita oil consumption remains less than 0.1 barrel per person per day, compared to the nearly 0.7 barrels per person per day by the United States. But as China approaches the $15,000 GDP per capita mark, world oil supplies could be in for a shock, as the projected increase in demand would necessitate unrealistic increases in global oil output. If China follows this consumption pattern, alternative energy sources may be looking like less of an alternative and more of a necessity.
Oil prices rebound, gas moves to new low. Crude oil prices were staring at a third straight week of declines before rebounding towards the end of the week, closing at $75.17 Friday in New York. Plummeting U.S. housing purchases and continued high U.S. stockpiles pushed oil prices to an 11-week low of $70.76 on Wednesday, before a reduction in jobless claims, a weaker dollar, and Friday's speech by Fed chair Ben Bernanke renewed confidence in crude. But a weak U.S. economy remains the primary concern for oil analysts, and reports of cooling Chinese oil demand are also likely to encourage bearish sentiments. Accordingly, OPEC has already announced a 0.3 percent cut in crude shipments. High stockpiles of natural gas also caused that commodity to take a beating this week, as prices fell to their lowest levels in nearly a year. And gasoline prices are also in a downward spiral, which should provide some added relief for drivers getting away this Labor Day weekend.
In 2007, Brazil discovered massive oil reserves in the deep waters off its coast, and ever since Brazilians have been giddy over what this windfall could mean for the country -- not least the country's president, Luiz Inácio Lula da Silva. Lula has used Brazil's burgeoning oil wealth to assert a greater role for the country on the world stage, establishing an ambitious foreign aid and development fund and playing diplomatic confidant to Iran.
But a growing mountain of debt at Petrobras, the country's national oil company, and the BP oil spill are leading investors, economists, and other commentators to have second thoughts about the country's oil rush. A couple weeks ago, John Gall, the executive director at the São Paulo-based Fernand Braudel Institute of World Economics, wrote an op-ed in the Financial Times arguing that the ambitions of Petrobras and the Brazilian government are pushing the state-controlled company's oil development "too fast, on too great a scale, and with too high a profile."
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BP's Libyan drilling delay. BP moved yesterday to delay the starting date for its planned deepwater drilling project off the coast of Libya. The project, which had been scheduled to begin within a number of weeks, has now been put off to an unspecified date later this year. BP says the company is delaying work because it is still finalizing preparations, which could mean that the company is wary of European fears that a Macondo-like well blowout could occur in the Mediterranean. But the delay also comes in the wake of allegations that BP's ties to Libya played a role in the Scottish government's decision to release convicted Lockerbie bomber Abdel Baset al-Megrahi last year, and after the Senate Foreign Relations Committee held hearings on the subject two weeks ago.
Energy innovation from an unexpected source. On Sunday Abu Dhabi announced that it would install "smart grid" electricity meters in every home in the emirate this year, while at the same time creating a subsidy system for solar panels. The subsidy is expected to create a $2 billion market for solar panels over the next decade, which the emirate's government hopes will attract international investment in the technology, driving down the costs of the technology and encouraging local solar entrepreneurs. Abu Dhabi's move towards efficient electricity-generation may seem surprising, coming as it does from a country with vast petroleum reserves. But the United Arab Emirates has big plans to expand its current oil output, and part of this plan involves freeing more oil for export from the country's burgeoning demand for electricity -- which also explains the construction of four nuclear reactors there by a Korean firm.
Opening up, and paying up. It was a good week for federal energy regulators, as the new financial regulation law brought unexpected consequences for energy companies. On Wednesday the Wall Street Journal revealed that last month's Dodd-Frank law contained a provision requiring U.S. oil companies to disclose all payments made to foreign governments in the development of energy and mineral resources. The transparency measure was quietly inserted into the bill, but it has provoked much noise from the industry, which argues that the law will put them at a disadvantage to foreign competitors when vying for exploration and development contracts. Meanwhile, BP agreed to pay the Occupational Safety and Health Administration a record $50.6 million fine yesterday in response to charges from OSHA that the oil giant had neglected to upgrade the safety conditions at its Texas City, Tex. refinery, where a 2005 explosion killed fifteen people and injured nearly 200. These were both rare victories for advocates of tighter energy regulation, whose efforts to create a more far-reaching regulatory environment for oil were frustrated by the Senate's decision to punt on an energy bill last week.
Sanctions take their toll. Iran is suspending development on two liquefied natural gas projects, forcing the country to scale back its once-ambitious plans to become a leading exporter in the global LNG market. Officials of the National Iranian Oil Company cited costs and complexity as the reasons for the suspension, but the move comes weeks after the United States and European Union introduced tightened sanctions on Tehran. The sanctions have closed off Iranian access to the technology necessary to move forward on its LNG projects; expertise in the sector is heavily concentrated in Western energy firms. News of the suspension comes as a report from the International Energy Agency revealed that Iran's gasoline imports have been hit hard by the sanctions-despite possessing some of the world's largest oil and gas reserves, Iran lacks the refining capacity to meet domestic fuel demand. Although Tehran has repeatedly denied the impact of external sanctions, the LNG project suspension may be a grudging acceptance of the effect that the sanctions have had on the country.
Saudi Aramco: What, me worry? Khalid F. Al-Falih, the president and CEO of Saudi Aramco, dismissed concerns about peak oil as "baseless" at the Oxford Energy Forum in the United Kingdom on Tuesday. Citing geological evidence and analyses, Al-Falih argued that the world's sources of oil and natural gas have remained plentiful, and that with the proper technology, policy decisions, and economic and regulatory environment, these resources can be successfully developed. Saudi Aramco, the world's largest exporter of crude oil, has repeatedly brushed aside the threat of peak oil in the past, arguing that such concerns have only contributed to price volatility in world oil markets.
Oil markets still a roller-coaster ride. Oil prices fell back to earth this week, after touching 12-week highs last week, to settle at around $76 a barrel yesterday in New York. The Federal Reserve's announcement on Tuesday that it would hold interest rates at record lows, along with a rise in U.S. applications for unemployment benefits, caused investors to turn sour on crude. Meanwhile OPEC released its global oil demand forecast today, predicting a 1.2 percent increase in demand for the next year, driven by rising consumption in Asia, the Middle East and Latin America. Last week I wrote that oil prices may be heading south thanks to a conflict between Asian growth and weak U.S. demand, and this week's news seems to confirm that oil will be hanging around the $70-$80 price range for the time being.
This is turning out to be a grim week here at O&G -- yesterday Matthew Simmons, today, former Senator Ted Stevens, Republican of Alaska, who died Monday night after his plane crashed in Alaska's Bristol Bay region.
Stevens was a gruff politician of the old school, of a generation of senators whose other members -- Fritz Hollings of South Carolina, Robert Byrd of West Virginia -- have nearly all retired or passed on. It's hard to overstate the stature he enjoyed among Alaskans, who routinely referred to him as Uncle Ted, and who kept him in office for all but one decade of Alaska's half-century of statehood. In the view of his constituents he was less Alaska's senator than its patriarch, the leader who guided Alaska's transformation from a territorial outpost to a modern petrostate.
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If you want to find a poster child for the idea of the resource curse, you don't have to look much further than Nigeria: A country whose endemic corruption, driven by the largest oil industry in Africa, is the stuff of legend. Nigeria and Nigerian oil, however, are at a crossroads: The country's lawmakers are on the home stretch of an ambitious effort to remake -- for better or worse -- the whole industry.
William Wallis at the Financial Times reports that Abuja is making a serious push -- legislators are taking the unheard-of-in-Washington measure of delaying their August recess -- to pass the Petroleum Industry Bill (PIB), which would restructure the national oil company, raise royalties on foreign oil companies operating in Nigeria, and encourage local Nigerian oil operators to play a larger role in the country's oil and gas industry, the largest in Africa. The stakes for the PIB are high, reviving an oil reform effort that had stalled for years and coming with national elections on the horizon in January 2011. But Diezani Allison-Madueke, Nigeria's oil minister, told Reuters in late July that she is confident that the bill will pass the National Assembly by the end of August.
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The energy world lost one of its most provocative thinkers this weekend: Matthew Simmons, a former investment banker and adviser to President George W. Bush, who died of a heart attack at his home in Maine last night.
For the past five years, Simmons, 67, had been the premier pessimist in an industry that, on the main, tends towards optimism. He was arguably the most thoughtful and influential advocate of the idea that the world's steadily increasing appetite for petroleum would lead to peak oil -- the point at which production capacity can no longer ramp up to accommodate increasing demand -- and that it would happen sooner rather than later.
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.