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Russian leader Vladimir Putin urges an end to absurdist doubt regarding his political longevity, and a focus on reality -- such as the triumphant energy deals with which he closed out 2011. Putin is referring to a surprising, double-flanking maneuver in Turkey and Ukraine that gives Russia the apparent advantage in the late stages of a contest for energy market -- and, some fear, geopolitical -- domination in Europe. But Putin's tenor also suggests a decided shift to the past in Russia's relationship with the world -- the "reset" of relations with the U.S. is over, writes the Financial Times' Charles Clover. Putin -- whose administration last week issued a formal report accusing the U.S. of "mass and flagrant abuses of human rights"
-- is clearly prepared for the type of fisticuffs last seen during the depths of the George W. Bush Administration.
Can one write off this clutch of anti-Western activity to domestic politics -- Putin singing a tune that he thinks plays well with Russian voters ahead of the March 4 election, in which he is seeking a return to the Kremlin for a third term? It seems more complicated than that -- Putin is playing to the gallery, but events outside Russia also are motivating him to behave at turns opportunistically; other times, they are causing him to lash out apprehensively.
Putin's energy gambit is an example of him acting on the opportunistic side, specifically in the realm where Russian politics frequently find animation -- in the construction, or blockage, of energy pipelines. In the current case, Putin has managed to seriously out-maneuver U.S. and European political leaders by advancing the prospects of South Stream, a proposed $21 billion natural gas pipeline from Russia to Europe, crossing underneath the Black Sea.
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Bad year for petro-tyrants: Did today's trouble for petrocrats truly originate with Muhamad al-Bouazizi, the Tunisian fruit-and-vegetable seller whose self-imolation a year ago preceded the Arab Spring? I don't think so. Before Tunisia and Egypt, before the crumbling of the Berlin Wall and the Soviet collapse, before the rise of Benazir Bhutto, and before even the fall of Chun Doo-Hwan and the birth of South Korean democracy -- there was Corazon Aquino's People Power revolution in the Philippines. At this moment 26 years ago, yellow-clad Aquino supporters with their ubiquitous "L" signs, made with outstretched thumb and forefinger (in photo above, re-enacted earlier this year in a Manila celebration), seemed quaintly outmatched by then-dictator Ferdinand Marcos as they prepared for a snap presidential election. Yet, just two weeks after a fraudulent count gave Marcos the victory, a pair of military men defected, setting off the massive crowds of EDSA, Marcos' ignominious flight out of the country aboard a U.S. aircraft, and his exile in Hawaii. The remarkable string of democratic breakouts in the quarter-century since -- regardless of their imperfection in action -- began on EDSA, with the Laban hand signs, and Freddie Aguilar's haunting renditions of "Bayan Ko."
I am reminded of the Philippine events not because of the anniversary -- I witnessed the revolution as a young correspondent in my first foreign posting -- however, but some similarities with current events in Russia. The fatal cracks in the Marcos edifice were defections, starting with the Catholic church; then government election-commission computer workers; and finally the desertion of Marcos' defense minister, Juan Ponce Enrile, and his vice chief of staff, Fidel Ramos. In Moscow, Patriarch Kirill I, the leader of the Russian Orthdox Church, is an outspoken critic of this month's Russian parliamentary elections, reports the New York Times' Sophia Kishkovsky (the Wall Street Journal's Greg White and Rob Barry have produced a must-read systematic evaluation of the elections.). A regional executive of the powerful state company Gazprom -- Sergei Filippov -- has called for a full accounting of the indications of fraud, reports the NYT's Michael Schwirtz. An unidentified official in the city of Vladimir sums up the quandary for Putin and the ruling United Russia party: "This is probably what United Russia is scared of most: that someone from the inside will start to talk," this official tells Schwirtz.
This unnamed Vladimir official is right. A truly massive public uprising in Russia appears all but impossible, not the least since there is no unifying opposition figure. Lucian Kim writes that that is not necessarily a bad thing -- Putin, he argues, is actually a pretty good reformer. Yet, recalling those days in Manila, I do not recollect a single colleague or source forecasting Marcos's ouster, either.
Go to the Jump for more of the Wrap.
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Has ExxonMobil -- the annoyingly prissy schoolboy who always obeys the teacher -- risked weakening one of its distinguishing pillars in order to break into a single oil patch? And if so, could that shake up the global oil market along with geopolitics?
We are referring to the news, indiscreetly disclosed by a Kurdistan official last week, that the northern Iraqi region has signed an oil exploration agreement with Exxon. The reason this is a problem is that Kurdistan has been in a long-standing turf war with the folks in Baghdad over how to divide the spoils from its hydrocarbon riches. Until it's settled, Baghdad has forbidden foreign oil companies with which it does business -- which include Exxon, Shell, Italy's Eni, France's Total, the China National Oil Corp., Russia's Lukoil and virtually every substantial name in the industry -- to sign any deals with the Kurds without its okay. In September, for example, the U.S. company Hess was barred from a new round of Iraqi leases explicitly because of deals it executed with the Kurds three months earlier.
The stakes are high not just for Exxon, but for Iraq, the U.S., and the international community: The commercial tensions arise a little over a month before the Dec. 31 deadline for U.S. troops to be out of Iraq, and a predictable rise of other, security-based challenges to Prime Minister Nuri al-Maliki. In an analysis, Reuters' Patrick Markey writes that a hard line against Exxon by al-Maliki could backfire by encouraging other companies to pull up stakes in Iraq proper and take up drilling in Kurdistan, hence jeopardizing his aim of building up oil exports from the south; but if he isn't tough enough, he could lose authority with other restive Iraqi regions.
The U.S., too, has a stake in stability on the ground once it leaves, and in Iraq's oil exports rising from the 2.9 million barrels a day it currently ships. The U.S. also is eager for a north-south agreement since it could result in Kurdistan's natural gas flowing into Europe through the proposed Nabucco pipeline, with which the U.S. hopes to curb Russian market dominance of the continent. Already, Genel, an oil company linked to former BP CEO Tony Hayward, is planning a 400,000-barrel-a-day oil export pipeline from Kurdistan, to be finished in the second half of 2013. In a statement, State Department spokeswoman Victoria Nuland said that the Obama administration had advised Exxon that "they run significant political and legal risks if they sign contracts" with Kurdistan.
In Ukraine, the gas bill is never paid: Ukraine's president faces Western pressure to free his political rival, former Prime Minister Yulia Timoshenko. But the signs are that Timoshenko (pictured above) instead will face a much longer period of prosecution, including the possible fate of former oil tycoon Mikhail Khodorkovsky, who crossed Russian leader Vladimir Putin and soon after was thrown in prison under sequential sentences. After Timoshenko was sentenced on Tuesday to seven years in prison, the weight of Europe and the U.S. fell onto President Viktor Yanukovich, who was accused of venting his political spleen in the courtroom. Yanukovich replied by saying that Timoshenko could yet be cleared of the charges, perhaps by legislative changes in Parliament. But if the conviction itself is not erased, Timoshenko could still be barred from running for office for a decade. As if to underscore that Yanukovich does not intend to call off the dogs, authorities yesterday unveiled new criminal charges against her, this time involving a $405 million debt that she is alleged to have illegally transferred from her former gas company to the government.
What seems to be getting lost in the gigantic brawl are the facts of the original case brought against Timoshenko. She is accused of exceeding her authority as prime minister with a natural gas supply deal she re-negotiated with Putin in 2009. But looking back at the contentious talks, it looks like she did pretty well. There were two main features of the deal: To shrink the price and volume of gas that Ukraine was obligated to buy, and to eliminate from gas dealings a shadowy middleman company called Rosukrenergo that earned hundreds of millions of dollars for providing no necessary services. She accomplished both of those. Did she strike a perfect deal? No -- it was flawed. On the other hand, Yanukovich himself went at Putin the following year. He did no better on price, and ended up giving away Sevastopol to the Russian Fleet for another 25 years to boot. Perhaps the biggest winners from all this hullabaloo are Rosukrenergo's principal, Dmitry Firtash, who is back in the middle of the Ukrainian economy, and the white-shoe Washington law firm of Akin Gump, which has been paid top-dollar to lead the outside criminal investigation of Timoshenko.
Annals of geopolitical pipelines: A few weeks ago, we heard that BP and ConocoPhillips will not build Denali, a 1,700-mile natural gas pipeline from Alaska's North Slope to Canada, and on to the United States. The companies have abundant gas, but an insufficient market -- the Lower 48 states, their main intended consumers, do not need their fuel. The opposite problem confronts Nabucco, a separate proposed pipeline supported by the U.S. government and the European Union -- it has a waiting market, but little gas to deliver. No countries have concretely committed to sell it gas. If any did, the 2,400-mile-long Nabucco would carry it to Europe, which wants to ease its reliance on Russian fuel, and with it Russian political leverage on the continent. Unlike BP and Conoco, however, Nabucco's sponsors decline to acknowledge the formidable tide pushing against them. This week, these players lined up in the Turkish city of Kayseri for yet another in a years-long demonstration of faith in the project, which they know, just know, will materialize.
This is understandable -- it's unpleasant to concede probable failure and move on. So the Nabucco players soldier on. At the drop of a hat, they trot out a list of statistics validating their faith - the absolute volume of gas in the region, and the even greater volume of absolute demand in Europe. The numbers are impressive. But does that matter against confounding politics on the ground?
Let's take a quick look under the hood. The pipeline requires 30 billion cubic meters of gas, according to its backers. There are four main potential sources: Iran, Iraq, Turkmenistan and Azerbaijan. Strike Iran because of nuclear politics. For the foreseeable future, strike Iraq, too, because it plans to use the bulk of its gas domestically. As for Azerbaijan, it and BP -- whose gas from a gigantic field called Shah Deniz -- have both said they might ship 10 billion cubic meters of gas a year through Nabucco should it be built.
Twenty billion cubic meters short, we turn finally to Turkmenistan. At a news conference in Kayseri, Stefan Judisch of Germany's RWE, which is a Nabucco partner, noted that Turkmenistan has a huge natural gas supply: A field called South Yolotan appears to be the second-largest in the world, for instance. But the Turkmen cannot sell sufficient volumes, one reason being that Russian demand has plunged to just a fifth of what it used to. Nabucco director Reinhard Mitschek says that this inability to tap markets will lead Turkmenistan to sign a gas supply contract with him by the end of the year. And not just any contract -- President Gurbanguly Berdymukhamedov (pictured above) has expressed interest in shipping up to 40 billion cubic meters a year to Europe, twice the volume necessary to make Nabucco a go. Strike up the parade, right?
Not quite yet. First, take a look at the history. The West has been attempting to get Turkmenistan to sign onto trans-Caspian pipelines for some 15 years. It has begged. It has cajoled. It has offered incentives. But Berdymukhamedov and his predecessor, Saparmurat Niyazov, both in the end have declined. Why? In the case of the latter, one reason was insufficient bribery. As for what else, smart oilmen and other observers believe it has been utter and mortal fear of Russia. What could and would Russia do if Turkmenistan mustered the temerity to side with the West and start to build Nabucco? In the short term, Russia would probably cut off imports of Turkmen gas entirely. After that, an outsider is pressed to imagine. But not Turkmenistan's leaders -- they seem to imagine a lot. And if you observe 15 years of consistent behavior of this particular type -- meaning hiding in the closet -- why do you expect the Turkmen to wake up in the morning behaving in the opposite manner? The answer we hear -- and I am not joking -- is that Berdymukhamedov said he would ship his gas West.
Among those still unconvinced is BP, which has suggested that the Nabucco folks scale back their ambitions and build a smaller line at first, and then hope that down the road Iraq opens up. Or, if luck is truly with them, Iran will settle its nuclear issues with the rest of the world. But the impatient Nabucco folks decline. They want the big gazoonga pretty darn soon, or nothing.
Now let's loop back -- in the likelihood that Turkmenistan does continue not to sign, the Nabucco folks are back to just Azerbaijan's 10 billion cubic meters of gas. Or are they? If Nabucco lacks the requisite remainder of 20 billion cubic meters, would it make sense for BP to wait around when Shah Deniz will soon be ready to deliver gas? Of course not. So it will commit to another line. Which one? In Baku, the talk is of sending the gas through a cheaper route directly to Romania for distribution in gas-hungry Eastern Europe. One could accomplish that through a relatively inexpensive Bulgaria-to-Greece interconnector pipeline, which is already under way, and a proposed interconnector between Bulgaria and Romania. So Nabucco would have no gas.
Miracles happen -- Berdymukhamedov could wake up a different man. But Nabucco has always been short of them.
Russian influence is the big gainer from Germany’s decision to stop producing nuclear power. The losers are eastern and central European states including Lithuania, Poland and Hungary, and American influence.
For three years, Russia's enormous, natural gas-led political and economic influence in Europe has been undermined by a technological advance -- Houston wildcatter George Mitchell's refinement of hydraulic fracturing, or fracking, which unleashed a gusher of new natural gas supplies. The new supply triggered a chain reaction, undermining Russia's monopolistic hold on Europe's natural gas market, and its general influence on the continent.
Now, a technological disaster -- the meltdown of Japan's Fukushima nuclear reactors after a March earthquake and tsunami -- has restored Moscow's place on the playing field. At once, Germany -- already reliant on Russia's Gazprom for 30 percent of its natural gas -- will be buying much more gas in order to compensate for the loss of nuclear power, which provides 28 percent of Germany's electricity. Hence Germany -- for many years Russia's most important ally in Europe -- is likely to become an even more open ear for the policies of Prime Minister Vladimir Putin. "Higher gas demand will mitigate the U.S. shale gas impact and strengthen Gazprom's hand again," Roderick Kefferputz, an analyst at the Brussels-based Centre for European Policy Studies, told me in a Twitter exchange.
Here is the background: German Chancellor Angela Merkel yesterday announced that nuclear power will be phased out by 2022. Merkel is a full-throated supporter of nuclear power, and had previously decided to extend the life of the plants through 2036. But German public opinion shifted dramatically against nuclear power following Fukushima, and turned against her conservative party: With German elections looming in 2013, Merkel has seemed likely to be stampeded out of power at the hands of the country's anti-nuclear Green party, which has been "wildly popular," according to the Financial Times. German polls conducted after Fukushima show some 70 percent of German voters opposing nuclear power, the Wall Street Journal reports. In response, Merkel has put aside the geopolitical and economic cost, and moved away from nuclear power with hopes of winning in two years.
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For the last half-decade, one of the biggest -- and most menacing -- tales in energy has involved the shady natural gas business in Ukraine. The story has included three consecutive years of dead-of-winter heat cutoffs to major parts of Europe, Russian political bullies poised to pounce on the continent, and billions of dollars in alleged underhanded dealings. In sideshows, the West and Russia have unveiled dueling, multi-billion-dollar natural gas pipelines, and in December rowdy Ukrainian politicians erupted into a free for all in parliament. Now, the spectacle has spilled out into U.S. courts.
This latest episode in the saga centers on Rosukrenergo, a Swiss-based middleman company that earns billions of dollars by arranging for the shipment of natural gas from Turkmenistan and Russia through Ukraine and on to Europe. Granted, it's no simple matter to move raw materials of any type across former Soviet borders, as any trader will tell you. But this company has been the source of much mystery because of its scale of fees. Some people have wondered why Gazprom, for example, the mighty, muscular Russian natural gas giant, has been willing to share fees with this comparatively no-name company with no visible sign of geopolitical leverage.
A week ago, Yulia Timoshenko, Ukraine's former prime minister (pictured above), filed suit in U.S. federal court in New York against Dimitry Firtash, a Ukrainian billionaire who controls Rosurkenergo, and is allied with her blood enemy, Ukraine President Viktor Yanukovich. In a nutshell, she alleges that the Ukrainian government threw -- that is, deliberately lost -- a natural gas arbitration dispute in Stockholm that, as a result, netted Firtash, the plaintiff in the case, hundreds of millions of dollars in natural gas belonging to the Ukrainian state. An unspecified portion of these winnings, the suit alleges, went as a kickback either in cash or kind to finance the Yanukovich government's political and financial dealings.
Firtash's press service in Kiev, quoted by the Kiev Post, denied the allegations: "Fully supporting the ruling of the Stockholm arbitration, Mr. Firtash doubts that Ms. Timoshenko has any grounds to challenge this decision in New York's courts or any other judicial bodies," the press service said.
The suit is part of an uptick of a trend in which the politics of dysfunctional governments around the world are playing out in the courtrooms of western capitals, most prominently those of the United States and the United Kingdom.
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Japan/Libya/Bahrain: trader heaven (or hell) One of the main canards of times such as this is that the markets hate uncertainty. The truth is that traders and investors are in a heavenly time. It's pretty simple - if you are a bettor (which is what oil traders, for example, are), you make money only if the price changes on the volumes you buy. When they do shift either up or down -- and keep doing so -- you win (assuming, of course, that you bet on the correct direction). The last 24 hours have been absolute nirvana for the shrewd trader (though not so much for the laggards). Oil prices were down, then they shot up after Col. Moammar Qaddafi threatened to pursue his enemies into their closets (there is something apparently chilling about that closed-in image; or perhaps it's the shoes?) and the United Nations Security Council voted to bomb him. We were well back up into the $100s-a-barrel prices. Now, after Qaddafi appears to have blinked (deciding perhaps that he prefers not to risk a possible indeterminate period of time confined to a spider hole with a long beard), oil prices have plunged. On each of those movements -- if you were a well-hedged trader -- you have earned big, big bucks. Of course, there are many losers too. Regardless, this is what traders live for -- the profit potential in uncertain times.
Big Oil and the calculus of friendship: Paolo Scaroni, the agile CEO of Italy's Eni, who manages to maintain relations no one in Big Oil can match -- with Russia's Vladimir Putin, with Kazakhstan's Nursultan Nazarbayev and, of course, with Libya's Col. Moammar Qaddafi with -- is bristling at the international sanctions slapped on Libya. Scaroni calls the sanctions "shooting ourselves in the foot."
There is some fear that Eni, along with BP and Exxon, could face contractual problems with Qaddafi, Bloomberg reports. But that isn't how oil deals have really worked in recent decades. Instead, governments have generally honored oil contracts from one regime to another, of course with some possible renegotiation.
So what is Scaroni really up to as he calls on Europe to abandon the sanctions against Qaddafi? Perhaps he is emitting a friendship code intended for others, such as Putin and Nazarbayev, a message that he is not a fair-weather friend.
Coal: When pressed, even the choosey loosen up. Being health-conscious, you thought you'd never eat another cheeseburger -- until you were starving that one day, and McDonald's was the only place open. So it is with electricity producers. Many nations have been moving away from coal-fired electricity, since it's so dirty and spews out so much CO2, but now Japan's dual natural disasters have shaken up those preferences. Coal may be back in a big way, reports the Wall Street Journal (though, for the record, the Journal is also hedging its bets. In addition to today's optimistic coal piece, the paper ran separate optimistic natural gas and nuclear energy stories).
Here is how the dots connect: Japan, having to replace nuclear-produced electricity, is going to buy a lot more coal, and also liquefied natural gas. Some of the LNG is being diverted from Europe. That has made LNG more expensive in Europe and elsewhere as markets tighten. At the same time, Germany has at least temporarily shut down seven nuclear reactors. Put together the higher LNG prices, and the closed German nuclear reactors, and you get more European demand for much-cheaper coal. Make the same calculus in Japan and elsewhere, and you get the larger picture -- more coal demand.
If this is right, much of the clean-air progress made in recent years appears likely to be set back in the coming months. Yet one would be remiss to ignore the shift of public sentiment, and hence political support, in recent years toward a cleaner environment. If that holds -- and that's my bet -- then there may be added use of coal in the short- and medium-term as the market resolves the current uncertainty over nuclear power, but there will also be a mighty hindrance toward a wholesale shift to coal. Instead, there is reason to expect more momentum coming to the natural gas future that we've been discussing.
The Gazprom State: Outbreak of pragmatism. But does Nabucco win? Not to equate Russian gas policy with Col. Moammar Qaddafi's war footing, but are we seeing a case of forced practicality? Qaddafi, after threatening to enter the closets of his enemies in Benghazi, has had a change of heart now that he might be bombed by France and the United Arab Emirates. As for Russia, it's making more noises about reversing a long-standing war-footing in Europe, fought on the battlefield of natural gas pipelines. As we discussed last week, Gazprom, Russia's politically inclined natural gas giant, has sought to reinforce its hold on the European market (where it supplies some 30 percent of the gas) by connecting up a gigantic new pipeline called South Stream. The United States and Europe have countered with Nabucco, their own proposed pipeline starting at the Caspian Sea. At stake, according to the latter folks, is the political independence of eastern and central Europe. But Russian officials are offering more details on possible plans to scrap South Stream and instead ship its gas to Europe in the form of liquefied natural gas.
In our videotaped interview last week with South Stream CEO Marcel Kramer, he said that he was in the dark about any such change of Russian plans. But now a couple of Russian government officials say South Stream may face an "insurmountable" political hurdle in Turkey, and so they are seeking economical alternatives toward accomplishing the same aim, but with LNG.
On first glance, this would appear to be a possible victory for Nabucco. But not so fast. First, Nabucco still doesn't have sufficient gas to be built, mainly because the Turkmen -- as they have done since the 1990s -- won't get with the program and commit to gas shipments and a pipeline. Second, what is the effective difference if Russian gas goes to Europe via pipeline or LNG? True, a pipeline suggests a more permanent marriage. But these days, divorce is mighty common. LNG provides the Russians a lot more flexibility in terms of markets.
Perhaps the Nabucco folks will go LNG as well?
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As O&G readers know, I've been in Houston at CERA Week -- the Davos of the energy industry, hosted by oil historian Daniel Yergin -- for the past five days. So in today's wrap, the highlights of the conference:
Emergencies drive the market: The news over the last 24 hours punctuated the general message of CERA Week: Bad economic news sent oil prices down, unrest in Saudi Arabia's oil-rich Eastern Province pushed them back up, then the 8.9 magnitude earthquake off Japan's coastline pushed them back below $100 a barrel. Finally, the oil price settled just a bit down, just over $100. The message: the market is incredibly jittery, and is holding pretty close to $100 a barrel regardless of the news.
As oil analyst Ed Morse told me, oil was probably overvalued prior to the Middle East unrest. But the turmoil there has fundamentally changed the political calculus, and with it the oil market for around the next decade and perhaps longer. A risk premium is going to remain in the price, especially since real trouble struck Saudi Arabia yesterday, as I wrote. So gasoline prices, too, are going to stay relatively high (that's a Paris gas station pictured above). All in all, as Christophe de Margerie, the CEO of France's Total, said, the oil industry is in a serious fix.
But what's notable is how muted the response has been in the market. Step back and look at the absolute price movements so far since the turmoil in the Arab world began. If we had just one of these events back in the spare-capacity-short year of 2008,we would have seen huge price movements -- $10 and $20 a barrel. Instead, we are getting shifts of two or three dollars one way or the other. One reason is that there is global surplus production capacity of 3 or 4 million barrels a day that can be brought to bear; another is that, in the short term, the United States and Japan can swamp any sudden oil shortage by releasing millions of barrels of oil from their strategic reserves. These petroleum reserves -- totaling 1.6 billion barrels around the world -- cannot create long-term price stability, because traders will always bet on spare capacity in an emergency. But they can smooth out the bumps.
The next emergencies? Where are the predictable next bumps? Today's planned Day of Rage in Saudi Arabia became, as the Washington Post called it, a day of rest, and we cannot foresee natural disasters. Yet, some are attempting to quantify what is possible. Among those is Bloomberg, which has ranked 20 possibly troubled countries in a Combustibility Index. Of those, 18 are in the Middle East, but interestingly none of the big oil producers top the list.
The five most combustible countries, in descending order, are Libya, Sudan, Yemen, Syria, and Egypt. The bottom five among these combustible states, again in descending order, are Saudi Arabia, Morocco, United Arab Emirates, Kuwait and Qatar.
For the quants among you, the biggest component in the Bloomberg equation is repression, which accounts for 50 percent of the weight of the variables. (To calculate that, among the factors are the size of a country's military per capita, how a ruler came to power -- whether by vote, coup or assassination -- plus how long the ruler has been in power, and whether the ruler came from the military.) The other 50 percent includes GDP adjusted for purchasing power parity, unemployment, median age, income inequality and access to information.
Electric car realities: Another takeaway from the conference is how technological advances are shifting the energy equation, and geopolitics along with them. Among the technological changes are in transportation. I spoke with two big players in the electric-car space: Britta Gross, director of global energy systems for General Motors, and Steven Koonin, the U.S. undersecretary of energy for science. Both of them described the multi-year realities of creating a plug-in hybrid and electric-car industry. Gross said that one reason the GM Volt is currently so expensive is the carmaker's strategy of creating a "wow" factor for buyers -- carving out a market by loading up the Volt with exciting gizmos. When the next generation of the Volt comes out -- perhaps in five years or so -- it may have a lot fewer such electronics, Gross said, which will much-reduce the sticker price. In addition, the cost of parts will probably be less because there may be more competition among suppliers. Here are Gross' remarks:
Koonin, looking at the market from the perspective of a government goal of reducing oil consumption, said that much will be gained by simple efficiencies: 25 percent less gasoline will be used when cars are lighter and engines more efficient. He said that years from now, plug-in hybrids will penetrate a much larger segment of the market and cut more oil consumption. No one is certain that advanced batteries will ever be good enough to make a purely electric car commercially competitive, he said, but the performance of hybrids may mean that they won't be necessary. Here are Koonin's remarks:
Possible Putin shift in pipeline politics: For much of the last decade, Russia and the West have fought a pipeline war in Europe. Russia has sought to tighten its natural gas supply grip on Europe -- Russia's Gazprom supplies about 30 percent of Europe's gas -- by building yet another big pipeline into the continent, called South Stream. The West, led by the United States, has offered up a rival pipeline, called Nabucco, that would carry gas from the Caspian Sea states of Azerbaijan and Turkmenistan into Europe, and hence reduce the continent's dependence on Russian gas. This may sound mighty arcane, but the combatants of pipeline politics treat the game quite seriously.
In any case, Russian Prime Minister Vladimir Putin yesterday added new confusion to the state of play. He suggested that Russia may not build the pipeline after all, but instead a liquefied natural gas terminal that would ship Russia's gas to Europe by tanker. In an interview today, South Stream pipeline director Marcel Kramer told me that he has received no new instructions, and that he is proceeding with his existing orders to make the $21 billion pipeline work. He is attempting to get a final investment decision on the pipeline by the middle of next year so that it can be built by the end of 2015. Here is a clip from our conversation:
Bertrand Guay AFP/Getty Images
The 800-pound Saudi gorilla: Egypt is a significant country -- when its people took to the streets and shook the regime of President Hosni Mubarak to the bone, observers gave serious thought to the possibility that any Middle East autocracy could be up for grabs. Tunisia's ouster of President Zine el-Abidine Ben Ali led to Egypt, but simply did not send the same fears up the spine of the region's strongmen. Yet as the week ends with Cairo's so-called Day of Departure and the White House caucuses on how to smooth Mubarak's exit, what is truly on the minds of decision-makers? For many of them, it's Saudi Arabia. If unrest spreads there, all bets are off in global markets of all types, and particularly the oil market. Saudi Arabia produces 10 percent of the world's crude and in addition is the main "spare capacity" cushion keeping prices relatively stable. The calmest voices among us point out that Saudi -- and really the rest of the big petrostates in the Persian Gulf -- is a completely different case from Egypt, Jordan, Yemen, and other states under threat from internal discontent. The main difference is the power of the purse -- the Saudi regime has plenty of cash to spread around so that it does not have a gigantic, teaming mass of poor with a long history of deep, festering, and unresolved grievances. If you have not yet seen it, it's worth watching Christiane Amanpour's interviews with both Mubarak and his new vice president and intelligence chief, Omar Suleiman:
Big Oil's fork in the road: How to navigate the uncertain shoals of oil over the next two and three decades? The smartest minds in Big Oil are not sure and at the fork of the road have all taken different paths, write Sheila McNulty and Ed Crooks at the Financial Times. BP has shrunk and gotten into bed with Russia; ExxonMobil and Shell are turning themselves into natural gas companies; Chevron is sticking with the orthodox model of hard-core exploration; and ConocoPhillips has turned away from the Big Oil, grow-as-big-and-burly-as-possible model and sought big returns by being a Medium Oil company. So far, the market has rewarded Conoco the most, pushing up its share price by a third over the last year; Shell is up 26 percent, Chevron by 19 percent, but Exxon's up by just 7 percent. BP is down 12 percent.
Pipeline politics in Europe: One must admire Europe's newfound determination to create another source of natural gas and prevent Russia from exerting undue petropower on the continent. Despite history suggesting a quixotic effort, European Union Energy Commissioner Günther Oettinger has gotten both Azerbaijan and Turkmenistan to agree in principle to supply gas to the long-proposed Nabucco natural gas pipeline. Now, Oettinger is attempting to embarrass the pipeline's European partners into lining up the financing and starting construction of the $11 billion line before the two Caspian Sea republics sign actual commitments to ship their gas volumes, Reuters reports. The Turkmen and Azeris say the Europeans have to move first. The Europeans say the Caspian republics do. History suggests that the Europeans are right to wait -- the Turkmen and the Azeris aren't going to sign anything until Russia informs them that there will be no punishment for doing so. Next stop for Oettinger: Moscow.
The groundhog factor: Punxsutawney Phil, a groundhog from Pennsylvania, had bad news for natural gas producers, but good news for the rest of us -- winter will end early, and spring will be upon us in no time. Why do we bother occupying our time with the thoughts of a rodent? According to Wikipedia, "The Groundhog Day celebration is rooted in a German superstition that says if a hibernating animal casts a shadow on Feb. 2, the Pagan holiday of Imbolc, winter will last another six weeks. If no shadow was seen, legend said spring would come early." In the interest of balance, we offer up Phil and a rival, Woody the Woodchuck, who did see her shadow, indicating six more weeks of winter.
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."
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.
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.