TPT November 2008

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November 2008 76 ›
From the Americas
Oil and gas
A probable casualty of the Georgia-Russia War:
the prospect for US and Western-sponsored
pipelines in the Caspian region
Whatever the short- and long-range political consequences of the
war in the Caucasus that began and ended in August, it was fought
in an oil-rich region of keenest interest to the United States. Working
with a BP-led consortium, the US helped build oil and natural gas
pipelines across Georgia to the Turkish coast.
Another US-sponsored pipeline, at the planning stage when the war
eruped, would carry natural gas through Georgia from the eastern
shore of the Caspian Sea to Austria. What, now, of the expectations
for that pipeline and other American initiatives for shipping Caspian
Sea oil out of Central Asia and into Europe?
According to an early analysis in Business Week of a terrain altered
starkly in favour of Russia, hopes are dim. Washington bureau
correspondent Steve LeVine sees the reassertion of Russia’s claim
to be the dominant force in the Caspian region as having gained
for it the edge in the struggle over access to 35 billion barrels of oil
and trillions of cubic feet of gas. ‘Probable losers’ are the US and
those Western oil companies that have bet heavily on their ability
to operate with relative freedom in the Caspian (‘Georgia: a blow to
US energy,’ 13 August).
Suggesting that the Russia-Georgia war may have set back 15
years of American economic diplomacy, Mr LeVine recapped
that period, beginning with the realization by then-President Bill
Clinton that Caspian-area countries newly independent of the
Soviet Union were flush with oil and natural gas but had to ship it
out by way of Russia. The absence of non-Russian pipelines also
curbed the export potential of companies like Chevron, which
owns half of Tengiz, the giant Kazakhstan oilfield. After some
initial resistance, BP and Chevron backed an American pipeline
strategy.
With Georgia a key transit point for any line to the West, that
strategy created the so-called East-West Energy Corridor, and
enlisted the cooperation of the leaders of Georgia, Azerbaijan, and
Turkey on the construction of what would become the 1,000-mile-
long Baku-Ceyhan pipeline. The Caspian’s first independent oil
export pipeline normally moves almost a million barrels of oil a
day.
Mr LeVine wrote, “For Georgia, it’s not the fees it collects from
pipeline transit – about $60 million annually – that are important.
Instead, the pipeline’s presence signaled Georgia’s stability and
encouraged a flood of foreign investment.” He added, “That stability,
of course, has proved illusory.”
Regarding Bush Administration plans for a pipeline to ship natural
gas to Europe along a route traversing Georgia, Mr LeVine provided
some context: “The proposed pipeline’s success depends on
Turkmenistan, which has the fourth-largest natural gas reserves on
the planet, an estimated three trillion cubic meters. The Turkmens
are cautious. Under former President Saparmurat Niyazov, they
refused to defy the Russians [by supporting] the construction of the
Baku-Ceyhan pipeline.”
The drive toward renewable energy
meets an opposing force: the new appeal
of difficult-to-extract fossil fuels
High prices for oil, gas, and coal have created a market incentive
to invest in ‘clean’ energy sources, a situation that would appear
to favour former vice president Al Gore’s push for 100 per cent
renewable energy for electricity generation in the US over the next
decade. But, as noted by a staff writer for the Washington Post,
those high prices are also powering another trend: the extraction of
fossil fuels from deep formations that can be made to yield to new
drilling technology.
Pennsylvania is better known for steel than for oil and gas. But it was
at Titusville, in the northwestern part of the state, that ‘Colonel’ Edwin
Drake in 1859 drilled the world’s first commercial oil well. And, today,
the rolling farmland southwest of Pittsburgh is the scene of what the
Post’s Joel Achenbach terms an ‘invasion’ by heavy industry drilling
aggressively into something called the Marcellus Shale.
“[This is] a layer of hard, black rock, more than a mile down,” wrote
Mr Achenbach. “Trapped in tiny pores of that rock is a huge quantity
of natural gas. The Marcellus Shale could become what people
in the natural gas business call a big play.” ( ‘Traditional energy’s
modern boom,’ 15 August).
A geologist who studies the shale called it a ‘land rush type of
deal’. The Marcellus – which underlies parts of New York, Ohio,
West Virginia, Maryland, Virginia, and Kentucky, as well as much
of Pennsylvania – might contain more than 50 trillion cubic tons of
gas, about twice what the US uses in a typical year.
Another of the Post’s respondents, a resident of Oil City, near
Pittsburgh, is already doing well out of shallower-lying crude oil but
also recently leased his mineral rights below 3,000ft. The state of
Pennsylvania is reported to be on pace to issue more than 7,000
permits for oil and gas drilling this year, more than twice as many
as five years ago. And coal mining is also expanding, driven by
rising coal exports. But Mr Achenbach perceives ‘a broader national
reality’ beyond the Marcellus boom: mature industries with the
infrastructure, know-how, and capital to tap older energy sources.
And he observed that oil and gas companies also benefit from a
federal tax incentive, dating to 1918 that allows early deductions for
‘intangible drilling costs’.
A coal expert at the US Energy Department facility near Pittsburgh
summed up for the government. Thomas Sarkus told the Post, “We
believe [fossil fuels] are going to predominate for at least 50 years.”
Elsewhere in oil and gas. . .
› As global warming opens the Northwest Passage to navigation,
Canada, the US, Russia, Norway, and Denmark are stepping up
their manoeuvers to lay claim to oil reserves under the Arctic Ocean.
By way of asserting the Canadian stake in the rich marine territory,
Canada’s prime minister Stephen Harper and his cabinet traveled
in late August to Inuvik to review the country’s largest-ever military
exercise in the polar region. The town is 2,548 miles from the capital
city of Ottawa. If disputes ensue, tensions between Moscow and the
West – already exacerbated by the recent Russian-Georgian conflict
– would likely intensify.