TPT January 2009

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January 2009 66 ›
Oil & Gas News
OPEC cuts its production quotas –
but to what effect?
Leaders of oil-rich countries watched for months as world oil prices
tumbled more than 50 per cent from their all-time high of $147 a
barrel in July 2008 to $64 a barrel in mid-October. With prices at
their lowest level in more than a year, the Organization of Petroleum
Exporting Countries announced a 1.5 million barrel per day (bpd)
production cut as of 1 November. Writing from Paris in Time,
Vivienne Walt saw this as meaning “crisis for OPEC”, whose 13
members account for about one-third of the world’s total oil supply
and whose production quotas hugely influence world prices.
“Despite the speed of the oil boom, the price crash has jolted OPEC
countries, which appear to have assumed that high prices were
here to stay,” wrote Ms Walt. Nigeria and Iran both set their national
budgets according to prices of about $80 a barrel, and Qatar’s
expectation has been $90 a barrel (‘What’s Behind [and Ahead for]
the Plunging Price of Oil,’ October 24).
“Producers very quickly got used to $100-plus prices,” Julian Lee,
senior energy analyst with the Center for Global Energy Studies in
London, told Time. “They thought of it as normal and justified. They
seem to have very short memories.”
Ms Walt warned of more worries ahead for OPEC deriving from a
possible slowdown in China, whose soaring economy this decade
has sent oil prices rocketing and helped set off a scramble for new
oil exploration and drilling in developing countries from Ecuador
to Angola. These economies have surged along with oil prices.
Without China’s continued thirst for new oil, Ms Walt observed, the
OPEC production cuts will have limited impact.
■ With demand for oil off 10 per cent worldwide, what pushed
prices down more than 50 per cent? One of Time’s respondents
– Francisco Blach, head of commodities research at Merrill
Lynch in London – pointed out that the demand and price
relationship, while reciprocal, is not one-to-one: small demand
swings can cause large price swings. Ms. Walt noted that the
unraveling of oil is the other side of the credit crunch. She
wrote, “Banks, investment banks, and speculators have pulled
money out of oil futures, further driving oil prices down. That’s
one reason why prices have fallen far faster than demand.”
Intent on prominence in energy, Russia looks
to forge cross-border relationships
As reported by Itar-Tass, the major Russian news agency, Libyan
leader Muammar al-Gaddafi said in Moscow on 1 November that
his North African country would enhance cooperation in the oil and
gas sector with Russia, the world’s leading energy exporter. “We
consider cooperation with Russia in the oil and gas sector as very
timely at this moment,” Mr Gaddafi was reported as saying during
talks with Russian President Dmitry Medvedev. “Moreover, we have
common approaches to oil and gas policy.”
Russian oil and gas giants Gazprom, Tatneft, Tatneftegeofizika,
LUKoil, and Stroitransgaz are already active in Libya. Their
operations range from geological surveying, offshore exploration,
and development to oil refining and pipeline building. Gazprom,
the world’s largest extractor of natural gas, is also known to be
discussing with Libya the construction of a pipeline to stretch from
that country to Europe. If it is built, such a pipeline would further
consolidate Russia’s control over energy supply to its European
customers.
By no means is Russia confining its energy outreach to Africa.
In mid-October, an eight-member group of Gazprom senior
executives, led by CEO Aleksei B. Miller, visited Alaska to discuss
the participation of the gas export monopoly in various energy
projects in that American state. The high-level delegation met in
Anchorage with local authorities and with Mr Miller’s counterpart
James J Mulva, of the Texas-based oil company ConocoPhillips, to
consider gas production and transportation in Alaska, which shares
a maritime border with Russia.
While it provided no details of the types of projects discussed,
Gazprom presented itself as an eager and able prospective partner.
“[We have] accumulated vast experience in exploring hydrocarbon
deposits, and building and operating gas pipelines . . . in the Far
North,” Gazprom said in a statement. “[Our] experience will be
relevant in realizing similar projects in Alaska.”
At a shareholder meeting in Moscow in June, senior officials of
Gazprom had said that the company was seeking to take part
in a consortium to build a natural gas pipeline from Alaska to
Canada. Gazprom had earlier expressed interest in a pipeline
project alongside ConocoPhillips and British oil major BP to
carry natural gas from Alaska’s North Slope to the lower 48
states of the US.
■ The 13 October meeting in Anchorage, which included several
close associates of Russia’s prime minister Vladimir V Putin,
took place a scant three weeks after Alaskan governor Sarah
Palin – the running-mate of Senator John McCain in the US
presidential election just over — cited her vigilance against
Russian incursions into Alaska as a foreign policy credential.
In a 25 September television interview Ms Palin said, “As Putin
rears his head and comes into the air space of the United
States of America, where do they go? It’s Alaska. It’s just right
over the border. It is from Alaska that we send those out to
make sure that an eye is being kept on this very powerful
nation, Russia, because they are right next to, they are right
next to our state.”
■ 28 October found the Russian business executives back in
Moscow for the opening of a Russia-China business conference
at which the two countries would reach agreement on building
an oil pipeline from the Siberian town of Skovorodino to the
Chinese border. Mr Putin and his opposite number, prime
minister Wen Jiabao, watched as officials of China’s state
energy major CNPC and Russia’s state pipeline monopoly
Transneft signed the deal.
The pipeline – which would be a branch of the main East
Siberia-Pacific Ocean trunk pipeline now under construction –
is to have a capacity of 15 million tons of oil per year, officials
said. At the border with China the pipeline is to be linked to the
existing Chinese system, with the oil hub of Daqing in northern
China as an ultimate destination.
The length of the pipeline is projected at only around 44 miles,
but China’s prime minister placed it in a larger context of
Chinese-Russian relations. “We should deepen cooperation in
the energy sphere,” Mr Wen said. “Long-term cooperation will
help economic development and stability on world markets.”