TPT January 2009

Oil & Gas News

OPEC cuts its production quotas – but to what effect?

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.”

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

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J anuary 2009

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