Thursday, August 12, 2010

Chinese Energy Options

In an effort to reign in China's double digit growth in energy demand, the government of China will close over 2,000 energy-intensive factories, according to the New York Times (10 August 2010). To make certain that the factories close, the Ministry of Industry and Information Technology has said the factories would be denied bank loans, export credits, business licenses, land --even electricity. Such closings will help China reach its 5 year plan of reducing the amount of energy used per economic output by 20%, it could also make China more competitive. The Times reports that the steel mills to be closed are the smaller, older units: leaving the producers of more sophisticated kinds of steel untouched.

Despite such efforts at conservation, China's needs continue to place a strain on world energy production. China is continuing its efforts to sign bilateral deals with countries that have problems with the United States. As an example, the Los Angeles Times reports a senior European official calling Chinese business activities in Iran as "amazing." State Department official Robert Einhorn said that China backfills when responsible countries distance themselves from a particular country. China has invested over $40 billion dollars in the Iranian petrochemical industry, and is engaged in all aspects of the industry. Most recently, according to Iranian deputy oil minister Hossein Noghrekar Shirazi, China has proposed to build seven new refineries in Iran. (LA Times, 09 August 2010).

Chinese energy purchases from pariah nations defeat the purposes of American sanctions against those regimes, but it has the advantage of freeing up energy supplies from other countries for use by the United States and its European allies. Turkmenistan was considering a natural gas swap arrangement with Iran in order to get its gas to market. (Iran sells its gas on the open market and uses the money to buy Turkmen gas, since the Turkmen have no way to get their gas to the world markets.) Because of the sanctions against Iran, however, Turkmenistan is looking more favorably at the possibility of a pipeline to send its gas to Europe via Azerbaijan.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at

Bulgaria Turns to South Stream

This week, Nabucco has fallen behind South Stream in the race for control of gas deliveries to Europe. Bulgarian Prime Minister Boyko Borisov has announced that Bulgaria and Sofia have agreed upon the South Stream pipeline route through the two countries. (Oil and Gas Eurasia, 09 August 2010). At the same time, Wolfgang Ruttenstorfer from the Austrian energy company OMV told the Wall Street Journal that a final decison on building Nabucco could be delayed until the beginning of 2011. The decision will only follow completion of the "open season" process scheduled to begin in the fourth quarter of 2010. During this period, Nabucco shareholders will be able to purchase long term contracts for the pipeline's throughput capacity. (Oil and Gas Eurasia, 09 August 2010).

Commenting on the future of Nabucco, Atlantic Council senior fellow Borut Gric characterized it as "the project that never seems to stop being planned." Gric referred to Nabucco as a paper tiger that lacks the financing and political support to make itself operational. (Today.AZ, 09 August 2010).

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at

Shah Deniz Gas To the Balkans

Plans to deliver natural gas to the Balkans from the Shah Deniz offshore energy field are proceeding. In July, Ankara and Baku signed an agreement clearing the way to allow the international energy consortium that is developing the field to ship gas through existing pipelines in Turkey.

The amount of gas from the initial Shah Deniz project is limited, so Balkan leaders would be interested customers primarily for energy security, says the Atlantic Council's senior fellow Borut Grgic. The gas should be available for delivery in 2014 (Today.AZ, 09 August 2010).

Meanwhile, the consortium operating Shah Deniz 2 has begun talks with potential partners, according to the Norwegian energy company Statoil. (Today.AZ, 06 August 2010). This would bring an additional 10 bcm a year of gas onto the market, and would represent a 1/3 increase in Azeri natural gas production--and becoming the source of 1/4 of all Azeri natural gas.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at

Georgian Pipeline to Azerbaijan?

Gazprom might not be the winner in the competition to acquire the main North-South pipeline in Georgia, afterall. This blog reported last week that the Georgian government was putting the pipeline up for sale, and speculated that the cash rich Russian pipeline company might purchase the asset. According to the Turkish newspaper Hurriyet, "observers in Tblisi say the new owner of the pipeline is 99 percent likely to be SOCAR." The deal apparently has been under discussion at the presidential level between Azerbaijan's Ilham Aliyev and Georgia's Mikheil Saakashvili for at least a month, according to Oil and Gas Eurasia (09 August 2010).

Such a development could change the politics of the Nagorno-Karabagh dispute. The Georgian North-South pipeline is the major source of Russian natural gas for Armenia, lying to the South of Georgia. Azerbaijan would have the ability to use access to the natural gas to bring pressure on Armenia to achieve a solution to this two decade-old conflict.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at

US Need for an Independent Eurasian Oil Supply

When Democrat Bill Clinton was President of the United States, there weren't many issues where he could expect support from Ronald Reagan's Secretary of Defense. But when it came to the importance of making sure Caspian gas and oil could reach world markets without Gazprom's permission, the two were united. Independent Caspian energy was endorsed by such disparate individuals as Henry Kissinger, Dick Cheney, and Zbigniew Brzezinski.

In May 1997, Weinberger gave a speach about Caspian energy resources. He said "The stakes in the Caspian are enormous...Open access to the Caspian is critical if the United States is to diversify its energy sources and reduce its dangerous reliance on Middle Eastern supplies." Weinberger worried about regional powers gaining control over the Caspian: "They will have potential leverage over Western economies, which will be left to rely on the unstable Persian Gulf regon for oil...Our long-term security interests are at stake." (Casper Weinberger as quoted in Bower, Tom. "Oil: Money, Politics, and Power in the 21st Century," New York: Grand Central Publishing, 2009, p. 120.)

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at

Thursday, August 5, 2010

Whither BP?

British Petroleum, the fabled descendent of the Anglo-Iranian Oil Company, is in big trouble because of the financial obligations they have incurred in the Gulf oil spill. Or is it?
RIA-Novosti said that BP was considering selling part of its 50% ownership in TNK-BP, the Russian corporation that represents a fifth of BP's oil reserves, and about 25% of BP's production. Likely purchasers would be Gazprom and Rosneft. In Azerbaijan, there were reports that BP would sell its shares in the "Azeri-Chirag-Guneshli" offshore oil field. BP corporate headquarters recently floated a scheme to raise capital from TNK-BP by selling the Russians its shares in three Venezuelan projects, according to the St. Petersburg Times. The Russian newspaper claims that newly installed BP CEO Robert Dudley would preside over the sale of $30 billion in assets.
Despite the rumors of doom and gloom, however, it would appear that BP is not on a selling spree, but a buying one. On July 6, BP signed an agreement with the State Oil Company of Azerbaijan for the joint exploration and development of the Shafag and Asiman structures in the Caspian Sea. In addition, Devon Energy Company has announced that on August 16 BP will pay $2 billion dollars for Devon's 5.6% share of the "Azeri-Chirag-Guneshli" project. BP believes the field has proven oil reserves of more than 7 billion barrels, and the company will own almost 40% of the shares in the project when the sale is complete. Devon also plans to sell BP its assets in Brazil and the Gulf of Mexico. The cost of the entire deal is $7 billion dollars.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at

Eurasian Energy Moving East

While this blog has covered Eurasian energy movements to Europe, one cannot forget that Asia also needs oil and gas from Russia, the Caucasus and Central Asian Countries. Platts reports that Chinese oil demand for the first six months of 2010 was 210.81 metric tons, an average of 8.54 million barrels per day. This represents a 13% jump in demand over the same time period in 2009. Demand in natural gas also continues to rise.
To meet China's demands, Kazakhstan opened in July 2009 the first phase of its oil pipeline to China. As for natural gas, in December 2009 Chinese president Hu Jintao met with Turkmen president to inaugerate a Trans Asian gas pipeline. The Washington Post reports the pipeline will cost $6.7 billion to build, and will link with China's West-East gas pipeline. The pipeline is designed to meet half of China's gas needs. Russia has promised to meet the other half of China's gas needs, with two new pipelines from Siberia. In addition, Russian Premier Vladimir Putin recently relaunched the proposed Eastern Siberia-Pacific Ocean oil pipeline.
Not all reports demonstrate increased Chinese demand for energy, however. Eurasia Oil and Gas reports that China's imports of Iranian crude oil fell by almost a third in the first half of 2010.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at

NABUCCO Gains Support

In this week's installment of the Nabucco v. South Stream sweepstakes, it appears that the Nabucco pipeline has taken a slight lead. The Russian newspaper Kommersant reports that the European Union has worked out a plan that will allow Turkmenistan to join the Nabucco pipeline without the legal status of the Caspian Sea being finalized. The EU has created a draft document that could be used as a model for an agreement to authorize construction of a gas pipeline between Azerbaijan and Turkmenistan.
The Turkmen feed is necessary for Nabucco to be a commercial success, as Azerbaijan by itself lacks the natural gas reserves to fill the pipeline. According to Gunter Oettinger, the EU Energy Commissioner, Azerbaijan can supply most, but not all, of the gas. Azerbaijan needs gas to meet its own domestic gas demand, and to meet contracts it has signed with neighboring countries.
Turkmenistan is interested in joining with Nabucco after Russia cut its purchases of Turkmen gas, and refused to help fund construction of the Turkmenistan East-West Pipeline, according to Eurasia Oil and Gas magazine. Turkmenistan is financing construction of the pipeline itself, pledging $2 billion of its own funds. By paying for the pipeline itself, however, Turkmenistan is free to sell its gas to Nabucco instead of to Russia's rival South Stream project.
Bulgaria's Minster of Economics Traicho Traikov announced that construction of Nabucco will begin next year with the construction of a gas pipeline uniting the Bulgarian and Turkish natural gas networks. This section of the Nabucco pipeline will cost 200 million euros.
Nabucco supporters continue to look for additional sources of gas for the project. The Jamestown Foundation's Vladimir Socor reports that German Chancellor Angela Merkel and US Special Envoy for Eurasian Energy Affairs Richard Morningstar have raised with Kazakh officials the possibility of Kazakhstan becoming a gas supplier. Reportedly, Kazakhstan President Nursultan Nazarbayev told Chancellor Merkel tha Kazakhstan is ready to join the Nabucco pipeline project. According to Eurasia Oil and Gas, Nazarbayev said he had not committed to Nabucco previously because of sluggishness within the European Union. For Kazakhstan to join the project, Nazarbayev insists a pipeline must be built across the Caspian Sea, and a gas liquification plant must be built in Kazakhstan.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at