Politico | How to Lose an Energy War with Putin

Forget Glasnost, Mikhail Gorbachev and the arms race. What really broke the Soviet Union was the collapse of oil prices in the late 1980s. The late economist Yegor Gaidar, one of Boris Yeltsin’s prime ministers, wrote in 2007 that the empire’s fall could be traced back to Sept. 13, 1985, when Saudi Arabia, fed up with holding back supply to prop up prices, opened the spigots in a quest to recover lost market share. That day, he argued convincingly, was the beginning of the end.

The USSR, pumping almost 12 million barrels a day, was the world’s largest producer at the time. Riyadh’s change in policy caused a price shock: Oil fell from about $25 a barrel to less than $10 in the months that followed, and stayed low for the rest of the decade, costing the Soviet economy $20 billion a year in lost revenue—“money without which the country simply could not survive, ” Gaidar wrote.

Russia is the world’s biggest oil producer again now (though Saudi Arabia is the biggest exporter) but its economy still depends heavily on selling energy. Oil and gas exports account for about half of Russia’s budget and about 30 percent of its GDP. This makes it vulnerable. If the West wanted to punish President Vladimir Putin for his land grab in Crimea, runs the argument, it should target the energy revenues that keep his petro-economy afloat. (…)

(The extract above is published courtesy of Politico. The rest of it is here.)

The Economist | Electricity in Iraq: Not yet switched on, in any way

FLY over southern Iraq at night and you get a glimpse of the dire state of the country’s electricity. The brightest lights shine not from skyscrapers or roads, as they do in nearby Kuwait City, but from oilfields, where flares burn useless gas extracted with the crude. Iraq wastes about 12 billion cubic metres a year of gas this way—more than Austria’s entire consumption.

Yet Iraq, outside is autonomous Kurdish region, cannot guarantee its people a reliable electricity supply for a whole day. While the flaring goes on, Iraq imports gas from neighbouring Iran at high European prices and electricity from Turkish barges in the Gulf. Many Iraqis run their own generators, which account for 8% of the country’s total electricity supply and can cost a family as much as $1,000 a month—a sixth of average annual income. (…)

(The rest of the piece is here.)

Iraq’s gas

I’m just back from Dubai, where I’ve done some interviewing for a piece on Iraq’s gas and electricity problems. Basra Gas Company — Shell’s big deal to gather associated gas from four of the south’s mega-projects — is causing a lot of confusion and anger. For one thing, many senior Iraqis are puzzled (polite word) about Shell’s plans eventually to export some of this gas. How? Local demand for electricity will more than account for this feedstock over the next few years. I’ve got lots more research to do and hope to be in Basra in late March. Please get in touch if you can help.

The Economist | Israel’s and Palestine’s oil and gas: Too optimistic?

ARE governments of the Levant fooling their people with false promises of an offshore gas bonanza? From the proceeds, Lebanon hopes to fund a bullet train that will end Beirut’s traffic snarl-ups. Across the water, the Cypriot government has equally grandiose plans. By 2020 a vast new complex in Vasilikos, on Cyprus’s southern coast, is supposed to start shipping liquefied natural gas (LNG) to Europe and even Asia, salvaging the country’s finances. Gas reserves, say Cypriot optimists, amount to 96 trillion cubic feet.

Yet most oil analysts say this is all wildly over the top. Even Israel, whose development of offshore gas is most advanced, is unlikely, they reckon, to start exporting large amounts by 2020, as it hopes.

The sceptics say that the main brake is a lack of regional co-operation rather than a shortage of oil and gas. The Americans’ official Geological Survey estimates that from Gaza’s coast to southern Turkey the eastern Mediterranean holds 122 trillion cubic feet of gas, comparable to the reserves of Iraq. But Lebanon’s caretaker government lacks the authority to pass the legislation needed to persuade foreign oil companies to start drilling; a heralded auction is again likely to be delayed. America’s effort to mediate over a disputed maritime boundary between Lebanon and Israel is stalling progress. The civil war in Syria is scaring away big oil companies. And drilling off the Lebanese coast has yet to begin. (…)

Read the rest of the piece here.

The Economist | Libya’s oil: Gurgle and splutter

After an initial recovery in output, oil prospects are dipping

 

BOTH sides in Libya’s civil war knew they would need to sell oil again fast once the conflict was over. So for the most part they took care not to ruin the energy infrastructure. For example, while fierce fighting was devastating the western town of Zawiya, the large oil refinery to its north lay idle but untouched by war, its workers still able to have lunch in the canteen.

By mid-2012, less than a year after Muammar Qaddafi’s demise, Libya’s oil production, almost entirely switched off during half a year of ferocious fighting, had regained its pre-war level of about 1.5m barrels a day (b/d)—years earlier than expected. Proudly, Libya’s new leaders said output could soon rise to 2m b/d or more. The oil minister, Abdelbari Arusi, promised a new hydrocarbons law and an auction of leases for unexplored territory to foreign oil companies. Libya’s oil reserves, at 47 billion barrels, already Africa’s biggest, could—it was said—increase by another 10 billion. (…)

Read the rest of the piece here.

Transport

There is a mammoth survey coming in Petroleum Economist’s March issue on the future of transport.

Editing it and writing portions has turned me into a petrolhead. I’m very pleased with the shape of the survey. Watch out for it!

The Economist | Algeria’s oil and gas: Not so jolly

Recent events and wariness of foreign investors dent the oil-and-gas economy

TIGHT military control and generous spending on social services, thanks to the high price of oil and gas that Algeria has in abundance, have so far prevented President Abdelaziz Bouteflika and his regime from being shaken by the upheavals in other Arab countries. In 2011 oil exports earned Algeria $55 billion. Foreign-currency reserves are strong. GDP is expected to rise by more than 3% this year, says the IMF. The official unemployment rate of around 10% is lower than elsewhere in the region.

But all is not well. Of the world’s big oil-producing regions only the North Sea’s output has dipped more steeply in the past five years. And many of Algeria’s usual markets are shrinking. North America, where refineries once paid a premium for Algeria’s high-quality crude, takes the largest dollop of the country’s 1.2m barrels a day. Now they are tapping cheaper supplies from North Dakota. Moreover, Algeria has become too reliant on high prices. To break even, its budget banks on oil at around $120 a barrel, above typical forecasts for this year; today’s price is around $116 for Brent. (…)

Read the rest of the piece here.

NB, I was not in Algiers, despite the dateline above. This was an editing error.