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Russia-Saudi relations are a piece of cake
Moscow and Riyadh have reasons for cooperation

Thomas Seifert, Russia Profile
“In August 1986, a stake was driven silently through the heart of the Soviet economy. Although the effects would not be felt immediately, the Saudis opened the taps and flooded the world market with oil.”

Political scientist Peter Schweizer wrote these words in 1994 as part of an article that connected the Reagan Administration’s relations with Saudi Arabia to the collapse of the Soviet Union.

…The drop in oil prices from $30 per barrel in November 1985 to $10 in July 1986 basically flushed everyone out of the market, and the Soviet Union was hit especially hard. Simultaneously, Saudi daily oil production jumped from less than 2 million barrels to almost 6 million barrels and, by late fall 1985, crude oil production climbed to 9 million barrels per day.

The major problem for the Kremlin was that the drop in oil prices denied the Soviet Union much-needed foreign currency as the Soviet trade-balance was deteriorating from a $700-million surplus in the first quarter of 1984 to a $1.4 billion deficit in the first quarter of 1985.

“The drop in oil prices was devastating, just devastating,” Yevgeny Novikov, Senior Staff Member of the Soviet Communist Party Central Committee told Peter Schweizer.

…Now, however, we are in a buyer’s market, fueled by the rise of China and India, and the proliferation of gas-guzzling SUVs in the United States. The world just can’t get enough of hydrocarbons. … Everyone sitting at the table is asking if there will be enough.

It’s a good question. Geologists, especially in Europe, have tried to predict when and at what level the peak of world oil production will occur…. But this debate is hardly affecting the long lines at the bakery. Everyone wants a piece of the oil-cake, and consequently, there is no trouble between the two biggest bakers: Russia and Saudi Arabia. Their new motto is cooperation instead of competition.

Thomas Seifert is an editor of the Austrian daily Die Presse and author of “Schwarzbuch ?l” (The Black Book on Oil). He contributed this comment to Russia Profile.
(23 March 2006)

The marketistas want to break Gazprom

Jerome a Paris, European Tribune
I have been critical of Gazprom’s management (in association with top people at the Kremlin) for playing with the company for personal gain in the spat with Ukraine. I have also stated that the European authorities were interpreting that spat the wrong way, overplaying the dependence of Europe on Russian gas and neglecting the symetrical dependency of Russia on exports to Europe. I also think that having a single European counterpart to Gazprom in gas negotiations might make sense. But I have also stated that Russia should certainly not break up Gazprom, nor even open its export pipelines to third parties.

And yet the pressure from Europeans to do just that, by whipping up fear of dependency on Russian gas, is increasing again, and in my view it is going to be totally unproductive and may actually endanger our supplies more than anything.

…The main reason Gazprom can afford to deliver cheap gas inside Russia – a matter literally of life and death for most of the population – is precisely because it makes enough money on the export side to pay for the whole infrastructure that produces gas and delivers it both inside Russia and outside.

It makes sense to run the gas network as a whole, given the concentration of the production fields, the long distances involved and the harsh conditions it has to face, and to make sure that all Russians do get their gas. Its overall size means that it costs significant amounts of money to keep it in good working conditions, and that money can only come from export revenues (which means that, even if Russia decided to open its export pipelines to all comers, it would slap export transit tariffs to make these third parties pay for the pipelines and their upkeep – and keep the surplus value in Russia).
(22 March 2006)

Carbon cloud over a green fuel

Mark Clayton, Christian Science Monitor
An Iowa corn refinery, open since December, uses 300 tons of coal a day to make ethanol.
Late last year in Goldfield, Iowa, a refinery began pumping out a stream of ethanol, which supporters call the clean, renewable fuel of the future.

There’s just one twist: The plant is burning 300 tons of coal a day to turn corn into ethanol – the first US plant of its kind to use coal instead of cleaner natural gas.

An hour south of Goldfield, another coal-fired ethanol plant is under construction in Nevada, Iowa. At least three other such refineries are being built in Montana, North Dakota, and Minnesota.

The trend, which is expected to continue, has left even some ethanol boosters scratching their heads. Should coal become a standard for 30 to 40 ethanol plants under construction – and 150 others on the drawing boards – it would undermine the environmental reasoning for switching to ethanol in the first place, environmentalists say.

“If the biofuels industry is going to depend on coal, and these conversion plants release their CO2 to the air, it could undo the global warming benefits of using ethanol,” says David Hawkins, climate director for the Natural Resources Defense Council in Washington.

The reason for the shift is purely economic. Natural gas has long been the ethanol industry’s fuel of choice. But with natural gas prices soaring, talk of coal power for new ethanol plants and retrofitting existing refineries for coal is growing, observers say.
(23 March 2006)

China raises taxes to curb use of energy and timber

Keith Bradsher, NY Times
HONG KONG — The Chinese government announced plans on Wednesday to increase existing taxes and impose new ones on April 1 for everything from gas-guzzling vehicles to chopsticks in a move to rein in rising use of energy and timber and the widening gap between rich and poor.

New or higher taxes will fall on vehicles with engines larger than two liters, disposable wooden chopsticks, planks for wood floors, luxury watches, golf clubs, golf balls and certain oil products.

China’s finance ministry disclosed the higher taxes Tuesday night in a statement that was reported Wednesday morning by the official New China News Agency. The statement offered another sign that some senior Chinese officials may be having second thoughts about the rapid growth of privately owned family vehicles, whose sales rose to 3.1 million last year from just 640,000 in 2000.

“In recent years, car ownership in China has grown rapidly and fuel consumption has risen considerably, and this highlights the conflict between supply and demand of oil resources,” the statement said. “At the same time, pollution caused by motor cars has
(23 March 2006)

Of rigs and pipelines

Heading Out, The Oil Drum
A year ago the perception of a problem with oil supply was much less evident than today. While Saudi Arabia had a plan to increase production, it was using only some 30-odd drilling rigs, and the debate over its capabilities was not being widely discussed. Now that Aramco has committed to an increased level of production, they have also had to increase their drilling fleet to a target of around 100 rigs. (From Baker Hughes it is currently about 46 onshore and 6 offshore ). Because drilling rigs are made of special steels and require some sophistication in manufacture they are built in only a few places, and there is a growing lead-time on getting a new one. Thus demand for existing rigs is high, and rental costs are going up. This is impacting the US supply. Platts has just noted that since other places are now offering longer-term rentals, the US market is beginning to lose out.
(23 March 2006)