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A Russian view of energy tensions
Original: “New OPEC in the Making?”

Stephen Boykewich, The Moscow Times
December 2009: After weeks of rioting in Turkmenistan, President Saparmurat Niyazov flees. Moscow accuses Washington of fomenting a coup, and Russian and Iranian troops seize control of the capital, Ashgabat, to secure the country’s gas supplies.

The U.S. president, furious that U.S. protests have been ignored, mobilizes troops based in nearby Azerbaijan.

At a crisis meeting in Moscow, Gas OPEC member nations Russia, Iran, Algeria, Libya, Kazakhstan and Uzbekistan agree to cut all gas supplies to Western Europe in response.

On Jan. 1, 2010, the lights go out.

However unlikely such a nightmare scenario may seem, it’s precisely the sort of scenario that governments and global energy companies plan for.

It’s also one that seemed a bit more likely after a speech by one of Gazprom’s most vocal supporters in the State Duma, Valery Yazev, at a May 28 Berlin energy conference. Yazev, who heads the Duma’s Energy, Transportation and Communications Committee, made a fiery condemnation of European moves to limit Gazprom’s reach.

…The concrete threat of a gas OPEC was no mere bravado. It was also backed by certain hard facts of the world’s natural gas supply.

Russia has the world’s largest natural gas supply, with 28 percent of known reserves globally. Combine Russia’s reserves with those of just two other countries — Iran and Qatar — and the figure reaches nearly 60 percent.

Russia also accounts for 20 percent of world gas production and 26 percent of gas supplies to Europe at a time when global gas demand is set to double over the next 25 years.

In line with Miller’s threat about European protectionism, Yazev characterized a possible gas OPEC as a way to settle scores with Europe.

“Acting mainly in isolation, gas suppliers have lost out in the negotiation process, which has been dominated by consumers acting in coordination, as a cartel,” Yazev said at the Berlin conference.

A producers’ cartel, by implication, would balance the scales.

But the characterization of European gas consumers as a cartel might come as a surprise to the Europeans themselves.
(22 June 2006)

Military move on Iran could triple oil price-Saudi

Chris Baltimore, Reuters
World oil prices could triple if the diplomatic standoff over Iran’s nuclear program escalates into a military conflict, Saudi Arabia’s ambassador to the United States said on Tuesday.

“The conflict itself … will shoot up the price of oil astronomically,” Prince Turki Al-Faisal said at a press conference. “We think military conflict would be counterproductive in Iran.”

“The whole Gulf will become an inferno of exploding fuel tanks and shot-up facilities,” Al-Faisal said.
(20 June 2006)

Gas redistribution in Eurasia

Dr. Igor Tomberg, RIA Novosti
“Gazprom is ready to support the construction of a gas pipeline from Iran to Pakistan and India with financial resources and technology.

This project will definitely pay off and is quite feasible,” said Russian President Vladimir Putin in Shanghai on June 15, clearing the way for serious changes to the Eurasian gas market.

First proposed by Iran in 1996, the projected pipeline is estimated to have a cost of $7 billion and will be 2,775 km long… Given China’s growing energy demand, there are plans to continue the pipeline to the Chinese province of Yunnan.
(20 June 2006)

China’s first foray into Russian oil

Business Times (Malaysia)
Sinopec made China’s first foray into Russian oil on Tuesday by buying a mid-sized unit of BP’s Russian vehicle TNK-BP.

But state-owned oil firm Rosneft said it could buy half of Sinopec’s Russian assets, cementing the Government’s grip on the energy industry…

“We assume the deal received clearance from the Kremlin. It would be the first significant acquisition by a Chinese firm in Russia,” Aton brokerage said in written research.
(22 June 2006)

Oil Firms Debate Gulf Leases

Edmund L. Andrews, New York Times
Facing angry lawmakers from both political parties, executives from three major oil companies — Royal Dutch hell, Chevron and ConocoPhillips — indicated on Wednesday that they ight be willing to give up sizable taxpayer subsidies for drilling in the Gulf of Mexico.

But one of the most active players in the gulf, the Kerr-McGee Corporation, showed no signs of compromise and told a House hearing that it was entitled to the subsidies — known as royalty relief — even if oil prices remained above $70 a barrel. And Exxon Mobil said it saw no reason for the subsidies to be changed.

The sharp split among some of the world’s biggest energy companies highlighted the political and legal difficulties that Congress and the Bush administration face in correcting an error that could cost the government as much as $10 billion in royalties over the next 25 years from oil and gas produced in publicly owned waters.
(22 June 2006)
Dick Lawrence comments:

This situation is based on an outright mistake by the U.S. government – in negotiating terms of leases with oil firms for Gulf of Mexico drilling rights, they wanted to include financial incentives for drilling, but forgot a crucial term – phasing out those incentives if the price of oil went above some threshold. Now the oil companies are cleaning up big time: taking the incentives (to which they are legally entitled) AND raking in big profits on oil that is more pricey than even the wildest optimists dreamed of, 3 years ago.

It’s now an oil-company PR issue: lots of angry customers, and Congress mumbling about windfall-profits taxes. Can a concession here improve their public image? Is it worth a few billion in profits?

This mistake – now looking like an incredible blunder – could cost U.S. taxpayers $60 billion before it’s over.

Looking in our archives, I found a related article, in which an Exxon Mobil executive railed against subsidies of any kind – see the next item. -BA

Exxon Mobil CEO calls for an end to ethanol subsidies

Jeff Wilson and Joe Carroll, Bloomberg via Detroit Free Press
Exxon Mobil Corp., after posting a record $36.1 billion in profit last year from surging oil prices, said the United States should end 28 years of subsidies for a competing fuel made from corn because the subsidies benefit domestic growers.

“We’ve never been a supporter of subsidies under any conditions because they distort market signals,” chairman and Chief Executive Rex Tillerson said in a New York interview Tuesday. “What the government has done is stick a filter between the signals of the market and consumers. The fact that the subsidies exist shows it’s not a viable alternative.”

Tillerson rejected President George W. Bush’s call for increased government aid for ethanol, a form of grain alcohol that’s blended into about one-third of U.S. gasoline. Surging energy prices helped Exxon to the most profitable year ever for a U.S. company. Tillerson’s comments drew the ire of corn and ethanol producers.

“In the face of pornographic profits being made by oil companies and the reality of higher gas prices this year, it is outrageous for an executive for big oil to actually suggest getting rid of the tax credit for ethanol,” said Brian Jennings, executive vice president of the American Coalition for Ethanol in Sioux Falls, S.D.
(9 March 2006)