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Sign of the Times: Russia turns Big Oil into employees

Steve LeVine, The Oil and the Glory
Russia has provided evidence for the direction in which Big Oil is headed: smaller and humbler.

This indication comes with Russia’s announcement that it’s selling a 24% stake in one of its most strategic natural gasfields — Shtokman — to Norway’s Statoil. Read AP report on

That deceptive news release by the Kremlin hides a bitter fact for the company — the likelihood that Statoil will be a mere contractor; it will not occupy the accustomed role of developer.

The fine print is what the industry calls booked reserves. These are the standard underpinning of an oil company’s worth — how much oil and natural gas they themselves control, and thus can sell at some point at, say, $90 a barrel or $260 a thousand cubic meters.

In the Russian case, Moscow is denying the companies the right to book the reserves. Hence, there is no real reason to celebrate. That’s the deal that France’s Total got in July, when the Kremlin gave it a 25% stake in the operating company developing the field, and though no details were released on the Statoil deal, one would expect them to get the same terms.

Why do the companies go along? Because they are desperate for any entree into places like Russia, and hope (without basis) for better terms later.

This is a blueprint for how Big Oil is likely to be increasingly treated around the world. Somewhere between 80% and 90% of the world’s oil and natural gas is controlled by countries like Venezuela, Saudi Arabia and Russia, not Exxon, Shell or BP. And, over the next two or so decades, those countries are going to turn the big oil companies into employees.

Is that bad or good for the buyers of the actual end product — motorists and homeowners? It could very well mean even higher prices than Big Oil commands since the countries are not under the same competitive or cost pressures as the companies.

Steve LeVine covered Central Asia and the Caucasus for The Wall Street Journal and The New York Times for 11 years. The Oil and the Glory will be published in October. His next book is about the concurrent revival of Russia’s global influence, and its unexplained string of high-profile murders.
(25 October 2007)

Boom in China’s coal industry draws increasing interest from American investors and business

Associated Press
CHARLESTON, West Virginia: As China’s appetite for coal is booming, American investors and businesses are cashing in.

American pension and mutual fund money is being invested in the Chinese coal industry, which is lucrative but has a poor record for pollution and worker safety.

Look no further than China Shenhua Energy Co., the Beijing giant that produces about 170 million tons of coal a year from 21 mines and builds power plants. While about 80 percent of the company’s stock is owned by Shenhua Group in Beijing, the rest of its shareholders reads like a who’s who of U.S. investors: Fidelity Investments, OppenheimerFunds, Merrill Lynch, even the Teachers Retirement System of Texas.

The performance of Shenhua’s Hong Kong-listed shares explains why U.S. investors love Chinese coal.
(27 October 2007)

Arctic oil, gas offer challenge, potential

Tim Bradner, Anchroage Daily News
I’ve been fascinated with the notion of huge undiscovered oil and gas resources in the world’s Arctic regions that may become assessable as the polar ice pack shrinks. This is important for those of us who worry about “peak oil,” the theory that the world will soon reach the peak of oil that can be produced.

Next year we’ll get the first educated guess of the potential resource of the Arctic when the U.S. Geological Survey completes its Circum-Arctic Resources Appraisal, the first comprehensive effort to predict the amount of oil and gas that might be recovered from polar regions of the globe, and which will be available to the public.

Of more interest to Alaskans is the agency’s assessment for regions north of our state, either owned or that the United States could claim. That should be out by the end of the year, says Brenda Pierce, a Geologic Survey scientist.
(28 October 2007)