Small world: Libya, Russia, Germany, Georgia, Turkey, Turkmenistan, Japan …

March 29, 2011 – today’s proof that we live in a small world indeed.  Let us take a quick tour of the world, stopping in Japan, Turkey, Russia, Georgia, Turkmenistan, Baden-Wurttemberg, the Gulf of Mexico, and Libya.

Today’s reports suggest the Libyan fighting has bogged down precisely between Ras Lanuf and Sirte (Surt) and talk of a negotiated settlement that lets Qaddafi seek asylum in an “African country” (presumably Chad).  The Turks are said to be the chief negotiators, which is perhaps why they are in London today at the meeting.

The either/or assumption here (and in other media reports) seems misguided.  Why can’t we have the Western powers acting both on humanitarian grounds (and I think such grounds did play a big role, and that Europeans have a much more visceral reaction to Bosnia than Americans do) and on grounds of oil and gas power politics?  The two happen to come together perfectly for many of the key actors.

Did David Cameron and his cabinet sit around talking about BP’s interests in the Arctic and Turkmenistan and in Libya and how they are related?  Perhaps not, but were they aware of such interests?  Of course.  Were they focused, prior to the intervention, on the looming catastrophe in Benghazi?  Yes, I firmly believe so.

The absolutely genuine concern about the Death of Benghazi, however, does not mean that Her Majesty’s government were unaware of BP’s financial problems related to the Gulf of Mexico spill [just an aside, but what does it say about the thinking of governments in places like Libya or Russia that they are lining up to make deals to DRILL FOR OFFSHORE OIL with BP, the company that made Deepwater Horizon a household word?].  Are HM’s government unaware that big oil and gas deals in the Russian Arctic and in Libya could save a company that is arguably the most important one in Britain (not simply on its own, but because, from published reports, massive amounts of British pension funds, including those of local governments, are invested in BP stock)?  At a time of economic crisis in Britain, a government that ignored BP’s problems would be committing political suicide (and, to be fair, like BP or not, saving the company really is an important priority for the British economy, and thus for HM’s government).

Putin is a different matter, because the issues are so obviously connected for Russia’s oil and gas sector.  He wants Rosneft to make a deal with BP itself for the Arctic exploration, so he needs to void the TNK-BP deal in some way.  What better compensation for the TNK guys than a share of the Libyan pie?  Russia agrees not to veto, the West agrees that TNK-BP gets some of the Libyan goodies:  Russia steps up the rhetorical pressure as soon as the “rebels” get west of Ras Lanuf (as it did yesterday).  Medvedev came in for heavy domestic criticism for not vetoing the UN resolution: some commentators claimed Russia has $70 billion invested in Libya and needed to stand by Qaddafi, but others thought a neutral stance made more sense.  Russia’s main partner in the region is Algeria, not Libya.

So, Russia puts pressure on Turkey to broker a deal.  Turkey?  Where did they come from?  Well you might ask.

From an article in Turkey Analyst (http://www.silkroadstudies.org/new/turkey.html;  biweekly online publication, issue of 21 March 2011; tracking down the Turkey-Russia oil connection, I stumbled upon it first reproduced in an Israeli blog, crethiplethi.com).

 

“The nuclear disaster in Japan has further complicated the complex energy relationship between Turkey and Russia. Frictions persist over Turkey’s reluctance to support Russia’s South Stream pipeline project and become ever more dependent on Russian energy sources. Turkey has already become one of the largest Russian gas importers; natural gas accounts for the highest share of the Turkish-Russian trade turnover. Turkey’s dependence on Russian energy is a cause of concern among officials in Ankara. Diversification of energy partners would leave Turkey less likely to be manipulated by the Kremlin, which occasionally uses its energy exports as a political weapon.”

“Occasionally”?

Russia, it seems (our old friends Gazprom), provides 2/3rds of Turkey’s natural gas (according to the article, gas provides T’s electricity).  The Russians are supposed to build 4 nuclear reactors in Turkey, but events in Japan are causing some problems (downplayed by Erdoğan).  Russia also needs Turkey’s permission to finish the so-called Southern Stream gas pipeline, under the Black Sea, to landfall in Bulgaria, then splitting into parts that run toward Vienna and toward southern Italy.  Russia is also building a Nordstream, under the Black Sea, directly to Germany.  And you wonder why Germany, also worried about nuclear power’s future (see Chancellor Merkel’s face, talking about the Green Party victory on Sunday in Baden-Wurttemberg’s state elections), like Russia (its main supplier of natural gas), abstained in the UN SC?

Russian Beyond the Headlines reports today (29 March) that:

“A pipeline race between Russia and the EU and the United States has intensified amid fears of energy shortages following the turmoil in North African states that produce natural gas.
With the European market standing to lose up to 10 billion cubic metres of gas a year because of the conflict in Libya – and up to 50 billion more if the conflict spills into neighbouring Algeria – interest is growing in Russia’s South Stream pipeline project, with Germany’s BASF bringing $2bn (£1.2bn) on board last week.”

So, a major German company invested $2B in a Russian gas pipeline at the same time both countries abstained on the Libyan vote.  Hmm.

Later in that same article, we read:

“The greatest hurdle, however, is Turkey, where the government had been due to approve construction of the line last November before negotiations broke down. Ankara is haggling hard for additional benefits on nuclear power plant projects and is trying to talk Moscow into extending another gas project across the Black Sea called Blue Stream.
‘The Turks want to get as much as they can in return for their permit,’ said Sergei Demidenko, an expert on the Middle East at the Moscow Institute of Strategic Studies and Analysis.”

And who is Gazprom’s joint operator for the southern Italian branch?  Why it’s ENI!  Initials sound familiar?  They run the gas pipeline from western Libya to Italy.

Many of you will remember the Russia-Georgia war over South Ossetia (aka The Great Pipelines War).  Georgia is the lynchpin of the oil pipeline from Baku-Tbilisi-Ceyhan (30% owned by BP, largest stake;  ENI only 5%)  and of the South Caucasus gas pipeline, which currently has a capacity of about 7 billion meters a year (BM/Y).  BP Caspian has a project in the works to increase that capacity to 20 BM/Y, but efforts to draw as well from natural gas supplies in Turkmenistan have been severely undercut by the creation of a massive pipeline from Turkmenistan to China, with a capacity of 40 BM/Y (that was roughly half of China’s natural gas needs at the time the pipeline opened, in 2009).  Europe has been trying to create the so-called Nabucco pipeline, also for Turkmenistan natural gas, with a capacity of 31 BM/Y.  Needless to say, these three pipelines could compete with Russia’s Southern Stream project.  Published reports suggest there is not enough natural gas to supply all these pipelines.

Because of the massive costs of the Gulf of Mexico disaster (a 2010 write off of something like $40B), BP has been selling assets to raise cash:  $1.3 billion from our friends TNK-BP, for South American assets; $4 billion, bonds floated against revenues from production in Azerbaijan and Angola, it’s a long list.  TNK-BP had first quarter 2010 profits of $1.3 billion (on revenues of $10.2B; by comparison, Rosneft had 9-month profits of $4.8B), but reports suggest they are running short of cash, perhaps due to the BP asset purchase (not yet completed).  TNK-BP gets key BP assets in Libya, BP gets to develop the Arctic, Turkey gets Russia to agree to drop the “take or pay” provision for countries on the pipeline route [they are required to buy fixed amounts, at fixed prices, whether they want to or not – Turkey fell afoul of this rule with the Russians in an earlier deal], so the Southern Stream project can go forward

Is all this stuff just a coincidence?  Right.

We need not consider these developments to be some vast, complex conspiracy.  The great oil companies are reacting to events, and political actors are taking steps with an eye to the interests of their country’s great economic players (BP, ExxonMobil, Conoco, Rosneft, Gazprom, etc.).  To do otherwise, in either case, would be foolhardy and, certainly in the eyes of those running the companies or governments, completely irresponsible.  The two sides thus act symbiotically and synchronically.  Energy companies like BP are too obsessed with short-term profit, thus thinking in terms of tactics, yet they oddly must always act with at least one long-term objective, access to future energy sources, so they have a permanent strategic plan, too.  Governments, it seems, do not share this synergy between tactics and strategy.

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