- By Steve LeVine<p> Steve LeVine is a contributing editor at Foreign Policy, a Schwartz Fellow at the New America Foundation, and author of The Oil and the Glory. </p>
The uprising tax: Continue to look for Saudi Arabia to dutifully police the price of oil, but the arm of the law will come down a little more leniently — when oil is at $100 a barrel and above. Call it the Uprising Tax. Because of all the trouble stretching from the Magreb across to Oman, Saudi King Abdullah and the rest of the ruling family are worried about potential trouble at home. To avert that, they have bestowed $130 billion in largesse on the populace in the form of various giveaways. But how to pay for all this generosity, you might ask. The answer is oil revenue. But the price has to be higher than the $68 a barrel that previously resulted in a balanced Saudi budget, according to the Financial Times‘ Michael Peel and Javier Blas. Now, oil must be at $88 a barrel, plus a margin for error, hence justifying the $107.94 a barrel price at which oil closed today. And four years from now, oil must cost at least $110 a barrel.
Challenging times for Darth Vader: Is Igor Sechin — aka Darth Vader, the right-hand man to Vladimir Putin — truly in trouble? The news out of the Kremlin would have us believe so. President Dmitry Medvedev has issued an order stripping Sechin (pictured above with Putin) of his post as chairman of Rosneft, the Russian state oil company. Skeptics suggest that the jury is out whether the dismissal takes effect, or even if it does, whether Sechin can be held back from continuing to exercise effective control, given his relationship with Putin, Russia’s most-powerful political figure. Whatever the case, we are specifically interested at the moment because of how Sechin’s fate is interwoven with BP’s.
As you recall, the geopolitical impact of last summer’s Gulf of Mexico oil spill was that BP — on the outs in the United States — got into bed with Russia in a big way. In January, BP CEO Bob Dudley did a deal with Sechin in which Rosneft would own 5 percent of BP’s shares, BP would own 10 percent of Rosneft’s, and the two companies together would explore the granddaddy of Russia’s remaining oil mother lode — the Arctic Sea bed. This narrative has fallen apart as two European tribunals have ruled that BP violated a pre-existing marriage — a partnership called TNK-BP, which holds rights of first refusal for any deals on Russian soil involving BP. How did Dudley — who had a previous bad experience with the very same Russian oligarchs behind TNK-BP — commit such a blunder? And why wasn’t Sechin himself able to head off any number of indignant Russian oligarchs? Read on for more about BP, Sechin, and the Wrap.
First, if Dudley contracted amnesia and chose to pursue the tie-up with Rosneft while ignoring the oligarchs, he deserves the same fate as his summarily ousted predecessor, Tony Hayward. The truth isn’t publicly known as yet, but I don’t believe that was Dudley’s error — he in fact did understand that the TNK oligarchs had to be mollified, and told Sechin as much. But Sechin must have told him not to worry — he would take care of the oligarchs. Dudley would have believed him given that, by reputation at least, Sechin is the third most-powerful man in Russia, right behind Putin and President Dmitry Medvedev (some people say that Sechin is the second most-powerful). Sechin must have advised Putin that it was a good deal, and Putin probably didn’t concern himself with the details; this is a man with a lot on his plate, after all. This is where the murkiness gets the thickest — somehow Medvedev got wind of the deal, and hit the roof. First, he must have had a conversation with Putin — regardless of the rumors of a rift, there is no blue sky between these two. The oligarchs were then informed that they could safely resist the agreement without penalty. That is the only explanation for their risking Sechin’s and Putin’s wrath by going to court.
How does BP recover? Since neither BP nor Rosneft have the $30 billion it would cost to buy out TNK-BP outright, I am told that the oligarchs will settle for one of two arrangements: an exchange of their 50 percent share in TNK-BP for pure BP shares; or a shift in the Rosneft deal in which TNK-BP does the Arctic, not BP alone. One could imagine BP jumping at the former option if the oligarchs agree to a sort of silent arrangement — shares and profit, but no say whatever in management. Yet BP’s last tussle with the oligarchs — when Dudley fled Russia, then went underground for several months in undisclosed locations until the trouble was settled — makes that seem unlikely.
The cleanest outcome would be either another Big Oil company stepping in and replacing BP in the deal, or BP somehow coming up with the cash, or a backer having the cash, for a buyout. Whatever the case, BP continues its unbroken record as a corporate naïf in Russia.
Shale gas and train blindness: The state of Pennsylvania is the latest member of the shale gas coalition to fail to grasp the industry’s possibly crippling PR malady. Where the story begins is that the U.S. shale gas industry has a glut of supply, one so enormous that it has depressed price projections going forward to 2020, and profit forecasts with them. So one would think that the industry — and states such as Pennsylvania hoping to reap big tax revenue from it — would be hunting any opportunity to sell more gas, or at least not less, such as by heading off activists who wish to shut down the business. Shale gas skeptics have created a widely accepted narrative that "fracking" — hydraulic fracturing, the method used to remove gas from shale rock — leaches chemicals, carcinogens and radioactive material into ground water. The industry could get in front of this moving anti-fracking train — it could very publicly bludgeon bad actors into building safe wells, and disclose the composition of fracking fluid. Instead, companies have dug in their heels, and basically said "You can’t stop progress." Meanwhile, 1,016,844 people have viewed the video below from the film Gasland, and told a lot of their friends about it. Voters in the Oscar competition, for instance, heard about it and nominated it for an Academy Award.
Where does the government of Pennsylvania come in? It has issued new rules barring the state’s oil and gas inspectors from citing shale gas’s bad actors absent permission from political appointees with the governor, reports Abrahm Lustgarten at ProPublica. Pennsylvania sits above the country’s largest shale gas deposit — the Marcellus Shale. Against public agitation about water pollution, Gov. Tom Corbett’s apparent response is to put a leash on regulators. Lustgarten quotes John Hanger, former head of Pennsylvania’s Department of Environmental Protection:
It’s an extraordinary directive. It represents a break from how business has been done in the department within the Marcellus Shale and within the oil and gas program for probably 20 years. It’s on its face really breathtaking and it is profoundly unwise. I would urge them to rethink and rescind.
How deep is your love? Lithuania has been a vociferous voice opposing the construction of new nuclear power plants in neighboring Russia and Belarus — proposed in Kalinigrad and the Belarusian town of Astraviec. But not so for nuclear power on its own soil. Romas Svedas, Lithuania’s deputy minister for energy, favors the construction of a 3.4 megawatt nuclear power plant in the town of Visaginas, reports Josh Chaffin at the Financial Times. Is some perverse accounting of the events at Fukushima behind this schizophrenia? Not really. Call it Gazpromitis. Lithuania is opposed to nuclear power because of the potential for an accident but, 19 years after gaining independence in the Soviet collapse, it is even more worried about Russia’s heavy thumb. In this case, Gazprom, Russia’s gas giant, provides 100 percent of Lithuania’s natural gas, and Russia in the past has appeared to capitalize on that monopoly to economic advantage. Lithuania has been desperate for an alternative. Hence, its conflicted nuclear policy.