The Oil and the Glory

The Weekly Wrap: Feb. 18, 2011

More on the dictator’s playbook: A couple of weeks ago, we suggested a test for dictatorial leadership called the "Dictator’s Playbook." When faced with popular unrest, are you statesmanlike, or brutal? As models, we pointed to Georgian President Eduard Shevardnadze’s resignation in 2003 (he was not a dictator, but it was clear from protests that ...

Roberto Schmidt AFP/Getty Images
Roberto Schmidt AFP/Getty Images

More on the dictator’s playbook: A couple of weeks ago, we suggested a test for dictatorial leadership called the "Dictator’s Playbook." When faced with popular unrest, are you statesmanlike, or brutal? As models, we pointed to Georgian President Eduard Shevardnadze’s resignation in 2003 (he was not a dictator, but it was clear from protests that people wanted him out), and the 2005 massacre of protestors by Uzbekistan President Islam Karimov. After the comparatively peaceful ouster of the leaders of both Egypt and Tunisia — the Shevardnadze play — we have the alternative side of the playbook this week in Bahrain and Libya. Yesterday, forces in Bahrain stormed Pearl Square at 3 a.m., shooting at will and killing five protestors, and Libyan security forces killing perhaps two dozen people protesting the continued rule of Col. Muammar el-Ghaddafi. The clear signs are that we may have seen the extent of imminent  regime collapse in the region.

In Iran, one hears the usual calls for the execution of opposition leaders, but interestingly a letter is also circulating in which senior officers in the Revolutionary Guard request a guarantee from superiors that they will not be asked to fire on anti-government protestors. The money call is on the current regime, but this one bears watching.

Bahrain borders Saudi Arabia, the linchpin of the global oil industry, but is trouble possible in the latter? In the Wall Street Journal, Karen Elliott House delivers a take well worth reading on the fragility of the al-Saud family’s hold on power. House’s view: It is fragile indeed. However, most of the smart analysts believe there is very little chance of a Tunisian-style uprising that could upend the Saud grip on power.

 

The trouble with pirates: The thing about pirates is that they are inherently working outside the box. If they were always doing what people expected, they wouldn’t survive very long. Hence the international strategy adopted to combat Somali pirates was never a long-term one. The Greek-flagged Irene SL, a supertanker carrying 2 million barrels of oil worth some $200 million, discovered that a little over a week ago when it was captured in ostensibly peaceful waters 900 nautical miles from Somalia. The oil was Kuwaiti and headed to the United States.

The world’s seafaring countries — the United States, Europe, China, Russia — have succeeded in making it difficult for pirates operating around Somalia proper (though as we see in the picture above, Mohamed Garfanji, one of Somalia’s top pirate bosses, remains on the loose). So now they have figured out how to venture further out, reports Robert Wright at the Financial Times. Write quotes Lt. Commander Jimmie Adamsson of the European Union’s anti-piracy Navfor mission:  "It is like squeezing a balloon.If you squeeze a balloon in the Gulf of Aden, it will definitely expand in other directions because we’re not there."

What is it like to be hijacked aboard an oil tanker in supposedly safe seas? In 2009, Saudi Arabia paid $3 million to gain release of the Sirius Star, a supertanker with $100 million in oil aboard that was hijacked more than 600 nautical miles from Somalia. Here are two illuminating videos with a British crew member of the Sirius discussing the experience:

 

Criminalizing cleverness in China:  Many times, the definition of opportunity is recognizing what’s sitting before your face when almost no one else does. In China, that can be a serious violation of the law, as Xue Feng has discovered in the oil business. Xue, a Chinese-born American who successfully negotiated the purchase of an apparently open oil database for the U.S. consultant firm IHS (which also owns Dan Yergin’s outfit, CERA), has lost an appeal of his conviction and eight-year prison sentence for spying. Three Chinese nationals have been imprisoned in the same case.

Oilfield data is regarded as a state secret in large parts of the world — much of the former Soviet Union and the Middle East, for example. But one is pressed to think of another place that imprisons foreigners for collating and paying for apparently open data. What’s the definition of what Xue was doing? Business.

 

Gas in, coal out, but when? It has seemed clear that the global glut of natural gas will ultimately trigger a demand response in the countries most thirsty for more electric power like Japan and China – they will use much more gas than currently planned, an event that is part of an ongoing shakeup in energy-driven geopolitics. But when exactly will that happen?

Not soon enough as far as Alaska and Russia are concerned. In Alaska, ConocoPhillips and Marathon are closing Kenai, a liquefied natural gas plant on the Cook Inlet that had exported LNG to Japan since the 1960s. I asked Conoco spokesman John Roper why the plant would be closed given rising natural gas demand. He replied in an email that the glut is simply too formidable. "The current market conditions in Asia and our inability to get commercial supply contracts there made the facility no longer economically viable," Roper said. In Russia, the news is that the gigantic Shtokman natural gas field in the Arctic is again being delayed, and now isn’t envisioned for startup until the end of the decade. Shtokman has been wholly intended for export.

The Alaska decision bears watching because of what it says about efforts by BP and ExxonMobil to export the gas equivalent of 6 billion barrels of oil from the North Slope. These two companies are leading rival efforts to build a pipeline to ship out the gas, but they have been delayed because of the gas glut in the market-of-choice — the United States. It’s been presumed that if the U.S. market won’t work, they can ship the gas by LNG tanker to fast-growing Asia. But at the Alaska Daily News, Tim Bradner wonders whether the Kenai decision signals that the Asian market has fundamentally changed, too.

More likely is that one must maintain a long-term view, and meanwhile economize, economize, economize. Consider news going the opposite direction – Bloomberg reports that demand is so high for LNG that a surplus of tankers is drying up, and doubling freight rates. Exxon has designed its own LNG tankers for this purpose, the Q-Max, which effectively make gas as fungible as oil in terms of the ability to ship it anywhere economically. There is also the sound of what one does not hear — news of Exxon closing in any of its gigantic and ever-growing LNG supply in Qatar. Whatever trouble Conoco and Russia are having with their future marketing plans, Exxon has the largest LNG project in the world, and is not scaling back.

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