The Oil and the Glory
The Weekly Wrap: May 20, 2011
Bets on Medvedev: We have held back on making a call on the 2012 Russian presidential elections given the uncertainty and the many months before the actual date. But Stefan Wagstyl at the Financial Times has taken the first leap, so we will too. Like Wagstyl, we expect President Dmitry Medvedev to stay on for ...
Bets on Medvedev: We have held back on making a call on the 2012 Russian presidential elections given the uncertainty and the many months before the actual date. But Stefan Wagstyl at the Financial Times has taken the first leap, so we will too. Like Wagstyl, we expect President Dmitry Medvedev to stay on for another term; we do not foresee Prime Minister Vladimir Putin returning to power — at least just yet. Stefan explains his thinking as simply that "the current division of labor has served the two men and the country reasonably well," and why mess with success? There could be more, such as that Putin grasps that Russia needs more — much more — than the old, tough ways. It needs to finally do what it takes to make Russia innovative. Whatever the case, the signals are there for a continued Medvedev presidency. It’s been clear from the outset that the Putin-Medvedev, senior-junior partnership (in that order) is a genuinely collaborative one. There naturally are disagreements, but they are settled and life goes on. The methodical and cautious Medvedev does not throw public tantrums, nor does he bet short. Medvedev is demonstrating decisiveness — in Libya, on the BP-Rosneft deal — because he actually does expect to stay on. That Putin did not step in and rescue state-owned Rosneft — and Igor Sechin, his right hand man — shows that he, too, feels the right man is in the Kremlin. Putin will retain his overarching influence. But our bet is that there is no shift in the tandem.
… and more really risky oil deals: The immediate message of the apparent collapse of BP’s attempted coup in Russia is that Kremlinology is alive and well — we still puzzle over what is going on underneath Churchill’s carpet. But the larger lesson is that BP was not actually acting hastily — while embarrassing, CEO Bob Dudley was simply the most visible exhibition of a trend that we will watch play out for the coming two and more decades. That is a shift to riskier and riskier deals in riskier and riskier places, with the prize of the accustomed tens of billions of dollars in profit to the winners.
Russia, writes Matthew Hulbert at EurActiv, is actually "one of the few sensible bets" for a Big Oil company among a suite of opportunities around the world including east and west Africa, ultra-deep water and the various parts of the Arctic. "The ‘Arab Spring’ is a reminder that the wagers are getting higher and higher for upstream players," Hulbert says. At the Financial Times, Christopher Thompson writes that in fact the notion of risk has wholly changed, with a surge of investment in frontier plays including into badlands such as Somalia.
Worms, hardware and other nuclear problems: Wikileaks has produced a cable shedding some light on the delays that have plagued Iran’s attempt to produce nuclear power. We have known all along that the delays were not just cock-ups — lots of countries conspired to keep Iran’s Bushehr nuclear power plant inactive. Last year, details emerged of the Stuxnet worm, the diabolically ingenious computer worm created in Israel, probably with U.S. assistance, that destroyed tens of thousands of the centrifuges at Bushehr. But Russia’s speed of work also has seemed deliberately snail-paced. The Wikileaks cable, disclosed at the Hebrew-language Yediot Aharonot, names Prime Minister Vladimir Putin as the main actor in Russia’s go-slow policy. But it also says that Putin ordered changes to the hardware in the plant to further sabotage the work. The newspaper doesn’t produce the actual cable, which isn’t released on the Wikileaks website nor by other publications.
Iran’s nuclear power ambitions go back at least 37 years — to the final years of the Pahlavi dynasty. The Germans were the first to start building reactors at Bushehr, but the deal went south with the Iranian revolution. In 1992, Russia picked up the contracts with the idea of commissioning two reactors in 2001. The going was slow given the realities of business and construction involving Iran and Russia, not to mention the complexity of finishing the German-made project at the time of biting western sanctions, and the absence of any blueprints or other instructional documents. Last summer, Bushehr’s nuclear fuel was loaded, and this week Iran said the plant will soon be producing electricity.
Another shale gas victim: A long-time plan to move the equivalent of 6 billion barrels of Alaskan natural gas to the Lower 48 States appears to be George Mitchell’s newest trophy. Mitchell is the Houston wildcatter who refined the process of hydraulic fracturing, or fracking, triggering the disruptive boom of natural gas in the United States. Among the victims of the breakthrough have been King Coal, which while still mighty strong has big crosshairs on its back, along with previously unassailable Russian power in Europe. Add Denali, a 1,700-mile pipeline to Canada proposed by BP and ConocoPhillips, possibly to stretch from there another 1,500 miles to Chicago. With so much shale gas around, the Alaskan fuel was simply no longer needed in the continental United States, Denali’s organizers said this week. Denali was one of two proposed pipelines vying to ship Alaska’s motherlode of gas to market. The other, sponsored by TransCanada and ExxonMobil, was the favorite, since it received a $500 million Alaskan state subsidy, but it, too, looks highly uncertain.
This outcome has seemed likely for a year, as we have written previously. What has seemed obvious is that this gas should be redirected to Asia, specifically to China, in the form of liquefied natural gas. This appears even more probable since Japan has sucked up all the surplus LNG on the planet, according to Marketwatch. Of course, Japan will right itself soon enough and use more nuclear power. But the Asian market looks thirsty for more gas. Look for this as the next announcement from TransCanada.