The Weekly Wrap: Sept. 2, 2011

Medvedev stays, according to O&G readers: The betting stage of the Kremlin Contest is concluded, and the results are – 53 percent for Dmitry Medvedev to 47 percent for Vladimir Putin. That is, there is greater than a 50 percent chance that Putin — the sole maker of big decisions in Russia — will decide to keep Medvedev (pictured above today at a Tajik reception in Moscow) in place as president when his term expires in March, according to O&G contestants. That goes against the conventional wisdom, which is that Putin will opt to return to the Kremlin for another six-year term.

Some political junkies favor general public opinion surveys; others prefer barroom trash talk (and bloggery). I see significant merit in what is said by folks having sufficient conviction to back it up with a wager, in this case a small non-cash bet. But O&G bettors are outliers even among this group. U.K. bookmaker Paddy Power, for example, gives odds of Putin winning — 2/7 for Putin and 9/4 for Medvedev, meaning that for a 100-pound bet on Putin winning you’d receive just 28 pounds back, while the same bet for Medvedev would get you 175 pounds (h/t  Anatoly Karlin). (For those with a taste for betting who believe Medvedev will get the nod, it appears shrewdest to take the other side of the 2/7 Putin bet at Paddy Power, which if I am reading correctly appears to pay 350 pounds.)

As you recall, I started off the betting by wagering that the tandem would stay untouched, and that Putin would announce his choice on Dec. 9. But O&G’s bettors made me a bit ashamed about my wager of a glass of Rioja. Other bets included Secret Aardvark hot sauce of Portland, Oregon; black and white photos of Moscow taken from the same spot — one dated 1965 and the other 2011; an African warrior mask from Malabo; and aviator sunglasses. Therefore, I am adding a signed copy of The Oil and the Glory (the book).

Divvying up the Libyan booty: When it comes to war, it is said, the victor gets the spoils. The unstated second part of that phrase is that these spoils are transferred in a very public manner. So it is with the unseemly matter of Libyan oil. Led by the influence of fleet-footed writer Bernard-Henry Levy, France leaped into the Libyan fray on the side of the rebels last March and did not let up. Therefore, says French Foreign Minister Allain Juppe, it is "quite logical and fair" that French oil companies have preferential treatment in the divvying up of post-war reconstruction and other oil contracts. Presumably the sentiment is shared by other NATO members such as the United States who bombed Col. Muamar Qaddafi’s troops for months. At the Wall Street Journal, David Gauthier-Villars writes that Russia — which like Brazil and China maintained a comparative arm’s length from the rebels — is miffed by NATO’s sense of entitlement. Moscow wants the United Nations to lead the reconstruction. The catfight is similar to one that followed the 2003 fall of Saddam Hussain, when China and Russia initially lost their favorable oil contracts negotiated with the deposed dictator, only to win serious chunks of the oil patch in subsequent deals with the current Iraqi government. A similar outcome is likely in Libya.

Exxon good, BP bad – reprise:  Last year, I wrote a post titled Exxon good, BP bad, referring to their astonishingly reversed public images following the latter’s Gulf of Mexico spill of 5 million barrels of oil. Prior to that, BP held a fairly strong reputation as the green oil company, while Exxon was deeply scorned as a slash-and-burn corner-cutter with contempt for things clean; following the Macondo oil disaster, BP assumed its current image for uncaring incompetence, while Exxon was heralded as a can-do expert at risk-abatement (this was before Exxon’s Yellowstone River spill). I now resurrect the headline for a different purpose — to reflect Russia’s apparent new attitude toward the two companies.

This week, Exxon CEO Rex Tillerson signed a whopper exploration partnership for three Arctic oil fields with Russia’s state-owned Rosneft. The fields could contain 36 billion barrels of oil, according to Russian figures. At a time when major oil companies are desperate to find new reserves to replenish what they pump every year, the deal was colossal. What gives the fields special significance is that they are precisely the same as BP acquired earlier this year in a deal that collapsed because the British company violated an existing partnership with four Russian oligarchs.

Exxon’s signing ceremony was presided over by Russian Prime Minister Vladimir Putin, who seemed pretty thrilled to be there after the BP fiasco. One can’t say the same thing for Russia’s apparent new attitude toward BP, though. Raids by masked forces on BP’s Moscow office followed the signing. BP, while calling a court order behind the action "outrageous," tried to put on a brave face — all in the course of business, all in the course of business, the company seemed to be saying. But it isn’t. BP is in trouble in Russia. As for Exxon, though it continues to nurse its own dispute over the right to export natural gas from its Sakhalin-I venture, currently is favored.

Whence China’s natural gas? China clearly is going to seriously enhance its use of natural gas — if it ends up using as much coal as is forecast over the next two decades, the Communist Party will be overthrown by a choking, irate populace with an enhanced regard for its rights. Since the Party is not suicidal, it will use less coal than projected, and shift as heavily as it can to natural gas. Yet I’ve wondered where all that gas is going to come from.

I have seen projections that China’s gas consumption will rise to about 350 billion cubic meters a year by 2030, triple the current consumption of about 120 bcm. So I asked Neil Beveridge, a Hong Kong-based energy analyst with Sanford C. Bernstein, where China will acquire its gas. The first thing Beveridge replied is that I am wrong — "China will reach 300 to 350 bcm by 2020 rather than 2030," or in less than a decade, in his estimation. Beveridge says that the far bulk of the added volumes will come from China itself — domestic production is to rise to 150 bcm in just four years, and 200 bcm by 2020. The rest will be imports of piped and liquefied natural gas:

Imports will come from LNG (70 bcm), Turkmenistan (40 bcm) Myanmar (10 bcm) and possibly Russia (up to 68 bcm). So the import target looks achievable.

That wholly excludes any Chinese success with shale gas production.