The Weekly Wrap — Sept. 23, 2011

How do you spell risk? (Hint: start with the letters b and p):  Former senior executives of BP are the gift that keeps giving. That is, in terms of insight into what’s behind the long, downward spiral of a company that until recently was one of the most valuable on the planet. Just two weeks ago, former BP CEO Tony Hayward surfaced with a highly risky oil-patch acquisition in Kurdistan, the oil-rich northern region of Iraq whose right to sign such deals has been challenged by the national government in Baghdad. This week the news is from the United Kingdom, where a company backed by John Browne (Hayward’s predecessor in the BP CEO shot) announced an enormous discovery of shale gas near England’s seaside resort of Blackpool. Matthew Hulbert, of the Clingendael International Energy Program, told me that the prospect of new jobs will ultimately bring public support of the drilling, yet as of now protests have broken out in an effort to halt the operation, which uses hydraulic fracturing, or fracking, over concerns that it could contaminate local drinking water. Whatever happens, Hayward and Browne help us understand how it is that BP has repeatedly found itself in trouble in recent years (for example by letting safety problems linger at its Texas City refinery; cutting corners in a problematic Gulf of Mexico oilfield called Macondo; and flagrantly violating a covenant with its crucially important Russian partners): A bugger-the-risks, full-speed-ahead attitude may be bred into the DNA of BP’s senior executives. The question is how far down in the ranks one finds this trait.

Murder in Kabul: The last time I saw Ibrahim Haqqani — brother of the Saudi-backed Afghan militia leader Jalaluddin Haqqani — it was 1991, and he was concealed under a bridge outside the eastern Afghan city of Gardez. Haqqani was leading a futile rebel assault against the superior forces of then-President Najibullah, and to reach the underpass, we had to dodge targeted artillery. It was a frightening dash, and Haqqani seemed no less rattled than we; a few weeks later, he and his men finally abandoned the effort to capture Gardez. Flash forward a decade, Associated Press correspondent Kathy Gannon reports that Haqqani has met with U.S. officials working to find a settlement with his brother Jalaluddin, who since a few years after that encounter under the bridge has been a leading Taliban general.

This blog has previously argued both that there is no winning the war in Afghanistan, and no upside for U.S. military forces staying on the ground. As it is, the war has become the primary occupation of U.S. foreign policy across the oil-soaked region, forcing the U.S. into compromising agreements with some of its most odious autocrats. Addressing the peacemaking efforts that are taking place, there are not conspicuous reasons for optimism. According to Admiral Mike Mullen, Jalaluddin Haqqani’s forces, backed by the Pakistan intelligence service, were responsible for an attack last week on the U.S. Embassy in Kabul. This week, suicide bombers killed former Afghan President Berhanuddin Rabbani (funeral procession pictured above), who cut his teeth in the anti-Soviet war of the 1980s, playing political leader of Jamiat-i-Islami while the military side was led by Ahmad Shah Massoud. Ironically, Rabbani and Massoud were assassinated in the same precise way — by men who penetrated their security for private meetings under false pretenses.  Massoud was killed two days before 9/11. Rabbani died as he was heading President Hamid Karzai’s reconciliation efforts with the Taliban.

Has Ibrahim Haqqani told his brother that he is speaking with U.S. envoys? No one seems to know. Given the attacks that are taking place, along with stepped-up drone attacks by the U.S., both sides appear not to be letting up.

The emerging geopolitical oil vortex of … North and South America: Up and down the South American coasts, an oil bonanza is under way, reports Simon Romero at the New York Times. It is in Argentina, Brazil, Colombia and French Guiana. In the Caribbean, Chinese drilling is about to begin in Cuba. To the north, big strikes have returned to the Gulf of Mexico, and increasing volumes are flowing out of North Dakota and Canada.

Middle East oilfields are generally cheaper to develop than any on the planet. And the Arctic beckons, with perhaps 25 percent of the world’s remaining oil and gas reserves. Yet, for reasons of rational diversification, both countries and companies want to branch out from the Middle East, and the Arctic is a long-term play — it does not answer the question of what the world does for oil now. Thus oddly enough, North and South America are — perhaps along with west Africa — the world’s most serious emerging oil plays. Pedro Cordeiro, of the consultant firm Bain, forecasts that Brazil alone will produce 5.5 million barrels a day by 2020, Romero writes. Canada’s oil sands may account for 3 million barrels a day by 2020. The Gulf of Mexico produces about 1.4 million barrels a day, and North Dakota adds 400,000 barrels.  Venezuela produces almost 3 million barrels of oil a day.

Combined, this is a serious volume of crude oil — easily half of OPEC’s entire current output. Given the fungibility of crude, this shift in the balance of production will not change daily oil prices. But it could shift some geopolitical leverage away from Middle East producers, along with the onus for maintaining spare production capacity in the system, and reducing price volatility. Spare capacity — the volume of extra oil that can be produced at a moment’s notice should an unexpected event, such as a war or a hurricane, remove current output from the market — is the main influence on sudden ebbs and flows in prices.

Domestic push for a clean China: I get long looks of sympathy when I cast doubt on forecasts of China’s roaring future coal consumption — don’t I get it, these friends implore? China is so voracious that it has no choice but to more than double how much coal it burns by 2035, as the Energy Information Administration forecasts. This week we get highly prejudicial evidence of the two big reasons why the conventional wisdom may be wrong: The Communist Party’s earnest desire to stay in power, and the Chinese public’s growing intolerance of pollution. In the province of Zhejiang, local officials shut down a solar panel factory that was the source of a four-day protest over air and water pollution. The protesters "overturned vehicles and ransacked offices inside the plant," reports the New York Times‘ Andrew Jacobs. The idea of such an event happening at a solar factory — not a chemical or coal-burning plant — would be laughable if it were not true. In a speech yesterday, Zhou Jian, China’s vice minister of environmental protection, promised revised air, water, soil and noise pollution standards, Xinhua reports. The same piece quotes Wan Gang, China’s science minister, as reiterating that the country is interested in collaborating with the West in developing technology to capture and sequester carbon emissions from coal. Industry hands with whom I speak have little confidence that carbon-capture technology can ever become economical on a large scale. But the sequence of events suggests that China itself is signaling its own doubts about the coal projections.