The Oil and the Glory

The Weekly Wrap — July 14, 2012

The AWOL environmental lobby: Over the last several months, this blog has posted a series of lengthy contemplations of a momentous and unnerving new trend — the possibility of yet another in the century-and-a-half-long cycle of global oil and gas surpluses. According to a consensus of leading analysts, the world — led by North America ...

Mladen Antonov  AFP/Getty Images
Mladen Antonov AFP/Getty Images

The AWOL environmental lobby: Over the last several months, this blog has posted a series of lengthy contemplations of a momentous and unnerving new trend — the possibility of yet another in the century-and-a-half-long cycle of global oil and gas surpluses. According to a consensus of leading analysts, the world — led by North America — is on the cusp of a surprising flood of new oil. This week, six of these analytical voices appeared together to scrutinize whether this new age will actually materialize, and if it does, what geopolitical implications will result. We gathered at the New America Foundation for a two-hour, live TV debate.

A couple of interesting takeaways: The new golden age of fossil fuels indeed has an aspirational quality — the stars must line up, such as oil prices, which must stay pretty well above $70 a barrel in order to sustain most of the new fields. (That may sound easy, given the scale of prices to which we have become accustomed the last couple of years. But one forecast of the new age is that so much oil floods the market that it forces down prices.)

A second aspect of the discussion was the conspicuously little discussion of global warming, which would be seriously exacerbated, as I wrote last month. One reason for this near-omission of global warming was the nature of the discussants — these are oil market and geopolitical analysts, not climate experts. Yet that in itself is illuminating. I must be missing some folks, but I can think of no one in the climate field who has injected him- or herself into the contemplations of this new age (unless one includes movement activists such as writer Bill McKibben and NASA scientist James Hansen.). One has the sense of an entire sector of business, academia and civil society — the green energy industry, climate scholars and environmental activists — on the verge of being obliviously bulldozed by an unseen force. McKibben and Hansen will say "game over" for the planet should the age proceed. The thing is, it appears to be proceeding of its own accord.

As I have criticized the natural gas industry for a self-destructive failure to be fully transparent, I wonder about the green sector’s absence from the careful dissection of this powerful trend with the aim of formulating best policies.

You can watch the video yourself:

How the Tuvaluans became important: When one thinks "geopolitical flashpoint," Tuvalu does not immediately come to mind. The world’s third-smallest country, with a population of just over 10,000, this Pacific island nation rarely makes it onto the global radar. Independent from Great Britain since 1978 and a U.N. member state since 2000, Tuvalu is known for pleasant beaches and a threadbare economy that survives on staples such as prodigious production of pulaka, a taro-like crop. It has a national soccer team, but is not a member of FIFA. One upside of this anonymity is that Tuvaluans have few mortal fears — they have no defense budget, for example. But this week, they have been catapulted onto the world stage for unaccustomed political reasons. Tuvalu, it seems, has been instrumental in helping to disguise Iran’s fleet of oil tankers, with which Tehran is attempting to bypass U.S.- and EU-led sanctions.

Tuvalu flags fly over 22 tankers in Iran’s 58-vessel oil fleet. They now carry names like Blossom, Precious, and Honesty. The idea is to cloud the origin of the oil so as to maintain Iran’s oil export earnings against the sanctions regime. The Obama Administration has begun to push Tuvalu (and Tanzania) to stop serving this role for Iran. California Congressman Howard Berman has appealed directly to Prime Minister Willy Telavi. Why is Tuvalu involved in such a scheme? For one thing, it is not illegal, and the Iranian fleet only became a direct sanctions target on Thursday. The other thing is that vessel-flagging can be lucrative, and when you are reliant primarily on pulaka proceeds, that counts for something.

But there is also painful irony in the news. To date, Tuvalu’s biggest concern has been climate change: A major rise in sea levels would be "catastrophic" for the island chain, its then-prime minister told the United Nations in 2008. Yet Tuvalu is facilitating the movement of Iranian crude even while demanding more clean energy.

Exxon’s Afghan feint? Ultra-frontier business-making — the pursuit of work in the more dangerous, out-of-the-way and fringe areas of the world — doesn’t ordinarily attract blue-chip companies, and Afghanistan is no exception. We don’t see the likes of Warren Buffett, Alan Mulaly, Tim Cook or Lakshmi Mittal in these parts of Asia. So why do we find gargantuan ExxonMobil among the names of those filing an expression of interest in a few oil exploration areas offered up by the Afghan government? The question is important because an Exxon win in Afghanistan could be a game-changer for this troubled country, at once bolstering its reputation as a serious place for investment. Yet the potential resource isn’t of the eye-popping scale that usually exemplifies an Exxon play: The northern Afghan fields in question contain fewer than 1 billion barrels of oil equivalent, according to the U.S. Geological Service — not a volume that would move the needle for a company of Exxon’s size. And even if the potential volume were larger, the working environment will be daunting, with years of instability and outright civil war seeming to lie ahead, especially after the 2014 U.S. troop withdrawal. Call me puzzled.

By way of explanation, Exxon itself offers up the boilerplate that its Afghan flirtation is "part of our on-going evaluation of oil and gas resources around the world." But I wonder if we can derive a better answer by observing the larger geographic tableau. For instance, by turning our gaze a bit to the northwest: What if we are observing not an Afghan strategy, but a feint with an aim at Turkmenistan?

For years, ExxonMobil has patiently put down roots in Turkmenistan, the possessor of South Yolotan, the world’s second-largest natural gas field. In 2008, U.S. diplomat Richard Hoagland (now No. 2 in the U.S. Embassy in Islamabad) wrote a cable, disclosed by Wikileaks, describing Exxon’s eagerness for an onshore Turkmen gas deal, by which we presume it meant a piece of South Yolotan. To that end, two years ago, Exxon became the first global major to reopen an office in the capital of Ashgabad (its rival on the spot is Chevron). But Turkmenistan has been confounding Western oil companies for two decades, and President Gurbanguly Berdymukhamedov continues to do so. One reason is that they refuse to mimic the pioneering success formula established by the China National Petroleum Corp., which acquired rights to onshore Turkmen supplies after first agreeing to build an export pipeline to carry the gas to the Chinese market. Both Exxon and Chevron are pursuing the conventional Western approach of insisting on a large gas deal first, then discussion of a means of conveyance.

To loosen up this logjam, the U.S. government, development banks and regional powers are working to organize an export pipeline that they call TAPI (for Turkmenistan, Afghanistan, Pakistan, India). I personally think that TAPI has little chance of materializing under current political conditions in the region, and, for argument’s sake, let’s say that Exxon feels the same way. In that case, how do you shake a confused and ambivalent object of desire (Berdymukhamedov) into clarity and decisiveness? An age-old answer is that you present a rival, and scare the bejesus out of him.

Enter Afghanistan. If we are watching a feint, the options are that you express interest in the fields, but don’t necessarily meet the October deadline for filing an actual bid. If signals of alarm do not surface in Ashgabad, you can file an intentionally losing bid. If that still fails to impress Berdymukhamedov, you can win, and let the development niggle at the Turkmen leader’s craw.

The question is whether Berdy is watching.

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