TPT November 2008

From the Americas

Oil and gas A probable casualty of the Georgia-Russia War: the prospect for US and Western-sponsored pipelines in the Caspian region Whatever the short- and long-range political consequences of the war in the Caucasus that began and ended in August, it was fought in an oil-rich region of keenest interest to the United States. Working with a BP-led consortium, the US helped build oil and natural gas pipelines across Georgia to the Turkish coast. Another US-sponsored pipeline, at the planning stage when the war eruped, would carry natural gas through Georgia from the eastern shore of the Caspian Sea to Austria. What, now, of the expectations for that pipeline and other American initiatives for shipping Caspian Sea oil out of Central Asia and into Europe? According to an early analysis in Business Week of a terrain altered starkly in favour of Russia, hopes are dim. Washington bureau correspondent Steve LeVine sees the reassertion of Russia’s claim to be the dominant force in the Caspian region as having gained for it the edge in the struggle over access to 35 billion barrels of oil and trillions of cubic feet of gas. ‘Probable losers’ are the US and those Western oil companies that have bet heavily on their ability to operate with relative freedom in the Caspian ( ‘Georgia: a blow to US energy,’ 13 August). Suggesting that the Russia-Georgia war may have set back 15 years of American economic diplomacy, Mr LeVine recapped that period, beginning with the realization by then-President Bill Clinton that Caspian-area countries newly independent of the Soviet Union were flush with oil and natural gas but had to ship it out by way of Russia. The absence of non-Russian pipelines also curbed the export potential of companies like Chevron, which owns half of Tengiz, the giant Kazakhstan oilfield. After some initial resistance, BP and Chevron backed an American pipeline strategy. With Georgia a key transit point for any line to the West, that strategy created the so-called East-West Energy Corridor, and enlisted the cooperation of the leaders of Georgia, Azerbaijan, and Turkey on the construction of what would become the 1,000-mile- long Baku-Ceyhan pipeline. The Caspian’s first independent oil export pipeline normally moves almost a million barrels of oil a day. Mr LeVine wrote, “For Georgia, it’s not the fees it collects from pipeline transit – about $60 million annually – that are important. Instead, the pipeline’s presence signaled Georgia’s stability and encouraged a flood of foreign investment.” He added, “That stability, of course, has proved illusory.” Regarding Bush Administration plans for a pipeline to ship natural gas to Europe along a route traversing Georgia, Mr LeVine provided some context: “The proposed pipeline’s success depends on Turkmenistan, which has the fourth-largest natural gas reserves on the planet, an estimated three trillion cubic meters. The Turkmens are cautious. Under former President Saparmurat Niyazov, they refused to defy the Russians [by supporting] the construction of the Baku-Ceyhan pipeline.”

The drive toward renewable energy meets an opposing force: the new appeal of difficult-to-extract fossil fuels High prices for oil, gas, and coal have created a market incentive to invest in ‘clean’ energy sources, a situation that would appear to favour former vice president Al Gore’s push for 100 per cent renewable energy for electricity generation in the US over the next decade. But, as noted by a staff writer for the Washington Post , those high prices are also powering another trend: the extraction of fossil fuels from deep formations that can be made to yield to new drilling technology. Pennsylvania is better known for steel than for oil and gas. But it was at Titusville, in the northwestern part of the state, that ‘Colonel’ Edwin Drake in 1859 drilled the world’s first commercial oil well. And, today, the rolling farmland southwest of Pittsburgh is the scene of what the Post ’s Joel Achenbach terms an ‘invasion’ by heavy industry drilling aggressively into something called the Marcellus Shale. “[This is] a layer of hard, black rock, more than a mile down,” wrote Mr Achenbach. “Trapped in tiny pores of that rock is a huge quantity of natural gas. The Marcellus Shale could become what people in the natural gas business call a big play.” ( ‘Traditional energy’s modern boom, ’ 15 August). A geologist who studies the shale called it a ‘land rush type of deal’ . The Marcellus – which underlies parts of New York, Ohio, West Virginia, Maryland, Virginia, and Kentucky, as well as much of Pennsylvania – might contain more than 50 trillion cubic tons of gas, about twice what the US uses in a typical year. Another of the Post ’s respondents, a resident of Oil City, near Pittsburgh, is already doing well out of shallower-lying crude oil but also recently leased his mineral rights below 3,000ft. The state of Pennsylvania is reported to be on pace to issue more than 7,000 permits for oil and gas drilling this year, more than twice as many as five years ago. And coal mining is also expanding, driven by rising coal exports. But Mr Achenbach perceives ‘a broader national reality’ beyond the Marcellus boom: mature industries with the infrastructure, know-how, and capital to tap older energy sources. And he observed that oil and gas companies also benefit from a federal tax incentive, dating to 1918 that allows early deductions for ‘intangible drilling costs’ . A coal expert at the US Energy Department facility near Pittsburgh summed up for the government. Thomas Sarkus told the Post , “We believe [fossil fuels] are going to predominate for at least 50 years.” Elsewhere in oil and gas. . . › As global warming opens the Northwest Passage to navigation, Canada, the US, Russia, Norway, and Denmark are stepping up their manoeuvers to lay claim to oil reserves under the Arctic Ocean. By way of asserting the Canadian stake in the rich marine territory, Canada’s prime minister Stephen Harper and his cabinet traveled in late August to Inuvik to review the country’s largest-ever military exercise in the polar region. The town is 2,548 miles from the capital city of Ottawa. If disputes ensue, tensions between Moscow and the West – already exacerbated by the recent Russian-Georgian conflict – would likely intensify.

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N ovember 2008

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