Jan
5
Gazprom’s Imperial Foray
January 5, 2008 | 21 Comments
I can’t help taking a minute to return to Lionel Beehner’s “Why Russia Matters Less Than We Think.” In regard to how Russia’s as energy colossus shouldn’t worry Americans, he writes:
Russia is an energy powerhouse. Maybe, but little of its natural gas goes toward American consumers (indeed, Stolichnaya ads notwithstanding, we do remarkably little trade with Russia). Even Moscow’s energy imports to Western Europe are dwindling, as its share in natural gas imports shrunk from 50 percent to 42 percent between 2000 and 2005. Better to pay closer attention to the politics of Nigeria or Venezuela.
It seems that Beehner might have spoke too soon when suggesting that we should look at Nigeria at the expense of Russia. According to the Financial Times, America’s watchful eye over its imperial domains need also glance at Russia when peering at the politics of Nigeria. FT’s Matthew Green writes, “Gazprom, Russia’s state-owned energy group, is seeking to win access to vast energy reserves in Nigeria in a move that will heighten concerns among western governments over its increasingly powerful grip on gas supplies to Europe.” An unnamed senior Nigerian oil official says that Gazprom has offered to invest in Nigeria’s oil infrastructure in exchange for having a large stake in developing the West African country’s natural gas reserves. Says the unnamed Nigerian oil official:
“What Gazprom is proposing is mind-boggling. They’re talking tough and saying the west has taken advantage of us in the last 50 years and they’re offering us a better deal … They are ready to beat the Chinese, the Indians and the Americans.”
Gazprom’s entrance into Nigeria would put it up against Royal Dutch Shell, Chevron, and ExxonMobil, three Western companies that have long dominated Nigeria’s vast oil reserves. Given that Nigeria is a top supplier of liquefied natural gas to the United States, if the Gazprom-Nigeria deal goes through, the notion that “Russia doesn’t matter” will sound far more nonsensical that it does now.
If Gazprom does enter Nigeria, I wonder how long it will take before they are paying Nigerian troops to crush anti-corporate activism in the Niger Delta as Chevron has been accused of doing. I would imagine not long at all.
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21 Comments so far
Seems we were thinking the same thing on this topic. I didn’t provide a link to Beehner’s comments (maybe I should), but discussed the implications of Russia/Gazprom’s idea of “Energy Security”.
I think this plays more badly in the short term for Europe and expanding economies of India and China than the US. The US and Canada accounts for 97% of the natural gas that we use, so we import a relatively small quantity of liquefied natural gas.
However, production has peaked in North America so future quantities of LNG imports will only likely increase. This also looks like more “energy security”, meaning Russia/Gazprom securing as much energy as they can get.
Therefore, for the future, this should definitely should have our attention.
Everything old is new again – there might be coal gas plants in our future!
What is really interesting to me is that Gazprom’s chief competitor these days in Nigeria will be China’s CNOOC and India’s IOC. Chevron and Exxon Mobil have been running for the hills ever since the repeated kidnappings and murders of their workers on the Delta platforms.
So with the exception of Brazil, it looks like the BRIC economies are desperately battling to secure control of the world’s last remaining untapped energy sources to fuel their growth, using the comprehensive infrastructure investment packages that only a state-held firm can offer (plus other nice incentives such as arms, nuclear assistance, or debt relief). Let’s see Shell or Chevron match those offers…
I’d be interested to see how Gazprom go about developing the Nigerian reserves, given that their progress in developing their Russian reserves has advanced practically nowhere beyond announcing grand projects, promising funding, and using the force of the state to appropriate others’ projects.
I have had a meeting or two with Gazprom at the middle-management level, and it is clear that there is a rather large gap between the announcements the senior managers and politicians as to what Gazprom will do, and the managers and engineers who are tasked with making it happen. They have admitted they are desperate for foreign help, yet so far I have seen no sign that Gazprom even has the ability to put together a tender package for foreign companies. Look beyond the imposing headquarters and the columns in the financial papers, and companies like Gazprom are desperately short on experience, expertise, and basic management and engineering systems. In a manner which seems odd to most of us in the industry, people seem to believe having access to reserves is the only, or at least most important, factor behind an oil company’s power. Unless that company can get the oil from the ground and to the customer in a reliable, efficient, and safe manner, merely having access to reserves is nigh-on useless.
Then again, Gazprom might do well in Nigeria. The problem was never that the oil was difficult to extract (it is incredibly easy), the problem was the political instability. Shell could have solved the problem overnight by hiring an army to keep the place save, and to hell with the local population, but Shell have a reputation to protect and an army of activists and journalists watching its every move. Gazprom isn’t restricted in such a manner, and activists and journalists of any nationality seem only concerned with the activities of western, private oil companies and happily give state-run oil companies a free pass. One only needs to wonder what happened to the Sakhalin II environmental concerns to realise that.
My guess is this offer never comes to pass, or Gazprom stumps up a load of funding which ends up in the pockets of corrupt officials and they get precisely nowhere with the development of any Nigerian field.
Sean, I think you suffer from the leftist proclivity of seeing any attempt to influence a foreign country as imperialist.
merely having access to reserves is nigh-on useless.
Umm. You can’t borrow money to develop gas fields based upon personnel or talent. You can only do this if you have the reserves.
In fact, that single financial fact is one reason why so many reserves are over-stated (OPEC nations actually tend to over-state reserves in order to permit more exports as well, due to their internal export quantity arrangements being based upon reserves.)
A company like Gazprom can always hire the talent – in fact, that is what you appear to be prompting them to do. Perhaps that just isn’t happening fast enough to your mind.
Sean, I think you suffer from the leftist proclivity of seeing any attempt to influence a foreign country as imperialist.
Eh, I wouldn’t call it leftist. The right certainly uses the same logic whenever a less than favored nation sticks its nose into another nations business. During the Cold War, the Soviet Union’s influence peddling was certainly seen as spreading communism, to expand their “empire”.
Anyway, I can’t think of many situations where governments are genuinely benevolent, without some expectation of influence being connected to aid.
In the case of Gazprom, we are talking about corporate ownership of a foreign resource, which certainly can be categorized as imperialist. Wasn’t East India Company beyond merely capitalist … and considered imperialist?
Umm. You can’t borrow money to develop gas fields based upon personnel or talent. You can only do this if you have the reserves.
My point was not that having talent but no access to reserves serves as a basis for borrowing money. It was that having access to reserves without the wherewithall to exploit them is nigh-on useless.
A company like Gazprom can always hire the talent – in fact, that is what you appear to be prompting them to do.
They can hire in the talent if they structure and govern themselves in the correct mannner, which basically amounts to being able to subcontract effectively. And yes, I am prompting them to subcontract effectively. Yet thus far, Gazprom seem extremely reluctant to subcontract, and hiring experienced individuals direct will only work if the company structure and management systems are of a certain type.
“Yet thus far, Gazprom seem extremely reluctant to subcontract, and hiring experienced individuals direct will only work if the company structure and management systems are of a certain type.”
True and I confess I have never met anybody from Gazprom at any level. Two things occur to me however. One, that, although middle management may be dead keen to get the oil/gas out, that enthusiasm may not be shared at the top, as the price of oil rises. From what I gather from the States, they now wish they had not exhausted all their easily exploitable oil so cheaply.
Secondly on a general level I take with a huge pinch of salt the view commonly expressed that the Russians need all those foreigners to get the oil and gas out. In anything other than the very short term I find this hard to believe of the country that put the first man into space, beat the Germans in mechanised warfare and has the highest level of literacy for 10 year olds in the world. It may be true that they can’t get it out of the ground quick enough to suit the West without Western help today but that is something else entirely.
I think what we are seeing is a sort of marking time and a rearrangement of priorities more than a real incapacity to get the stuff out. I am not a fan of nationalised industries but sometimes they are necessary for overarching political reasons. The smear campaign against Putin, now running, is an attempt to break up or weaken this political control.
One, that, although middle management may be dead keen to get the oil/gas out, that enthusiasm may not be shared at the top, as the price of oil rises.
Middle management are only keen to get the oil and gas out insofar as the senior management are telling them to do precisely that.
Secondly on a general level I take with a huge pinch of salt the view commonly expressed that the Russians need all those foreigners to get the oil and gas out.
Well, different people have different opinions on the matter. Mine is based on 15 months in the Russian oil and gas industry, plus 3 years listening to Middle Eastern national oil companies telling me that they too didn’t really need foreign help. They ran the most inefficient, unsafe, and unreliable facilities I have had the misfortune to work on.
I think what we are seeing is a sort of marking time and a rearrangement of priorities more than a real incapacity to get the stuff out.
This is probably true, but the direction Russia is heading in, i.e. along a route of giant nationalised companies holding a near monopoly on oil and gas exploration and production, is almost certain to result in an incapacity to get the stuff out efficiently, safely, and reliably in the future. These three adjectives adequately sum up Russian oil and gas production for the past 70 something years, and the route Russia is taking will guarantee they remain the case for the forseeable future. The only exception to this has been Norway’s Statoil, and with the best will in the world, Russians ain’t Norwegians.
In reply to Tim Newman. 1:- I envy you your chance to be where you are at this time, which gives you a unique view of what is going on.
2:- However as regards the inefficiencies of giant nationalised industries I agree but the real question is what were the alternatives open to the Russian government?
They have recently been the victim of an attempted resource grab on a scale that makes United Fruit in Guatemala look like amateur burglars. There has been an attempt to cut them off as far as possible from the sea in Europe as per Serbia. It was clearly on the Western/US/EU/NATO agenda to balkanise Russia. So the real question is, if you had been in Putin’s shoes what would you have done, bearing in mind the vaste levels of corruption to get their way demonstrated by the international oil companies? (at the top I hasten to add). BP are alleged to have spent 45 million pounds in three months in “entertaining” to get concessions in Azerbaijan. Also let us not forget that the energy industry is only 20% of Russia’s GDP today according to no less an authority than the US ambassador to Moscow.
However as regards the inefficiencies of giant nationalised industries I agree but the real question is what were the alternatives open to the Russian government?
1. Divide the reserves into blocks, auction off the licenses.
2. Tax the production.
1. Divide the reserves into blocks, auction off the licenses.
2. Tax the production.
That assumes you trust the oil companies; They didn’t. I wouldn’t.
I stumbled on this blog by chance and was attracted by this topic under discussion, am sorry but Chrisius Maximus posting is nothing but gibberish. Am a Nigerian living in Russia, the whole talk of incompetence on the part of Gazprom is like the useless documentary aired by CNN in the wake of the election calling Putin all sorts of names but they forgot that Russians care little about what CNN thinks, the whole issue is that Putin has decided to fight to protect Russia from Western hypocrisy and if the West doesn’t like it they could go to hell for all he cares.
Rusal is already in Nigeria, and they are doing really great now, Gazprom is coming and we will be more than happy to receive them, I know that the Americans will be having a sleepless night, but if Nigeria has a Putin, that is to say someone that is ready to protect the Nigerian interest then the Gazprom issue is a done deal.
Your comment on how Shell would have used army to stamp out the angry local have opened the deceptive nature of western democracy, so the whole issue of human right is fear of what the press will write and not a true care for human dignity. That is why 50 years after, Shell cannot point out to any meaningful social programme in a land where it made trillions of dollars.
That assumes you trust the oil companies; They didn’t. I wouldn’t.
Why do you need to trust the oil companies? Taxing production is a remarkably easy thing to do, as it requires only a flow meter on an export pipeline or somebody to count ships. I’m not sure how you think the oil companies would cheat.
That is why 50 years after, Shell cannot point out to any meaningful social programme in a land where it made trillions of dollars.
Much the same could be said about successive Nigerian governments. Shell makes a handy scapegoat for the ills of the Nigerian oil industry, but it is poor governance which is the root of the problem.
Tim you are partially right, you are right because we ve not been lucky to get a patriot as a leader however, if you have a minute do listen to this BBC documentary
http://www.bbc.co.uk/radio4/history/document/document_20070730.shtml
the truth on who actually destroyed Nigeria will emerge.
Western hypocrisy and pretence gives me runny stomach, I ve said it before, and will continue to say it. The Advance Fee Fraud issue is equally treated with pretence.
If you have another minute read one of my articles
http://www.kwenu.com/publications/okoh/419victim_pitied.htm
for robert harneis: I’ve entirely missed BP being alleged to have spent 45 million pounds on Azeri entertainment, and don’t see it on a cursory google search. Care to link? Thanks
“am sorry but Chrisius Maximus posting is nothing but gibberish.”
I try, I try… (sniff)
“for robert harneis: I’ve entirely missed BP being alleged to have spent 45 million pounds on Azeri entertainment, and don’t see it on a cursory google search. Care to link? Thanks”
It’s a great, larger than life, story. A certain Les Abrahams claims he was a fixer for the former BP boss Lord Browne. He revealed his rip roaring activities on behalf of the oil company in an article in the Sunday Mail. It seems that BP tried to sue the paper for defamation but lost. It further seems that the story was then the subject of a D notice or its modern equivalent and suppressed in the media by the British government. A notable highlight is where a British Home secretary on a BP hospitality trip in Baku got drunk and had to be rescued from the Azerbaijani police after curfew.
“I urged him not to draw attention to us, because we weren’t meant to be still on the streets. But then a van load of police armed with Kalashnikovs pulled up and asked us what we were doing.
“He said, “I am a British politician…” I urged him to be quiet, but then he said to one of the policemen, “If you don’t take that f***ing Kalashnikov out of my face I’m going to stick it up your f***ing arse.” With that, we were arrested and shoved at gunpoint into the back of the van.
It makes you proud to be British. Abrahams relates how he was recruited by MI6. He claims that MI6 chief John Scarlett helped engineer the coups that brought Aliyef to power in Azerbaijan and that BP signed its first big oil deal one month after he came to power. Thanks to the internet it is all still there on http://www.mail-archive.com/ctrl@listserv.aol.com/msg121418.html or search ‘Hookers, spies, coups and cash…how BP spent £45m to win ‘Wild East’ oil rights’ on Google. Abrahams was to publish a book entitled “Our man in Baku” but nothing has been heard of it so far. Perhaps, as the lawyers say, a settlement has been arrived at, in the time honoured way. About Aliyef see also http://www.informationclearinghouse.info/article5580.htm from the Washington Post of January 2004.
“Why do you need to trust the oil companies? Taxing production is a remarkably easy thing to do, as it requires only a flow meter on an export pipeline or somebody to count ships. I’m not sure how you think the oil companies would cheat.”
All other things being equal yes but they are not. The Russian priority was and remains to be masters in their own house and they are just one of a number of countries acting in a similar way. Oil companies are inextricably linked with the different intelligence services. After all most of our troubles in Iran are the result of the activities of the Anglo-Iranian oil company aka BP, MI6 and the CIA when to protect British oil interests they organised the overthrow of the democratic Mossedec and installed the Shah as a dictator.
What we have to remember about Putin is that all this is just the tip of the iceberg and that as the former head of FSB he more than anybody knows what went on under Yeltsin, in the former Soviet Republics and elsewhere in the world of energy where great wealth coexisted with total poverty creating a huge opportunity for bribery. This explains, and in my opinion justifies, his evident contempt for Western protestations about democracy, a free press and corruption.
All other things being equal yes but they are not.
No, licensing blocks and taxing production does not require anything being equal. All Russia has to do is auction off the licensing blocks and tax production, which does not matter a jot whether the oil companies can be trusted or not, as the auctions will be controlled by the Russian government and the measurement of production is remarkably easy.
The Russian priority was and remains to be masters in their own house and they are just one of a number of countries acting in a similar way.
I am well aware that Russia, along with many other countries, see a state monopoly of hydrocarbon extraction as being masters of their own house; my point is that this approach is hopelessly mistaken.
What we have to remember about Putin is that all this is just the tip of the iceberg and that as the former head of FSB he more than anybody knows what went on under Yeltsin, in the former Soviet Republics and elsewhere in the world of energy where great wealth coexisted with total poverty creating a huge opportunity for bribery. This explains, and in my opinion justifies, his evident contempt for Western protestations about democracy, a free press and corruption.
Well said. Exactly right.
Western hyocrites — it is more mind numbing than one can think. Check out Alex Itkin former soviet official,knew Putin.
A former Gazprom director sits on his board of directors. This man brags about being part of Food for Oil, and was in Africa – Nigeria, working on business.
Ties to well heel Mormons. Mr. Itkin runs an import- export business in Michigan, home base Russia.
Makes one wonder what is going on.