Last month, I toured the ConocoPhillips refinery located on the Delaware River in Trainer, Pennsylvania, which is just outside Philadelphia. The Trainer refinery has a processing capacity of 185,000 barrels a day, and processes light, low-sulfur crude oil from West Africa, Canada and the North Sea. I have previously toured an LNG terminal and a facility that produces gas turbines, but I've never been to a refinery before, so this was all very new to me. (The ultimate coup, I think would be a tour of an offshore rig in the Caspian Sea or or perhaps the Thunder Horse platform in the Gulf of Mexico.)

The refinery tour was organized by the DC chapter of Young Professionals in Energy (YPE), which, as you've probably gathered, is an organization of young professionals who work for the various energy trade associations (like yours truly), government agencies, corporations, and consulting firms that are headquartered in Washington. If you were to look at the membership list, the sheer amount of acronyms would make your head spin.

While the refinery was obviously the main attraction on this field trip, the 2.5 hour bus ride to Philly was eventful in and of itself. We were driving north on I-95, the main highway on the east coast, when our driver suddenly swerved into the left hand lane, which was under construction, and came to a stop in the grassy median that divides the highway. He then proceeded to yell "I gotta go!", jump out of the bus, and run to the porta-potty on the median. We were all rather puzzled, and exchanged several "WTF?" looks. Our driver returned a few minutes later, announced "Now I gotta figure out how the eff to get outta here!" and started to back the bus out of the construction lane (which was sealed off with, you know, jersey barriers and cones and what not). Amazingly, he managed to get the bus out of the construction lane and back onto the freeway without killing all 25 of us.

We arrived at the refinery about an hour late due to several unscheduled stops like the one described above. ConocoPhillips provided us with a nice, warm lunch, so we dug in while the company representatives performed the standard safety briefing (as to be expected, it was much more thorough than the one we received at Chernobyl). The safety briefing was followed by a thorough overview of the refinery's operations and the various structures we would be seeing on the tour as well as a Q&A with the refinery manager and other representatives from the various departments.

What we were really looking forward to, of course, was the tour of the facility. Bill, the Public Affairs director, led us on a tour of the refinery, while our bus driver miraculously managed to not run into anything and start a fire. I imagine if he had, we probably would not have been invited back. A few of the things we saw on the tour: gas flare (acts as a safety device), catalytic reformer, cracking unit, liquefied gas storage units, cooling towers, and the dock facilities where the tankers unload their crude. This post would probably make a lot more sense if there were photos, but for security reasons you obviously cannot go around posting photos of energy infrastructure.

Group photo

Overall, the tour was very enjoyable and I have a much greater appreciation for all the work required to refine crude into something my SUV can digest. Many thanks to Bill and the other ConocoPhillips employees for hosting the tour, as well as providing us all with souvenir mini mag lights to take home.

On a final note, our driver's bizarre behavior continued on the trip back home. He almost hit a few cars, including a SEMI TRUCK, exited the freeway and entered a lane for a truck scale (WTF?), and took a "shortcut" through Laurel that added 20 minutes to our journey time. Well, at least we left the refinery unscathed.

Posted by Lindsay at 07:47 AM | Permalink | Comments? (0) | TrackBacks (0) |  Subscribe in a reader |

Gazprom's Yuzhno-Russkoye gas field in the Yamal-Nenets Autonomous District of Russia

Today's edition of the NYTimes has a good overview of Gazprom, its relationship with the Kremlin, and the challenges the company faces in meeting growing demand for natural gas at both home and abroad. The accompanying photo gallery, "A Quest for Energy in Darkest Siberia", is also worth checking out.

With energy prices continuing to hit record highs, Gazprom is more influential than ever, both at home and abroad. Gazprom says that before 2014 it will surpass Exxon Mobil as the world’s largest publicly traded company — a goal that Mr. Medvedev himself endorsed before he became president.

[...]

Rich as it is, Gazprom faces big challenges in the Medvedev era.

Rising prices for steel, equipment and labor have caught the company at the outset of its largest capital program in two decades. Like other Russian companies, it invested little money maintaining or upgrading equipment in the 1990s. But the days of coasting on Soviet-era infrastructure are over, as output declines from fields first tapped in the 1970s.

To meet export commitments in Europe, as well as growing demand at home, Gazprom will have to spend at least $75 billion to bring its two largest fields in the Arctic into production within the next decade, according to Cambridge Energy Research Associates.

Yet exploring and extracting gas in a region where temperatures dip to 50 degrees below zero is technologically challenging, as well as expensive. Gazprom must build pipelines, gas processing plants, liquefied natural gas factories and a full panoply of supporting infrastructure like roads, railroads and ports. And to accomplish those feats, it moves thousands of tons of steel and heavy equipment to the middle of a vast, frozen swamp.

“The complexity and the size of it is what creates a huge challenge for Russia and for Gazprom,” said Vitaly V. Yermakov, director of research for the Russian and Caspian region at Cambridge Energy Research Associates.

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Not at all surprising:

A pipeline that Russia and Germany want to build under the Baltic Sea is facing so much opposition and scrutiny that the pipeline company, Nord Stream, has yet to obtain a single construction permit from any of the countries surrounding the sea, according to government officials.

[...]

Since the announcement of the pipeline deal nearly three years ago, Nord Stream has been beset by problems. It has been forced to alter the routes because of a boundary dispute between Denmark and Poland. It has been refused access to Estonia’s territorial waters. And last month, Nord Stream abandoned the idea of building platforms to support the pipes after objections, based on environmental considerations, by Sweden.

The costs have also increased, from around 4.5 billion euros, or $7 billion, to about 7.4 billion euros, according to the company.

The financing can only be finalized once the company has agreed on the final route with the countries bordering the Baltic Sea. They include Denmark, Finland, Germany, Russia and Sweden, which have to issue the permits, and four other countries, Estonia, Latvia, Lithuania and Poland. As yet, Nord Stream has received no permits to start laying the pipes in the Baltic Sea.

Posted by Lindsay at 09:21 PM | Permalink | Comments? (0) | TrackBacks (0) |  Subscribe in a reader |

Despite being born and raised in the Great State of California, I was never a big fan of wine, one of our most popular exports. I always prefer a pint of beer. Barbaric, I know.

So, for this reason, I don't have a very large collection of wine. In fact, I own only one bottle, as pictured below:

This is a bottle of Baku-Ceyhan wine produced by Tovuz-Baltiya Ltd, an Azeri wine company. I had some leftover manat burning a hole in my pocket and decided to waste a few minutes in the Baku airport duty free store while waiting for my flight back to Tbilisi. The store products consist mainly of caviar, vodka, and more caviar. I was hoping for a few oil-related souvenirs (I mean, seriously, this is Azerbaijan. What's a girl gotta do to get a mini barrel of authentic Azeri crude with Aliyev's face plastered on it?) but was thoroughly disappointed until I came across this bottle of Baku-Ceyhan wine. It's named after (and the label has a map of) the 1,099 mile Baku-Tbilisi-Ceyhan (BTC) pipeline, which begins at the Sangachal Terminal near Baku, runs through Georgia, and terminates at the Turkish port of Ceyhan, where Azeri crude is loaded onto tankers and transported to market. Having completed my master's degree by writing a dissertation on the BTC pipeline, you could say it's rather close to my heart. Not a bad souvenir for a few manat.

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Unified Energy Systems of Russia, the behemoth responsible for keeping the lights on in Russia, will be disbanded and Russia's electricity tariffs liberalized. The Russians claim that, while formulating their path towards privatization, one of the incidents they've learned from was the California electricity crisis (although if Enron ever tried to mess with the grandmas of Russia like they did with ours in California, they'd have a hell of a lot of angry babushkas on their hands, and that ain't a pretty sight).

(on an interesting side note, ten years ago Enron CEO Ken Lay and UES CEO Boris Brevnov signed a "10-year strategic alliance" and $55 million joint financing project:

According to Brevnov, "This alliance with Enron will enable UES to combine our experience in power generation, transmission, marketing and distribution to identify joint projects in Russia, Europe and Central Asia. I'm pleased this first transaction will provide us with important funding to upgrade power links to our key export markets."

Enron's Ken Lay described the alliance and loan as an "important step in Enron's relationship with UES and in our company's long-term strategy to actively promote and participate in competitive energy markets world-wide. We are pleased to be in partnership with one of the world's largest power companies and to have signed our first commercial transaction with them. We look forward to working with UES to identify other projects that can take advantage of our finance expertise, risk management skills and generation and transmission development capabilities. We are also very optimistic that the rapidly liberalising markets in Russia, Europe and Central Asia will create new electricity trading and marketing opportunities for both of our companies."

Two months later, Brevnov left UES and eventually ended up with a job at...Enron - in the broadband unit, no less.

And now on with the NYTimes article:

The plan’s architects say they have raised $33.9 billion by creating a simple and obvious investment opportunity: the chance to sell heat and light to one of the world’s coldest and darkest countries. Moreover, the Russians say they have learned how to privatize their electricity market by watching the best example of failure: the Americans and Enron.

The Russian state electricity monopoly, Unified Energy Systems, will be disbanded on June 30 after spinning off dozens of subsidiaries and floating a portion of shares in those companies on the Russian stock market, then selling the balance at auctions.

To attract buyers and investors, Russian officials promise they will also liberalize electricity tariffs for industrial consumers by next January.

“From a market point of view, it’s very sexy,” said James R. Fenkner, chairman of Red Star Management, a hedge fund based in Russia. “You are going, all of a sudden, from a system of government-controlled inputs and outputs to a market-based system with more potential for profit.”

[...]

To be sure, enthusiasm has been damped not only by the complexity of the securities, but by memories of President Vladimir V. Putin’s reversal of some oil industry privatizations, and concerns that the same fate could await electricity investors.

In addition, many Russian power plants also generate heat for residential buildings — a market where rates will not be liberalized. Residential heat is transported as steam or hot water in great underground pipes that flow beneath Russian cities and into apartment blocks. The heat is sold as a service to municipalities, at margin-crimping rates. Generally, electricity privatization is fiendishly complex, and it has failed spectacularly before. But the Russians say they have learned from others’ misfortune, especially Enron.

“What happened in California, though it was unfortunate, helped us design restructuring,” Sergei K. Dubinin, the chief financial officer of Unified Energy Systems and a former Russian central banker, said in an interview. “We said we can’t do it that way.”

[...]

One outcome of Russian electricity privatization is likely to be a shift from natural gas to relatively cheaper, but less-clean-burning coal as plants seek savings — indeed, a Citigroup investor note has even recommended investors buy coal-fired plants.

One looming risk, however, is that Gazprom, the gas monopoly, will raise domestic prices for natural gas before the electricity market is fully liberalized, squeezing the profits of the electricity companies and their new owners.

And, as one investor who did not want to be identified because his company deals with Gazprom, noted, “Gazprom is far more powerful than Enron ever was.”

Word. Enron, however, had a much cooler logo than Gazprom does.

Posted by Lindsay at 10:44 PM | Permalink | Comments? (1) | TrackBacks (0) |  Subscribe in a reader |

If this is approved by the regulators, it's a pretty sweet deal for both the oil company and the environmentalists in Santa Barbara. PXP will be allowed to drill and profit from record oil prices, while prime real estate owned by the company will be spared development and donated to a land conservancy:

A Houston oil company has agreed to shut down its offshore oil production off Santa Barbara County decades early in exchange for approval this year to drill into untapped undersea reserves and cash in on the nation's record oil prices.

To sweeten the deal, Plains Exploration & Production Co. -- known as PXP -- also has agreed to donate about 200 acres of oceanview property along the sparsely populated Gaviota coast and an additional 3,700 acres in Santa Barbara's premier wine-growing region for public parkland. It would withdraw a proposed housing development on that land and pay millions to fund projects that offset carbon dioxide emissions, such as low-emission public buses.

[...]

Steve Rusch, a PXP vice president, said the company was willing to make concessions because it wanted to do more than simply neutralize offshore oil's traditional opponents -- it wanted to enlist their support. Since the 1980s, most offshore oil development in California has been met with fierce opposition, including protracted litigation, congressional moratoriums and bureaucratic delays.

So beginning later this month, Krop and her clients will support PXP in its petition to use "slant drilling" from one of its four offshore platforms to tap into an undersea oil field, the Tranquillon Ridge, that could yield as much as 200 million barrels of oil and 50 billion cubic feet of natural gas.

Posted by Lindsay at 05:57 PM | Permalink | Comments? (1) | TrackBacks (0) |  Subscribe in a reader |

This past Tuesday, executives from Exxon Mobil, Shell, BP, Chevron, and ConocoPhillips appeared before Rep. Edward Markey's "Select Committee on Energy Independence and Global Warming" to defend their company's profits. Apparently, Congress is bored with steroids in baseball and wants to prove to their constituents back home that they are "doing something" about those high gas prices. Granted they can't actually do anything about the price of oil and gas, but they can claim they "took on Big Oil" when it comes time to print lit and film the TV commercials for the next election.

The committee's chairman, Rep. Edward Markey, D-Mass., pressed Exxon Mobil's Simon to explain why his company couldn't commit 10 percent of its investments to renewable energy.

"Why is Exxon Mobil resisting the renewable revolution?" he asked.

Uh, Exxon Mobil is an oil company. Oil companies will invest money in renewable energy technologies if their finance guys conclude that the technologies are a worthwhile use of their time and money, not just because some Congressman wants them to do so.

Markey said lawmakers will likely call oil executives up to Capitol Hill again in coming months if gasoline prices don't fall.

"They are going to be the winners of the most frequent visitors to Washington contest," he told reporters.

Yeah, Markey, because falling gas prices will really spur the investment in alternatives that you were just demanding of the oil companies. What do you want, higher prices that lead to lowered demand, or a magical drop in gasoline prices that will lead to increased consumption? W...T...F?

If I was an oil company CEO, I don't think I could ever testify before Congress. The political grandstanding exhibited by the Congressmen questioning me would either a) force me to pull a Nick Naylor; or b) make my brain explode, thereby providing some entertainment for the three people that actually watch C-SPAN.

Posted by Lindsay at 05:28 PM | Permalink | Comments? (0) | TrackBacks (0) |  Subscribe in a reader |

Nikolai K. Baibakov, the former Soviet oil commissar and head of Gosplan, passed away yesterday at the age of 97. His life story, as described in the below NYTimes article, is certainly a fascinating one:

In an interview with Petroleum Economist in 1998, Mr. Baibakov remembered being summoned to meet with Stalin on a hot day in July 1942. Hitler was advancing to the Caucasus to try to seize the strategically essential oil fields near Baku.

Stalin pointed two fingers at Mr. Baibakov’s head, he recalled. “If you fail to stop the Germans getting our oil, you will be shot,” Stalin said. “And when we have thrown the invader out, if we cannot restart production, we will shoot you again.”

As the deputy to the oil commissar until 1944, and then as commissar himself, Mr. Baibakov accomplished both missions. He also built a pipeline under the ice to bring gasoline to besieged Leningrad, now St. Petersburg.

Mr. Baibakov, who was believed to be the last living commissar who had served under Stalin, went on to revive his country’s oil industry, which remains the engine of the Russian economy. He then oversaw the Soviet Union’s vast central planning apparatus, known by the acronym Gosplan.

In that job, he directed the planners who set and enforce investment, production and other targets for hundreds of ministries and industrial enterprises. During Mr. Baibakov tenure at Gosplan, the Soviet Union expanded its industrial output fivefold and constructed thousands of five-story apartment buildings, many of which are still inhabited. But agriculture faltered.

In 1985, after two decades as chief planner, he was fired by Mikhail S. Gorbachev, who was seeking younger aides and new economic directions. “Not all of our managers have broken away from inertia, from old approaches,” Mr. Gorbachev said.

Mr. Baibakov indeed never stopped admiring Stalin, had a picture of Lenin on his office wall and was not convinced that free-market economics trumped central planning. In an interview with Reuters in 2001, he said: “The market and private initiative are the wings in the sail, but the plan and planning are the rudder which guide the ship of the economy to its goal.”

At his death, Mr. Baibakov was president of the board of trustees of the Gubkin Russian State University of Oil and Gas and chairman of the All-Russian Association of Drilling and Service Contractors.

Nikolai Konstantinovich Baibakov was born in 1911 in Sabunchi, Azerbaijan. The son of a workman, he graduated from the Azerbaijan Petroleum Institute in 1932 and went to work in the oil fields. He served in the Red Army from 1935 to 1937, and then did various engineering and administrative jobs in the oil industry.

He emerged from World War II with the title people’s commissar of the oil industry. Oil production almost quadrupled over the next decade.

For a time in the 1950s, Lavrenti Beria, head of the secret police, also oversaw important industries, including oil. He granted all Mr. Baibakov’s requests for workers and materials to rebuild the oil industry.

Still, it was a delicate relationship. Once, Mr. Baibakov’s wife, Klaudia, told Mr. Beria that her husband could not come to the phone because he had the flu. Mr. Beria was outraged. He ordered Mr. Baibakov to wear galoshes, as he did, and to fly immediately to a faraway refinery. He did.

Petroleum Engineer asked Mr. Baibakov if Mr. Beria had ever had any of his fellow oil officials shot. “Yes, several,” he replied.

Khrushchev appointed Mr. Baibakov head of Gosplan in 1955, but removed him two years later. The reason may have been Mr. Baibakov’s disagreement with Khrushchev’s push to diminish Stalin’s reputation.

In 2006, the British Broadcasting Corporation interviewed Mr. Baibakov about Khrushchev’s historic speech denouncing Stalin, delivered in 1956 at the 20th congress of the Soviet Communist Party. He was one of the last surviving witnesses to the speech.

“Maybe there were individual incidents of repression, but what Khrushchev denounced Stalin for, that never happened,” Mr. Baibakov said. “Khrushchev just said those things to try and give himself more authority as a leader.”

After serving in regional and industrial posts for a decade, Mr. Baibakov was asked by Brezhnev to run Gosplan once again, which he did for 20 years.

Brezhnev was hardly a micromanager. The Moscow Times in 2001 reported that when Mr. Baibakov tried to brief him in the late 1970s about deterioration in the economy, Brezhnev said, “Take your manuscript away, so I never have to see it again.”

In another discussion of economics, Brezhnev declared that there were “too many figures” and suggested that the two go hunting instead. Mr. Baibakov shot 14 wild ducks, Brezhnev 21.

Russian announcements made no mention of any survivors of Mr. Baibakov. But the story of how he met his wife, Klaudia, was bandied about on Russian Web sites. She was an aide to the deputy construction commissar and went to his office for a signature. He fell for her, and asked her to lunch. She said no, but accepted an invitation to the movies. At dinner afterward, he said he was too busy for courting and asked her to marry him.

In character as a no-nonsense central planner, he gave her exactly a half-hour to weigh the proposal. They married the next day.

Posted by Lindsay at 10:56 AM | Permalink | Comments? (0) | TrackBacks (0) |  Subscribe in a reader |

With oil prices now at $100+ per barrel, companies are revisiting older wells that were shut down when it was economically unfeasible to produce oil from them. Many of these wells are located in southern California:

Independent producers and major conglomerates alike are reinvesting millions in these mature wells, using expensive new technology and drilling techniques to eke every last drop out of fields long past their prime ---- and often in the middle of suburbia.

In this instance, Terra Exploration & Production Co. believes that up to 2 billion barrels of oil remain hidden beneath Signal Hill, once nicknamed "Porcupine Hill" for its crown of oil derricks before developers planted gated communities and strip malls.

"A lot of these wells have been sitting idle for many years," said Mick Conner, who hopes to increase daily production on his half-dozen wells. "If we can take a 10-barrel well and make it a 20-barrel well, it becomes very profitable for us."

In California, some of the least profitable and old wells ---- so-called "stripper" wells ---- are clustered in a dense urban environment, tucked between malls, gas stations and homes. They are the legacy of a turn-of-the-century oil boom that quickly faded with the discovery of oil in Texas and the depletion of the easiest reserves.

But the move to boost production on these aging oil fields has also inspired bitter protests from some homeowners, some of whom live just a few dozen feet from active wells. Many do not own the mineral rights under their land or moved in long after the original well was built.

If I had a lot of free time on my hands, and still lived back in California, I would probably write a book on California's oil history. It's an interesting topic, but I can't imagine it would be much of a bestseller. At least my parents would buy a few copies.

Posted by Lindsay at 11:33 PM | Permalink | Comments? (2) | TrackBacks (0) |  Subscribe in a reader |

Well, here we go again. Two brothers, Ilya and Aleksandr Saslavsky, both graduates of Oxford University and dual Russian-U.S. citizens, were arrested by the Russian FSB on charges of spying on behalf of foreign oil companies. In addition, the FSB raided the offices of TNK-BP, a joint venture between BP and three Russian gazillionaires.

Russia’s Federal Security Service (FSB) said that the two men, who also have US citizenship, were arrested on March 12 while allegedly attempting to obtain classified information from a Russian “employed with a national hydrocarbon institution”.

An FSB spokesman said: “The brothers were illegally collecting classified commercial information for a number of foreign hydrocarbon companies, which wished to have advantages over their Russian rivals, including those in the [Commonwealth of Independent States] markets.”

The two were charged with industrial espionage on Wednesday. The announcement came just a day after police seized documents during raids on the Moscow headquarters of TNK-BP and BP, which holds a 50 per cent stake in TNK-BP.

The FSB said that the search produced “material evidence of industrial espionage . . . and business cards of representatives of foreign defence departments and the Central Intelligence Agency”.

So the brothers left the business cards of their CIA contacts just lying around the office? Some spies they are!

Oh, and in other news, the Rosprirodnadzor, the Russian equivalent of the EPA, announced that they will be conducting an inspection of TNK-BP's Samotlor field in Siberia:

A spokeswoman for the ministry of natural resources characterized the inspection announced on Friday as routine and noted that it would cover other fields and other companies as well.

Still, in 2006, the same Russian environmental agency threatened Royal Dutch Shell with multibillion-dollar fines in a months-long campaign that led to Shell’s selling a controlling stake of its Sakhalin Island oil and gas development to Gazprom.

After Gazprom bought the stake, the agency dropped its environmental complaints and work continued.

The same inspector in the Shell situation, Oleg L. Mitvol, the agency’s deputy director, was appointed to lead the investigation at TNK-BP’s Samotlor field, according to the statement.

How convenient.

Posted by Lindsay at 11:33 PM | Permalink | Comments? (0) | TrackBacks (0) |  Subscribe in a reader |

I think this is my favorite Putin quote to date:

“You can build a pipeline or even two, three, or five. The question is what fuel you put through it and where do you get that fuel. If someone wants to dig into the ground and bury metal there in the form of a pipeline, please do so, we don’t object.” Sarcastically, Putin dismissed the notion of a competition between Nabucco and South Stream: “There can be no competition when one project has the gas and the other does not” (Interfax, February 28; Rossiiskaya gazeta, February 29).

More awesome Putin quotes can be found here. We can only hope that Medvedev will be equally as entertaining (although I'm not counting on it).

Posted by Lindsay at 10:15 PM | Permalink | Comments? (1) | TrackBacks (0) |  Subscribe in a reader |

Last week, a proposal to enact a severance tax on California oil production (remember Proposition 87?) that would fund public schools failed in the California Assembly. The initiative was spearheaded by outgoing Assembly Speaker Fabian Nuñez (D-Los Angeles), who explained the reasoning behind the initiative as such:

“While California is facing billions in cuts to schools, big oil companies are raking in record profits -- without paying for the oil they take from California. If red states like Texas, Colorado, and Montana tax oil production to fund the services they value, then so should we.”

AB 9xxx would set a 6 percent severance tax on oil extracted in California. The revenue would be used to mitigate teacher layoffs from the Governor's proposed cuts. AB 9xxx also responds to overall petroleum industry profiteering by placing a 2 percent windfall profits tax on oil companies.

The bill would generate $1.2 billion in yearly revenue for the state, making sure California gets its fair share from record oil company profits. Oil production is one of the most profitable industries in the world, and all 21 other oil producing states in America already levy a severance oil tax at rates ranging from 2 percent to 15 percent on oil producers. Most of those states spend more per pupil on education than California.

After reading Nuñez's press release, you'd probably come away with the impression that oil companies are just sucking all of the oil out of our state without paying a dime to the State Treasurer. While, yes, it's true that California does not impose a severance tax on oil extracted from reservoirs located in the state, the oil companies still pay a corporate income tax on profits earned within the state, as well as various regulatory fees, all of which add up to a much higher overall tax rate for California oil companies when compared to those operating in Texas, Colorado, and other states. Still, it's much easier for Nuñez and his cohorts to ignore this fact and instead stage an outlandish press conference outside an elementary school, claiming that oil companies aren't paying their fair share of taxes.

"Oil companies in this state aren't conducting bake sales so they can get by," said Assemblyman Paul Krekorian (D-Burbank). "Our schools are."

Dude, do you have any idea how many cupcakes Chevron would have to sell at a bake sale to pay those daily $300,000 rental fees for an offshore rig? That's just crazy!

In international news, Russia and Ukraine finally ended their standoff over natural gas supplies, eliminating the middlemen RosUkrEnergo and UkrGasEnergo, while granting Gazprom direct access to Ukrainian industrial customers. Starting in 2009, Gazprom will now pay "European prices" for gas from Kazakhstan, Uzbekistan and Turkmenistan, which the company resells in order to meet its supply commitments to its European customers:

Although it could result in lower revenues for Gazprom, experts say Russia has effectively bought control of Central Asian exports.

"Russia will maintain its control on gas supplies even though its profit will go down," says Sergey Smirnov, energy expert from the Expert Kazakhstan journal. "All other alternative routes that are on paper today become unreal."

Still, it is it is questionable that Gazprom will be able to meet its European commitments while satisfying the growing demand for gas at home:

But even as it notches up victories, the good times may not last. The company, which supplies 25 per cent of Europe's gas needs, has not had to make investments in bringing big fields onstream recently. But as production declines rapidly at its Soviet-era supergiant fields, the company may soon be unable to produce enough gas to meet demand in Europe and at home, experts fear.

Indeed, Gazprom is facing the biggest challenge in its history. Its next big sources of gas are locked on the Yamal Peninsula and off the Arctic coast in the Shtokman gas field. The first is a logistical nightmare because of high winds, bad soil, and icy conditions. The second is an enormous technical challenge: Shtokman is located more than 500km offshore and icebergs abound.

[...]

The estimates on how big the gas production deficit could be by 2015 vary from a few billion cubic metres to 100bcm. Calculating the potential deficit is complex and depends on how quickly demand rises in Europe and at home, how much gas Gazprom takes from independent producers and how quickly it completes export pipeline projects such as South Stream.

If Gazprom were to complete all its export projects including North and South Stream to Europe and a proposed pipeline to China, the deficit could reach 100bcm, says Vladimir Milov, a former deputy energy minister who is now head of the independent Institute of Energy Policy.

Related:
International trading faces an uncertain future
Flexibility to go where the price rises the highest
Pipeline politics: Search for alternative routes
Rising gas demand abroad pinching LNG shipments

Posted by Lindsay at 11:24 PM | Permalink | Comments? (0) | TrackBacks (0) |  Subscribe in a reader |

You don't hear much about the BTC pipeline these days (which, on second thought, is probably a good thing considering most pipeline news from the former Soviet republics often involves explosions, gas shutoffs, and various other negative incidents), so I was surprised to find this rather positive article in today's Christian Science Monitor regarding BP's investment in Azeri villages located along the pipeline's route. Reaction to BP's projects, from both village residents and international NGO workers, has been overwhelmingly positive.

Six days a week, Seymur Alizadeh and his chestnut-brown mare patrol the Azerbaijani countryside. Buried a few feet below is the prized Baku-Tbilisi-Ceyhan (BTC) oil pipeline, which delivers nearly 1 million barrels of Caspian Sea crude to Western markets each day.

Mr. Alizadeh, one of many local villagers guarding the oil route, says, "I feel like a very important part in protecting this pipeline." Hiring local horsemen is part of a larger effort by pipeline builder BP to create a massive neighborhood watch.

BP and other energy companies are under scrutiny for their relations with local communities worldwide for the cost, disruption, and even bloodshed their lucrative pipelines are responsible for. So in recent years they've honed a new formula: invest heavily in the affected communities and try to foster goodwill, neutralize controversy, and hopefully safeguard their multibillion-dollar investments.

[...]

By the end of 2008, BP says it will have spent close to $100 million in Azerbaijan, Georgia, and Turkey to build water-purification systems, medical clinics, primary schools, parks, and roads in the 450 communities identified as directly affected by the pipeline.

This expense, however, may be a drop in the barrel compared with the billions of dollars of revenue from Caspian crude. (Although BP won't reveal its profits in Azerbaijan, the government's share of its revenue last year was $4.7 billion.)

Still, some of the 125 Azeri communities, mostly impoverished and often neglected by their own governments, say that BP's efforts are the best they've seen. The company and several smaller oil partners work with nongovernmental organizations on community-development efforts that the government has yet to begin.

"I don't think I have ever worked so closely with the private sector," says Pamela Flowers, the country director for the International Rescue Committee, which partnered with BP on community projects along the BTC. "They put a lot of effort into it."

This strategy, which some view as "enlightened self-interest," may seem like common sense. But compared with a decade ago, it represents a shift for companies that today face ever more scrutiny. "It's fundamental, good security practice, in terms of protecting our asset, to make sure that we are good neighbors to the communities we impact," says BP spokeswoman Clare Bebbington.

Energy companies as good corporate citizens? Yes, believe it or not, it happens quite often.

Posted by Lindsay at 11:21 PM | Permalink | Comments? (1) | TrackBacks (0) |  Subscribe in a reader |

When I was in California a few weeks ago, my dad told me that he thought I was turning into a Republican. I'm not, I was just angry that I had to pay the IRS a lot of money (and this was before they hit me up for the extra $2,000) which our government overlords would just fritter away on useless projects, like TSA blogs.

Anyways, read this essay by Ben Stein. I may not be a member of his party, but he has a point.

Mr. Obama is clearly an intelligent man. So it may not be too early to start a small process of education about Exxon Mobil and other oil companies and why attacking them is not smart. First, Exxon Mobil, like all the other gigantic integrated energy companies in this country, is owned not by a cabal of reactionary businessmen holding clandestine meetings in a lodge in the Texas scrublands (as Oliver Stone so brilliantly illustrated in “Nixon”).

Exxon Mobil, in fact, is owned mostly by ordinary Americans. Mutual funds, index funds and pension funds (including union pension funds) own about 52 percent of Exxon Mobil’s shares. Individual shareholders, about two million or so, own almost all the rest. The pooh-bahs who run Exxon own less than 1 percent of the company.

When Exxon Mobil earns almost $12 billion in a quarter, or $41 billion in a year, as it did in 2007, that money does not go into the coffers of a few billionaire executives quaffing Champagne in Texas. It goes into the pension and retirement accounts of ordinary citizens. When Exxon pays a dividend, that money goes to pay for the mortgages and oxygen tanks and in-home care of lots of elderly Americans.

So, Mr. Obama, which union pension plans — and which blue-collar workers who benefit from them — will be among the first you would like to deprive of the income that flows from Exxon’s rich dividends?

When Mr. Obama or his Democratic rival, my fellow Yale Law School graduate Hillary Rodham Clinton, go after the oil companies and want to take away their profits, they are basically seeking to lower the income of the ordinary American. Why do that? It’s just cutting off one end of a blanket and sewing it to the other.

Years ago, there was a comic strip called “Pogo” by Walt Kelly, and the possum who was its hero uttered a deservedly famous line: “We have met the enemy and he is us.” This applies to Big Oil. Its profits are our income. Its employees are overwhelmingly not millionaires — and, by the way, it’s not illegal or evil to be a millionaire. They are our neighbors and the people who get us the gasoline to run our cars and trucks and the oil to heat our homes.

And, after expenses, the money hauled in by Exxon Mobil and other companies like it goes vastly more toward exploration and finding new ways of delivering oil and gas to us slobs in our cars than it does to well-heeled oil executives. It may be a scary fact, but we need the oil companies.

Meanwhile, all over the world, from Russia to Venezuela to Africa to the sands of the Mideast, nations with large oil reserves are making it harder for American energy companies to get their hands on oil and gas. If they succeed and re-cartelize the price, current prices may look cheap.

We should not be beating up Exxon Mobil and its brethren and making them cry uncle to Uncle Sam. A better policy might be to keep making sure they have no role in price-fixing, and then to encourage them to go after and lock up as much oil and gas as they can for us to burn up. We would be better off with stronger oil companies that can serve our energy needs for the long haul than with weak and overtaxed oil companies that cannot deliver the needed juice.

Finally, envy is simply not good economics. It has never led anywhere except to trouble, and we have enough divisions in this country already. As I said, Mr. Obama is a smart man. And Senator Clinton is a smart woman. I have worked in politics and with politicians. I know they have to say crowd-pleasing things (just as Republican leaders have to say that cutting taxes raises revenue).

But I respectfully suggest that they might want to reconsider their attack on Big Oil. After all, Big Oil is big us. And we need us.

(And no, I do not work for ExxonMobil, but always thought it would be pretty awesome to do so).

Posted by Lindsay at 10:58 PM | Permalink | Comments? (0) | TrackBacks (0) |  Subscribe in a reader |