Russian energy model challenges
OPEC By John Helmer
MOSCOW - In the Russian folk tradition,
Dyed Moroz (Grandfather Frost, equivalent to Santa
Claus) doesn't give children their presents
because they have been well behaved all year.
Instead, he responds to those who shout the
loudest to catch his attention.
That may
have been the reason for the headline, after South
African Deputy Foreign Minister Aziz Pahad's
briefing last week, that South Africa intended to
"talk tough" at the Group of Eight summit that ran
from Saturday through Monday in St Petersburg.
Pahad suggested that President Thabo
Mbeki, who was attending as a member of the five
"outreach" countries - South Africa, India, China,
Brazil and Mexico - would demand that Russia and the
other G8 members do more to
maintain an Africa priority in global development
policy.
Mbeki was invited by the Kremlin
as a representative of the developing states,
while Africa as a region was represented by the
head of the Africa Union, Republic of Congo
President Denis Sassou-Nguesso.
Pahad also
suggested that Mbeki should thump the G8 table for
the lack of implementation, over the past year, of
the group's promises to increase financial aid to
Africa, improve the terms of trade for African
exports, and support universal access to treatment
for AIDS and the human immunodeficiency virus
(HIV) that causes it.
Mbeki has not had
much success in catching President Vladimir
Putin's attention at their earlier meetings. But
Putin is now scheduling his first visit to Africa
in September. Although the visit has been
postponed several times before, September 5 has
already been fixed for Putin's arrival in South
Africa. Angola is also on the itinerary, but the
other African stops are still uncertain; Morocco
is a possibility. The first African visit of a
Russian head of government in almost half a
century will be the opportunity for Russia to
address Mbeki's Africa-wide agenda.
In the
lead-up to the St Petersburg summit, and at this
weekend's meetings, Russia presented a
revolutionary agenda that leaders of the
developing states in Africa and Asia should have
every reason to support. This is a new Russian
scheme for supplying, consuming and pricing energy
- principally oil and gas, but also coal and
uranium - to the world.
Because this is
meant to supersede the traditional arrangement for
supplying and pricing crude oil through the
Organization of Petroleum Exporting States, those
who benefit most from OPEC, led by the United
States, have orchestrated a drumbeat of criticism
of the Russian model, calling it an unreliable
source of energy, and attacking Putin for using
energy exports as a political weapon.
Media coverage of the G8 summit agenda,
especially the "energy security" priority Russia
has introduced, reflects this fight. The media
have been (and will continue to be) a weapon for
both sides. From the Russian point of view,
however, the new energy-supply model is not
negotiable.
The emergence of this new
strategy has been swift, but clumsy. Countries,
international corporations, and their public
relations and media networks, which supported the
OPEC model for Russia in the past - those, for
example, who backed such Russian oligarchs as
Boris Berezovsky and Mikhail Khodorkovsky, and who
currently oppose Gazprom and Rosneft - are hostile
to the new Russian energy strategy because, if it
succeeds, it neutralizes the chances of long-term
regime change inside the Kremlin.
The G8
and other meetings are regarded by the Russian
side as opportunities for such countries to change
their minds, and redefine their interests.
The OPEC model has been limited to crude
oil; the Russian model aims at covering supply of
both crude oil and natural gas. The OPEC model has
been limited to regulating supply and price,
according to the swing-producer mechanism. Until
now, this role has been played by Saudi Arabia,
with its global lead in crude-oil reserves, and in
its flexible capacity to lift, pump to port, and
ship. The Russian model aims to supplant the
Saudis, emphasizing Russia's global lead in gas
reserves and in barrel of oil equivalent (boe).
Already, Russia exceeds Saudi Arabia as the
largest producer in boe terms (13.3 million boe
per day, compared with 10 million boe/d for Saudi
Arabia); the largest exporter in boe terms (18.7%
of global hydrocarbon exports); and the largest
reserve base (16.3% of world hydrocarbon reserves
boe).
From the Russian perspective, the
Saudi role and OPEC model have benefited the
United States, which can pressure Saudi Arabia
into opening the spigot to deal with supply
emergencies; the US also pressures other oil
producers, such as Libya, Iraq, Iran, Venezuela,
and Indonesia, by military methods, diplomacy, and
economic sanctions. In the Russian alternative,
the US will be far less influential, and have
fewer levers, commercial or military, to effect
pressure on the energy suppliers. Russian arms and
defense-industry partnerships are on offer to
relatively weak, intervention-prone energy
producers in Africa and Latin America to offset US
pressure.
In the OPEC model, the benchmark
is Brent crude, priced in US dollars. In the
Russian model, the discount and disadvantage
between the Brent and Urals benchmarks will be
reduced, and pricing will evolve toward a currency
basket, including the ruble.
In the OPEC
model, suppliers hold much of their cash and
government securities in US-controlled
institutions. In the Russian model, cash is held
in the form of a currency basket; conversion from
cash is sought into non-US assets, particularly in
the European market.
In the OPEC model,
investment in new energy reserves should be open
to, and may be controlled by, US corporations. In
the Russian model, strategic reserves should be
controlled by national companies, state-controlled
champions, or joint ventures in which Russian
interests are in the majority.
In the
US-backed OPEC model, national suppliers depend on
US-controlled market intermediaries, traders,
pipeline and shipping companies, and retail
distributors for access to markets and point of
sale. In the Russian model, in exchange for access
to Russian energy supplies, there will be Russian
state-controlled champions in energy
transportation. Russian state-controlled
corporations will also have investments and
influence over trade and market retail networks.
The Russian model also extends to
energy-convertible coal, uranium, and other
mineral resources. Through negotiations for
Russian accession to the World Trade Organization
(WTO), the US, Australia, Canada and other
resource-exporting states have sought to gain
unlimited access to search and development of
Russian minable resources. The Russian model
rejects this, and instead assigns priority and
equity control of domestic resources to national
resource companies. The model proposes tradeoffs
and partnerships in resource exploitation in third
countries, especially the developing states.
The US-backed OPEC model assigns
international priority to the Arab states. The
Russian model assigns priority to the Central
Asian alliance, including China, India, and Iran;
secondarily to Latin America (Venezuela, Brazil);
and ultimately Africa.
On this fundamental
choice between the Russian and OPEC models, Russia
is waiting to hear where South Africa stands. One
thing is clear - South Africa's dependence on OPEC
for its crude-oil imports has been growing. In
1996, 75% of South Africa's oil imports came from
the Persian Gulf states, led by Iran. In 2003 -
the latest year for which figures are available -
this had grown to 78%. Saudi Arabia has also
jumped ahead of Iran as the leading supplier.
Nigeria is the leading African supplier of oil to
South Africa, with 16% of total in 2003. Imports
from Russia are possible, but have been negligible
so far.
Putin told Mbeki and his other
guests that Russia is offering a role (short of
control) in upstream development of Russian energy
resources. In exchange, he wants to agree on a
reciprocal role for Russian state companies
elsewhere, including the regional economic blocs
that are represented at the G8 table - China,
India, South America, and Africa. This framework
creates a mutual interdependency to protect the
energy partnerships that are formed from
unilateral pressures or attacks of the US type -
economic, political, or military.
The
security of Russian energy supply is thus to be
contrasted with the unreliability of US behavior.
In the short term, this Russian strategy also
enables Russian companies to secure the capital
and technology they need for high-cost, high-risk
projects in difficult terrain. Reciprocally, the
strategy offers access to stable supply and
pricing of oil and gas to consumer countries,
including diversion of energy transportation away
from military pressure at chokepoints - for
example, the Strait of Hormuz, through which most
oil tankers sail en route to Asia and South
Africa. In America's wars with Iraq, and its
threatened attack on Iran, oil consumers are
dependent on the US Navy to keep the Hormuz
waterway open. They are obliged to pay for this
protection through the premium US oil companies
charge for delivery risk.
India was the
first to buy into the new Russian model,
purchasing a minority shareholding in the first of
the Sakhalin Island offshore oilfields to come
onstream. This does not supply crude oil directly
from Russia - a short-term Indian priority that
the government in New Delhi is also pursuing.
China followed India with different tactics, first
by funding the proposed East Siberian Oil
Pipeline, which will assure direct oil deliveries
to Daqing; and most recently, by buying into
Rosneft's public share flotation. By contrast, the
United States' two most dependent allies in Asia -
South Korea and Japan - have been left behind,
their proposals for direct oil and gas pipelines
rejected, and their supply positions limited to
the right to long-term purchase contracts at
benchmark market prices.
For Asian
oil-search companies, as for South Africa's state
energy company PetroSA, the Russian model offers
many opportunities. This is urgent in the South
African case, because PetroSA's domestic reserves
of gas to fuel the Mossel Bay gas-to-liquid plant
are running out. "By 2009 or 2010 we must have
decided what to do. We will either close, move
somewhere else, convert to an ordinary refinery or
find another gas field," PetroSA's chief executive
Sipho Mkhize said recently. At present, roughly
10% of South Africa's petroleum consumption comes
from conversion of gas to liquids, while another
40% comes from conversion from coal.
PetroSA executives are regular visitors to
Moscow, but they are reluctant to say what they
have in mind for their energy partnership with
Russia. The first sign of this was announced in
April, when PetroSA took a 10% stake in a Namibian
oil-and-gas-exploration venture, alongside the
Russian company Sintezneftegaz. There is
considerable potential for joint ventures with the
Russians in Angola, where LUKoil, Russia's largest
oil producer and exporter, is negotiating
concessions; and in other African countries where
PetroSA is also active; these include Equatorial
Guinea, Nigeria, Gabon, Sudan, Mozambique and
Algeria.
Other Russian oil-exploration
moves in Africa include Zarubezhneft's payment
last year for an offshore concession from the
Nigerian government (linked to the release of a
dozen Russian mariners held hostage by corrupt
officials in Lagos for two years).
From
the Russian perspective, the scope for the energy
partnership with the developing states is limited
only by the imagination; or by countervailing US
or European pressures, as rivals for the Russian
model seek to maintain their traditional,
colonial-era ties. Oil is not the only
battlefield. African companies have considered in
the past, and could revive interest again, in
partnering the Gazprom group, Russia's largest
enterprise, in the bidding for resource
development and pipeline projects in sub-Saharan
Africa. Expansion of a South African partnership
with Alrosa, the primary state-controlled Russian
mining company in Africa, was under negotiation in
talks this month.
Also, Russian interest
has been expressed in partnering South African
companies such as Sasol in the development of
coal-to-fuel conversion in coal-rich regions of
Russia. And sources in the Russian uranium sector
suggest there is the possibility of partnership
between South African suppliers of uranium and
Russian builders of nuclear reactors for
power-plant projects in third countries.
To the G8 summiteers, Putin has issued a
challenge, which ought to be familiar to all Asia
and African leaders. "If we go back 100 years,"
Putin told a French television interviewer, "and
look through the newspapers, we see what arguments
the colonial powers of that time advanced to
justify their expansion into Africa and Asia. They
cited arguments such as playing a civilizing role,
the particular role of the white man, the need to
civilize 'primitive peoples'. We all know what
consequences this had."
Putin was
responding to attacks on the Kremlin for not being
democratic enough, according to the US model. But
the Russian energy model is a counterattack that
is much broader in scope, and more fundamental. It
is an invitation for the resource-rich developing
states to join in the challenge to colonial-style
relationships in the global energy market.
John Helmer has been a
Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
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