Sunday, July 16, 2006
G-8: What Happened to Energy Security?
Speaking at the group’s briefing Friday evening, TNI Advisory Council member J. Robinson West (chairman of PFC Energy and chairman of the board of the U.S. Institute of Peace) observed that the standard U.S. definition of “energy security”—ensuring a reliable supply of oil (and thus gasoline) at reasonable costs in an environmentally responsible fashion—increasingly could not apply in a world where increased demand is sending prices skyrocketing while the main sources of supply are located in unstable areas of the world.
A common attitude in the United States is to assume that U.S. energy security can only be achieved by insisting upon private ownership of oil and gas assets in Russia, and that as a result, the growing return of the state to owning and managing Russia’s energy portfolio is a threat. How Russia manages its oil and gas reserves is its business, he stressed, but state-owned companies have an obligation to be responsible and efficient stewards of their assets. In particular, he noted how GAZPROM, while it has a number of promising fields in its portfolio, lacks the ability to exploit and develop these assets, and increasingly has been resorting to purchasing gas from private Russian companies as well as from Central Asian providers (such as Turkmenistan) in order to meet its delivery obligations to Western markets. The United States cannot lecture Russia in how to run its oil and gas industry, but Russia’s state-controlled firms need the assistance and expertise of the world’s private multinational oil and gas companies if they are to be in a position to deliver additional supplies to meet rising global demand.
West noted that some Russian and Western analysts have a tendency to compare a state-owned company like Rosneft as if it is the equivalent of an Exxon, based on market capitalization. This is the wrong standard, he concluded. The question should be based on efficiency; is Rosneft as efficient as Exxon in extracting energy and delivering it to world markets? By this standard Rosneft has a good deal of catching up to do before it can be a true peer of the majors.
West also cautioned against viewing energy security in terms of grandiose new Greenfield projects. Although it appears that GAZPROM will not announce the foreign partners who will take part in the Shtokman project in the Arctic until August (rather than at the conclusion of the G-8 summit), those who see very capital intensive and demanding projects such as this as the way forward again miss the point about efficiency. West put forward the example of moving more Russian households to using thermostats to control consumption of natural gas for heating. Instead of the current wasteful methods which use much more gas than needed, moving, over time, Russian apartments and homes to a better, efficient climate-control system would save a considerable amount of natural gas. This is also very true for other post-Soviet countries like Ukraine—where West warns a second natural gas crisis could be in the making this coming winter due to a lack of inventory and likely price increases by suppliers like Turkmenistan.
Why, exactly, do Russian firms need that expertise? Given Russia's present current account surplus, government budget surplus, rapidly diminishing foreign debt, burgeoning foreign currency reserves and "stabilization fund", just about the last thing Russia really needs is bigger piles of foreign curency getting higher even faster. All that the additional export capacity created by accessing Western assistance and expertise will really do for Russia is lower the prices they recieve for their energy exports, and why should Russia want that? After all, I recall few expressions of Western concern about the difficulties Russia had back when oil was $10 or so.
And while Ukrainians stealing natural gas from European supplies transiting Ukraine might be a problem for Europe this winter, that doesen't mean its a problem for Russia.
If Europe is really concerned about securing reliable supplies of natural gas, maybe they should tell Radek Sikorsky where to stuff it, and support the gas pipeline under the Baltic to Germany. After all, the Ukrainians can't steal gas from that one...