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24.02.11
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Lucky Strike
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By Andrew Roth
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Major oil and gas companies, including British Petroleum, announced that they would be halting production in Libya this week, as the fate of Muammar Gaddafi's regime faces internal unrest and international censure. European prices on oil have risen over $105, a two-year high, and a wave of instability continues to threaten North African regimes and their coveted gas and oil reserves. Moreover, there are fears that larger producers, such as Iran, could face greater unrest, which could redefine world energy markets. Yet rising prices are a natural boon for Russian gas and oil companies, and a shakeup in the region may also open up new longer-term opportunities for development in Russia.
In particular Europe looks to North Africa to provide natural gas for the region, and disruptions in service to the European continent would mean turning back to their primary supplier, Russia, with whom they have had a rocky history. “The Europeans, when they look to Russia, are kind of at Russia’s mercy and some have had their supplies cut off when they were unable to negotiate terms acceptable to both sides,” said Dianne Sutherland, chief editor and publisher of the Cairo-based Petroleum Africa Magazine. “That creates a real problem for them – Russia has an abundance of gas, and can continue supplying Europe, but that’s why the European Oil and Gas companies have looked to North Africa as an alternate source of gas supplies. And the Europeans make a much better deal there, with more favorable terms, and they’re heavily invested in the infrastructure, which gets it over to European nations, whether by pipeline or by LNG [tankers].”
Naturally the spread of opposition movements to other oil and gas producing countries in the region will determine the extent to which Russia’s role as a key producer will be redefined. Currently the Russian companies Tatneft and Gazprom both have stakes in Libya, but they might lose a preferred position with Gaddafi’s anti-Western regime should he be deposed. Nonetheless, any deep cut in production would be far more harmful to European companies, which are heavily invested in the region, than to Russian companies, which have extensive resources outside of the region and would be in a position to take advantage of the loss of supply to Europe.
Higher prices on oil and gas may also offer Russia new opportunities to reinvest extra resources into exploration, which has not been a priority recently, said Pat Szymczak, chief editor and publisher of Oil&Gas Eurasia. “The main thing is that this is an opportunity for Russia to show itself as a preferred partner for Europe, but the issue is always supply. But with oil prices high and still increasing, that increases the ability of the Russian companies to reinvest in exploration and open new fields for production. The state budget was set around $75 prices, and that’s up around $100 now, so Russia may have enough money to be able to fill their end of the pipeline.”
Further exploration and development, however, will probably require foreign companies to provide technological assistance, and there are some factors that may dissuade foreign investment in Russia. Western companies that can play an integral role in developing infrastructure elsewhere are often forced to play a more limited role in development in Russia. Furthermore, Western views on investment in the Russian oil and gas market have been negatively influenced by some scandals in past years, including the TNK-BP corporate governance dispute in 2008 and the government appropriation of the Yukos oil company, following Mikahil Khodorkovsky’s arrest in 2003. Decisions to invest will take into account the possible risks and rewards.
On the other hand, such scandals have been sensationalized, said Szymczak, and oil companies should recognize that internal politics – and not corruption – were key factors in those cases. “People talk about Khodorkovsky, but the whole issue was political – I consider what happened to be a domestic Russian issue, a family feud. He took on the Kremlin and they showed him their fist. You take the case with BP-TNK. I think that was misrepresented in the Western press. Again it was a family feud, and an internal shareholder’s fight. It had nothing to do with anyone being anti-foreign or anti-business. Overall, oil companies all operate in far more dangerous and risky places than Russia, like West Africa, where workers have to worry about attacks and kidnappings, and that kind of risk just isn’t evident in Siberia.” |
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