Thursday, April 28, 2011

Total joins gamblers at Russian roulette...

Total joins gamblers at Russian roulette...
By Robert M Cutler

MONTREAL - During the Cold War, Soviet experts on international relations would write articles about the profit-driven race for hegemony among various competing transnational corporations based in different capitalist countries. They would point to how inherently difficult and conflictual situations were exacerbated by what they called "inter-imperialist contradictions".
Lately, the differences between the United States and the European Union over Libya, and also within the EU among such members as Italy, Germany and France, have seemed to suggest that there may in fact something to such a way of looking at things.

The recent increased involvement of major Western energy companies in Russia also indicates the advantages of such a perspective. In particular, the French company Total, already in Russia since 1989, has now decided to follow the American company ExxonMobil, Britain's BP and the Anglo-Dutch firm Shell with increased investment in the country.

As reported by the Moscow Times last week, the head of Total's exploration and production division in Russia told a conference that his company has a target to increase its output in Russia by no fewer than 30 times by the beginning of the next decade at the latest.

Given that its current production is only about 10,000 barrels of oil equivalent per day, that is not so outrageous a goal as it might otherwise seem, not is this a particularly impulsive decision in as much as Total has been in Russia for over two decades. What is new is that Total is banking on new projects in the Russia's Arctic region to make the difference.

Most notably, last month it gained a 12% stake in the Russian independent gas-producer Novatek at a price of US$4 billion in the hope of acquiring a 20% share of a projected liquefied natural gas (LNG) project in Yamal, where it already develops the Termokarstovoye gas condensate deposit together with Novatek.

More investment by Total may, however, be required to overcome the lack of funding for the Yamal LNG project, for which the Russian government declines to provide long-term financing.

Total also owns one-quarter of SDAG, the consortium with Norway's StatOilHydro, in which Gazprom owns a majority share, seeking to develop the giant Shtokman gas condensate field in the Barents Sea. SDAG's shareholders did not initially seek tax breaks for the projects but last week has put off a final investment decision pending the Russian government's response to its request for tax breaks.

That will now be a joint decision for or against both gas field development and an LNG processing plant (even though there will also be a pipeline component). Moreover, that decision will now depend on Moscow's response to SDAG's new tax-break request, which the consortium did not originally anticipate requiring and which Moscow has not welcomed receiving.

Total's new investment plans in the Arctic, the relatively new emphasis on LNG by Shtokman, and the continuing significance of the Yamal project, all come in the wake of Russian Prime Minister Vladimir Putin's surprise declaration earlier this year that the South Stream gas pipeline project, long touted by his government under the Black Sea to either Bulgaria or Romania, could be discarded altogether in favor of LNG projects from Russia's Arctic regions. (See
South Stream may disappear, .)

That announcement reflects Putin's near-obsession with finding yet another route for Russian natural gas to Europe beyond the Nord Stream pipeline under the Baltic Sea. At the time, Putin even evoked piping the Arctic gas to Russia's Black Sea coast and building a LNG facility there for cross-Black Sea transit. It is odd that few observers commented at the time that this was an admission that Russia did not have the gas available to fill South Stream if it were built.

However, the unanticipated dependence of the final investment decisions for the Arctic mega-projects on direct and indirect state support means that these plans are really more "iffy" than are even normal projects in the industry. These are gargantuan projects even by Russian standards and the Yamal development, for example, has consistently fallen behind schedule.

Putin wishes to increase Europe's dependence on Russian gas despite the past decade's repeated fiasco over his winter pipeline cutoffs and despite the fact that Europe receives one-quarter of its gas imports from Russia already. (For a telling anecdote about Putin in Brussels, see
Emerging triangles: Russia-Kazakhstan-China, .)

What emerges is that to the collection of Western "imperialist" powers that Moscow's international-affairs experts used to catalogue during the Cold War, it is now necessary to add Russia itself, which just as in the Soviet era remains dependent on foreign capital and advanced technologies for the exploration and development of its largest proposed projects.

The problem for its foreign partners, as the Khodorkovsky and BP sagas illustrate among others, is that the government in Moscow is not so meticulous about respecting agreements as it once was. Even at the height of the late Cold War with Ronald Reagan at the White House, for example, the Soviets never cut off gas to Western Europe.

The Chinese, unlike potential Western partners, seem to recognize this. Although Chinese energy firms have been making acquisitions and investments around the world for almost a decade, spending what nevertheless remains a small portion of its huge US-dollar foreign reserves, Beijing have been reticent about foreign direct investment in Russian oil and gas. Beijing's preferred instruments are long-term loans that are repaid in Russian exports of natural resources. (See, for example,
China on buying and lending spree, .)

That is why, when Russian President Dmitry Medvedev was in China for a summit with the leaders of Brazil, India, China and South Africa this month, he insisted on China becoming what Russian analyst Fyodor Lukyanov called "a source of investment and technology, not just a vacuum cleaner for Russian resources". The degree of Medvedev's success in this regard is yet unclear....

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