Putin Strikes Back - Peak Oil Era Struggle For Power Intensifies

"By 2020, we will probably be importing three-quarters of our primary energy needs – and we will need to adapt to that.... I will be tasking our Ambassadors and High Commissioners in priority posts overseas to take personal charge of implementing this [International Energy] Strategy and delivering its objectives..... we will be enhancing our [diplomatic] posts' capacity on energy issues...."
Jack Straw, Foreign Secretary
Launch of the UK International Energy Strategy, Foreign Office, 28 October 2004

"This International Energy Strategy is the product of cross-government work, particularly between the Foreign and Commonwealth Office, the Department of Trade and Industry and the Department for the Environment, Food and Rural Affairs. I'm glad to welcome Mike O'Brien back to the Foreign Office to launch it with me. The Government's Energy White Paper last year identified a dual energy challenge: to maintain Britain's access to secure and affordable energy supplies, while mitigating the effects of climate change.Both issues are vital to our prosperity and security. And both require not just domestic but international action. That is what this International Energy Strategy is about..... The second part of the energy challenge which this strategy addresses is the need for secure and affordable energy supplies. Our economy, our public services and our security rely on them. For the United Kingdom, our growing need for energy over the next decades has to be seen in a changing context – that of a probable fall in our own domestic production, as North Sea reserves are run down. We are likely to become net importers of gas by 2006 and of oil by 2010. By 2020, we will probably be importing three-quarters of our primary energy needs – and we will need to adapt to that..... By 2020, around half of global oil demand will probably be met by countries with significant risk of internal instability – and that will require more focus on policies which tackle the potential causes of conflict, and spread the benefits of energy wealth.... Energy is one of the eight international priorities which we identified in the FCO's Strategy last December. On this and on all of those priorities, we can only meet our objectives by working closely together, across government and outside. We are publishing this International Energy Strategy – the first time that we have done so – to help us to do that. I will be tasking our Ambassadors and High Commissioners in priority posts overseas to take personal charge of implementing this Strategy and delivering its objectives. We will be developing with them individual Country Action Plans on energy and climate change. And we will be enhancing our posts' capacity on energy issues and making better use of our network of energy attachés, with a particular focus on the large new consumers of energy such as China and India, and producers such as Russia."
Jack Straw, Foreign Secretary
Launch of the UK International Energy Strategy, Foreign Office, 28 October 2004

"The Russian Government seized back control of the oil industry yesterday by selling the prize assets of Yukos, the private oil and gas giant, to a mystery bidder widely believed to have close links to the State..... Virtually nothing is known about Baikal, except that it is registered in the city of Tver and applied to take part in the auction only a few days ago. Representatives of the company maintained a veil of secrecy, cancelling plans for a press conference by the winner of the auction. Analysts said that they believed that it was a front for Gazprom or another firm controlled by the Government. According to some media reports, Baikal was registered at an address linked to Gazprom in Tver. Either way, analysts said, the State had commandeered oil reserves of 11.63 billion barrels, or 17 per cent of Russia’s total, re-establishing control over a huge slice of an industry that is its main source of economic growth and international clout. 'By doing so, the State will have restored its previous control over a big piece of an industry that is not only the most important element in the local economy, but, along with natural gas, is increasingly the modern equivalent of military might,' Christopher Weafer, chief strategist at Alfa Bank, said. The auction effectively reversed the controversial privatisation deal, in which Mr Khodorkovsky bought Yukos’s oil and gas fields at way below their market value in the mid-1990s."
Oil and gas giant in State hands after mystery bid
London Times, 20 December 2004

"The energy crisis we are in today is entirely different from the temporary problems we experienced in 1973-74, 1979-86, 1990-91 and 2000..... An international economic disturbance of this magnitude will create potential conflicts between nations and civil competition within societies. These could be a trial for us and for our children, made worse in the early years by our lack of preparation and our failure to understand what is already happening to us."
The Gathering Storm
Energy Bulletin, 15 November 2004

London Times, 20 December 2004

Britain looks east for new energy
By Angela Jameson

CONCERNS over Britain’s dwindling domestic energy supplies have forced politicians and the biggest gas and electricity groups to look east for a new source. Their sights have settled on Russia.

By next year Britain will be a net importer of gas, 40 years after British Petroleum made the first discovery of gas in the North Sea.

Ofgem, the energy market regulator, said last month that there is sufficient power capacity to keep Britain’s fires burning this winter — even through a Siberian cold snap — but that situation will change between now and 2010, as older nuclear generators and dirty coal-fired power stations are turned off and North Sea gas supplies run down. British gas production peaked in 2000 at 108.4 billion cubic metres of gas a year and is now declining slowly.

The UK Offshore Operators Association (UKOOA), the industry body that represents oil and gas producers, says that by the end of the decade we will be able to cover only 60 per cent of our gas needs from the North Sea. Thus the search is on for new sources of gas from which to import.

One fifth of the world’s gas reserves are in Russia and are controlled by Gazprom, the giant Russian utility. Gazprom was in London last month and began an aggressive campaign to gain one tenth of Britain’s gas market within the next five years. The company, which supplies a quarter of European demand, has declared that this would increase its sales by 40 per cent a year. That puts Gazprom in direct competition with Britain’s traditional gas producers, notably BP, Total and Shell.

At present the Russian group sells about three billion cubic metres of gas to the UK market, which totals 100 billion cubic metres. It expects to increase its sales to 13 billion cubic metres by 2010. It will do so by focusing on the industrial sector, rather than supplying directly to homeowners. Industry analysts have no doubt that the group will achieve its ambitious target, which will propel it to the position of second-largest UK supplier.

Nobody will put a date on when Britain will run dry of oil supplies, but Wood Mackenzie, the energy consultancy, believes that the country will be producing as little as 23,000 barrels of oil a day by 2025, compared with just under two million barrels today, although that estimate does not include new finds that could boost supplies.

Gordon Brown has been trying to make the North Sea fiscal regime more attractive to producers, having stung the industry with a windfall tax in 2002. The Department of Trade and Industry has also been working on schemes with UKOOA aimed at prolonging the life of North Sea reserves.

"The sale of Yukos’s prize assets at a knockdown price in an auction shrouded in mystery is poetic justice for its founder, Mikhail Khodorkovsky. He was one of a dozen businessmen who used their connections in the Kremlin to buy the crown jewels of state industry at way below market value in a series of questionable privatisation deals after the Soviet Union’s collapse. The former Communist Party activist bought Yukos’s oil and gas fields for $350 million in 1995 in an auction arranged by his own bank, Menatep. Within less than ten years, the company was worth $40 billion and Mr Khodorkovsky was Russia’s richest man, with a personal fortune of $15.2 billion. The dismantling of his business empire sends a powerful message to the men who pulled off similar deals, including Roman Abramovich, the owner of Chelsea Football Club, who founded the oil giant Sibneft. In the late 1990s they became known as the 'oligarchs' because of their fabulous wealth and enormous influence in the Kremlin under President Boris Yeltsin. At the time, Kremlin officials argued that the State needed the cash to pay salaries and prevent the Communist Party from making a comeback. The oligarchs’ companies would become the new pillars of post-Soviet industry, they said. Yet soon the oligarchs became notorious for their lavish lifestyles. They outmanoeuvred minority shareholders and business partners and directed billions of dollars offshore. ... Mr Khodorkovsky was arrested at an airport in Siberia in October last year and charged with tax evasion and massive fraud. He faces up to ten years in prison if convicted. Foreign investors and governments were shocked by Mr Khodorkosky’s arrest, as he had turned Yukos into Russia’s best-run company by hiring Western managers and introducing Western standards of corporate governance. However, the move played well with the Russian public, who see the oligarchs as thieves who robbed the country of its natural wealth."
$9bn takeover shows power of Putin over the oligarchs
London Times, 20 December 2004

'Peak' Oil And Gas
Global Struggle Intensifies In Eastern Europe
One Big Reason Why Bush and Putin
Are Fighting For Control Of Ukraine
www.btinternet.com/~nlpwessex/Documents/WATUkraineBushVPutin.htm
Empires Lock Horns Over
Black Sea Transit Route For Caspian Hydrocarbons
Ukrainians Are Piggy In the Middle
As EU Looks On Nervously
Click Here For Full Story

"The foreign secretary, Jack Straw, yesterday pinpointed for the first time security of energy sources as a key priority of British foreign policy. Mr Straw listed energy as one of seven foreign policy priorities when he addressed a meeting of 150 British ambassadors in London. The US and British governments officially deny that oil is a factor in the looming war with Iraq, but some ministers and officials in Whitehall say privately that oil is more important in the calculation than weapons of mass destruction.... Mr Straw told ambassadors that, following a review he ordered last year, the Foreign Office drew up a list of seven medium to long-term strategic priorities, including 'to bolster the security of British and global energy supplies'".
Straw admits oil is key priority
Guardian, 7 January 2003

"Of the many factors that went into the Bush administration's decision to attack and occupy Iraq, one of the most important was the long-held view of Richard Cheney, the vice-president, that America's power was threatened by the potential loss of control over Middle East oil.... This year the US will have imported about 11m barrels of petroleum a day and mainstream forecasts project a growth of imports to about 20m barrels a day by 2025. Moreover, global competition for worldwide oil supplies is projected to grow markedly, especially with China's emergence as a huge oil importer. Despite discoveries of new reserves elsewhere, petroleum supplies from the Middle East and the nearby Caspian Sea region are expected to become even more pivotal in the coming decades, accounting for two-thirds or more of the world's petroleum reserves in 2025. With oil supplies and production increasingly concentrated in the Middle East, and with growing competition from other oil importers, Mr Cheney and associates believe the US has a long-term strategic need to secure military pre-eminence in the region. This sentiment helped fuel the invasion of Iraq. Yet the vice-president's view of US energy security is dead wrong, in terms of both energy economics and geopolitics.... The US is playing out Mr Cheney's fantastical vision of national security - one in which a future struggle over scarce and vital petroleum resources must be won by force of arms."
Professor Jeffrey Sachs - America's Disastrous Energy Plan
Financial Times, 23 December 2003

"The advocates of [the Iraq] war insist it's not about oil. But global oil production is on the brink of terminal decline and when the West begins to run short of supplies - Iraq could be a lifeline... For a war supposedly not about oil, military planners made a high priority of securing the oilfields [in Iraq].... Geologist Dr Colin Campbell predicted a decline in the North Sea several years ago and claims by 2015 Britain may have to import over half its oil needs.... Campbell thinks the decline [of global oil production] will start by 2010. 'It starts with a price shock due to control of the market by a few countries, and it is followed by the onset of physical shortage, which just gets worse and worse and worse,' he says... So if alternatives to oil are not found soon the changes could be radical. Unlimited use of cars and cheap flights around the world may well be a thing of the past."
Oil War
BBC 'Money Programme', 26 March 2003

"Trends in energy markets have been comparatively benign over the past 10-15 years: the UK has been self-sufficient in energy; commercial decisions have resulted in changes in the fuel mix that have reduced UK emissions of greenhouse gases; and trends in world markets and domestic liberalisation have reduced most fuel prices. The future context for energy policy will be different. The UK will be increasingly dependent on imported oil and gas... Increasingly policy towards energy security ...... will be pursued in a global arena, as part of an international effort.... energy security should be addressed by a variety of means, including enhanced international activity and continued monitoring.... The UK is currently one of just two G7 countries which is self-sufficient in energy..... The future for energy policy seems likely to be much less benign.... issues of energy security are likely to become more important. The UK will become increasingly dependent on imported oil and gas.... most other G7 countries already rely substantially on imported energy. ... [One way to maintain security is] to use international action to address global threats to energy security. On just about any scenario the UK will become more dependent on imports both for both its gas and its oil."
The Energy Review
A Performance and Innovation Unit Report, UK Cabinet Office, February 2002

"Increasing dependence on international energy infrastructure will be an important factor in international relations.... We will need to improve the long term-efficiency and stability of the international energy market through political and economic reform in key supplier and transit countries... and promoting international diversification of supply..."
UK International Priorities - A Strategy for the FCO
British Foreign and Commonwealth Office White Paper, December 2003

Oil And Anglo-American Relations With Azerbaijan

Source: Foreign Office Photo Library

straw_aliev_tb.gif (21126 bytes)

Date: 14.12.04

Location: FCO, London

Pictured: Jack Straw, Secretary of State for Foreign & Commonwealth Affairs met His Excellency Mr Ilham Aliyev, the President of Azerbaijan, in London.

"A secret intelligence report accuses BP, Britain's biggest company, of backing a military coup which installed a ruthless KGB hardman in the former Soviet state of Azerbaijan. An intelligence officer says BP... later consolidated its position with the new regime when the middlemen arranged to supply the incoming government with military equipment in an 'arms-for-oil' deal.... Aliyev's arrival was welcomed by Britain and America, which have a strategic interest in securing oil rights. BP has close links to British intelligence and employs several former MI6 officers... Lord Simon of Highbury, Tony Blair's former trade minister... was BP's group chief executive at the time of the coup... Blair gave [Aliyev] red-carpet treatment when he visited London in 1998 to sign a friendship treaty and $13 billion (Ł9.5 billion) in contracts with BP and other British firms...."
BP accused of backing 'arms for oil' coup
Sunday Times, 26 March 2000

"A Turkish secret service intelligence report has revealed that the British oil giant BP was allegedly involved in backing a military coup that overthrew the democratically elected government of Azerbaijan in 1993. In testimony included in the report, a former intelligence officer accused BP of trading arms for oil in an effort to secure a better deal on oil concessions in the country. The intelligence report, leaked to the Sunday Times of London, documents how BP, using bribes and a supply of military arms, systematically undermined the government of Azerbaijan, and perpetuated the overthrow of President Abulfaz Elchibey. The coup caused the death of 40 people, along with violence and repression of Azeri citizens. 'As a result of our intelligence efforts, it has been understood that two petrol giants, BP and Amoco, British and American respectively, which together form the AIOC [Azerbaijan International Oil Consortium], are behind the coup d'etat carried out against Elchibey in 1993,' said the report."
BP LINKED TO OVERTHROW OF AZERBAIJAN GOVERNMENT
Drillbits and Tailings, Volume 5, Number 6, April 17, 2000

"Using his KGB methods [Aliyev] has been oppressing and persecuting all active opponents of his regime. Thousands of innocent people have been arrested on fabricated charges of treason, coup d`etat and terror against the President... The country is run by a police regime created by this usurper... we must admit that the oil driven politics of western countries with respect to Azerbaijan helped to create a tolerable and sometimes positive attitude towards Heidar Aliyev's anti-people policies.... Many thousands have died who could be alive today."
US Congressional Human Rights Caucus, 3 December 2002

"Aliyev first became leader of Azerbaijan 29 years ago as Communist Party secretary. He spent five years in the Soviet politburo in the 1980s before being sacked by Mikhail Gorbachev. He made a political comeback in Azerbaijan in 1993... Tomorrow (Tuesday), before his talks with Blair, he will attend a lunch hosted by Britain's Board of Trade."
Radio Free Europe, 20 July 1998

"It wasn't supposed to be like this. Tomorrow New Labour's ethical policy will drown symbolically in a poisonous cocktail of blood and oil when the Queen shakes hands with Azerbaijan's President Aliev. Her Majesty may be forgiven for thinking this is one export-driven photo-opportunity too many. The Queen has dutifully entertained tyrants of all stripes but she has never had to shake hands with a SMERSH agent before.... Today, as President of Azerbaijan his secret police regularly arrest scores of critics allegedly plotting against him and thousands languish in his old haunts, the ex-KGB prisons. Others simply disappear. Yet Aliev's Azerbaijan is respectable. There is one word to explain this bizarre fact: Oil.... Azeri democracy was uniquely Aliev-style.... oil decreed that Aliev had won 98.9% of the votes - a modest 1% fall from his last Soviet-era total... A gaggle of ex-Tory MPs and former Foreign Office diplomats know the value of keeping in with Aliev. So does a host of stars of George Bush's Administration... [now] Tony Blair is wining and dining Aliev..."
Aliev in Britain
Daily Mail, 20 July 1998

"One of the former Soviet Union's most tenacious leaders will surrender his throne this week, passing it to his son in what is widely seen as an attempt to keep the scale of corruption under wraps. The presidential election in Azerbaijan on Wednesday is causing concern, not just because it is rigged, but also because the West has invested billions in the oil-rich republic... Billions of pounds in investment from BP and from American oil companies mean that stability is critical. The biggest project is the Baku-Ceyhan pipeline, which will cost almost Ł2 billion. The first oil is scheduled to flow in 2005, carrying one million barrels a day from the Caspian Sea to the Mediterranean...."
West seeks smooth handover as Azeri rule passes to son
London Times, 13 October 2003

"...oil executives say they have no problem with the younger Aliyev taking power [in Azerbaijan].... The United States, despite declarations that it supports none of the candidates, has made only token protests about the violent intimidation of opposition candidates during the election campaign".
Oil angst
London Times, 13 October 2003

"The Bush Administration put huge effort yesterday into preaching two contradictory messages on democracy. On one side, we had Colin Powell, the Secretary of State, in north Africa to champion the cause of democracy and human rights. On the other, we had Donald Rumsfeld, the Secretary of Defence, congratulating the President of Azerbaijan on his landslide October poll victory, which even the State Department has said was tarnished by fraud, and which triggered street riots. But the contradiction is not between Powell and Rumsfeld, notorious though their different views of the world are. It lies at the heart of the Administration’s foreign policy: does it always want to promote democracy, when that would produce a government hostile to its interests? That is the question the US faces in Iraq, above all — one it has chosen so far to duck. First Rumsfeld, who stopped in Baku on his way from Brussels to Kabul. The reason for the US’s interest is no mystery. Azerbaijan’s Caspian oilfields are an attraction as the US looks for alternatives to the Gulf.... Rumsfeld emphasised the closeness of those links yesterday: 'We have a military-to-military relationship, as well as political and economic relationships. And certainly we intend to continue that military-to-military relationship with the new administration here in this country.' The problem is the nature of that administration. The elections allowed Ilham Aliyev to succeed his father, Heider Aliyev, longtime leader of the Soviet-era Communist Party, who returned to power in 1993 after a military coup. Senior opposition figures are among 100 said still to be in jail after post-election riots. So is Ilgar Ibrahimogul, imam of a mosque in the capital, and founder of Azerbaijan’s Centre for Religious Freedom, together with Rauf Arifoglu, editor of the biggest-circulation newspaper. The State Department has called for an investigation into intimidation and ballot-rigging. In that light Rumsfeld’s remarks amount to a bald statement of the bargain that the US will strike to pursue its strategic interest."
Bush's officers parade policy contradiction
London Times, 5 December 2003

"Washington's support for [Georgia] Shevardnadze's overthrow certainly had nothing to do with its love of democracy, which was not much in evidence when Azerbaijan, just east of Georgia and another pipeline country, held even more outrageously rigged elections in October. For the Bush administration, the goal is to freeze Russia out of the new oil bonanza in the Caspian and Caucasus countries, all former Soviet fiefdoms, and Shevardnadze's crime was to be too accommodating to the Russians. ... when Shevardnadze signed a deal last year with the Russian gas giant Gazprom, Washington went ballistic. Bush's energy adviser Steven Mann flew in to warn Shevardnadze not to go ahead with the deal, Mikhail Saakashvili denounced it - and Shevardnadze signed it anyway. So no illusions about America's motives for opposing him ....."
The power to dismiss
Dawn (Pakistan), 12 January 2004

"Optimists about world oil reserves, such as the Department of Energy, are getting increasingly lonely. The International Energy Agency now says that world production outside the Middle Eastern Organization of Petroleum Exporting Countries (opec) will peak in 1999 and world production overall will peak between 2010 and 2020. This projection is supported by influential recent articles in Science and Scientific American. Some knowledgeable academic and industry voices put the date that world production will peak even sooner—within the next five or six years. The United States cannot afford to wait for the next energy crisis to marshal its intellectual and industrial resources.... Our growing dependence on increasingly scarce Middle Eastern oil is a fool's game—there is no way for the rest of the world to win. Our losses may come suddenly through war, steadily through price increases, agonizingly through developing-nation poverty, relentlessly through climate change—or through all of the above."
James Woolsey, former US Director of Central Intelligence
Council On Foreign Relations, 1999

"For the world as a whole, oil companies are expected to keep finding and developing enough oil to offset our seventy one million plus barrel a day of oil depletion, but also to meet new demand. By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from? Governments and the national oil companies are obviously in control of about ninety per cent of the assets. Oil remains fundamentally a government business. While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greater access there, progress continues to be slow."
Dick Cheney, Chief Executive of Halliburton, now Vice President of the United States
Speech at London Institute of Petroleum, Autumn Lunch 1999

"Our industry can certainly be proud of its past achievements. Yet the challenges we will face in the coming years will be every bit as great as those encountered in the past, due in part to ever-increasing global energy use. For example, we estimate that world oil and gas production from existing fields is declining at an average rate of about 4 to 6 percent a year. To meet projected demand in 2015, the industry will have to add about 100 million oil-equivalent barrels a day of new production. That's equal to about 80 percent of today's production level. In other words, by 2015, we will need to find, develop and produce a volume of new oil and gas that is equal to eight out of every 10 barrels being produced today."
John Thompson, President of ExxonMobil, the world's largest oil company
The Lamp (published for ExxonMobil shareholders), 2003, Vol. 85 No.1

exxonprojection3.jpg (50699 bytes)

Graph from ExxonMobil report 4 February 2004, p4 (2004 marker added for illustration)
'A Report on Energy Trends, Greenhouse Gas Emissions, and Alternative Energy

"The energy crisis we are in today is entirely different from the temporary problems we experienced in 1973-74, 1979-86, 1990-91 and 2000..... There was always sufficient worldwide geological capacity to produce additional barrels of crude oil to meet the world's needs. No longer. In the next major energy crisis, that capacity will likely be eroded. So the crisis should have a severe impact, be global in scope, and be difficult to solve. Plainly, it will be unprecedented.... Over the next 25 years, a new world energy economy will arrive in three waves. We are near the top of the first and smallest one, a warning wave. A second more powerful wave likely will hit in the 2009-2010 period when the non-OPEC world may reach its all-time highest output of crude oil, subsequently declining to become ever more dependent on OPEC for incremental barrels of production. The final wave should break around 2020, or earlier, as even OPEC's vast reserves are tapped at a maximum rate of production. After that, oil volume should head down and keep falling, never to revive..... An international economic disturbance of this magnitude will create potential conflicts between nations and civil competition within societies. These could be a trial for us and for our children, made worse in the early years by our lack of preparation and our failure to understand what is already happening to us."
The Gathering Storm
Energy Bulletin, 15 November 2004