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Commentary Index
Russia
incurs $3-billion losses due to oil-export price manipulation
CROWN RESOURCES,
a Swiss based international commodity trader, working with Arthur
Andersen, has carried out an in-depth study into the structure of
Russian crude oil supply and demand on the German market. The trader
commissioned the study following an investigation of abuse by a
small number of its own crude-oil traders, which is now the subject
of a continuing trial under UK jurisdiction.
On the basis of the investigation, Crown Resources maintains that
the existing system of Russian crude oil supplies to the eastern
German market makes it possible for refineries and intermediaries
in the region to gain profit by forcing down the purchase price
of crude oil supplied through the Druzhba (Friendship) pipeline.
The price of Druzhba supplied crude oil has been on average $2 lower
per barrel than the price of similar crude oil supplied to Germany
from Russia or other European countries by sea.
Crown Resources' conclusion is that the lower price results from
intermediary companies and end consumers of Russian crude oil operating
cartel restrictions.
German buyers require that Russian crude oil supplies via the pipeline
should be exclusively through intermediary companies working for
them, the so-called 'coordinators', who effectively dictate monopolistic
and low prices to Russian suppliers. Under such a 'co ordination
agreement' between buyers and the coordinators, Russian companies
effectively have to deal with the only buyer possible, which is
a violation of the principles of the market economy and market pricing.
This arrangement dates from the time of Comecon economic co operation
in mutual supplies of raw materials. After the collapse of Comecon,
the Russian authorities hoped for a natural development of relationships
to fit the new market environment. Hence, nobody bothered to destroy
the older system, which enabled its operation and prosperity under
the new conditions of Russian democratic independence.
According to Crown Resources' calculations, Russia has lost at least
$3 billion since 1990 due to this market manipulation.
Crown Resources is convinced that the system of price manipulation
associated with Russian crude oil sales is not limited to the eastern
German region, and is widely used in other markets as well. The
company suggests that existing mechanism is, in fact, a system of
hidden subsidies by Russian producers to the refining industries
of Germany, Poland, Czech Republic, Slovakia, and Hungary.
Crown Resources has now developed a project entitled 'Transformation
of global trading in natural resources' to ensure openness and transparency
of crude export, and establish an optimal method for preventing
price manipulation, and has agreed to start work immediately with
the Russian Federation's Ministry of Fuel and Energy to implement
it. The key element of the new project is the development of a structure
consisting of a managing company and an independent electronic trader,
operating on the basis of a regulated minimum crude oil sale price
which is to be determined by the government, in conformity with
the market. The structure will include participants in the international
oil market, information network agencies, and the government of
the Russian Federation, represented by a nominated government owned
company.
A substantial interest by the Russian government in the structure
is a necessity for the regulation of the minimum sale price set
within the electronic trading area. With the support and involvement
of the Russian authorities, this structure can replace the current
system of coordinators who are seen as creating 'shadow' conditions
in the market.
Crown Resources has agreed with the Ministry of Fuel and Energy
of the Russian Federation to start the project immediately. Intensive
consultations on the progress of the project are being held with
the Ministry. The Russian authorities believe that the market mechanisms,
when introduced, will naturally eliminate the system of distorted
pricing for Russian crude oil and increase the profits of Russian
crude oil exporters delivering via the Druzhba pipeline, and other
routes.
The current situation creates the potential for the government of
the Russian Federation to be compensated for the incurred losses
on the basis of the European Union's and Germany's anti cartel legislation.
Ali Rodriguez, OPEC Secretary General, has said that the project
should be submitted for consideration by the OPEC Economic Commission
Board and, during the latest meeting between Mr Rodriguez, and Igor
Usufov, the Russian Minister of Oil and Energy, the parties confirmed
their mutual interest in developing co operation between Russia
and OPEC.
'War'
prompts Beijing to accelerate energy plans…
WITH THE
US led war against Afghanistan stretching into its sixth week,
and the vexing uncertainty that is gripping the Middle East and
Central Asia, China is facing new fears about its oil security.
Senior Chinese oil officials recently said that the terror attacks,
as well as the continuing retaliatory strikes against Afghanistan,
have accelerated China's plans for the establishment of a strategic
oil reserve. Plans to build the 4,000-km pipeline to carry gas from
the western region of Xinjiang eastward, and the shipment of oil
from Kazakhstan, have gained new significance as the prospect of
prolonged war weighs on the region. Reducing China's dependence
on the Middle East as an energy supplier, and on the United States,
whose military can control the tanker routes across the Indian Ocean
and the South China Sea, is seen now more than ever as vital for
China's long term oil security.
"America is indeed a victim of the 11 September attacks, but
in the post war reality, Washington would come to strengthen its
control of the Middle East oil reserves," Ye Zicheng, from
the International Relations Institute of Beijing University, said.
"In fact," he added, "as early as 1997, the Foreign
Affairs Committee of the American Senate identified the region as
one of "great interest" to the US."
China's oil security faces great challenges because of the country's
growing demand for oil, and a widening gap between domestic oil
production and demand. The country today imports about 30% of the
oil it consumes, two thirds of which comes from the Middle East.
With economic growth seen holding steady at around 7%, the country's
need for oil will only rise. China's oil demand is expected to reach
390 million tons by 2020, with domestic production estimated at
around 180 million tons.
"More than half of our oil demand will depend on imports by
then," cautioned Wang Zhongming, an official from the State
Economic and Trade Commission. Last year, China imported 70 million
tons of oil, up from 36 million tons in 1999, despite the roaring
oil prices in the international market.
Speaking at a recent two day international oil forum in Beijing,
Wang called for the quick establishment of a strategic oil reserve
and the introduction of a national law to guarantee the country's
oil security. "We must quickly form regulations in such fields
as Sino foreign cooperation in land and offshore oil exploration,
oil and gas pipeline protection, and the state oil stockpile to
pave [the] way for the law," he said.
China had previously announced plans to develop a strategic oil
stockpile of 6 million tons by 2005. In late October, experts said
Beijing should increase the oil reserves to 18 million tons, and
start stockpiling as early as next year to benefit from the low
international prices.
With the prospect of war continuing well into the winter, China
is now looking with fresh eyes at gas pipeline projects, which previously
had more political than real economic benefit. Beijing has announced
plans to build the 'west east' pipeline linking the natural gas
fields in the Tarim basin in Xianjiang with Shanghai. The official
rationale is that the project will bring employment and jump start
China's poverty stricken far west, long troubled by separatist movements.
But despite having the support of Premier Zhu Rongji, who advocates
the expanded use of natural gas to help reduce China's heavy pollution,
the west east pipeline faces daunting challenges. For example, 11
ministries will be involved in its management, and the trunk line
alone will traverse 12 provinces and pass by 50 cities.
The pipeline will cost nearly $15 billion to build. Apart from the
staggering price tag, foreign firms bidding for the project are
concerned about the lack of gas markets along the pipeline route
from Urumqi to Shanghai. After six months of bidding, only three
of the initial group of 19 investors remain in the pipeline negotiations.
However, daunting as the project may seem, the continued war in
Afghanistan has added new impetus to the need for energy diversification.
"The project will allow us not to be too dependent on any single
source of oil imports. It will help us strike a balance between
Middle East imports and domestic exploration," says one Chinese
energy analyst.
Experts see the pipeline as the first part of a much larger grid
that will link gasfields in Central Asia and China with Japan. Central
Asian states such as Kazakhstan and Turkmenistan hold some of the
largest untapped gas resources in the world. China's reserves in
western fields supplying the west east trunk line are expected to
last for a little more than 20 years. Eyeing the future when China's
domestic resources run out, Beijing is discussing plans with the
Kazakh government to build a pipeline from gasfields on the Caspian
Sea to Xinjiang and further east to markets in Japan and South Korea.
While in the past most of these projects were regarded largely as
part of China's 'investment diplomacy', aimed at gaining a strategic
influence in Central Asia, nowadays they seem more economically
viable. "If the war drags on and the USA uses it to establish
a military foothold in the region, China's long term energy strategy
would be affected," said the Chinese analyst. "Such a
scenario could change the shape of global energy politics in the
future."
…and
the Great Game (2): who will run Caspian natural gas through Afghanistan?
A GIANT carrot
hangs over the talks among the Afghan factions trying to form a
post Taliban government, according to the Christian Science Monitor,
(CSM) and its not just the prospect of receiving $billions in US
aid after the war. Rather, it's the prospect of the next government
in Kabul gaining riches by the construction of a pipeline across
Afghanistan that will transport natural gas from the Caspian Sea
region to world markets.
Until 11 September, much of the US diplomacy in Central Asia was
focused on how to build a pipeline from the Caspian that couldn't
be controlled by either Russia or Iran. Given the geography, and
Russia's influence in various post Soviet states, that is a difficult
quest.
As late as 1998, two years after the Taliban took over, the US company
Unocal was negotiating with that radical Islamic regime about a
pipeline that would run through Afghanistan and down to Karachi
in Pakistan. Some Taliban officials are even reported to have visited
the US to discuss the matter.
Also in that year, then oil industry executive and now Vice President
Dick Cheney was captivated by the Caspian's potential. "I can't
think of a time when we've had a region emerge as suddenly to become
as strategically significant as the Caspian," he told a large
group of oil industry executives in Washington.
With that kind of background, the Bush administration needs to bend
over backwards, and not try to shape the postwar Afghan government.
Otherwise, the conspiracy minded in the Middle East and elsewhere
will see the hand of "Big Oil" at work in creating a puppet
government in Kabul.
The CSM continues: "No one can doubt the US motives in attacking
the Taliban and the Al Qaeda network in Afghanistan. As the military
mission begins to blend with the political goal of reconstructing
a new Afghanistan, the US will need to step back and let the United
Nations or US allies take up the task. Ensuring oil supplies for
the US may have been a driving motive for the Gulf War in 1991.
It doesn't need to be one for the Afghanistan war in 2001"
Why
join an organization?
Many readers
of this may be members of the UK-based Pipeline Industries Guild.
Probably well over half are members of one or other (or a number)
of the major engineering institutions, such as the Institution of
Civil Engineers, the Chartered Institution of Water and Environmental
Management, and so on. Others, or even the same ones, will also
be members of the UKSTT (or another country’s Society for Trenchless
Technology), the Pipe Jacking Association, the Pigging Products
and Services Association, IPLOCA, the Institution of Water Officers,
or another of many similar organizations in the UK and worldwide.
The business of joining industry-based groups is booming.
- Why do so
many of us bother to join so many organizations?
- Why do so
many organizations exist with apparently very similar purposes,
let alone titles?
In one sense,
the answers to these questions are similar and simple: to provide
opportunities for individuals to network with their peer group and,
ultimately, to obtain self-aggrandisement and promotion in their
chosen career. As people are undoubtedly gregarious, they may also
obtain comfort and security from aligning themselves with others
in their industry sector, putting aside the fact that the ‘others’
may be competitors.
On another level,
the answers to these questions are more challenging, particularly
to the organizations themselves.
People become
members and pay their subscriptions in order to receive either a
service, or an acknowledgment of status, or both. Traditionally,
a number of the major UK-based engineering institutions have monitored
their professions (from their Victoria or Great George Street addresses
in London), and sought to uphold standards of those practicing civil,
mechanical, electrical, or structural engineering. To younger members,
this role has often been seen as conservative and demonstrative
of an unwillingness to accept change of any type - whether within
the institution itself, or within the discipline it represents.
However, membership
of an engineering institution continues to be a sought-after proof
of achievement and status, particularly relevant to younger engineers
in the highly-competitive international job market.
After the initial
hurdle of professional membership has been overcome, it is a regrettable
fact that the importance of the institution in the eyes of the majority
of its members begins to fade, provided they keep their annual subscriptions
up-to-date. Whilst acknowledging the institutions’ importance in
maintaining high standards within the professional disciplines they
represent, members find that the institutions’ roles as forward-thinking
standard-bearers and lobbyists on behalf of the engineering professions
are often well concealed.
The plethora
of secondary organizations and associations has grown up partly
as a consequence of this, and partly to satisfy the equivalent needs
of those to whom professional membership is not available. The Pipeline
Industries Guild is a typical association of this type, having among
its members a wide range of companies and individuals, all of whom
have as a common bond their involvement in construction and operation
of pipelines of all types.
When asked,
the majority of members will give as their main reason for joining
the Guild (or the many other similar organizations) the ability
to ‘network’ and to maintain informal contacts with clients, suppliers,
and others in their industry. This, however, provides the paradox
which is at the heart of the organization’s future success: how
can this ability to network be quantified, and how can it be related
to membership charges and benefits?
While the reputation
of a well-run and influential association should precede it, it
is nevertheless necessary for some tangible benefits to be supplied
to the membership in order to maintain their interest, to justify
their membership fees, and to keep the association alive in the
minds of the membership. Such benefits are often in the form of
publications; in the Pipeline Industries Guild’s case, members receive
copies of this journal, a regular and less-formal newsletter, and
the annual yearbook, renamed this year as the Pipeline Industry
Directory. The Guild should also be able to provide its members
with the less-tangible, though arguably more-beneficial, advantages
of influencing industry regulators, promoting pipelines within government
organizations worldwide, and providing a single source of information
for problem solving. Within the Guild, these issues are kept constantly
under review; doubtless similar organizations follow the same philosophies.
The Pipeline
Industries Guild is an association with general interests across
the whole industry. An alternative organization is characterized
by the Pigging Products & Services Association (PPSA), whose
members’ interests focus directly on issues dealing with pipeline
pigging. In common with the Guild, the PPSA also has various tiers
of membership, the two most populated being individual and corporate.
Also in common with the Guild, the PPSA publishes a regular newsletter
(Pigging Industry News). Another of the benefits the Association
provides to its members and others is its technical advisory service:
not only can problems to do with pigging be solved, and advice on
which procedure to use offered, but project managers can have rapid
access to all the suppliers of services or products, thus avoiding
the costs of a considerable amounts of research and information-gathering
when tenders are being prepared.
The PPSA has
also recently negotiated a special rate for its individual members
to use the web-based pigging reference source at http://www.pigsource.com.
This site provides a unique and rapid reference to over 400 conference
papers and two pigging-industry textbooks, and provides an invaluable
source of information to anyone with a pigging problem. Individual
PPSA members obtain use of the site at no extra cost; non-members
have to pay a fee for an annual password, in common with many similar
web sites.
As can be seen,
the PPSA works hard to maintain the interests of its membership,
and to justify their support. Associations such as this will only
prosper and survive by continuously reviewing their structure and
what they provide. It is very easy for any of us as individuals
not to be bothered to renew a membership when the form arrives each
January; every association has to be prepared regularly to earn
its membership.
So, why join
an industry organization? Career advancement and successful business
links are probably the two main reasons, followed by simplified
access to industry information and associated benefits. Pipes
& Pipelines International is a strong supporter of the aims
and intentions of both the associations mentioned above, and encourages
readers to investigate both further. Comprehensive information on
both is available on their web sites (at www. pipeguild.co.uk, and
www. piggingasssnppsa.com), as well as by phone; both are headquartered
in the UK, the PIG at (+44) 020 7235 7938, and the PPSA at (+44)
01235 760597.
The complete
guide to international gas pipelines
This is the
latest product from Energy Intelligence Research’s Washington, US,-based
research division. The 500+ page book, based on work originally
undertaken for the Japan National Oil Co, summarizes 55 cross-border
gas pipelines either in operation or proposed throughout the world,
together with around 60 inter-state gas pipelines in the US and
Canada. Where possible, data is provided on the pipeline’s technical
specifications, ownership and operator details, the market environment
in which it operates, the local, regional, and geopolitical constraints
it faces, and the current status of the line.
It is a virtually
impossible task to gather completely-comprehensive technical data
on all the worlds’ gas (or oil) pipelines, let alone comprehensive
data on some of the other categories EIR has bravely embarked on
supplying. Nevertheless, this publications provides an invaluable
single and unique source for such data as is available, which EIR’s
researchers have summarized in a relatively user-friendly fashion.
The Guide is therefore highly-recommended to all involved
with cross-border pipeline projects and planning. As well as tabular
data, there are comprehensive articles (‘case studies’) on the majority
of the pipelines and projects included in the Guide, which
give an interesting insight into the difficulties often associated
with pipelines of this nature.
The Complete
guide to international gas pipelines is available from EIR in
Washington, DC, US, tel: (+1) 202 662 0700; further details can
be found at http://www.energyintel.com.
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