Fanning the Flames of Russian Conspiracy x 3

♠ Posted by Emmanuel in , at 10/22/2008 03:44:00 PM
Western fears about Russia may increase given the trio of stories below concerning (1) the use of SWF money to buy into local companies, (2) attempts to create a gas cartel, and (3) plans to establish an oil reserve. Fears of communism have long since given way to Russia deploying its abundant natural resources to accomplish geopolitical objectives. As a large producer of energy, being able to influence global prices commanded by such commodities would certainly be a welcome outcome for Russia. It wants to be enabled, not hobbled, by oil and gas.

(1) Russia's SWF, the National Wealth Fund, is now allowed to put money into the debt and equity of Russian firms. As you'd expect from a TASS news agency report, there is little mention of propping up the country's bourses given that foreign investors are fleeing the country in droves. If you think like me, it's Russia merely asserting more ownership over the commanding heights less constained by Western pressures:
Russian Prime Minister Vladimir Putin has signed a ruling to allow the government to invest the National Wealth Fund on the Russian stock market, the government's press service reported Tuesday. Under the ruling, the National Wealth Fund, which accumulates a portion of the government's oil and gas tax revenues, may be invested in Russian companies' stocks and bonds, as well as in unit investment funds. The Russian government plans to deposit 175 billion rubles [around $6.7B] from the National Wealth Fund with state-owned Vnesheconombank, which will invest that money in domestic stocks, according to earlier reports.
(2) Plans for a natural gas cartel have long been mooted by countries such as Venezuela. As per an earlier post on Opegasur, the problems in establishing such a cartel are logistical: unlike oil tankers which can easily be rerouted, natural gas pipelines take time to build and are not easily rerouted. Although liquified natural gas (LNG) would make it easier to surmount such logistical difficulties, it's not entirely sure that the countries proposing this effort would be able to make a large-scale switch to LNG. Is it grandstanding, vaporware, or both? From the Associated Press:
Russia, Iran and Qatar made the first serious moves Tuesday toward forming an OPEC-style cartel on natural gas, raising concerns that Moscow could boost its influence over energy markets spanning from Europe to South Asia. Such an alliance would have little direct impact on the United States, which imports virtually no natural gas from Russia or the other nations.

But Washington and Western allies worry that closer strategic ties between Russia and Iran could hinder efforts to isolate Tehran over its nuclear ambitions...In Europe — which counts on Russia for nearly half of its natural gas imports — any cartel controlled by Moscow poses a threat to supply and pricing. Russia, which most recently came into confrontation with the West over its five-day war with Georgia in August, has been accused of using its hold on energy supplies to bully its neighbors, particularly Ukraine...

The 27-nation European Union expressed strong opposition to any natural gas cartel Tuesday, with an EU spokesman, Ferran Tarradellas Espuny, saying: "The European Commission feels that energy supplies have to be sold in a free market."

Together Russia, Qatar and Iran account for nearly a third of world natural gas exports — the vast majority supplied by Russia — according to U.S. government statistics. The three hold some 60 percent of world gas reserves, according to Russia's state-controlled energy company Gazprom...

A gas cartel could extend [Russia and Iran's] reach in energy and politics, particularly if oil prices bounce back to the highs seen earlier this year, prompting renewed interest in cleaner-burning natural gas and other alternative fuels. Tuesday's gathering in Tehran appeared to be the most significant step toward the formation of such a group since Iran's supreme leader, Ayatollah Ali Khamenei, first raised the idea in January 2007.

"Big decisions were made," said Iranian Oil Minister Gholam Hossein Nozari. His Qatari counterpart, Abdulla Bin Hamad al-Attiya, said at least two more meetings were needed to finalize an accord, according to the Iranian Oil Ministry's Web site. No timeframe was given.

Calling the grouping the "big gas troika," the chief executive of Russia's state-controlled energy company Gazprom, Alexei Miller, said it would meet three or four times a year. "We are consolidating the largest gas reserves in the world, the general strategic interests and — what is very important — the high potential for cooperation on three-party projects," Miller said...

Experts say a natural gas cartel would not have the same influence on prices as OPEC has on oil since natural gas is not subject to the same severe fluctuations. "There's always some worry when these guys get together that they'll try to replicate OPEC, but they know that's not doable," said Robert Ebel, senior adviser to the Energy and National Security Project at the Center for Strategic and International Studies in Washington. "They can try to get more control over gas, but it's not OPEC."

That's because gas, unlike oil, is traded on much longer-term contracts, of as much as 25 years. "Gas is a regional commodity and oil is an international commodity," Ebel said. "If you want to buy a tanker of crude, you can buy one at today's prices. When you want to build a natural gas pipeline, you have to have two things: enough gas to justify building a pipeline that will operate for 25 years, and ... customers that will agree to buy that gas at a range of prices for 25 years..."

Liquefied natural gas — a rapidly growing segment of the market — could be traded as a commodity similar to oil at some point in the future, and the move by Russia, Iran and Qatar appears to anticipate that, said Konstantin Batunin, an analyst with Moscow's Alfa Bank.
(3) In light of crude oil falling below $70 a barrel, Russia is now contemplating the creation of an oil reserve to influence oil prices in coordination with OPEC. I am certain that painful memories of the aftermath of the Asian financial crisis when oil was temporarily driven below $10 a barrel are partly behind this idea. Eventually, low energy prices made it seek IMF support. With another global slowdown in progress, Russia is wary of a repeat experience. From Reuters:
Russia may create an oil reserve to influence global prices, the country's top energy official said on Wednesday, as OPEC's Secretary General prepared for his first ever meeting with a Russian president. The resurrection of a decade-old idea of inventories comes as another sign of Russia's growing ties with OPEC, which has unnerved global consumers already worried by talks between Russia, Iran and Qatar to create an OPEC-style gas cartel.

"The Ministry of Energy is considering creating an oil production reserve, which would allow it to work more efficiently with prices on the market," said Russian Deputy Prime Minister Igor Sechin, who oversees the energy sector. Asked how big the reserve should be, Sechin told reporters: "Enough to reach efficient pricing parameters" [efficient for whom?] Russia is the biggest oil producer outside OPEC and the world's second-largest exporter after Saudi Arabia.

OPEC Secretary General Abdullah al-Badri, who arrived in Moscow on Tuesday, said he would meet Russian President Dmitry Medvedev to discuss the exchange of market data and would not raise the issue of oil production cuts. "I will meet the president this afternoon. I will not ask Russia for a cut ... But I will ask for data on markets," Badri said ahead of the first ever meeting between OPEC and the head of the Russian state.

Badri said he liked the reserve idea: "Russian reserves can help global oil shortages ... This idea is good. It is a technical matter. We will have to discuss it." Other top OPEC officials have this week called on Russia and other non-member states to join OPEC in cutting production. The organization will hold an extraordinary meeting on Friday and is widely expected to reduce its deliveries to global markets. Moscow agreed to reduce exports several times earlier this decade in tandem with OPEC, but market watchers then said the pledge never materialized as private companies raised shipments instead.

Russia has long toyed with the idea of an oil reserve, which could allow it to become a swing producer. But the expensive and logistically difficult plan was never implemented as the government and private companies failed to reach a compromise.

The current oil production scheme in Russia does not allow the country to change its flows significantly. The head of the International Energy Agency (IEA), attending the same industry conference as Badri, said he was worried by Russia's production outlook as the country heads this year for its first annual output decline in a decade.

"We see worrying signs in some producing countries, including Russia, in the ability to invest enough to meet demand," IEA Executive Director Nobuo Tanaka said. "We see Russian supply growth slowing, with all projects declining in production over the next decade. Further government incentives would be welcome to increase production," he said.

Russian oil firms have called on the government to ease taxes and slash export duties in November, one month earlier than planned, because of a steep price decline this month.