Posted on 06/20/2002 8:12:58 AM PDT by xsysmgr
The U.S. has declared energy cooperation with Russia as one of the main points of a strategic framework the Bush administration is developing with the Kremlin. The May Bush-Putin summit declarations, as well as conversations with government energy officials in Moscow and senior managers of the major Russian oil producers, indicate the beginnings of a major energy-policy trend.
The U.S. has begun expanding Russia's role in the global energy markets, and is turning turn the vast Eurasian landmass into one of the major oil suppliers to the U.S. — alongside Mexico, Nigeria, and other non-OPEC producers. These developments will reverberate beyond the bilateral U.S.-Russian relations in the years to come.
The joint declaration on the new strategic relations signed at the Bush-Putin summit focuses on "intensification" of cooperation in prospecting for energy and developing resources — especially oil and gas — "including in the Caspian region."
The strategic document also recognizes a "common interest" in promoting the stability, sovereignty, and territorial integrity of all states in Central Asia and the southern Caucasus. It mentions cooperation in resolution of regional conflicts, including Abkhazia and Nagorno-Karabakh. Thus, for the first time, policy coordination as well as energy cooperation have become an integral part of the mutual security agenda.
Beyond this framework, the joint statement on energy dialogue goes a long way to indicate the direction of the coming U.S.-Russian energy alliance. That alliance will include meetings between officials and high-level private-sector energy executives. The first such meeting will take place in Houston, Tex., in the fall of this year, Russian government sources in Moscow said.
The joint statement on energy mentions "reducing instability and increasing predictability and reliability" of the global energy markets. This means giving the Russian oil companies long-term contracts within pre-agreed price corridors, necessary to operate Siberian fields in conditions of extreme cold and to prevent the freezing of oil wells when energy prices drop and production is curtailed.
Furthermore, the joint statement envisages "joint projects" — including cooperation in developing oil fields in third countries. Russian oil companies may have an easier time raising capital in the global markets if they have the backing of U.S. partners and will get access to state-of-the-art technology.
The U.S. has expressed interest in assisting investment in the development and modernization of the Russian oil sector in east Siberia and the Far East (including the ocean shelf there). Russian and U.S. companies will be encouraged to invest in Russian deep ports, transportation infrastructure such as railroads and pipelines, and the modernization of electricity-generation capabilities and natural gas and oil refineries.
Creating a fleet of supertankers in the Pacific, as well as building modern ports and pipelines in Siberia and the Far East, will allow Russia to supply consumers on the West Coast directly. Russia will also be able to compete with the leading Middle Eastern producers in shipping oil to Japan, China, and Korea. Both presidents specifically mentioned the success of the Sakhalin-1 project, next to Japan's shore. And China is planning to become a large importer of oil after 2005.
The cooperation in the Caspian region and the recognition of the multiple directions of pipelines there together indicate that Russia is on board in recognizing the geo-economic legitimacy of the Baku-Tbilisi-Ceyhan (BTC) pipeline, developed by a consortium led by British Petroleum (BP)-Amoco. Moscow is recognizing this in exchange for equity participation in the consortium and for future U.S. investments in the oil-rich Russian national sector of the Caspian.
The Russian oil majors are wasting no time moving into the U.S. energy market: Lukoil will start shipping gasoline to the 1,300 gas stations it acquired from Getty; and Yukos, the fastest-growing Russian oil company, is planning to start shipping crude oil to the U.S. this year. Yukos's target is to reach three million tons a year in exports by the end of 2003.
It is often asked whether Russia has sufficient resources to become a significant supplier to the U.S. market. Russian officials admit the country has only 40 years' worth of known reserves. However, there is a surprising answer. First, the Russian industry is extremely energy-inefficient, and the Russian energy prices are up to six times lower than the world market's. Herein lies the waste. Russian companies use up to 30 percent more energy than their Western counterparts per unit of output, and sometimes more. As Russia negotiates its membership in the WTO, both the European Union and the U.S. are adamant that Russia bring up its prices in accordance with global rates, thus eliminating the $5 billion hidden subsidy to its industry, according to EU trade czar Pascal Lamy. Such a step will make more oil and gas available for sale abroad. Eventually, Russia will be forced to break up the government-controlled natural-gas monopoly Gazprom and to allow competition in the currently moribund natural-gas sector.
Second, the use of modern technologies in industry and for home heating — for instance, small power-generating facilities instead of the huge centralized ones Russian inherited from the Soviets — will make it possible to cut heating costs. Today, billions of dollars are wasted to heat the tens of thousands of miles of pipe buried underground. And consumers will be made to pay real prices to keep their houses warm: today they pay only 10 percent.
Finally, the Russian government should make its energy-tax legislation stable and predictable, and allow oil and gas companies to write off prospecting costs, encouraging the discovery of new sources of hydrocarbons. Yukos's founder and CEO Mikhail Khodorkovsky believes Russia can boost production from the current 350 million tons a year to 450 million in 2005 and 500 million tons in 2010. Large deposits of oil can also be found along the Russian coasts of the Arctic and Pacific oceans.
Thus, Russia and Eurasia are poised to become major energy partners of the U.S. at a critical point of the war on terrorism. The Bush-Putin summit was the opening act of a major geo-economic realignment. The real question is whether the markets, oil companies, and government bureaucracies will support the two presidents' vision.
— Ariel Cohen, Ph.D. is a research fellow in Russian and Eurasian Studies at the Heritage Foundation and an NRO contributor. He is the author of Russian Imperialism: Development and Crisis.
I can't wait for John Rob's upcoming Kill File/posts addition to Free Republic. Then, I can block these clymers so that so good discussions can be held without the 24/7 haters of GW using drive by shooting to take shots at GW on this site.
I'm amazed this is now making news. Miss Marple and I reported this on the Daily Dose the day it happened. It is BIG news.
There has been a markt convergence between Islamist struggle against the usurious West, communism and self-worshiping states that accept little to no criticism.
Not only does this give us a new source of oil, but also a place to market our superior technology in oil exploration and recovery. It is probably going to be one of the best accomplishments of this administration, besides winning the war on terror.
Of course, most people who are on the hate GW 24/7 mantra will either ignore this or attribute it to some "big oil" plot.
Maybe, but at least this position doesn't have an internal lobby taking credit. The usual ones I hear are "Star Wars did it", or the Brezinski fave, "Afghanistan did it."
As for editors, you know more than I, but did they set down the "cover the protesters" angle for the recent trip to Germany and Russia? All I heard was obsessive questioning of Bush about the "protestors" who were quite small in number, and exist for any visiting president. Instead of covering the big stories, they retreated into reflexive, contrarian anti-Americanism - which seems to be the "affect" of most of their reporting.
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