During a trip to my birthplace of New York City some years ago, I had the pleasure of briefly meeting the impressive and talented Professor Jenik Radon of Columbia University's School of International and Public Affairs (SIPA). Radon is one of the fellows who actively participates in the Harriman Institute's (annual?) conferences on Eurasian pipeline politics - a subject which attracts a small but highly dedicated, active, and wonky crowd to travel up the Washington Heights campus to debate the who, where, and how of oil and gas leaving Central Asia toward other markets. These highly technical discussions sometimes come back to earth with remarks on Russia's conduct and goals in the region, which many, such as myself, have been warning for years are driven by monopolistic, anti-market policies, creating pressing security concerns for regional energy security.For the latest pipeline conference, Ariel Cohen of Heritage Foundation was a featured speaker on one of the panels, and has posted a summary of the discussion. Below I extract one part of his article dealing with Russia's willingness and ability to pay a "premium" for Central Asian energy resources as a form of discouraging the development of alternative export routes (which as Svante Cornell has point out, it would be inaccurate to call these proposals a Russia "bypass" - because it is a more direct route to consumers). What is interesting about the politics of "premiums" is that we have also discovered that if a supply partner breaks its deal with Russia, and opens up tenders for competitive bidding - in other words, normal market behavior - the punishment is severe and lawless. Turkmenistan learned the hard way that you're not supposed to sell gas to Russia and then expect to consider offers from anyone else. It would be hard to find a more demonstrative example of anti-market behavior than an "accidental" pipeline explosion, but the question will remain whether or not Azerbaijan knows what they are getting into.
Martha Brill Olcott of the Carnegie Endowment pointed out that westward pipelines from Central Asia have improved the region's bargaining capacity. The reason that BTC and BTE could be built was because Russia had for many years grossly underpaid for the energy it took at the border and sold for market prices in Europe. However, today, Russia is paying a premium.
It is likely that Russia is paying the premium because domestic underinvestment and stagnant production have caused a shortage of available gas for export. Secondly, if Russia is overpaying for the gas - and the West dithers in building alternative pipelines - that will encourage Central Asian states to export gas via Russia. Finally, if Europe's top priority is a unified energy market, insufficient commitment and effort going into future projects such as the Nabucco gas pipeline and the Trans-Caspian Pipeline will diminish their chances of being built.
Energy demand and declining prices due to the global economic crisis make high-cost Eurasian energy less attractive for investors. For project financing, oil at $50 a barrel is much less attractive than oil at $75.
With projects of great geopolitical complexity taking 10 years and more to negotiate, and with multi-billion-dollar financing not readily available at the current energy price levels, the chances that by 2019 we will see much oil and gas flowing West from East in general, and West Caspian in particular - under Western ownership - look slimmer than two years ago.
Photo: Turkmenistan's President Gurbanguli Berdymukhamedov (L) shakes hands with Russian Prime Minister Vladimir Putin duirng a meeting in Moscow on March 25, 2009. Russia and Turkmenistan postponed a widely expected energy deal today that will boost Russia's hand in resource-rich Central Asia but officials said it would be signed this summer. (Getty Images)
Did it ever enter anyone's head that since European demand has declined, Gazprom is now greatly benefiting from the "failure" to make new big investments to develop new fields while prices were high?
Guess not.
What if they had? You would now be writing about how stupid Gazprom was to make huge investments, believing that prices would never drop.
I would love to understand how exactly Gazprom has benefited from not investing? Because the siloviki in charge had the chance to pad their personal bank accounts instead?
This is one of the world's most corrupt and non-transparent corporations in history, but if spending your time defending monopolies is worthwhile, help yourself.
What has happened in Russia is that the Kremlin has successfully bonded its personalistic leaders firmly to a vague idea of the national interest, as well as to the state business which have made them rich. Ein reich, ein volk, ein Gazprom.
Easy. Look around the world and see the large number of partially completed oil and gas field development projects that are being cancelled because they are not profitable at present prices.
All you are upset about is that Gazprom didn't sink money into gas field development projects that would now be getting the axe.
Wow, now there's a real energy economist at work!
Is it so hard to understand that increasing supply while demand is declining is a bad thing for a company to do??