As the military clash in Ukraine and the conflict between Russia and the West escalates, U.S. government top energy officials and leading experts on the South Caucasus energy and politics assembled at a Washington DC conference on “Security and Energy Implications for the South Caucasus after Ukraine.” The January 28th event was cosponsored by the Kennan Institute of the Wilson Center and the newly formed Center for Energy, Natural Resources, and Geopolitics (CENRG) at the Institute for the Analysis of Global Security.
Succumbing to populist pressure, the Israeli government today delivered a crippling blow to the country's ambition to become a regional energy player. With the decision of the Israeli Anti-Trust Authority to revoke an arrangement permitting Noble-Delek partners to develop the natural gas field Leviathan, declaring them a cartel - a move that will require the separation of Leviathan from Tamar and the sale of Leviathan to a new partnership, effectively postponing the development of Leviathan indefinitely - the scenario of “zero gas” - and perhaps even the withdrawal of Noble from Israel altogether - should be considered seriously. The implications are profound not only for Israel but for the entire region.
The recent agreement between President Xi and President Obama in which the U.S. committed to reduce greenhouse gas emissions up to 28 percent below its 2005 levels while China committed to have its emissions levels peak by 2030 was one of the trumpeted announcements of the recent APEC Summit. The details on how this will exactly be done are fuzzy and will be left to negotiations in the United Nations Climate Change Conference in Paris next year. But the 2030 goal means that in the coming months China will be subjected to international pressure to turn words into deeds by accepting CO2 reduction measures which may be detrimental to its economic development. To this it should not agree.
When the Ukraine crisis broke out threatening to compromise Europe's energy supply from Russia, many American politicians and pundits called for the United States to expedite exports of liquefied natural gas, or LNG, to help bolster European energy security. Never mind that the United States won't have its first LNG export terminal in operation until late 2015 at the very earliest; that much of its approved gas exports are already committed to long-term contracts in Asia; and that Ukraine as well as most European countries under the Kremlin's boot do not have the terminals for receiving LNG. The United States is under no obligation to bolster Europe's energy security just because Europe, in its fixation on climate change, has for years undermined its own energy security and brought upon itself its current predicament. Gal Luft elaborates.
When something is subsidized, people use more of it....and smuggle/sell it elsewhere to cash out on the subsidy. Case in point, fuel in Iran.
The Economist reports "An estimated $40-100 billion is paid every year to keep Iranians, poor and rich, supplied with cheap energy, water, fuel and basic food. Consumption has soared. Shopkeepers in Tehran spray their verandas to drive away the dust. Cars clog the country’s roads. Iran’s energy consumption is reckoned to be 80% above the Middle East’s average. Worse, billions of dollars are squandered every year by smugglers taking Iran’s cheap fuel across borders to Iraq and Pakistan."
The subsidies have just been reduced but are still substantial...."On April 28th President Hassan Rohani raised petrol prices by 75%, from 4,000 to 7,000 rials ($0.16 to $0.28) per litre."
Russia’s occupation of the Crimea and possible incorporation of Eastern Ukrainian regions has demonstrated Europe’s vulnerability to Gazprom’s energy power. Whatever the EU’s reaction, diversification of energy supply to diminish Russia’s market share is likely to be one of them. The Trans Adriatic Pipeline (TAP) is one step towards the strategic goal of diminishing Gazprom’s huge presence in Europe. but in view of the proposed construction of the Russian South Stream pipeline, how can Central Europe, and especially Bulgaria, Romania, Austria and Lithuania, ensure energy diversification? What next for the Southern Corridor? Is Russia going to accept and tolerate infrastructure growth of the Caspian and other competitors south of its borders? Dr. Ariel Cohen, an Advisor to the Institute for the Analysis of Global Security, has just written an extended piece on these issues published by the Italian Institute of International Affairs. Click here to view the entire article.
The Washington Post reports on a new report prepared for the Senate Homeland Security and Governmental Affairs Committee:
"The report draws on previous work by agency inspectors general and the Government Accountability Office to paint a broader picture of chronic dysfunction, citing repeated failures by federal officials to perform the unglamorous work of information security. That includes installing security patches, updating anti-virus software, communicating on secure networks and requiring strong passwords. A common password on federal systems, the report found, is “password.”....The report levels particularly tough criticism at the Department of Homeland Security, which helps oversee cybersecurity at other federal agencies. The report concluded that the department had failed even to update essential software — “the basic security measure just about any American with a computer has performed.”.....Higher up the chain of command, agency directors are rarely held accountable for security failures, experts said, because it is often unclear who is responsible. No penalties are mandated by law."
Some examples from the report relevant to the energy sector:
"The Nuclear Regulatory Commission stored sensitive cybersecurity details for nuclear plants on an unprotected shared drive, making them more vulnerable to hackers and cyberthieves."
"Last January, hackers gained access to U.S. Army Corps of Engineers computers and downloaded an entire non-public database of information about the nation’s 85,000 dams — including sensitive information about each dam’s condition, the potential for fatalities if breached, location and nearest city."
An escalation in Turkey's most violent anti-government protests in years may complicate an already tense backdrop for energy security in the Middle East, possibly adding to the risk premium in benchmark oil prices, strategists told CNBC this week.
Although Turkey produces only negligible quantities of oil and natural gas, the country represents an "energy crossroad" – Russian energy exports from the Black Sea port of Novorossiysk flow though the strategic Turkish Straits to markets in Europe and the U.S. Turkey is also an important conduit for oil transported via pipeline from northern Iraq.
Approximately three million barrels a day of crude oil and refined fuels flow though the Bosporus and the Dardanelles Straits "so any disruption of traffic would mean losing the equivalent of Nigeria or Venezuela," said Gal Luft, co-director at the Institute for the Analysis of Global Security (IAGS) [which is publisher of the Journal of Energy Security].
"The market will surely keep a close eye on the developments in Istanbul, which sits on the Bosporus, and the Kirkuk-Ceyhan pipeline which carries 330,000 barrels a day of Iraqi oil from Kurdistan to the Mediterranean," he added.
For more complete coverage of this developing story, including Luft's comments, go to CNBC.
"The coming American oil boom is bad news for Saudi Arabia. How the kingdom responds could very well determine if it survives. Current trends in the global energy market don't look good for Saudi Arabia. First, the International Energy Agency projected in November 2012 that the United States will surpass the Gulf petrogiant as the world's top energy producer by 2020. Then, last week, it revealed that North America, buoyed by the rapid development of its unconventional oil industry, is set to dominate global oil production over the next five years. These unforeseen developments not only represent a blow to Saudi Arabia's prestige but also a potential threat to the country's long term economic well-being -- particularly in the post-Arab Spring era of elevated per-capita government spending. Saudi Arabia's response, to drill or not to drill, will also have major repercussions for a world economy which remains tied to the oil drum.
"But if the kingdom's outlook is decidedly bleak, its official response has been muddled. In an April 25 speech at Harvard University, Prince Turki al-Faisal, a former head of Saudi Arabia's top intelligence agency and the current chairman of the King Faisal Center for Research and Islamic Studies, announced that the kingdom is set to increase its total production capacity from 12.5 million barrels per day (mbd) today to 15 mbd by 2020, an amount that would easily make it the world's top oil producer once again. But five days later, in a speech at the Center for Strategic and International Studies in Washington, DC, Saudi Arabian Minister of Petroleum and Mineral Resources Ali al-Naimi conveyed an entirely different message, rejecting Turki's statement out of hand. "We don't see anything like that, even by 2030 or 2040," he said. "We really don't need to even think about 15 million.""
So what are we to make of this 2.5 mbd discrepancy? To find out read the rest of Dr. Gal Luft's article in Foreign Policy.
The importance of what we term OPEC's "break even price of oil" was a key message in our recent book, Petropoly: the Collapse of America's Energy Security Paradigm. The break even price is the price of oil required to balance the budget of Saudi Arabia and other OPEC countries.
If you've read Petropoly you were thus not surprised by recent reporting that the price of oil Saudi Arabia needs to balance its national budget is $94 per barrel, while Iran requires $125, nor by comments by Ali Aissaoui of the Arab Petroleum Investments Corp that "OPEC will definitely need to cut production to shore up prices as they can't produce at prices close to their break-even level."
As we explain in Petropoly, when non-OPEC countries drill more, if the slack isn't taken up by developing world growth in consumption, OPEC drills less in order to tighten the supply/demand relationship and send prices back up, and for the same reason when we use less, OPEC also drills less.
"Remarkable collection spanning geopolitics, economy and technology. This timely and comprehensive volume is a one stop shop for anyone interested in one of the most important issues in international relations."
U.S. Senator Richard G. Lugar
"A small masterpiece -- right on the money both strategically and technically, witty, far-sighted, and barbeques a number of sacred cows. Absolutely do not miss this."
R. James Woolsey, Former CIA Director
"The book is going to become the Bible for everyone who is serious about energy and national security."
Robert C. McFarlane, Former U.S. National Security Advisor
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