Iran to Invest $18 Billion in the Country's Southern Oilfields

http://oilprice.com/Latest-Energy-News/World-News/Iran-to-Invest-$18-Billion-in-the-Countrys-Southern-Oilfields.html [July 14, 2011]

Iran Criticizes Saudi Oil Production Boost, Warns of Price War

http://oilprice.com/Latest-Energy-News/World-News/Iran-Criticizes-Saudi-Oil-Production-Boost-Warns-of-Price-War.html [July 11, 2011]

Surging Vietnamese Oil Production Causing Tension with China

China Winning the Race for Central Asia’s Energy Riches

Many western analysts have described the post-Soviet tussle for Caspian and Central Asian energy reserves as the new “Great Game, except this time around, Russia is facing the U.S. rather than the British empire.

To a dispassionate outside observer however, what is most striking about the prolonged wrangle between Moscow and Washington for hydrocarbons, military bases and influence is the emergence of an understated sly newcomer who has managed to bag many of the region’s assets – China.

There are many reasons for this, despite the fact that both Russia and the U.S. both seemed to hold winning hands.

For Moscow, quite aside from its colonialist legacy was the fact that it controlled the Truboprovodnaiia sistema Sredniaia Aziia-Tsentr (the Central Asia-Center, or SATS, pipeline system.) Russia’s natural gas monopoly Gazprom controls the SATS complex of pipelines, which run from Turkmenistan via Uzbekistan and Kazakhstan to Russia. The SATS eastern branch consists of SATS-1, 2, 4 and 5 pipelines, which were built between 1960 and 1988. Construction began after the discovery of Turkmenistan's Dzharkak field, with the first SATS section coming online in 1960, while SATS-4 was commissioned in 1973. Simply put, after the 1991 collapse of the USSR, Central Asia’s only opportunity for energy exports was controlled by Russia, which was determined to obey its new-found capitalist mantra of “buy cheap and sell dear.”

And where did Gazprom sell its Central Asian natural gas?

Europe, or course.

In 2008 Gazprom's sales to the European Union were nearly 170 billion cubic meters (bcm) out of a production of 550 bcm. Gazprom's share in the global and Russian natural gas production is 17.3 percent and 85 percent, respectively. Turkmen exports represent a quarter of Gazprom's EU exports, but the company also buys 15 bcm of Kazakh gas and 7 bcm of Uzbek gas.

The boulder in Gazprom's shoe is that the Russian domestic market, which is heavily subsidized, now accounts for about 70 percent of the company's production, with domestic consumption rising by more than 3 bcm a year. Accordingly, to free up as much indigenous production as possible for export, one-third of Russian internal gas usage has to be supplied from non-Gazprom sources.

And the Americans?

Well, after 1991 they showed up, checkbooks and democracy and human rights lectures in hand, determined as much as Moscow to buy local assets at fire-sale prices. Unlike oil, natural gas can only be pipelined or, in an expensive procedure, liquefied for transport.

Which left the Central Asians irritated at both parties.

Enter Beijing – cash to hand and no annoying lectures about political systems or human rights.

On 14 December 2009 China and Turkmenistan formally opened the first section of a 1,139 mile-long, 40 bcm per year natural gas pipeline, financed by China National Petroleum Corporation (CNPC), China's largest oil and gas producer and supplier. The Turkmenistan-China pipeline has since been expanded to carry Uzbek and Kazakh natural gas.

More pipelines flowing eastwards from Central Asia are under construction.

The moral of this story seems clear – those who simply show up with cash and sign mutually beneficial contracts are likely to prevail over Kremlin denizens expecting gratitude for a century of servitude, much less Yankee Wall St wizards seeking to screw the locals whilst prattling on about free markets and democracy. The final race for Central Asian energy is far from over, but at the moment, Beijing’s mandarins are winning.

Source: http://oilprice.com/Energy/Energy-General/China-Winning-the-Race-for-Central-Asias-Energy-Riches.html

By. Dr. John C.K. Daly for OilPrice.com. For more information on oil prices and other commodity related topics please visit www.oilprice.com

David and Goliath: Vietnam Confronts China
Over South China Sea Energy Riches

An increasingly fractious maritime confrontation is developing in the South China Sea, with enormous implications for international companies interested in developing East Asia’s offshore hydrocarbon resources. Far from the radars of city of London and Wall Street investors, the clash has seen Vietnam emerge as spear carrier for its fellow ASEAN members on the dispute.

Offshore drilling is the most capital-intensive form of exploiting hydrocarbons, but its expense and scarcity has also allowed technically advanced Western companies to drive hard bargains with third world countries over their offshore waters, as they don’t have indigenous advanced technical resources nor finances to exploit their maritime wealth.

Accordingly, most countries attempt to procure the best bilateral deals with foreign companies to get a taste of the offshore revenues that come from exploiting their Exclusive Economic Zones (EEZs), which the 1982 United Nations Convention on the Law of the Sea (UNLOS) recognized 12 nautical miles as normal for territorial seas and waters and provided international recognition of 200 mile EEZs. On the vexed question of overlapping claims, When an overlap occurs, UNLOS deferred to the competing states to negotiate to delineate their final and actual maritime boundary, with the general principle that any point within an overlapping area defaults to the nearest state.

According to U.S. government statistics, Vietnam’s oil and gas industry is currently the country's biggest foreign currency earner and a major procurer of imported technology. Since Vietnam’s first oil export shipment in April 1987, crude oil has earned over $17 billion for Vietnam’s economy, all of it from offshore production. Vietnam is currently Asian third largest oil producer behind Indonesia and Malaysia.

Over the past few years China has asserted its sovereign maritime claims and takeovers even as Beijing has settled most of its disputes over its land frontiers with post-Soviet Central Asian states since the early 1990s. China’s expansive sovereignty claims on of South China Sea, including the Spratly (Nansha) and Paracel (Xisha) islets, putting Beijing directly in conflict with the sovereignty claims and security of five Southeast Asian states – Vietnam, the Philippines, Malaysia, Brunei and Indonesia, not to mention China’s irredentist claims on Taiwan. All, except Taiwan, are members of the Association of Southeast Asian Nations or ASEAN.

Vietnam has now emerged as the plucky David challenging Beijing’s Goliath. The confrontation began on 26 May when three Chinese patrol boats halted a seismic survey in Spratly waters claimed by Vietnam as part of its EEZ, 80 miles from Vietnam's coast and 375 miles south of China's Hainan Island. Following other incidents, on 13 June Vietnam's navy held live-firing exercises in an area 25 miles off central Quang Nam province after warning other vessels to steer clear.

While China has the stronger navy, both sides can currently deploy only light maritime forces, and for the moment, regional rhetoric exceeds firepower.

Besides the cover support of its ASEAN partners, China is in a dialectical trap of its own making. Asserting its unilateral sovereignty will weaken ASEAN dominated by China as a political organization and potentially drive a number of its members to closer relations with the U.S., the only significant non-Asian power in the western Pacific.

Beyond the regional posturing, the issue seems tailor-made for international arbitration. UNCLOS provides for bilateral discussions, but given the diversity of claims, ASEAN would seem to be a better forum.

In the meantime, the South China Sea hardly seems to best potential zone for foreign energy investment companies.

Source: http://oilprice.com/Energy/Energy-General/David-and-Goliath-Vietnam-Confronts-China-Over-South-China-Sea-Energy-Riches.html

By. Dr. John C.K. Daly for OilPrice.com. For more information on oil prices and other commodity related topics please visit www.oilprice.com

Investors Salivating Over Mongolian Energy Resources

Sometime in the next 12 months, an energy IPO offering in distant Mongolia already has foreign investors salivating.

The darling of the international energy community is coal company Erdenes-Tavan Tolgoi ("Five Hills") Ltd., popularly known as TT, which has yet to begin operations.

To give an idea of the potential foreign interest, analysts believe that the IPO will be handled by Goldman Sachs Group Inc. and Deutsche Bank AG.

What is TT bringing to the market that has caused such interest? A massive deposit located in the east Tsankhi area of the Gobi desert and estimated to hold over 6.4 billion metric tons of coking coal, the world's biggest untapped deposit of its kind.

Mongolia’s government is currently selecting an operator for the massive deposit and is expected to be a large, experienced foreign mining company. Heightening investor interest was a successful public offering last fall in the autumn of 2010 by Mongolian Mining Corp., Mongolia's largest privately held domestic producer and exporter of coking coal, whose Ukhaa Khudag (UHG) mine is within the Tavan Tolgoi coal formation in the southern Gobi. Mongolian Mining Corp.’s IPO was floated on the Hong Kong Stock Exchange and raised $651 million.

In contrast, analysts are predicting that the TT IPO could raise as much as $10 billion.

What makes the TT IPO unique is that the Mongolian government has just given each citizen 538 shares in the Erdenes-Tavan Tolgoi IPO. If the IPO hits its anticipated $10 billion, each Mongolian shares would be worth about $360. The government stock giveaway totaled 1.5 billion shares, equal to 10% of TT and reserved another 1.5 billion TT shares for thousands of Mongolian business enterprises. Besides the 20 percent handed out to local enterprises and citizens, the government aims to retain 50 percent of TT, with the remaining 30 percent to be listed on an overseas stock exchange.

The TT stock giveaway is an integral part of a governmental effort to convince its citizens that its decision to pursue large-scale mining in Mongolia will have a direct bearing on their well-being, following several earlier contentious mining deals.

Mongolians complained bitterly about the arrangements surrounding the $6 billion Oyu Tolgoi project, jointly owned by Canada’s Ivanhoe Mines , Rio Tinto and the Mongolian government, which will be the world's biggest copper mine outside Chile once full operation starts in 2013.

Underwriting Mongolia’s mining boom, two years ago the Ulsyn Ikh Khural (State Great Hural, or Parliament) finally repealed the 68 percent windfall profit tax on foreign mining operations, which came into effect in January, setting the stage for massive foreign investment.

Even Russia has gotten into the act. Earlier this month, Mongolian President Tsakhiagiin Elbegdorj visited Moscow and met with Russian President Dmitrii Medvedev, who commented on rising bilateral trade possibilities, “We need new powerful projects such as nuclear projects or Tavan-Tolgoi, which will promote bilateral cooperation.”

Besides coal, copper and gold, Mongolia has massive deposits of other materials the world desires, including uranium and rare earth elements (REEs.) As these deposits are developed, analysts predict the economy will flourish, with the International Monetary Fund predicting that Mongolia’s annual economic growth may surge to 23 percent in 2013 as Oyu Tolgoi and other projects begin production.

With energy-hungry China next door, a Mongolian energy or mining investment is looking like one of the global economy’s more certain bets, and in the case of TT, one doesn’t need the resources of a Goldman Sachs to buy in – yet.

Source: http://oilprice.com/Energy/Energy-General/Investors-Salivating-Over-Mongolian-Energy-Resources.html

By. Dr. John C.K. Daly for OilPrice.com. For more information on oil prices and other commodity related topics please visit www.oilprice.com

U.S. - Venezuelan Relations - Just “Frozen” or Beyond Repair?

According to the U.S. Energy Administration, two months ago the United States total crude oil imports averaged 9,033 thousand barrels per day (tbpd), with the top five exporting countries being Canada (2,666 tbpd), Mexico (1,319 tbpd), Saudi Arabia (1,107 tbpd), Venezuela (930 tbpd) and Nigeria (918 tbpd.)

Notice anything odd about this list? First, three of the top five oil exporters to the U.S. are in the Western hemisphere, and two of them are neighbors.

Secondly, only two of the five states can comfortably be described as stable. Mexico is slowly unraveling due to the drug war, Nigeria’s militant regularly attack foreign oil concessions in the Niger delta and Saudi Arabia’s geriatric monarchy is nervously watching events unfold in the Middle East, wondering if the “Arab spring” may impact their autocratic hold on power, a view no doubt made more nervous by the sudden arrival on 6 June of Yemeni President Ali Abdullah Saleh to Saudi Arabia for medical treatment.

Of the remaining two, Canada is a stable, prosperous state, and its relations with Washington are excellent.

Which leaves Venezuela – while a stable state, its policies under President Hugo Chávez have rattled Washington to the point that since 2010 neither state has had accredited ambassadors.

On 28 June 2010 President Obama nominated Palmer as U.S. Ambassador to Venezuela but three months later Chávez announced on his weekly TV program that he would not allow Larry Palmer to take up his post after Palmer told a US senator that morale in the Venezuelan army was low and that members of Chávez's government had ties to leftist FARC Colombian rebels. On 28 December Chávez flatly refused to accept Palmer because of his derogatory remarks and the following day the U.S. revoked the accreditation of Venezuelan ambassador, Bernardo Álvarez Herrera.

Worse, on Sunday Venezuelan Minister of Foreign Affairs Nicolás Maduro in an exclusive interview with private TV network Televen said, “The relation (with the U.S.) is frozen... It does not move and there is no indication that there could be positive elements of communication and respect in the near future.”

What led to the impasse? Chávez’s final sin in Washington’s eyes was Venezuela's state-owned oil company Petroleos de Venezuela (PDVSA) supplying gasoline and other refined oil products to Iran, which led the Obama administration on 24 May to impose sanctions against PDVSA. In response, Venezuela's Energy Minister Rafael Ramirez, who is also the head of PDVSA, said the following day that as a sovereign nation Venezuela would continue to maintain relations with Iran and any other country it wanted, adding, “This is a right we are not going to renounce.”

Washington’s myopia leads it to treat Central and Latin America as if the Monroe Doctrine were still valid. In fact, the most underreported political story in the American press over the last decade is how Latin America has gradually moved out from under Washington’s smothering “big brother” embrace as first the Bush administration and now President Obama’s fixated on both on the war on terror and Iraqi oil reserves. Most notable among the Latin American states rejecting Washington’s dominance, along with its attendant financial institutions of the World Bank and the International Monetary Fund has been Brazil, which now, along with Russia, China and India, is lumped under the sobriquet BRIC as a collective economic powerhouse of the 21st century.

Can Washington really afford to antagonize a nation that exports nearly a million barrels per day to the U.S.? Should Venezuela turn off the taps, then the recent gasoline prices of nearly $4 a gallon will begin to look like a bargain.

And speaking of China, its economic interest in trade devoid of Washington’s hectoring political lectures has found a warm reception in Caracas. China has agreed to provide more than $32 billion in assistance to Chávez’s government, with the loans to be repaid in oil, in increasing amounts of it during the next decade. China is now Venezuela's biggest foreign lender, enabling Chávez’s to boost social spending ahead of the country’s 2012 presidential election, leading Chávez to exclaim "Viva China!" on national television.

Venezuela is now exporting to China about 460,000 barrels a day, about 20 percent of its oil exports, according to official figures, which Caracas hopes to double soon. Chen Ping, political counselor at the Chinese Embassy in Caracas noted simply, "Venezuela has what we need."

Pity that Washington, blinkered by outdated ideology, does not see its own interests as clearly as counselor Chen.

Source: Full article at: http://oilprice.com/Energy/Energy-General/U.S.-Venezuelan-Relations-Just-Frozen-or-Beyond-Repair.html

By. John Daly for OilPrice.com