
Russian President Dmitry Medvedev and Nigerian President Umaru Yar’Adua (AFP)
Despite Medvedev’s touting of cooperation and economic benefits, it’s hard to see Mededev’s actions other than a …..click here to read more
Just another Foreignpolicyblogs.com weblog

Russian President Dmitry Medvedev and Nigerian President Umaru Yar’Adua (AFP)
Despite Medvedev’s touting of cooperation and economic benefits, it’s hard to see Mededev’s actions other than a …..click here to read more
The deal gives access to Nigeria’s resources and highlights Russia’s attempt to bolster its international stature by becoming a key global commodity supplier. However, the deals come as many Russian energy firms are saddled with debt; are producing less; and are failing to invest in domestic upstream activities (exploration and production), making it unlikely they can meet more ambitious investment plans without scaling back somewhere.
Gazprom announced today that it may cut its planned investment by 30% as the company expects sales to plummet roughly 40% this year. Deputy CEO Valery Golubec had previously announced cuts of 10% in output this year and the firm also signaled it would delay investment in several large projects including development of the Bovanenkovskoye field. Beyond a reduction in income and output, the company also faces substantial debt obligations of $60 bln with $10 bln due this year.
Gazprom is not the only Russian company facing recent worsening financial conditions:
Despite the weakened condition …..click here to read more
The European Union plans to announce today that it sees possible disruptions for its gas supplies from Russia via Ukraine, a liklihood we identified earlier this year. What’s worse, Gazprom is now demanding $230 in debt payments from Belarus, another key gas transit route to western Europe.
The payments from Belarus may stem from a political dispute over disagreements including Minsk’s failure to follow Russia’s lead in recognizing the independence of Georgia’s break-way republics and Moscow’s freezing of a $500 million loan for Belarus. However, due to the opacity of the gas trade in eastern Europe, Gazprom’s debt may be legitimate.
The saga of the dispute in eastern Europe is likely to play out in political circles over the summer until the weather gets cold. But for those in Europe looking for a warm apartment in the winter, they should follow Ukraine’s purchases from Russia over the summer. Ukraine’s national gas company, Naftogaz, will unlikely have the cash to pay to fill its storage capacity for the winter heating season. The Ukrainian newspaper Sehodnia reports that the company may not have the funds by as early as July. Unless Ukraine buys its required amount, a new flare-up is in the offing, which portends a few weeks of cold in western Europe.
The new amendment, which will be voted on as part of a comprehensive energy bill later this year, affords the Secretary discretion in suspending the incentives. Today’s change follows a string of other modifications proposed by both the Hill and the Administration that would increase oil companies’ payments to the government, such as the Administration’s budget plan to reduce tax exemptions.
Proponents of the royalty change believe the incentives cost the government potential foregone revenue. They believe the high price of oil and gas acts as a greater inducement to drill than the royalty-free production allotment. I estimated that the government revenue loss from these mandatory royalty payments to be easily over a billion dollars a year (Note: I used to oversee the budgeting of oil and gas revenue for the federal government.)
Others such as Senator Lisa Murkowski (R-AL), who voted against the provision, believe that the mandatory incentives encourage firms to take greater risks to develop US oil and gas supplies.
Incentives remain a useful tool to encourage risk and investment in marginal producing or new areas, but their value declines as oil prices increase. Recently their use has become more of a political game and lost is the serious analysis to determine when government incentives are necessary. President George W. Bush said in 2005:
I will tell you with $55 oil we don’t need incentives to oil and gas companies to explore. There are plenty of incentives.

Sen. Byron Dorgan (D-ND)
Seven years ago, at the behest of his brother, Republican Governor of Florida Jed Bush, President George W. Bush spent over $100 million to curtail drilling near Florida’s coast by buying back seven of nine federal leases from oil companies in a resource rich area called Destin Dome. The government secured a ten-year nonproduction agreement from Murphy Oil, which decided not to sell back its two leases in a calculated decision to wait till the government reversed course.
The decision helped bolster the governor’s standing in his state while the Bush Administration heralded the deal – which also included buying back leases near the everglades — on environmental grounds. He said, “Florida is known worldwide for its beautiful coastal waters and the Everglades. Today we are acting to preserve both.” But it was a costly way to prolong the inevitable: more offshore drilling.
Now Byron Dorgan (D-ND) is leading the charge. His amendment is a bit more pragmatic. It is an attempt to get more Republican senators on board with a larger climate bill, by opening up for exploration a proven, hydrocarbon-rich area that could be developed quickly due to its proximity to existing infrastructure. The legislation does not open up all of the water near Florida as it codifies a moratorium elsewhere.
But even those areas may be eventually under threat, …..click here to read more
Point Carbon’s prediction gives a baseline to energy firms that tend to make long-term investment decisions. But in practice the report may be of little use. The analysis does not assess market conditions per se, but rather the political climate that governs the ETS. Predicting the political air in, say, France five years from now is highly complex, predicting it in the 27-nation EU, downright impossible. Add to the mix that the government controls the supply of ETS and the market may be far more difficult to forecast than oil where analysts can at least track supply to some degree.
The report does have some merit, however. …..click here to read more
“It does kind of feel like the market is getting ahead of itself. The demand has not increased.
Larry Nichols, chief executive of Devon Energy Corp
“It’s more perception than reality… A lot of people think we bottomed out — I tend to think otherwise. So I wouldn’t be surprised to see a pullback in oil prices.”
Steve Farris, CEO of the exploration company Apache Corp
“It’s been our firm’s view that the fundamentals of the market would suggest a lower price — a $40 or $50,” Spears said. “In the range of that. Not $70.”
Richard Spears, vice president of Spears and Associates consulting firm.
Goldman pins the forecast on increasing demand in China, a notoriously difficult market to predict because of a lack of reliable statistics. It is the same reason for the basis for their prediction last year that oil may hit $200. Although predicting this market is difficult, and few with the notable exception of Ed Morse at Lehman Brothers (my old firm) predicted the fall in oil’s price last year, Goldman still seems a bit far out ahead of the pack. When fundamentals don’t support current oil prices, and industry leaders that benefit from high prices are perplexed with the high prices, Goldman’s call is bold.
Oil has risen due to several factors. One, it has jumped with equity markets which have been on a tear lately, surging over 2.5% yesterday as some economic data – including manufacturing reports showing that China and India output has improved – hint that the worse of the economic crisis may be over. Traders believe that greater economic activity should raise demand for oil and therefore its price. Two, oil has also risen as the value of the US dollar continues to fall (As oil is denominated in dollars in the international market, this has kept the oil price constant with other currencies). Three, investors may also be plowing into commodities as they are concerned about potential inflation as governments spend more to stimulate the economy. (Commodities are often a place for refuge to protect against inflation.)
There are two likely short-come outcomes. …..click here to read more
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