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Washington Chases Oil 0100 GMT, 000826

U.S. Secretary of Energy Bill Richardson will embark on a rather scenic trip at the end of the month, taking in locales as diverse as Nigeria, Kazakstan and the Russian Far East. While part of his trip will focus on encouraging Nigeria to immediately boost its oil production, the rest of the trip has a longer-term goal  increasing the amount of available petroleum in the years ahead. In doing so Richardson seeks lower oil prices, but at the cost of strengthening Russias hand over the Caspian region and global energy markets.

The first stop on Richardsons itinerary, Nigeria, is no surprise. He is traveling with President Clinton on his Africa tour and will certainly try to convince Nigeria to up its oil production beyond its 2.091 million barrels per day (bpd) OPEC quota. However, its doubtful that Nigerias government could even if it wanted to. Years of neglect have left its oil sector in disrepair. The 2.091 figure is actually a historical high for Nigeria.

Which leads to the other part of Richardsons visit: establishing new production capacity. Nigeria is working with a number of European firms (TotalFinaElf, Shell, ENI, Agip and Statoil) and American firms (Chevron, ExxonMobil and Texaco) to develop new offshore fields. If these projects reach fruition, Nigerias oil-pumping capacity will increase by about 1.2 million bpd over the next four years.

But with global oil demand at more than 75 million bpd and rising, Nigeria represents a drop in the bucket. That is why the next leg of Richardsons trip will take him to Kazakstan and Russia. While both are producing at their maximum capacities of 0.5 million and 5.9 million, respectively, both have significantly larger reserves than Nigeria, granting them much greater potential for expanded production. Furthermore, since neither Kazakstan nor Russia is an OPEC member, both tend to produce oil at maximum capacity and ignore any OPEC-inspired quota system. Saudi Arabia, often friendly to U.S. overtures, controls the quota system.

Country Proven Reserves, January 2000 (billion barrels) Current Production (million bpd) Current Exports (million bpd) Kazakstan 10-17.6 0.528 0.326 Nigeria 22.5 2.1 1.8 Russia 49-55 5.9 3.4

With this in mind Richardson will visit Sakhalin Island in Russias Far East. Here ExxonMobil is developing a series of fields estimated to hold two billion barrels of oil and over 400 billion cubic meters of gas. Other new potential production sites dot Russias Arctic.

The trip to Kazakstan will probably focus on the details of transporting Kazak oil to market. Kazakstan recently discovered a new oil field in the Caspian that may hold as much as 200 billion barrels. Even low-end estimates place it at 50 billion  more than twice Nigerias total reserves. U.S. firms Chevron, ExxonMobil and Phillips all have stakes in the Kazak oil industry.

Surrounded by other oil exporting states, Kazakstans problem is getting the oil to consumers. Most pipeline proposals involve crossing Russian territory, which until now the United States has not so quietly worked against.

However, U.S. pipeline proposals have lost out to Russian plans. Only the smallest U.S. proposal, the tiny 100,000 bpd Baku-Supsa, is operational. Meanwhile three major Russia lines either will begin operation next year  Tengiz-Novorossiysk  or function already  Baku-Novorossiysk and Atyrau-Samara. Simply put, its too late in the game to start a new American initiative.

Therefore, Richardsons trip signals a subtle change in American policy. The United States no longer cares how Kazak and Russian oil gets to market. American interest in the region has shifted from thwarting Russian hegemony to ensuring the oil makes it to market soon and American firms dont get trampled in the process. If all goes well for Richardson, he will leave the region with assurances that American oil firms  and their money and technology  are still welcome in the region, so long as they dont work at cross purposes with Moscow.

http://www.stratfor.com/CIS/commentary/0008260100.htm

-- Martin Thompson (mthom1927@aol.com), August 28, 2000