World Bank Urges Russia to Invest Oil Money Into Foreign Shares

Created: 17.04.2006

The World Bank has urged Russia to invest billions of dollars the country received from its oil exports into foreign companies' shares.

The bank's chief economist for Russia, John Litwack, quoted by AP said Russia's Stabilization Fund would clock in at a healthy $2.3 trillion dollars come 2030, if it was invested properly and left untouched. The fund receives nearly every dollar of oil companies' profits over $27 per barrel. It currently stands at more than $55 billion.

Litwack suggested that the fund could eventually act as a safety net for the government's efforts to shift the economy away from its vulnerable dependence on oil and gas exports as well as insuring the country against any sudden drop in prices.

"One of points we stress is that if they can take the money and invest it in a well managed portfolio of foreign assets ... and prices stay high - they'll be able to accumulate such a large resource that just the income would be a huge cushion against oil price shocks," Litwack said.

The bank's latest report on the Russian economy featured an economic model for the stabilization fund that assumed oil prices would fall gradually to $40 by 2030 and that the government also wouldn't touch the cash pile for about 24 years. In that case the fund could be worth $2.3 trillion, with the return alone equivalent to 17 percent of gross domestic product, or about $800 billion, he said.

Litwack said that would give the Russian government the confidence to undertake bold steps to diversify the economy, including tax cuts in the non-oil sector, which would initially have the effect of making the country more reliant on the oil price and the taxes oil companies pay. - mosnews.com/

Gazprom warns EU to let it grow

20th April 2006- BBC

Gazprom, one of the main suppliers of natural gas to Europe, has warned that blocking its plans to expand across the region will "not produce good results". The Russian company has recently indicated it wants to expand European operations, with speculation centred on a possible bid for the UK's Centrica. Energy security is a hot political topic and there are concerns Europe is too dependent on Russian supplies. Gazprom, the world's biggest gas producer, wants to be a global player. Company boss Alexi Miller explained that competition has been intensifying for energy resources and Gazprom could turn to other markets including China.

Powerful ambitions

"Attempts to limit Gazprom's activities in the European market and to politicise questions of gas supplies, which are in fact entirely within the economic sphere, will not produce good results," Mr Miller said after his meeting on Wednesday.

(Gazprom comments) give grounds to our concerns on the growing foreign dependency of European energy supply Ferran Tarradellas Espuny, EU Energy spokesman

"It should not be forgotten that we are actively seeking new markets such as North America and China," he added. "It's no coincidence that competition for energy resources is growing."

Mr Miller's comments came after he met European Union ambassadors on Tuesday.

Ferran Tarradellas Espuny, spokesman for Energy Commissioner Andris Piebalgs, said that Mr Miller's statement "gives grounds to our concerns on the growing foreign dependency of European energy supply".

He added that the EU had a "need to diversify both the origin of our supplies and our supply routes".

For many observers, the biggest worry is that consumer and wholesale prices will continue to climb, and that governments will have to make political concessions to ensure a steady supply of gas.

This problem is seen as becoming more acute in the UK as supplies from North Sea operations dwindle.

National interests?

Gazprom appears to be concerned that the UK would block Gazprom's attempts to buy the UK's largest gas company. Centrica owns British Gas and is the UK's largest utility firm with more than 17 million electricity and gas customers. Shares in Centrica have been surrounded by speculation that the Russian firm was planning a takeover approach, prompting the UK government to say it would scrutinise any such move.

Last month, the Department of Trade and Industry (DTI) said the security of the UK's energy supply was paramount and recent press reports stated that it trying to find out if it had the legal means with which to block a takeover.

In an effort to soften his comments and ally any concerns that gas supplies may dry up, Mr Miller said that the company understood its responsibilities as the provider of 25% of Europe's gas and would honour existing contracts.

Oil prices hit fresh record highs: 74.22 dollars in London

Thu Apr 20, 2006 - LONDON (AFP) -

World oil prices have reached new peaks, above 74.0 dollars in London and 72.0 dollars in New York owing to low stocks of gasoline in the United States and tensions over Iran's nuclear programme.

In London, the price of Brent North Sea crude for June delivery struck a record high of 74.22 dollars per barrel on Thursday.

New York's benchmark contract for light sweet crude for May delivery hit an all-time peak of 72.49 dollars.

At about 1105 GMT Brent stood at 73.77 dollars, up four cents on Wednesday's close, while New York crude was at 72.26, up nine cents.

Adjusted for inflation, current oil prices remain below levels reached after the 1979 Iranian revolution. According to Barclays Capital, in November 1979 crude prices surged to a high of 87.23 dollars per barrel in today's money.

"Brent crude hit a new record high above 74 dollars... on concern about the drop in US gasoline stocks and on concern that Iran's ongoing nuclear row with the West will cut oil supplies," said analysts at the Sucden brokerage firm in London.

Brent North Sea, which is a light sweet crude, is the price reference for two-thirds of the world's traded oil according to the IntercontinentalExchange which operates the trading of Brent.

The US Department of Energy had said Wednesday that US gasoline (petrol) stockpiles fell by 5.4 million barrels last week, twice analysts's forecasts and ahead of the peak demand season for motor fuel. The fall in gasoline stocks comes ahead of the driving season in the United States, which sees American drivers take to the roads on vacation beginning in May.

French Energy Minister Francois Loos asked the European Union on Thursday to publish data on the bloc's own oil stocks also on weekly basis, instead of every month, arguing the switch would alleviate pressure on prices. "We need to show that oil production is sufficient in relation to consumption," Loos told a press conference in Paris. "That will dissuade speculators from driving up prices."

Elsewhere, the market tracked events over Iran, the world's fourth biggest crude producer.

"Besides the fundamental supply and demand information, prices are driven by the emotional momentum of the Iranian issue," said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore. "The market is nervous because of the recent heated rhetoric from Iran and the US. The rhetoric is causing prices to stay above 70."

The head of the International Energy Agency told AFP late Wednesday that market speculation has amplified oil price spikes but that the root cause of high prices is the lack of a production safety cushion. "The market is perfectly well supplied at the moment but spare capacity is very limited," IEA executive director Claude Mandil said.

Regarding Iran, world powers who met Wednesday in Moscow for a second day of talks failed to agree on how to halt the country's nuclear drive. Russia and the United States remained divided over the imposition of sanctions and possible use of a military strike.

US Secretary of State Condoleezza Rice said Wednesday that although diplomatic avenues will be fully explored, "we have to contemplate diplomacy failing; I believe we have options at our disposal". Washington has accused Iran of working secretly to build nuclear weapons under cover of a nuclear energy programme it is developing with Russian assistance.

Iran denies this charge and says the program is strictly for producing nuclear energy.

Security analysts have said that in the event of a conflict, Iran could block the Strait of Hormuz, a strategic choke-point for oil exports to Japan, the United States and Western Europe. - news.yahoo.com

Opec 'powerless' to drive down $75 oil

DOHA - business day - Opec ministers said today there was nothing they could do to halt surging oil prices that threaten consumer nations' economies and could trigger a collapse in demand disastrous to producer states. The group, already pumping as much as refiners can handle, concluded at talks here that raising its 28 million barrels per day output ceiling would not rein in runaway prices.

"The market determines the oil price," Saudi Oil Minister Ali Al-Naimi, Opec's most influential voice, told reporters. "You know and I know that the reason the price is where it is is not from a shortage of (crude oil) supply," he said.

Oil raced to an all-time high above $75 last week as Iran continued to defy world pressure to halt its nuclear programme, a quarter of Nigeria's output lay idle after rebel attacks and Iraq's once considerable oil industry was mired in crisis.

Consuming nations- from top energy user the United States to poor African nations- are afraid high energy costs will snuff out economic growth. Producers fear a price collapse.

Opec ministers, meeting during global energy talks here, had little enthusiasm for a Kuwait proposal to offer up all the organisation's spare capacity of two million bpd as they did in September when oil spiked above $70 a barrel.

Then, as now, a lack of motor fuel in the US, consumer of over 40% of the world's gasoline, was partly to blame for the price surge. At that time hurricanes had damaged US refineries. Now the introduction of new, cleaner US gasoline may disrupt supplies in the short term, Energy Secretary Sam Bodman said.

Some Opec delegates also blame US foreign policy. Libya's top oil official said fears of a US strike on Iran, the world's fourth biggest crude exporter, had added $15 to the cost of a barrel of oil. Kuwait's oil minister reckoned another $7 had been added by consumers' sense of vulnerability. Top exporter Saudi Arabia, a close US ally, also spoke of international tension.

"There is nothing that can be done about the tension that has been created and until that tension abates the price will continue to be high," Naimi said.

Investors agreed Opec, supplier of a third of the world's oil, could do nothing to steer oil from its highest level in real terms since 1980, the year after the Iranian revolution.

"Opec can't do anything about the upside to the market. They don't have much scope left for managing," said Michael Coleman, managing director of hedge fund Aisling Analytics.

Energy consumers and producers here for the three-day International Energy Forum agree there is an urgent need to bring down prices. But they are split over how to do it. Consumers want greater access to oil and gas in the Middle East, Russia and Africa. Producers want to be sure investing in new fields will pay off. Both sides criticise major oil firms for failing to build new refineries.

"The objectives are different. Nobody is sharing anything," said a delegate who declined to be named.

The meeting brings together ministers from 65 countries and the chief executives of major oil companies. Opec members point out they have raised oil output by over 10% since 1999. Saudi Arabia alone will spend $50bn over the next five years on new fields and refineries. In contrast, the US, which uses a quarter of the world's oil, has not built a refinery on its soil for decades. A conciliatory Bodman said he would not ask Opec to pump more even though US gasoline has reached $3 a gallon

"We have encouraged producing nations to keep oil markets well supplied- I think they've done that," he said.

Crude prices may touch $100 a barrel: Iranian minister

Press Trust of India new Delhi, May 2, 2006 - hindustan times

Iran, the world's second largest oil producer, on Tuesday predicted that crude oil prices might touch $100 a barrel by the winter of 2006.

Iranian Deputy Oil Minister Hadi Nejad Hosseinian, who had last year predicted that crude prices will touch $70, on Tuesday said: "It is possible", when asked if crude prices could touch $100 a barrel.

The minister, who is in New Delhi to meet Petroleum Minister Murli Deora, said that the global demand for oil was much higher than the supply and geopolitical factors were fuelling the price surge.

World oil prices have already touched $75 in key global markets, including in London and New York.

Bolivian Nationalizes the Oil and Gas Sector

By PAULO PRADA Published: May 2, 2006 RIO DE JANEIRO, May 1 - nytimes.com/

President Evo Morales of Bolivia ordered the military to occupy energy fields around the country on Monday as he placed Bolivia's oil and gas reserves under state control. Surrounded by soldiers at an oil field operated by the Brazilian energy giant Petróleo Brasileiro, or Petrobras, Mr. Morales ordered foreign producers to relinquish control of all fields and channel future sales of hydrocarbons through the state-owned energy company. He gave foreign companies 180 days to renegotiate existing contracts with the government, or leave the country.

"The time has come, the awaited day, a historic day in which Bolivia retakes absolute control of our natural resources," Mr. Morales declared, according to The Associated Press. "The looting by the foreign companies has ended."

The decree is the latest step by Latin America governments from Venezuela to Ecuador to assert greater control over the energy sector, moves that have sent shivers through foreign producers.

Motivated by nationalist politics and soaring oil and gas prices, governments have seized an opportunity to gain higher revenues while parlaying their control over future energy supplies into greater political leverage, both at home and abroad.

"Governments in the region see energy as a commodity they can use to push populist agendas," said Adriano Pires, director of the Brazilian Center for Infrastructure Studies, an energy consultancy in Rio de Janeiro. "From a political point of view, it's a powerful issue to manipulate, but from an industrial point of view, it can do real harm."

Mr. Morales's decree, in effect to nationalize Bolivia's energy industry, which includes the second-biggest gas reserves in Latin America after Venezuela, quickly added to the nervousness of foreign producers.

They said they would proceed with caution until the government clarified under what conditions it plans to renegotiate contracts.

"We're worried," said Begoña Elices, director of external relations in Madrid at Repsol YPF S.A., the Spanish oil company, the second biggest investor in Bolivia's gas sector. "There will be a lot of fine print to consider."

Petrobras, the biggest investor, with over $1 billion invested in Bolivia, criticized the government's "unilateral attitude" and said it would take whatever steps necessary to "protect the rights of the company" and guarantee Brazil's supply of gas, half of which comes from Bolivia.

The importance of Bolivian gas to Brazil - the largest market in the region - prompted concern even from President Luiz Inácio Lula da Silva, a leftist and former union leader who publicly hailed Mr. Morales's rise to power.

Mr. da Silva is to meet with José Gabrielli de Azevedo, chief executive at Petrobras, on Tuesday, along with senior officials from Brazil's Ministry of Mines and Energy.

The Bolivian announcement fulfilled a campaign pledge that helped Mr. Morales rise to power last December. It was foreshadowed last year when Bolivia approved a major increase in the royalties paid by foreign producers for the right to operate in the country.

In April, President Hugo Chávez of Venezuela, a mentor to Mr. Morales, seized two oil fields operated by the Total group, of France, and Ente Nazionale Idrocarburi, of Italy, because they were unwilling to give more control of their operations to Petróleos de Venezuela, the state-run energy giant.

But Mr. Morales's step on Monday was the most assertive yet, and many industry observers feared such moves would scare away investors and jeopardize the region's economies.

"This isn't like Saudi Arabia, which over the years has developed a know-how to dominate the industry independently," said Gal Luft, co-director of the Institute for the Analysis of Global Security, a consultancy in Washington that studies energy issues. "When you cause problems for foreign investors, you cause problems for those who know how to create and develop the industry."

Across The Globe, Oil And Gas At Risk

(AP) May 5, 2006 VIENNA, Austria Unrest in Africa. Mideast insurgency and terrorism. Iran's nuclear brinkmanship. Russian pressure politics. South American resource nationalism.

Piece by piece, the global energy puzzle reveals a bleak horizon for a world frantically searching for secure oil and gas supplies.

Concerns over Iran the world's fourth-largest oil producer have been the prime factor recently in driving crude prices to record levels and, combined with tight global refining capacity, for pushing U.S. gasoline pump prices above $3 a gallon in many places.

With the U.N. Security Council deadlocked and Tehran refusing to cease uranium enrichment, there is no end in sight to the struggle or the upward price spiral.

A barrel of crude was trading around $70 a barrel Friday. But Iranian officials this week predicted prices as high as $120 a forecast some experts share.

"I don't think that's far-fetched, assuming that the crisis with Iran will escalate," said Michael Klare, author of "Blood and Oil: The Dangers and Consequences of America's Growing Petroleum Dependency."

And there is also plenty of gloom elsewhere on the energy map.

In Africa, violence roils Nigeria, Chad and Sudan. In the Middle East, there's insurrection and terrorism in Iraq. Ethnic and geopolitical tensions persist in the Caspian Sea region. Russia's government is using its energy clout for political ends. In Asia, conflicting claims to the energy-rich South China Sea are sharpening Sino-Japanese tensions. And energy nationalism by South American nations is spooking markets.

Unusually tough rhetoric reflects the rising frustrations. U.S. Vice President Dick Cheney accused Russia on Thursday of using its energy reserves as "tools of intimidation or blackmail" some of the American administration's harshest criticism of Moscow to date.

By even the most conservative estimate, more than a quarter of the 80 million barrels of oil pumped a day worldwide comes from regions or countries where security of supply is in some way at risk. The situation is even more dire for natural gas, with close to half of global supplies potentially affected.

With daily crude supply already barely keeping pace with demand and producers stretched any major disruption would send a shock ripple across the world. A decision by Iran alone to withhold its 2.5 million barrels a day earmarked for export would soon force consuming nations to dip into emergency stockpiles.

Daniel Yergin, head of Cambridge Energy Research Associates, told the U.S. House of Representatives Committee on Energy & Commerce on Thursday that the present oil market is "fueled by the threat of terrorism, instability in some exporting nations, a nationalist backlash, fears of a scramble for supplies, geopolitical rivalries, and countries' fundamental need for energy to power their economic growth."

It's no wonder the race for secure energy has moved to the top of government agendas.

European leaders are pushing to reduce their gas dependency on Russia, while through their state-controlled companies, China and India are outbidding big commercial oil companies for drilling and exploration rights and cozying up to Iran. President Bush, meanwhile, made lessened reliance on foreign energy a cornerstone of his State of the Union speech in February.

Klare says success in securing energy supplies could be key to the survival of many regimes.

"I do think it could lead to the fall of governments and the rise of new governments," he says. "It's already shaking the foundation of the Bush administration."

Concern over energy security appears here to stay.

"While most supply threats in the past had never lasted more than a few months, the security of supply has become more of a ... (permanent) issue" since the al Qaeda attacks nearly five years ago, says Ehsan Ul-Haq, chief analyst at PVM Oil Associates in Vienna.

Violence in key oil-producing nations accounts for much of the world's energy instability.

In Iraq, insurgent attacks on the country's main pipelines north into Turkey have slashed hundreds of thousands of barrels a day from prewar exports of around 2 million barrels a day.

Oil ministry officials said recently they hoped to reach those pre-invasion levels soon. But that requires a protracted pause in insurgent attacks and the assumption that Iran will not fan major unrest among the country's Shiites in retaliation for U.S. pressure on its nuclear program.

It also does not take into account corruption and smuggling valued in the billions of dollars that a recent Iraqi government report described as the biggest threat to the country's economy.

Political strife in the Niger Delta has hurt the oil industry in Nigeria, the world's 10th-largest oil provider, with militant bombings and kidnappings slicing 20 percent off average production of 2.5 million barrels per day. Ethnic or political conflicts in Chad and Sudan, Nigeria's regional neighbors, interfere with the development of promising oil reserves.

Disheartening? Worse may lie ahead, as the world's hunger for energy grows, the tussle for oil and gas intensifies and the turmoil perpetuates itself.

"Instability is contributing to higher prices and that makes the seizure of oil and gas assets even more attractive," says Klare.

"We have to brace for more conflict." - kutv.com/

Ecuador seizes control of US oil company

By Jeremy McDermott, Latin America Correspondent (Filed: 19/05/2006) - telegraph.co.uk

Ecuador yesterday joined the wave of Latin American governments targeting foreign-owned industries when it fulfilled its threat against an American oil company and took "full technical control" of its operations.

The offices and installations of Occidental Petroleum were occupied by soldiers earlier this week, provoking a furious response by Washington.

But yesterday, a Petroecuador official announced: "We are in control of Occidental's technical operations."

State oil officials are expected to replace Occidental executives running oil fields in the Amazon region.

While the government of President Alfredo Palacio denied the seizure was part of a wider move to nationalise oil deposits in the Andean nation, the action follows a path blazed by the Leftist regimes in Venezuela and Bolivia.

Mr Palacio's government said that Occidental had violated the terms of its concession by selling part of its holdings to a Canadian firm in 2004 without Ecuador's approval.

Occidental is the largest foreign investor in Ecuador and had been pumping 100,000 barrels of oil a day from the affected field in the Amazon.

Denying that it had violated its contract, Occidental said that it had offered the government £569 million in disputed taxes, investments and extra revenues to try to end the dispute.

Kenya: Shell to Buy BP Kenya Business

The Nation (Nairobi) May 19, 2006 Muna Wahome - Nairobi

The impending exit of a major oil marketer from Kenya is now a reality. Another multinational yesterday said it was acquiring its Kenyan assets.

The plan by British Petroleum (BP) to quit the local market was first exclusively reported by the Nation last September.

Yesterday, Shell Petroleum Company, a subsidiary of Royal Dutch Shell Plc, said in a statement that it had signed an agreement "relating to the acquisition".

Joint venture

The firm will buy out BP's share in their oil products business - a venture the two firm's have been running under the same management in Kenya on a 50/50 basis.

The buyout is, however, subject to approval by the Government. BP's exit from the price-sensitive Kenyan oil market means that Tanzania is the only East African Community member state in which the firm will retain a presence. It withdrew from Uganda several years back.

Assets of the jointly managed venture by BP and Shell consists of retail stations and 17 per cent of the oil major's shares in the Kenya Petroleum Refineries (KPRL). Shell on its own holds a similar stake. "The specific commercial details of this transaction are confidential," said the statement.

Shell is understood to be among a number local players interested in buying out BP. The firms which showed an early interest included Kenol/Kobil and the National Oil Corporation. There were also local players in the bidding.

The joint venture trade names include Kenya Shell, BP Kenya and Shell & BP (Malindi) Kenya.

They are engaged in the marketing, sale and distribution of retail, commercial and aviation fuels and lubricants, gas and bitumen. They are supported by two main distribution terminals and a network of some 130 retail service stations.

Clinching the deal removes a major headache for the two marketers, which would have come with separation of the management.

Mr Iain Everingham, President of Shell Oil Products Africa, said: "This is an exciting opportunity for Shell in Africa and one that will help secure our future in Kenya ... This announcement is consistent with Shell's strategy of improving and growing our business in those markets where we choose to operate."

BASF and Gazprom seal gas deal BBC 2006/04/27 -

Chemicals giant BASF has sealed a gas deal with Russia, following trade talks this week between Germany and Russia.

The chemical firm has acquired 35% of a natural gas field in Russia from the nation's state-owned company Gazprom.

The deal "contributes to the further development of a stable and reliable partnership" between the two firms said BASF chief executive Juergen Hambrecht.

The move comes as Russian President Putin and Germany's Chancellor Angela Merkel are meeting in Siberia.

Expansion outside Europe

"This is the first time in contemporary history that Russia has allowed a foreign partner into gas production on a gigantic field, which will be exploited for decades," said Mr Putin.

Germany is Russia's largest trading partner. Total trade between the two nations added up to $50bn (£28bn) in 2005.

The deal means that BASF's Wintershall unit would acquire 35% minus one share in Severneftegazprom (SNGP), the company that owns the licence to develop the Yuzhno-Russkoye gas field in western Siberia. Meanwhile Wintershall will acquire 25% minus one voting share in SNGP, in addition to a further 10% share without voting rights.

For its part Gazprom will up its share in Wingas - its joint venture with BASF's Wintershall unit - from 35% to 50% less one share. Subsequently Wingas will concentrate on selling and marketing natural gas in Germany.

Together Gazprom and BASF will both take 50% shares in Wingas Europe - a joint venture that will concentrate on distributing gas outside Germany.

German utility E.On had been expected to be the third player in the deal with BASF and Gazprom. But Gazprom said it was not yet in a position to sign a similar deal for the same western Siberian gas filed at this stage.

A deal however could still be signed, Gazprom's export chief Alexander Medvedev told Russian news agencies, Reuters reported.

Putin's concerns

A day before, President Putin had urged Russia to gain access to other energy markets in Asia, arguing that other countries had tried to prevent it from expanding. This echoed calls by Gazprom and Transneft that Russia needed to increase its reach into other markets outside Europe.

Mr Putin however tried to send a reassuring message to Europeans by arguing that Russia is committed to stable gas prices.

At the end of last year Gazprom temporarily cut off gas supplies to Ukraine over a payment dispute, causing concern throughout Europe.

First cargo from Caspian pipeline

BBC 27th May 2006 Story from BBC NEWS:

The first cargo of oil from a $4bn (£2.2bn) pipeline between Azerbaijan and Turkey will be loaded onto a tanker this weekend - a year behind schedule.

The crude flows 1,768km from the Caspian Sea direct to the Mediterranean for the first time, bypassing Russian pipelines and Turkish straits. About 300,000 barrels a day will be pumped from the pipeline this year - set to rise to a million barrels daily. But not all the oil on the tanker comes from the new pipeline, it has emerged.

BP, which has a 30.1% stake in the project, said that while all the crude had come from the Caspian Sea, some had been held in its storage tankers.

Environmental concerns

The Baku-Ceyhan Campaign, which argued against the pipeline on human rights, social and environmental grounds, said this had been done to try and cover up the delays to the project.

These were "most likely caused by construction failures, inappropriate use of materials and lack of environmental safeguards", it said.

But BP denied the allegations with a spokesman saying it was "perfectly standard practice" to load tankers with oil from pipelines and storage facilities.

High-quality crude

Work building the pipeline began 10 years ago and shareholders also include Azeri state oil firm SOCAR, Eni and Total. The pipe begins near Baku in Azerbaijan and passes through Georgia. Previously states in the region sent almost all of their oil via Russian pipelines.

The Caspian area produces high-quality light crude but has suffered because of difficulty getting the oil to consumers in Europe, the US, China and Japan.