The High-Stakes U.S. Courtship of Turkmenistan

The Bush administration's imminent creation of a powerful new Eurasian energy office is part of a late but broad strategy to catch up to and overtake Russia's advanced natural gas juggernaut in Europe.

As I reported a couple of days ago, the administration plans to appoint a potent two-man diplomatic team -- former ambassador to Russia Thomas Pickering, and Steven Mann, currently a senior State Department official on Central and South Asia.

People with whom I've been exchanging messages say the duo's main task is this: To transform a long-shot European natural gas pipeline proposal called Nabucco into reality. Nabucco would carry natural gas from the Caspian Sea to Europe.

By accomplishing that, the U.S. would blunt the impact of an advanced Russian pipeline project that's meant to secure and increase its position as Europe's most important natural gas supplier (Russia's Gazprom already controls about 30% of Europe's natural gas and oil supply).

While Russia sees itself as simply forwarding the market principles that the West espouses as a mantra, the Bush administration and the European Union think it's a bad idea for Gazprom to carve out greater economic influence in Europe. And Nabucco would give Europe a channel for Caspian natural gas independent of Russia.

The key to all this is the republic of Turkmenistan -- possessor of the world's fourth-largest supply of natural gas -- and its neophyte president, Kurbanguly Berdymukhamedov. A dentist by training, Berdymukhamedov was catapulted to the presidency last December on the death of Turkmenistan's ultra-bizarre ruler, Saparmurat Niyazov.

Now the new, 50-year-old Turkmen leader is the subject of one of the world's most curious diplomatic courtships.

Russia's Vladimir Putin is all over Berdymukhamedov. Were they not just five years apart in age, one wouldn't be surprised to hear of Putin trying to adopt him as his only son. Russian delegations are in the capital of Ashkabad almost constantly, and Putin himself has gone down at least twice to see Berdymukhamedov, in addition to meeting him one-on-one in Tehran and Russia.

Why? Putin wants Berdymukhamedov to agree to export almost all his natural gas north to Russia for onward shipment to Europe. And he seems close to succeeding. There actually is a handshake deal (in my experience in the former Soviet Union, a signed contract is equivalent to a western handshake; it only becomes a genuine contract when the pipes arrive on site for welding, and the work actually begins.).

Enter Washington. The State Department has been dispatching regular teams to Ashkabad since last summer. The European Union has, too. They've dangled a higher price for Turkmen natural gas to lure Berdymukhamedov into committing to a competing pipeline -- a trans-Caspian line that would ship his gas to Europe via Azerbaijan, Georgia and Turkey, into Nabucco.

In September, President Bush got into the act with a one-on-one chat with the Turkmen president in New York during the United Nations General Assembly.

But that hasn't been sufficient. I'm told that Berdymukhamedov keeps bringing up the Chinese, who have themselves decided to build a $26 billion natural gas pipeline east to China, absent any participation by the Turkmen at all.

If the West is so interested in the trans-Caspian line, the Turkmen leader says, why doesn't it emulate the Chinese and just go ahead and build it? Isn't the U.S. as great as the Chinese? Why must he aggravate his giant neighbor to the north -- Russia -- by taking the lead?

Plus, Berdymukhamedov is suspicious about the West's human rights agenda. Under the previous Turkmen leader, the republic had one of the worst human rights records in the former Soviet Union, which is saying a lot. Berdymukhamedov has moved to loosen up, but he isn't about to go European.

Washington and the EU have replied that the West isn't like the Chinese -- pipelines have to be built by private companies; the countries don't get involved in actual construction. And on the human rights side, "we tell him, 'We're not asking you to be Sweden or the U.K.," one person involved in the Western courtship tells me. For comparison purposes, they are telling Berdymukhamedov not to look to Europe, but to his neighbors Kazakhstan and Azerbaijan. They've got their autocrats, but generally aren't known for dark prisons with men in chains. "If we can get KazAzerTurk on the same page, that would be a nice little club," this person says.

Berdymukhamedov isn't quite biting, which brings in Pickering and Mann. Washington hopes they can manage to nudge the pipeline over the finish line.

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Explosion: The Age of Pipeline Power

The explosion on the Canada-to-U.S. oil pipeline should help people close to home grasp why the big powers are spending so much time these days worrying about the oil and natural gas flow from the Caspian Sea.

Yesterday's explosion in Minnesota shut off the flow of about a million barrels of oil a day from Canada to the U.S., and that temporarily sent crude oil prices up by $4 a barrel. Even though they settled down fast, the AAA says the accident may push up U.S. gasoline prices in the northeast and midwest for several weeks.

That's just a million barrels -- one-twentieth of the daily U.S. oil diet.

Further afield, NATO is helping to secure the Baku-Ceyhan oil pipeline, the million-barrel-a-day line carrying Caspian crude to the Mediterranean. The U.S. applied enormous diplomatic pressure to get the line built. It came on line last year. Within a decade, the Caspian will be exporting between 4.5 million and 5 million barrels of oil a day.

Now the U.S. and Europe are pitted against Russia to secure natural gas from another part of the Caspian -- the republic of Turkmenistan, which has the world's fourth-largest supply of the fuel.

Again, the matter is pipelines. Russia has actually obtained a contract allowing it to buy much of Turkmenistan's gas supply, move it north through new and refurbished pipelines, and ship it on to Europe and elsewhere at a huge markup. The U.S. and the European Union haven't given up, though. They are championing a competing pipeline that would take Turkmen natural gas West, skirting Russia.

They aren't the only players -- China would also like to grab a big share of Turkmenistan's gas and ship it east.

These countries understand that one big dimension of power and influence today is control not necessarily of oil and natural gas supplies themselves, but over their flow to the market. Similar to the long battle over sea lanes in prior centuries, they are doing all they can to take control over the pipelines that carry former Soviet oil and natural gas to the rest of the world.

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News: Bush Creating New Position Of Senior Envoy For Russia, Caspian

The Bush Administration is about to appoint a retired senior diplomat to a newly created position to try to advance ambitious U.S. aims in Russia and on the Caspian Sea. Like the 11th-hour push on Israel and Palestine, it's an example of Bush's determination to stay relevant by attacking the thorny global problems he largely sidestepped until now.

Thomas Pickering, a former U.S. ambassador to Russia and among the country's most respected statesmen, has been asked to return to the State Department as a special envoy with a broad portfolio in the Eurasian region, according to people with whom I've been talking.

I met Pickering in 1993, when he was ambassador to Russia, and he's an extremely smooth, well-connected, mannerly fellow. He's suited for his leading tasks -- to help smooth over some of the friction with Russia's Vladimir Putin, and work on getting Caspian natural gas to the West via a trans-Caspian pipeline from Turkmenistan.

Pickering's deputy would be Steven Mann, a Central Asia specialist with among the longest titles in the State Department -- principal deputy assistant secretary of state for South and Central Asian affairs. I've met Mann numerous times, and find him extremely knowledgeable and realistic without being cynical.

The twin appointments amount to a resurrection -- and elevation -- of the old job of Caspian Sea czar, a post that Mann previously held. It's a Clinton-era position that Colin Powell abolished as unnecessary when he became secretary of state.

One seasoned Washington hand with whom I exchanged messages said the Bush administration is re-inventing the job because it doesn't know what else to do in Moscow and on the Caspian. "They have run out of options and need someone with more gravitas to show they are serious and not irrelevant," he said. " The question is why Pickering would come back for this."

I'd say Condoleeza Rice must have seriously flattered Pickering that only he could salvage the situation. But we will wait for Pickering himself to speak after his appointment becomes official.

Petro-States: $4 Trillion Dollars in Change

Steve Weisman has a strong piece in today's New York Times on the spending habits of the world's new and long-time petro-states. According to his reporting, they have $4 trillion dollars on hand.

The oil-rich states, including Saudi Arabia, the UAE, Russia and Kazakhstan, are looking to invest the money wisely. But they are also wary of the type of political backlash that Dubai suffered last year in the attempted purchase of U.S. ports by D.P. World, Weisman writes. So they are spreading the property purchases into Europe although the U.S. is still their leading investment, he says.

Chip Cummins and Rick Carew, my former colleagues at The Wall Street Journal, have an extremely detailed piece on the same topic.

As a leading example, both pieces point out the Abu Dhabi Investment Authority's $7.5 billion purchase of a large slice of Citigroup's shares.

Officials in Russia and Kazakhstan have both said they intend to invest the proceeds of their oil wealth in western properties. In most of the cases, we are simply talking about investment. But Russia seems always to provoke concerns about a possible political agenda, and the coming buying spree will heighten them.

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An Arctic Play

The United States Geological Services says about one-fourth of the world's undiscovered oil and natural gas underlies the Arctic. Development has run into political opposition in the United States, but not across the Atlantic. In Europe, Norway and Russia are looking at how to exploit the energy underlying their respective Arctic territory.

Ed Crooks at The Financial Times has an interesting piece today on Norway's two-year drilling program. Norway is a huge, experienced player in these ultra-sensitive waters, and wants to parlay its seasoning into partnerships with Russia's Gazprom.

We've seen lots of reporting on Russia's plans to exploit its supergiant Shtokman natural gas field. Now the USGS estimates that a second Russian Arctic region, the Laptev Sea shelf, contains some 9.3 billion barrels of oil and natural gas, according to a Dow Jones Newswires report.

This is supergiant territory. It's surely, for instance, to attract much attention in the respective sides of the peak oil debate.

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Big Russian Deals; Motley Fool on Turkmenistan Gas

Cashing out in Russia? One sure signal of Vladimir Putin's actual political plans will be activity in big Russian dealmaking. One of the most active betting lines around the world is how Putin will manage to stay in the driver's seat after he's forced to step down as Russian president in March. If there's a rash of huge buyouts, mergers and share sales, it would be a sign of uncertainty of what comes after the presidential elections. It could mean that some of those who have gotten rich under Putin are cashing out. Dmitry Zhdannikov of Reuters has an interesting piece today suggesting that Gazprom may finally go after half of BP's venture with the Russian-held TNK, and that favored oligarch Oleg Deripaska may want to buy into Norilsk Nickel, the world's biggest producer of nickel and palladium.

Noticing Turkmenistan: I receive lots of emails and calls these days on whether the talk of deals and reform in Turkmenistan is realistic. David Lee Smith over at Motley Fool has a piece talking about the investment side. In a posting yesterday, Smith notes the international contest going on over the republic’s natural gas now that President Saparmurat Niyazov is dead. He’s only putting Turkmenistan on a watch list, which is about right. He does get it wrong when he says that Russia is the republic's only export route – Turkmenistan has a small natural gas pipeline into Iran. But essentially he's on the right track -- yesterday my friend Marat Gurt of Reuters reported a Russian announcement that it’s closer to sealing a pipeline construction deal that would virtually monopolize Turkmen gas. Look for another U.S. or European Union shuttle mission to Ashkabad.

For investment community readers of this blog, take a look at Smith’s prior posts on oil services companies (here and here). Given the coming demise of Big Oil, I’ve been suggesting that shareholders sell the majors and shift to the technology-laden companies that will be in huge demand by the new version of the Seven Sisters – state-owned oil companies in Venezuela, Russia, China, Saudi Arabia, Kazakhstan and so on.

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Georgia's Saakashvili resigns; Turkmenistan vs. Gazprom

What dictators don't do: Can you imagine Vladimir Putin resigning? Or allowing Russian elections to go forward absent his heavy hand? How about Kazakhstan's Nazarbayev or Azerbaijan's Aliyev? Uzbekistan's Karimov? The notion is preposterous. These leaders would no more risk such a rash throw of the dice than they would live off their official salary.

Yet that's precisely what Georgia's Mikheil Saakashvili has done. Yesterday, he resigned as president in order to take part in the January 8th snap elections he's called to challenge his opponents to electoral battle. Whatever his critics say, Saakashvili's act distinguishes him from the run-of-the-mill former Soviet autocrats.

Making Russia pay: Even if the West loses the pipeline battle for influence in Europe, it might find solace in helping to get Turkmenistan a working wage for its chief export. Russia has been buying Turkmenistan's natural gas for $100-$130 a thousand cubic meters, much less than the world price exceeding $260 a thousand cubic meters. And it's a pittance compared with the $350 a thousand cubic meters that Russia's Gazprom intends to charge its European customers starting next year.

Now, Turkmenistan is demanding more. It's asked Gazprom for a 30% increase, to around $170 a thousand cubic meters, according to a report by the Financial Times' Catherine Belton.

The report quotes Gazprom CEO Alexei Miller as blaming Turkmenistan's sudden request on the U.S. and Europe, which have been urging the republic to defy Russia and export a large portion of its natural gas directly to Europe. The West is championing the construction of the so-called trans-Caspian natural gas pipeline as a rival to a trio of Russian-planned pipelines to Europe. It's through that trans-Caspian line that the European supply would pass.

This courtship of rivals puts Turkmenistan at the center of the East-West battle for market -- and by extension political -- influence in Europe.

Whatever Turkmenistan decides, at the very least it will receive more of the pie.

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Peak Oiler's Anxiety: "Are We All Wasting Our Time?"

The rub about doomsday predictions is that one can't tell until it's too late whether he or she was shrewd to take heed, or foolish to be drawn in.

So it is with one of today's most active doomsday movements -- that known as Peak Oil.

Peak Oil adherents, as readers of this blog know, believe that at least half the world's fossil fuel has already been found (or soon will be), that production is declining, and that we're going to be forced to adjust to a stark new future.

There's plenty of smart analysis to buttress the theory, and the result has been panic in many countries. But last week an England resident calling himself Chris25 penetrated the nub of one of the movement's problems in a compelling remark on one of its key websites, called Peak Oil. (Another great peak oil site is The Oil Drum.) He headlined his post, "What If We Are All Wasting Our Time?"

In it, Chris identified himself as a doomsday believer, said his life had changed completely, but lamented that he didn't know how long in the future his worst fears would materialize. "Man, I wish I'd never heard about peak oil," he wrote.

The result has been a flurry of responses by fellow adherents. The string is worth reading.

Here is Chris25's post in its entirety:

"Oil prices shoot up .... I start to buy bags of grain and run for the hills .... now they've gone down again.

Now I'm not denying peak oil at all, and btw chaps i'm a doomer, but what i'm saying is, what if what we are waiting for is 25 years away?

Peak oil has already changed my life completely. It has now got to the point where everyplace I go, I look at buildings and I look at people and imagine what would be there without cheap oil.

I know that the luxuries I enjoy today will have to come to an end. But I don't know when and how they will go.

Man, I wish i'd never heard about peak oil.

The worse bit is the wait and having no idea how things will pan out. Eats you up inside. Knowing the collapse of modern civilisation could be round the corner, 25 years away or many more years away."

Chris's soul-searching struck a nerve. Here's just one example, from a blogger called Korosten:

"I feel the same way!

We are seriously thinking of completely relocating to a rural area (we have started to look for a job, selling the house etc!), a place where we might not necessarily go w/o peak oil, and starting a big garden etc - that probably means I have to give up my career...

So I keep thinking, will I feel very, very stupid in a few years when PO has not happened yet? Or if it happens, but nothing drastic happens and it was all unnecessary?

But then again, what if I do *nothing* and it does get as bad as I am afraid it will?

I think doing something (for nothing) is not as bad as doing nothing and be totally screwed...

But PO has totally change our life, view of live, values etc - you name it. It's scary in a way.. I feel like "wakinig up" in a matrix..."

The most reasonable analyses, I think, are that we are going to be living almost precisely as we are now for at least another two decades, probably three and perhaps longer. That said, we have found the easy oil, and prices hence are going to stay relatively high. The search for a locomotion version of the Holy Grail -- a non-carbon way to fuel the world -- is wholly reasonable, and necessary. Until then, so is conservation and the push for cleaner fuels.

Perhaps I'll regret my own conclusion. But at least for now I come down on the side of those who think we'll work our way out of the carbon world. For another such view, see Common Sense Forecaster.

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Saudis: Back from the Precipice

The Saudis are acting to keep oil from crossing the $100-a-barrel line. They are clearly apprehensive about the political hullabaloo in the U.S., Europe and even China over the steep price increase for crude oil this year.

Why are the Saudis worried? The stink over the 30% rise in crude prices since September -- not to mention increasing concern over short- and medium-term oil supplies -- could mean conservation, higher efficiency and hence less demand for OPEC's oil. And that could put a damper on the Saudis' bankroll.

Hence, according to a story in tomorrow's Wall Street Journal, OPEC -- led by the Saudis -- are in the middle of adding some 720,000 barrels a day to world exports. The story, by my former colleagues Spencer Swartz and Lananh Ngyuyen, reports that the fresh supplies appear to be headed West.

I've exchange a couple of messages this evening with Michael, who points out that according to U.S. government figures there's no supply problem right now. In my own opinion, we are in an intensely erratic time, when at one moment we are in crisis because of the supply impact of a hurricane or a war, and a little while later we are swimming in oil because of other factors.

There's no doubt that conservation would be the prudent thing; but we also don't quite need to move to the forest quite yet.

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Putin: Why Autocrats Don't Take Critics Seriously

On a slippery slope it's hard to discern when one loses one's footing. But in my opinion this weekend was that moment in Russia. Vladimir Putin arrested his most august critics, including chessmaster Garry Kasparov and former deputy prime minister Boris Nemtsov. With the move, Putin goes from megalomaniacal autocrat to despot.

Peter Finn of The Washington Post quotes another jailed figure, opposition political leader Nikita Belykh, as saying that he "was just about to begin talking when police appeared, grabbed me by the legs and arms and shoved me into a paddy wagon, where I am now."

Pakistan's Pervez Musharraf and Georgia's Mikheil Saakashvili have faced ear-splitting opprobrium from the diplomatic and press corps since they did similarly in the last two or three weeks. But with Putin it's regarded as more of the same, as if to say, "Who could expect better from a barbarian?"

That's why, when pressed by the West to reverse their actions, both Musharraf and Saakashvili listened with just one ear, if at all. There's no price to pay, and no credibility behind the West's disingenuous dismay.

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Exxon's Sharp Elbows

New Europe has an interesting story on the prospect of ExxonMobil assuming control of developing Kazakhstan's supergiant Kashagan oilfield. The issue is important, since amid tight oil supplies for the next few years we're talking about the eventual export of some 1.5 million barrels of oil a day from the field.

Italy's Eni, the current operator, has steadfastly denied that its position is at risk. But in the story, an unnamed source says that Energy Secretary Samuel Bodman actually lobbied the Kazakhs on Exxon's behalf.

It is a long shot. For one thing, where would the American giant find the skilled workers to carry out the job? But what's worth discussing is the prospect of finally getting management in place that could indisputably get the oil flowing as fast as humanly possible.

read more | digg story

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The Last Time There Were 85 Million Barrels a Day

Justin Fox at Time magazine has a dispassionate report on oil production. In July 2006, he writes, the world produced 85.5 million barrels of oil a day, but hasn't done so again despite the incentive of a $20-a-barrel rise in prices.

The report backs up recent analysis that -- quite distinct from so-called peak oil -- the world may simply be incapable of producing much more crude oil per day. And that has significant consequences for the global economy.

read more | digg story

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Trouble in Tbilisi

I've been exchanging messages with a friend in Tbilisi, the Georgian capital that until recently was the scene of bloody protests. He predicts political crisis almost regardless of what President Mikheil Saakashvili does.

Remember that Georgia is the crucial crossing point of the East-West Caspian oil route.

Why is there nothing for Saakashvili to do? I quote my American friend:

"Poverty.
GDP per capital here is $3,900.
Russia's is $12,100.
Azerbaijan's is $7,500.
Armenia's is $5,500.
Enough said."

Saakashvili has done much in terms of curbing corruption and attracting foreign investment. But, in my friend's view, Russia's economic embargo has made it impossible to truly dent the country's post-Soviet poverty. "They've sunk to just above Tajikistan, Kyrgyzstan, Turkmenistan maybe, Moldova," he said.

So Saakashvili's opposition is bound to be in the streets regardless of the results of the snap January presidential elections.

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Putin's Abiding Popularity

Peter Finn at the Washington Post has an interesting story today on why Vladimir Putin is so popular at home. As he reports, Putin has delivered what Russians most crave -- a feeling of economic security. Putin's strength and outsized public persona is rooted in the Russian version of Reagan's Morning in America.

read more | digg story

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NY Times: Wrongheaded on Pakistan

Wrong Way
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I am no basher of The New York Times editorial page, but its ostensibly pro-democratic position today on Pakistan would be amusing were it not so sad.

This issue -- whither Pakistan -- is central to the themes of democracy, security and oil usually discussed in the context of the Caspian region and Russia on this blog.

The Times supports a coalition of former prime ministers Benazir Bhutto and Nawaz Sharif as progress toward democracy. The newspaper supposes that this dual political front would be more democratic than Gen. Pervez Musharraf. To borrow one of The Times' own phrases, this is preposterously presumed. If the newspaper backed the head of the country's lawyers movement -- Aitzaz Ahsan -- it would be on far more solid ground, in my opinion. Instead, it reaches for Pakistan's tired, failed past.

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How to Survive in the New World of Big Oil

Italy’s Eni continues to pioneer a successful path to survival in Big Oil’s treacherous new world – get in bed, don’t compete, with the world’s state-owned oil companies.

Eni’s flexible strategy has already made it Big Oil’s most successful company in both Russia and Kazakhstan. Today, it announced a fresh partnership with Russia’s Gazprom – to build a $14 billion natural gas pipeline between Russia and Europe. The pipeline directly challenges U.S. and European Union policy.

Called South Stream, the pipeline would ship Central Asian and Russian natural gas into southern Europe. It’s part of a three-pronged Russian strategy to deepen its dominance of Europe’s natural gas market. Russia is also building a natural gas pipeline called Nord Stream, which would serve northern Europe. A third line would feed cheap Turkmenistan and Kazakhstan natural gas into Nord Stream and South Stream.

Eni hopes to parlay its cooperation with Gazprom into natural gas development deals in Russia, which has recently sharply resisted such relationships with western oil companies.

Washington and the EU are fighting to blunt the market impact of the trio of Russian lines. They are doing so by championing rival natural gas lines from Turkmenistan into Europe. But, as today’s announcement shows, Russia is more advanced in the contest.

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Happy Thanksgiving

Twenty Dollars of Air

I've been exchanging comments the last couple of days with Geoff on the question of whether oil company shares have had their run, and are headed down. With the top-line question being: Is it time to sell one's shares in the oil majors?

Geoff kindly led me to an AP story that Forbes posted yesterday. The piece quotes Fadel Gheit, the sober-thinking Oppenheimer analyst.

First, Gheit thinks that traders have driven up prices to their current levels exceeding $90 a barrel. He notes that Wall Street's consensus 2008 forecast average is $75 a barrel.

Which means that, if the estimate is roughly correct, there's currently a bubble of around $20 barrel. Gheit asserts that commodities traders have exaggerated the global supply situation, which is right -- in fact there's plenty of oil sloshing around the world right now.

All bubbles eventually pop. Prices could go a bit over $100 a barrel, but eventually they'll fall as speculators find some other place to put their money.

Here's the key quote: "Declining oil prices dim the outlook for energy stocks, since their performance usually reflects the direction, not the level, of oil prices," Gheit says.

I don't intend to play stock analyst, but simply to note this logical extension of the conclusion that Big Oil is in trouble because its reserves of oil and natural gas are shrinking. The companies to profit from this shift away from Big Oil are national oil companies and oil service companies; they are the growth energy stocks of the next decade or two.

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Turkmenbashi's Hidden Wealth

A website I hadn't previously heard of -- Gundogar -- poses one of the most self-evidently important questions I've heard recently: Whatever happened to Turkmen President Saparmurat Niyazov's fortune?

In her excellent piece, Gulnoza Saidazimova frames the stakes -- billions of dollars -- and the players (mainly German institutions) in the as-yet undisclosed location of Niyazov's presumed wealth.

We all know, just as a teaser, that the main reason the ultra-important trans-Caspian natural gas pipeline wasn't built during the 1990s was that Niyazov demanded that a $500 million bribe be deposited into his German bank account by the Western project developers, but was rebuffed.

What about the bribes that were paid? Given the history of the wealth of the world's fallen dictators, and the European banks that protect them, one is led to believe the money won't get back to Turkmenistan soon.

Note on Putin

Reporters in Moscow are weighing in on Vladimir Putin's latest anti-Western broadside. Peter Finn of the Washington Post has this account of Putin's attack today against his political opponents as pawns of the West.

It's rooted in Russia's traditional seige mantra -- the country is surrounded by enemies, and infiltrated by traitors, the story goes. Yet it's also uncanny how Putin has morphed smoothly from a failed junior KGB officer into a politician of the first rank.

The West will have years to figure out how to reach a modus vivendi with him.

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Interesting Stories

When the U.S. economy begins its expected downturn late next year, oil prices will fall a bit with it. Until then, reports my former Wall Street Journal colleague Russell Gold in tomorrow's paper, we will remain in the neighborhood of current record-breaking prices. Gold wrote the story as oil closed over $98 a barrel for the first time, and analysts surveyed by the Journal saw nothing that will soon pop the bubble.

The Economist argues in its current edition that, if Vladimir Putin is seeking his country’s best interests, it’s not always clear what they are.

Blogger Jeff “Maximos” Martin has an interesting if ultimately flawed tirade against U.S. involvement in the Caspian Sea region.

Update on Demise of Big Oil: What Goldman Sachs Knows

Venerable Goldman Sachs, seemingly the only private institution to be actually earning money during the current international banking crisis, has issued a contrarian recommendation: Buy Eni, says the investment banker to the rich.

That's a good call. Why? Because, among all the Big Oil dinosaurs, Italy's Eni has figured out a modus vivendi with the new power on the block -- the world's national oil companies, specifically Russia's Gazprom.

Big Oil is on the way out -- its reserve base is cratering, and it's been supplanted as global oil king by state-owned companies in Venezuela, Russia, China, Saudi Arabia, Kazakhstan and so on.

But this is a fresh wrinkle: Who will survive in the decades ahead? One can quibble with Eni's methods and associations. But Goldman's call can be seen as a sign of confidence that this flexible company, with its carefully negotiated entanglements with Gazprom, is one model for a re-invented oil major.

I won't be surprised down the road to see an effective or actual merger of the two companies.

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Who Said Musharraf Was a Democrat?

Prediction: Unless he's forced out by his military cohorts pre-emptively, Pervez Musharraf will retire as Army chief, take the oath of office for another five-year term, this time technically as a civilian president, and hold parliamentary elections as planned Jan. 8th.

The hullabaloo over Musharraf's declaration of emergency in Pakistan has been both amusing and absurd. When did Musharraf say he was a democrat? When he seized power in a coup? When he forced political feudals Benazir Bhutto and Nawaz Sharif into exile? When he manipulated parliamentary elections and installed a hand-picked prime minister?

The United States and the rest of the West is behind Musharraf for one reason: to try to contain the germination of jihadis. The democracy agenda was always a subtext.

One thing is sure. Were Musharraf to fall in the current crisis, it would not signal the advent of democracy. The Army would remain Pakistan's primary political force, and insist on continued dominant influence given the country's precarious security problem in the West.

I personally would be more impressed with Bhutto and Sharif's expressions of dismay if they demonstrated that they are not all about selfish aspirations, and passed their respective mantles on to untainted party colleagues. For instance, Bhutto could anoint Aitzaz Ahsan, the leader of the pro-democracy lawyer's movement.

Short of such selflessness, Pakistan remains a snake pit. And the West might curb its sanctimony over Musharraf's alleged perfidy regarding who he was.

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The Coming Oil Plateau

Oil Rig Platform
Originally uploaded by kittymaduk

Why is Big Oil behaving so gingerly in its negotiations to save its position in Kazakhstan's Kashagan oilfield? One reason is that it's the only oilfield discovery in the last 17 years capable of producing more than 600,000 barrels a day.

A piece in tomorrow's Wall Street Journal by my former colleagues Russell Gold and Ann Davis deliver the cold truth about the state of global oil: We may not be technically near a peak in terms of actual world oil supplies, but we are near an effective peak, because there simply isn't the technical capacity to produce much more.

The world consumes around 87 million barrels of oil a day. At an OPEC conference I attended in Vienna last year, a European oil executive told me that the industry was capable of producing only about 10 or 15 million barrels of oil more than that -- or a maximum of about 100 million barrels a day. Those are the limits of rigs and other equipment, technical staff, and the limits of actual drilling, he said. In addition, the industry simply isn't find any more big fields that can provide big scale production.

The Journal piece says the same thing, and suggests that in the next few years that ceiling could produce some real friction in the world as it struggles for a suddenly finite resource.

The good news, I think, is that this will accelerate the ingenuity of laboratories around the world seeking both more efficient ways to use the carbon molecule, and alternative ways to fuel the world economy.

Yet given this reality, Italy's Eni, negotiating on behalf of many of the world's largest oil companies with Kazakhstan, will try to satisfy Kazakhstan and proceed with the development of Kashagan, which contains a minimum of 13 billion barrels of recoverable oil. That could turn into production of another 1.5 million barrels of oil a day into this tightening world market.

Photo: Kittymaduk
Rights: Creative Commons