Gazprom Comes to the U.S.

For several years, Gazprom has had surpassingly bad PR -- worse even than Exxon, which since the 19th century heyday of John D. Rockefeller has almost proudly disdained the opinion of the world at large. The main problem has been Gazprom's intrusion into the lives of its neighbors -- its routine shutoff of gas to Georgia in the 1990s, for example, and its long reluctance to lease pipeline space for the export of natural gas from land-locked Kazakhstan, both actions that happen to coincide with the desire of Moscow to keep a foot on the throat of these former Soviet republics. But this blog has also noted Gazprom's distinction of being the only energy company on the planet with a record of elevating utility disputes to geopolitical events -- its legendary natural gas rows with Russian neighbor Ukraine have shut off the winter heat to Europe three times since 2006. Though Ukraine has paid its latest Gazprom bill in full, one would be a fool to bet against the prospect of a fourth cutoff this winter, as Jerome a Paris notes over at the European Tribune; indeed, Michael Kahn and Anna Mudeva at Reuters report that central Europe is carrying out actual infrastructure changes in case the yearly dustup recurs. Recently, Gazprom has been attempting to spruce up its image with a $250,000-a-month contract with Ketchum, a skilled PR agency with offices in London and Washington.

But this isn't the news. Instead, it is an ingenious Gazprom strategy of parlaying its market power in Europe -- the company supplies 25% of Europe's natural gas -- into a beachhead in the hyper-competitive U.S. Gazprom's goal: to supply 10% of the U.S. market within a decade.

It's an audacious play, but not outlandish. Take a look at the details in a story I wrote for this week's BusinessWeek. Last month, the company's Houston office opened with the main aim of marketing liquid natural gas from Sakhalin II (recall that Gazprom strong-armed its way into a controlling share of the project in 2007), on Russia's East Coast, in California. This goal hasn't gone off so well as yet, and probably won't soon -- U.S. gas prices are simply too low, and because of a glut of shale gas, prices aren't likely to rise much at least in the medium term. So Gazprom has sold all its LNG so far in Asia.

But a companion component of the strategy has succeeded remarkably. It's in pure gas trading. Though the trading side of the U.S. market is crowded with sophisticated actors stepping on one another to find and sell the fuel, Gazprom managed to corral and sell 350 million cubic feet a day in its first month of operation. That's a fraction of its goal -- the sale of 6 billion cubic feet a day. But it's a respectable start.

How did it do so? Gazprom says it's swapping gas with companies that are long in the U.S. -- meaning they have a comparable surplus of gas here -- and want to sell it in Europe, where Gazprom is long. It's a matter of convenience, Gazprom suggests -- it has excess gas in Europe, other companies have excess gas in the U.S., and the two effectively just swap supplies.

But consider the one deal that Gazprom has disclosed -- with the French utility Electricite de France (EDF). Under the deal, Gazprom will deliver 50 million cubic feet a day of gas to an EDF operation in Britain, and in exchange Gazprom will take possession of the same volume of EDF gas in the U.S. Simple, right?

But there's a wrinkle: EDF, hungry to secure long-term supplies, is also seeking to secure a percentage in Russia's planned South Stream, a natural gas pipeline that would bypass nettlesome Russian neighbors and carry gas directly to European customers. The U.S. and some Europeans have vigorously opposed South Stream, which they say will further cement what they regard as excessive existing Russian clout in Europe. But EDF is among those that not only approve of South Stream, but want a piece of it.

So, as others have done before it with different degrees of success -- including BP and Italy's Eni -- EDF is making nice with Gazprom. As EDF CEO John Rittenhouse told Reuters, "We are looking forward to expanding our relationship with Gazprom."

Nabucco and Trans-Caspian: Times Change, Pipeline Politics Goes On

On one hand, Turkmenistan is in the catbird seat. Exxon, Chevron, BP and ConocoPhillips are salivating over the country's onshore natural gas fields, in particular South Yolotan-Osman, the fifth-largest natural gas field in the world. It's fawned over by the U.S., in particular Richard Morningstar, the special U.S. czar for Eurasian energy.

Yet all is not well in Ashgabad. Four months ago, there was an explosion at a natural gas line connecting the country to Russia, effectively Turkmenistan's sole natural gas customer. Since then, the line has been fixed, yet the natural gas flow has failed to resume. Why? The global financial crisis. Natural gas demand in Europe -- which had been buying up the Turkmen gas through Russia's good offices -- has plummeted. So have prices. Moscow has told the Turkmen that it wants to renegotiate the volume-and-dollar terms for the gas. The Turkmen have protested that a contract is a contract -- a favorite expression that the Turkmen perhaps have learned from Western oilmen over the years -- and so the flow remains halted. With it, Turkmenistan is losing an estimated $1 billion a month in revenue, or about $4 billion to date. That's a lot for a place like Turkmenistan.

There's another problem. It's the pipeline politics in which Turkmenistan is a player, voluntarily or not, by dint of its location in great game territory.

Since the mid-1990s, Washington has pressed Turkmenistan to agree to an extension of the region's new East-West natural gas network that would connect the country with Azerbaijan, and onward with Europe. The rationale was that, in the same way that Azerbaijan and Georgia have ostensibly won some political breathing space from Russia because of the construction of the Baku-Ceyhan oil line, Central Asia and in particular Turkmenistan and Kazakhstan would benefit through the proposed trans-Caspian natural gas line.

Demands for bribes, Russian protests, war in Afghanistan, and gaffes of various sorts have confounded the trans-Caspian. But now it turns out that events may have wholly overtaken the linkup of Central Asia to the balleyhooed East-West Corridor in any case.

First, in its latest iteration, the trans-Caspian was ultimately supposed to feed Nabucco, a natural gas pipeline to Europe, which has ended up at the butt end of continued utility bill spats between Russia and Ukraine. But now it seems that Europe may very well become awash in natural gas from shale deposits within Europe itself, and liquified natural gas shipments from Qatar and elsewhere. In other words, the need for Nabucco -- and natural gas supplies all the way from Central Asia -- has diminished.

But what of Turkmenistan's gas? In terms of Russia's rivals, it turns out that the Chinese have gotten there first. I personally thought the notion was far-fetched, but the Chinese are actually on the verge of finishing the first phase of the Turkmen-China natural gas pipeline, which looks like it will begin flowing by the beginning of next year. Since South Yolotan-Osman are situated in far eastern Turkmenistan, even if one of the western Big Oil companies gets a piece of these fields -- still only a remote possibility -- they will ship east, not west.

In other words, there appears to be little reason for the U.S. to focus on the trans-Caspian any longer, either, except for its own, parochial sake, and not for any larger policy reason, such as how Baku-Ceyhan broke Russia's monopoly over energy transport in the Caucasus.

We'll keep hearing about these lines. And we'll write about them in this space. But their time has passed.

As for Turkmenistan -- it will find its own way.

Nabucco is Signed; Europe Gets Comic Relief

Grist for geopolitical actors and commentators for almost two decades, pipeline politics is again the biggest item in Europe.

Today's papers are filled with photos and news on the signing ceremony in Ankara for the Nabucco pipeline, which is meant to reduce Europe's reliance on Russia and its natural gas. The Financial Times has gone the furthest, running a photograph of the ceremony across four columns on the top of page one. The FT leads with a half-answer to the question of where the gas will come to fill the politically minded line -- the news that Iraqi Prime Minister Nouri al-Maliki says he'll provide half the gas needed by the line, or 15 billion cubic meters a year, by 2015. Where and how he'll get that gas isn't made clear.

Nabucco, backed by the European Union and Washington, is vying against a proposed Russian natural gas pipeline called South Stream. Europe relies on Russia for some 25% of its natural gas, and there is concern that Moscow has or will use this market dominance as political leverage against members of the European Union. South Stream, it is said, will cement that hold on Europe even further, while Nabucco would add gas diversity. Russia says it's all nonsense, and that it is a reliable supplier.

But, as John Vinocur of The New York Times writes hilariously on his blog today, the real news comes from Germany, where it's the Showdown at the O.K. Corral for all-German gunslingers arrayed on either side of the pipeline debate.

As O&G and others have noted previously, former German Chancellor Gerhard Schroeder has raised eyebrows for some time for serving as Gazprom's pipeline representative in Europe. He is chairman of another proposed Russian line, called Nord Stream. Now, Schroeder faces a challenger: His former vice chancellor and foreign minister, Joschka Fischer. The venerable Fischer famously was a member of German radical groups in the 1970s before renouncing his past and becoming Germany's most popular politician, and now has been hired by two members of the Nabucco consortium.

Vinocur writes that this matchup is playing in Germany like Ali-Frazier. German bloggers are abuzz over the development. In an editorial, the left-of-center Süddeutsche Zeitung presents the rivalry between the pipelines “as something akin in the view of Europeans to the struggle between good and evil.”

There is much doubt that either pipeline will end up being built. Meanwhile, get out the popcorn.

Pipeline Politics: Europe's Stubbornness, and the Virtues of Shale

On the heels of the Obama-Medvedev-Putin summit, five nations will sign what they are calling a breakthrough agreement for a long-troubled natural gas pipeline meant to change the energy equation in Europe. That's code language for reducing a perceived threat of increased Russian influence on the continent.

As Sylvia Westall and Orhan Coskun at Reuters suggest, don’t crack the champagne yet.

The background is this: Washington and the EU are troubled by Russia's domination of Europe's natural gas market; Gazprom provides some 25% of the gas supply, and the West perceives that Moscow will use that market power for political advantage. Russia denies any such intention. Yet the West's persistent concerns are the logic behind Nabucco, a proposed pipeline that would help to diversify Europe's gas supply.

Turkey, Bulgaria, Romania, Hungary and Austria – countries through which Nabucco would pass – will be the signatories to the agreement Monday. Though Nabucco’s devisers have been struggling for years, the formula for building a pipeline is actually quite simple: If you have a sufficiently large reserve of natural gas, financiers will probably pay for the construction of a pipeline to sell it. Conversely, if you lack that gas, bankers will tell you to come back when you get some.

The latter is the situation for the European Union and Washington, Nabucco’s primary backers.

Turkmenistan – originally, Nabucco was meant to build on U.S. efforts to provide Central Asia with an alternative transport route to Russia – has balked at contracting with any serious western players for any fields on-shore, where the large volumes of natural gas are situated. Azerbaijan -- a possible backup player until Turkmenistan possibly changes its mind – last week signed a deal with Russia for its volumes from the super-giant Shah Deniz field.

The re-election of Mahmoud Ahmadinejad, and the bloody crackdown that has followed, suspends hopes for the medium term at least for Iran becoming that source of natural gas. Iraq is also mentioned, but that’s only a reality in the event of a deal between the Kurds and the central government, a long-shot indeed. The question is why the pro-Nabucco forces persist in pushing on a proverbial wet noodle. While the physics of inertia carry them forward, they might pay attention to other developments acting to diversify Europe’s natural gas.

As No Hot Air blogs, one is new technology that makes shale gas possible and economical to extract from convenient places like Germany, Hungary and Poland. Closer at hand in terms of availability is liquefied natural gas, which has come on stream in large volumes out of Qatar; but Europe must build the infrastructure to handle it.

Will Europe and the U.S. shift their focus to these very real alternatives?

Dueling Scenarios on the Gazprom State

Choose your scenario: Portraits in The Wall Street Journal and The New York Times today provide starkly different measures of Russia's energy might.

The Journal’s Guy Chazan chronicles a fresh set of agreements that, if carried out, will double the size of Gazprom’s proposed South Stream natural gas pipeline. The pact was co-signed by Paolo Scaroni, CEO of Italy’s ENI, a frequent partner of Gazprom’s whose company will help build the line. Standing with Prime Minister Vladimir Putin, Scaroni succinctly described the reason for South Stream: "Most of this gas will substitute gas currently crossing Ukraine, and some new gas."

In other words, South Stream is meant to extract Ukraine from Europe’s natural gas equation. Fair enough – from Russia’s point of view, that's perhaps the only way to end once and for all its annual tugs-of-war with Ukraine over natural gas payments and the resulting gas cutoffs to Europe.

Raising the financing actually to build South Stream is another matter. Yet, despite the plunge in global energy prices and the financial crisis, Russia’s aims seem the same: To reinforce the weight -- its energy heft -- behind its restored global voice.

In the Times, however, Andrew Kramer delivers a page-one, above-the-fold story with basically the opposite message: The Kremlin’s efforts to use Gazprom to “restore Russian influence in the world are now backfiring, slashing both its profits and its influence.” The culprit is the price plummet.

Kramer backs up his lead with detail on the losses being absorbed by Gazprom on its long-term natural gas supply deal with Turkmenistan. Gazprom is paying the Central Asian nation $340 per 1,000 cubic meters for gas that the Russian giant sells on to Europe for $280, or a $60 loss on each 1,000 cubic meters. This has helped to crater Gazprom profits, Kramer writes: The company’s 2008 profits were $30.8 billion on revenues of $160.5 billion, according to annual results released this month. This year, Troika Dialog, a Moscow investment bank, has estimated that Gazprom’s profits will drop to $16.7 billion on revenues of $104 billion.

There is a bit of confusing data -- Kramer says the price received by Turkmenistan is based on a six-month delay; in other words, Turkmenistan is being paid today according to world prices last year (I’ve actually heard that the delay is eight months, but the principle remains the same). If that’s the case, the loss would work its way through the system soon enough: Turkmenistan would eventually start receiving payment based on the dirt-cheap, current price of natural gas.

Whatever the case, another section of the story is key. Kramer suggests that Gazprom has lost ground politically, noting that last week, the European Union signed another agreement vowing to build Nabucco, a rival natural gas pipeline to South Stream. Azerbaijan, Georgia, Egypt and Turkey were present for the accord.

The piece, however, does not note who wasn’t there to sign: Kazakhstan, Turkmenistan and Uzbekistan, the key natural gas suppliers. Nor does it note that there is every chance that Azerbaijan will sell much of its natural gas to Russia, which continues to offer to buy all of Azerbaijan’s supply. (Neither does it mention the South Stream signature agreement.)

For now at least, it seems to me that the Chazan scenario is more credible: Gazprom has its problems: It is failing to invest in arresting the depletion of its Russian fields. All the while, natural gas demand is plummeting.

Yet it’s early to suggest that Russian influence in its backyard or Europe has declined with it.

The Balance of Power in the Former Soviet Union

Moscow's envoy to NATO has signaled that Russia is ready to resume the thaw in relations triggered last month in the G20 meeting in London between presidents Barack Obama and Dmitry Medvedev. Russia had been miffed by NATO exercises going on in Georgia, and canceled a planned meeting with NATO this month. But now Dmitry Rogozin, Russia's envoy to NATO, says, "We will go ahead with restoring relations." Russian Foreign Minister Sergei Lavrov said much the same when he met with Obama and Secretary of State Hillary Clinton in Washington last week.

Yet Rogozin and Lavrov can behave statesmanlike because in a big way recent events have gone Russia's way.

NATO proceeded with the exercises despite Russia's objections, thus ostensibly demonstrating that no country will determine who can join the military alliance, and where it will act. But look under the hood. One of the nations missing from the games is Kazakhstan -- President Nursultan Nazarbayev declined to send troops to the month-long games. Why did this deft balancer of great powers go along with Russia's wishes on NATO? Perhaps he would have declined even if there had been no Russia-Georgia war last summer, when Russian troops overran large parts of Georgia in anger over Tbilisi's violence in South Ossetia (or perhaps Kazakhstan simply didn't want to go, as the country itself explained.). Yet, Russia's former colonies are behaving with more circumspection than, say, a year ago, and one suspects that the August war is much responsible for that.

A super-smart former senior U.S. diplomat to the former Soviet Union told me yesterday over coffee that the U.S. has not yet lost its influence in the Caucasus and Central Asia; the August events, he said, were "a shot over the bow." But an actual "diplomatic disaster," he said, would come only if Russia actually overran all of Georgia, and seized control of the Baku-Ceyhan pipeline, along with some of the financial benefits accruing to such a move. In this former envoy's view, possession of the "economic rent" would be "qualitatively different" from the current state of affairs, because it would amount to effective Russian reconquest of the Caucasus and Central Asian states.

Possession of the economic benefits -- meaning the pipeline transportation tariffs -- would be different. But I don't see Russia making such a move, one reason being that it doesn't have to: Actual occupation of Georgia isn't necessary; rather, with the August war, Russia signaled that it is prepared to go to any lengths -- in this case military -- to enforce its will. The outcome has been one 'Stan after another falling into line.

Kazakhstan's non-participation in the NATO exercises is just one sign of that. In another, just two days ago, the European Union signed an agreement that Dan Bilefsky of the NYT describes as intended to speed up the Nabucco natural gas pipeline, the western-backed effort to reduce Russia's energy influence in Europe; Kazakhstan, Turkmenistan and Uzbekistan -- the current biggest sources of natural gas for the line -- declined to sign. Diplomats told Bilefsky that the three countries did so "because of pressure from Russia." Moreover, after meeting with Medvedev, Azerbaijan President Ilham Aliyev suggested that he will sell his country's natural gas to Russia, at the same time that Europe and Washington have all-but begged him to commit his gas to Nabucco. There has been a mood shift recently in the U.S. on whether Nabucco is singularly important; yet it's one thing determining that in the West, and quite another doing so in Moscow.

Meanwhile, on the military front, there is the U.S. ejection from its military base in Kyrgyzstan in favor of Russia.

Current and former U.S. officials with whom I've spoken in the last week or two hew to the belief that the August events were strategically meaningless to the U.S. That is, that the U.S. retains roughly the same influence across the Caucasus and Central Asia as it did prior to the war.

The truth is that U.S. energy policy in the region is a shambles. A U.S.-Iran rapprochment could change that (there is a genuine chance, for starters, that Mahmoud Ahmadinejad will lose the presidential election next month. His three major rivals, while perhaps not differing substantively from Ahmadinejad, are distinctive from him in tone and approach. Talks with the U.S. could be much smoother.).

The State Department has a super-skilled diplomat on Eurasian energy in the form of Dick Morningstar. At the National Security Council, my former Stanford colleague Mike McFaul is clear-eyed on Russia; and, with the Obama administration fixated on alternative energy and climate change to the exclusion of any expertise in oil and natural gas, NSC Adviser Jim Jones is seeking a much-needed senior director for global energy, I'm told.

Washington has no equivalent in this sphere to the roles played in South Asia by Richard Holbrooke and in the Middle East by George Mitchell. Perhaps the combination of talent in State and on the NSC will be sufficient to handle the complex brief straddling the lines of Russia, the 'Stans, Iran, nuclear proliferation and energy.

A New Age in Pipeline Politics?

For the last decade and a half, the main theater for U.S.-Russian fireworks has been pipeline politics. Washington won the first battle with the construction of the Baku-Ceyhan oil pipeline, which broke Russia's monopoly on energy exports from the Caspian Sea. But Moscow zoomed ahead in the second round, winning overwhelming backing for its proposed new natural gas pipelines to Europe. Then came the global financial crisis, and the plunge in world energy prices. Suddenly pipelines have seemed passe, and the rivalry instead turned to who controls what military base in Central Asia.

Scroll forward to a European energy summit last weekend in the Bulgarian capital of Sofia. While Washington's new Eurasian energy czar, Richard Morningstar, seemed almost blase about the West's preferred pipeline plan, called Nabucco, he also appeared to re-open the energy contest.

Morningstar's predecessor, Steven Mann, had dubbed the West's promotion of the pipeline as "Nabucco hucksterism." He was describing what he thought was an invalid elevation of the value of a Nabucco line, and its chances for materialization, all the while putting much U.S. prestige at risk in pushing to get it built. Indeed, as recently as three weeks ago, for instance, Deputy Assistant Secretary of State Matt Bryza was still talking up the virtues of Nabucco.

Against that backdrop, Morningstar fell in with Mann's line of thinking: "Pipelines are just part of the puzzle," Morningstar said in Sofia. "Nabucco is not the Holy Grail that will solve the problem."

Morningstar's aim seemed to be to take down the temperature. After all, as much as Nabucco is a politically driven project targeted against Gazprom dominance of Europe, South Stream is an equally political response to Nabucco. So if the imperative for Nabucco is removed, what is the place for South Stream?

Hence, Morningstar also said: "Our feeling is that the financing of South Stream will be costly, and it is not clear how the material will come."

Along the same lines, last week U.S. Deputy Undersecretary of State George Krol was even more dramatic. In the Turkmen capital of Ashgabat, Krol opened the door to shipping Turkmen gas via Iran, according to a piece by Dierdre Tynan at Eurasianet. If that happens, it is truly a new age in pipeline politics.

Nabucco Hucksterism, Iran Pollyanishness, and a $5 Billion Bribe. The Oil and Glory Interview: Steven Mann

On Thursday, a ceremony in the State Department will mark the retirement of Steven Mann, Coordinator for Eurasian Energy Diplomacy, after 32 years with the U.S. diplomatic service. The 58-year-old Mann served most of the last 17 years in senior positions in the Caucasus and Central Asia: He opened the U.S. Embassy in Yerevan in 1992, was ambassador to Turkmenistan, and tried to negotiate a deal between Armenia and Azerbaijan on Nagorno-Karabakh. For the last several years, Mann was America’s man on the spot in the New Great Game on the Caspian Sea.

I visited Mann at his Chevy Chase home. Amid stacked up magazines and books, Mann told me that Europe’s “energy security” is not necessarily at peril. And, for O&G readers, he broke one bit of historical news: Remember the demise of the trans-Caspian pipeline in the chapter An Army for Oil? The one in which then-Turkmen President Saparmurat Niyazov persisted in demanding a $500 million bribe of the Bechtel-General Electric consortium? It turns out that Niyazov originally requested $5 billion. The edited interview:

Q – Does the U.S. need a high-level ambassador on Eurasian energy? And what is your advice going forward?

A – Yes it is helpful. But we also have to get away from Nabucco hucksterism.

Q – What is that?

A – In terms of the wrong lessons learned from [the Baku-Ceyhan pipeline], the wrong lesson learned is to adopt a project and attempt to bring it about through political will. I think so much of the governmental activism on both sides of the Atlantic the last few years has been devoid of a commercial context. There have been quite a number of officials who know very little about energy who have been charging into the pipeline debate. Nabucco is a highly desirable project, don’t get me wrong. But there are other highly desirable projects besides Nabucco. And the overriding question for all these projects is, Where’s the gas?

Q – South Stream was Putin’s response to Nabucco. Did the U.S. blunder by promoting Nabucco before having the commercial context?

A – In terms of whether we are talking EU or US diplomacy, I think you have to be credible. All too often we’ve gotten out ahead of the commercial realities of Nabucco. You have to be able to point to an upstream supply. You have to have a commercial champion. And governments don’t build successful pipelines. Consortia do. The object of any envoy should be to get all those stars aligned before you give the full embrace to any project.

I think Secretary Clinton will bring a more unified focus to the U.S. effort. In the previous administration, we had six special envoys on energy in the State Department, and three deputy national security advisers on the [National Security Council] staff.

Q – Is that too many?

A – It’s four too many in State. And three too many at NSC.

Q – The stated reason for Nabucco is to diversify Europe’s energy supply. Is that a valid enough reason for U.S. involvement? And is European energy security a genuine issue?

A – Anyone who makes that argument knows very little about energy. And I often heard those arguments in the White House Situation Room. Diversification is an objective good. But it can be achieved in ways other than pipelines. The best thing Europe could do for its security is to link its energy grid, which it’s already doing.

Q – Is there alarmism on the subject?

A – The January cutoff of gas through Ukraine only affected 2-3% of European consumers.

Q – So it is overplayed.

A – Yea, I think it was overplayed. What also was underplayed was how successful the Europeans were in shifting gas, linking grids. That’s the untold story of [the January cutoff].

Q – The corollary – that Russian domination of supply equals a political threat in Europe – is that also alarmist?

A – With the EU, I think it’s hard to make that case. That’s the kind of argument that has to be dissected on a country-by-country basis. But Gazprom has been an extremely reliable supplier for 25 years. And I think Gazprom will continue to be an extremely reliable supplier to Europe.

Q – So really one should not be vexed if and when Nord Stream and South Stream are built? And if it takes some time for the ducks to be lined in a row for Nabucco, so be it?

A – Basically, yes. I think Nabucco is far more important to Azerbaijan and Turkmenistan than it is to the EU.

Q – In the late 1990s, there was the initial effort by Bechtel and GE Capital to build a trans-Caspian pipeline from Turkmenistan to Baku.

A – What happened was that Niyazov, with his Soviet mentality, demanded so-called preliminary financing. That is, an upfront payment to do the project. [The consortium] already paid a signing bonus of $10 million. But then Niyazov demanded in the range of $5 billion. Then it came down to $3 billion. And the consortium said, ‘This is utterly unrealistic.’ Niyazov thought they were bargaining. So he dropped the demand to $1 billion; then it came down to $500 million. The consortium said, You have until March 2000 or we walk. And at that time, they walked.

The fundamental problem, and it’s relevant today, is that a foreign investor cannot rely on a governmental entity [in Turkmenistan] to supply the upstream, to supply the product.

Q – Was it ever realistic that Niyazov was going to hook up with the East-West Corridor?

A – It was and it is realistic. Without alternatives to the Gazprom monopoly, Turkmenistan has to accept the price that Gazprom is willing to pay. There is a powerful commercial logic to a trans-Caspian pipeline.

Q – What is the best way today for a Caspian republic to get along in the region?

A – Kazakhstan is a good model of how to develop a Eurasian energy sector. You’re good partners with Russia, but you take advantage of foreign technology and capital.

Q – Does Russia have a role in helping to create a thaw between the U.S. and Iran?

A – Every time there is a substantial political change in the U.S., the oil and gas industry gets up on its tip-toes and says, ‘Aren’t we about to have a change in policy?’ You saw this with the Bush-Cheney election in 2000; the industry thought now was the time it would happen. You saw it after the [2001] invasion of Afghanistan, with certain cooperation and contact between the U.S. and Iran. You’re seeing it now with the advent of the Obama administration. So this is something that the oil and gas industry is always waiting for – that change.

Q – You are saying that this is nothing new.

A – It is nothing new.

Washington Pay Attention: Silver Clouds in Moscow

For the diplomatically stretched United States, there's a possible silver lining in the cloudy financial turmoil in Russia.

Russia's financial regulators today yet again halted trading on the ruble-dominated stock exchange, the MICEX. They acted just after the MICEX opened, and kept traders at bay for two hours before reopening the exchange. At the close of the day, the index had fallen by 6%; it also fell 5.5% yesterday, and is down by about 50% for the year.

Meanwhile, also yesterday Prime Minister Vladimir Putin coughed up $50 billion on top of the previous $130 billion he has injected into Russia's financial system to keep the economy from completely locking up. The subprime collapse is one matter. But the plummet in oil prices is also hurting the country. According to a story today by my friend Charles Clover at the FT, Russia's budget will go into deficit if oil prices fall below $70 a barrel, which isn't the loopy notion it seemed just a month or so ago (they dropped to about $97 yesterday). This latter data point is especially interesting because, when I was researching Putin's Labyrinth in Moscow last year, a Kremlin official told me that the budget would remain in balance at $39-a-barrel oil. What a difference a year makes.

All of this means that Russia's high-flying financial health is wholly different from even a month ago, in addition to that of the western banks and investment banks that have underwritten Russia's foray into global finance.

In a nutshell, there's serious reason to doubt that Russia can raise the money any time soon to carry out its grand energy strategy -- a new natural gas pipeline network stretching from Turkmenistan into Europe.

Washington -- with its myopic focus on Iraq and neglect of its long-cultivated policy on the Caspian Sea -- has been handed a gift of a pause in the seemingly inexorable march of the Nord Stream and especially South Stream pipelines. As O and G readers know, these two pipelines -- championed through the peripatetic work of Putin and President Dmitri Medvedev -- are behind the potent rise of Russian influence in Europe.

A previous posting on this topic provoked reader alarm that Europe will go dark and cold without these new pipelines, an unwarranted reaction considering that Europe uses just half the capacity of the three Russian natural gas pipelines that currently serve it. Nord Stream is arguably a good idea, but South Stream is purely political, a geostrategic ploy to pre-empt the equally political, western-backed Nabucco natural gas pipeline.

How long the pause in Russia lasts depends on who you talk to, but one or even two years are entirely reasonable projections.

That's a window for a Western oil company to get an on-shore natural gas deal in Turkmenistan, which would be key to any resurrection of moribund Nabucco. If the next president, whether John McCain or Barack Obama, rapidly launches a well-considered and -led strategy -- meaning recruiting an American graybeard of the gravitas of Jim Baker or Zbigniew Brzezinski as spearpoint -- he could possibly salvage some of the lost U.S. political and economic influence in the region.

One sure thing is that the window won't remain open. When it closes, Putin will be back as Europe's most dynamic and determined leader.

Why the Kremlin is Winning the Pipeline War

Guy Chazan of The Wall Street Journal weighs in today with the narrative of Russia's thus-far winning strategy against the U.S. for petro-leverage in Europe. As O and G readers know, Vladimir Putin and Dmitry Medvedev have not just out-foxed the Bush administration in this important contest for economic and political leverage across Europe. They also have simply worked harder. The result is a huge advantage for Russia's South Stream and Nord Stream natural gas pipelines. As for the West's competing Nabucco pipeline -- to call it stillborn would be charitable.

The piece puts together how the Russians, using no strong-arm tactics but orthodox economic incentives, so far have triumphed. But pipeline junkies may be amused that it entirely omits Turkmenistan, the center of the pipeline race. Azerbaijan -- a bit player in this project -- is wrongly identified as the vortex. In addition, Matt Bryza, the State Department's deputy assistant secretary for European and Eurasian Affairs, is inaccurately identified as "a key architect" of Washington's triumphant Baku-Ceyhan pipeline. I like Bryza a lot, and no one in State has stuck to the issues longer. But to be fair to a host of others, in the 1990s he was a junior player.

Book recommendation: I reviewed William J. Bernstein's A Splendid Exchange in Business Week. It's one of those personality-driven works where you can actually get through the sweep of history without much effort, in this case using the prism of world trade.

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The Why's of Pipeline Politics

One thing highly unlikely to change under Dmitri Medvedev is Moscow's hard-line energy policy. Indeed, one sometimes gets the impression that Russia wants the West to build pipelines that go around it.

As evidence, take a look at two disputes: Chevron's long-frustrated efforts to ship more oil through a pipeline that technically was built exclusively for its use; and Gazprom's cutoff of natural gas today to Ukraine.

The California company is nothing if not patient and persistent. It's hard to believe that its travails with Moscow have gone on for almost two decades, but it was 1989 when the California-based company first laid eyes on the Tengiz oilfield. The western Kazakhstan field, right next to the Caspian, contains 10 billion barrels of recoverable oil reserves or more, a considerable volume in an industry that regards a 1-billion-barrel field as a supergiant. The final contract awarding Chevron 50% of the field was signed in 1993.

Since then, it's been one stumbling block after another from Russia, which has seen it in its interest to keep Tengiz bottled up. It took eight years before a long-planned dedicated pipeline from the field -- known as CPC -- finally was running. But, while CPC has been producing 320,000 barrels of oil a day, Chevron has always seen Tengiz as at minimum a 700,000-barrel-a-day field, and more reasonably capable of 1 million barrels a day of exports. As of later this year, Chevron is ready for a mid-range production increase to 540,000 barrels a day.

Only, that would require an expansion of CPC, and Russia has blocked it. As the years have gone by, Transneft, which does the negotiating for the Kremlin, has seemed always to have a new demand. When that's met, there's been another. This time, it seems to want Chevron and its partners to finance another pipeline -- a line connecting the Black and Mediterranean seas overland from Bulgaria to Greece.

This isn't public, but Transneft is currently circulating a compromise. People who have received the Transneft memo tell me that Russia is willing to allow Chevron and its partners to raise exports through a process called "de-bottlenecking," which basically means getting the kinks out. The companies could modernize existing pumping stations, but add no new ones. Exports would rise from the current 28 million tons a year to around 38 million tons; that's far less than the 67 million tons a year that the companies seek.

There's no word on whether Chevron and its partners will accept -- they have 30 days to answer -- but it seems unlikely they'll reject it. But what is the ultimate impact of Russia's intransigence? Well, what happens when water is blocked from one drain? It seeks an outlet elsewhere. So look for a greater push for a trans-Caspian oil pipeline from Central Asia to Baku.

Meanwhile, Russia's Gazprom today cut off some 35% of its natural gas supplies for Ukraine. It says its neighbor owes some $600 million for exports this year. Ukraine Prime Minister Yulia Timoshenko disputes the figures. Given that the accounting books are closed to the public, and are disputed by those to whom they are open, there's no way of knowing for sure.

But, while they talk, both Gazprom and Ukraine say their dispute won't again disrupt supplies to Europe (Europe receives more than 30% of its natural gas from Russia, and most of that flows through Ukraine), as they did in 2006. I wouldn't bet on that. Jitteriness in Europe is Ukraine's best leverage over Gazprom.

That's the point of a current natural gas pipeline competition between Russia and the West. Because of its repeated conflicts with Ukraine and others, Russia wants to build a completely new set of natural gas pipelines to supply Europe. But such deepened reliance on Russia makes Europe and the U.S. nervous. So they have mounted a plan to diversify the European supply by going completely around Russia.

Gazprom's latest cutoff will only redouble the European-U.S. effort.

The Western Side of the Pipeline War: On the Brink of Failure?

Readers: apologies for the week-long absence. I am back from vacation. Now, on to the latest in the pipeline war.

Another domino has fallen in Russia's relentless advance in the European natural gas pipeline war. After Monday's visit to Budapest by Russia's probable new president, Dmitri Medvedev, Hungary's prime minister is expected to sign the deal in Moscow tomorrow.

That's after an astutely run offensive in which Medvedev and his mentor, Vladimir Putin, have already recently signed on Bulgaria, Austria and Serbia, not to mention the prize in the contest -- Turkmenistan. These countries are now Russia's partners in the construction of a huge new natural gas pipeline system, Moscow's aim being to project power into Europe through dominance of the continent's gas market. Mathematically, Moscow's aim would be represented as: Economic power = Political power.

After all this, is there any reasonable case favoring a rival pipeline plan championed by Washington and the European Union? Generally, my own rule of thumb in pipeline politics is that no deal is a deal until Sumitomo's lengths of steel cylinders actually arrive on the spot, and welding begins. And they haven't.

Consider the first battle of this East-West pipeline war -- over the Baku-Ceyhan oil pipeline, connecting the Caspian and Mediterranean seas.

On Oct. 11, 1998, The New York Times committed a stupendous blunder. As readers of The Oil and the Glory know, the newspaper's lead story that Sunday, written by my former colleague Steve Kinzer, declared White House-backed Baku-Ceyhan to be "on the brink of failure." Less than a year later, a deal for the line was a reality.

Kinzer's mistake was in focusing on the big picture and armchair analysts in Washington and London, all of which indeed did make the strategic pipeline look to be dead. What he and these pundits missed were the facts on the ground -- from Central Asia and the Caucasus, it was clear that the pipeline was going to happen. Principally, Azerbaijan President Heydar Aliyev -- who had his hands on 5.4 billion barrels of oil that floundering Big Oil was desperate to develop and sell -- wanted that pipeline. It helped that essential NATO member Turkey wanted the line, too, as did the 800-pound gorilla, the White House. But the main thing was the insistence of Aliyev -- the essential man on the Caspian. Big Oil had to build it, and today, it's mightily glad it did so, since it's delivering about 1 million barrels a day of oil onto the tight world market, entirely free of interference by Moscow.

Yet today Heydar Aliyev is dead, and the Caspian is surrounded by presidents with, to put it kindly, shorter geopolitical stature. Big Oil seems to be absent the big corporate personalities who in the 1990s got in the sauna with one or more of the Caspian presidents, downed some vodka shots, and emerged with rights to huge reservoirs. And the White House lacks the vision to assign a political heavyweight -- in the 1990s, it was Clinton and Al Gore themselves, in addition to National Security Adviser Sandy Berger -- to spearhead a deal.

As for the future, there's no sign of the Bush administration suddenly changing course. The word is that Condi Rice will appoint Bush family friend Donald Evans to general the western battle. But Evans lacks the star power for instant success, and the longevity -- he will be out once the next administration takes power next year -- to manage through sheer effort.

Big Oil has been slow to snag a natural gas deal in Turkmenistan that would jump-start the western-backed Nabucco pipeline. And, short of a trip to Camp David, Turkmen President Gurbanguly Berdymukhamedov isn't suddenly going to grow a spine.

Meanwhile, Putin and his protege Medevedev are running Moscow's battle plan personally.

So, at the risk of repeating the Kinzer Blunder, Nabucco does appear to be on the brink of failure.

Of course, lightning could always strike.

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Putin On Stage

Vladimir Putin conducted his valedictory annual news conference today, and it was a bravura performance – more than four and a half hours long (Reuters video). Among the questions posed involved the pipeline war. Putin, a consummate player of market economics whose pipeline strategy – Nord Stream and South Stream – has left the U.S. and the European Union flat-footed, accused Washington of politicizing pipelines. And he’s right – if the issue were purely economic, no one would care much about Russia’s economic inroads in Europe; his critics are apprehensive that, as it has acted in Georgia, Ukraine and elsewhere, Russia will exploit market advantage for political leverage. Putin also pointed out that the west “has no resource base” – no natural gas to put into the alternative pipeline it favors. Again, Putin is correct. That is what makes the West's proposed trans-Caspian and Nabucco lines so far untenable.

Here are Putin’s direct remarks:

"As for what smells of oil or gas, we know how our American partners conduct dialogue in Europe. They come to certain countries, try to convince them not to buy our resources or to try to find different routes to deliver fuels, avoiding Russian territory. They put pressure on these countries and that's already in the political sphere. I think this is a wrong policy, a dumb one. Moreover, it's unprofessional, since behind all this politicization of the question, there are no calculations, there's no resource base."

"On the issue of Gazprom biting into the body of Europe [with its efforts to acquire assets there], why the Americans are so concerned for the European body, I don't know. Maybe because they want a piece of it, they like it, it's a nice body. … Yes, the economic power of Russian companies is growing, of course, but our main consumers, especially in Europe, should only be happy about that. … Gazprom isn't demanding any exclusives, it just requires fair cooperation.

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Rice in the Race

The Bush administration has officially announced the high-profile Caspian Envoy position we’ve been discussing on this blog for some three months. This would be Washington’s point person in the contest for petro-influence with Russia in Europe.

In reply to a question before the Senate Foreign Relations Committee yesterday, Secretary of State Condoleeza Rice said she’s head-hunting for the position now:

“I do intend to appoint, and we are looking for, a special energy coordinator who could especially spend time on the Central Asian and Caspian region,” Rice said. She added, ``It is a really important part of diplomacy. In fact, I think I would go so far as to say that some of the politics of energy is warping diplomacy in certain parts of the world.”

Rice is right. Russia's Vladimir Putin is far advanced in his shrewd market strategy for dominating Europe's natural gas supply even more than Russia currently does. Putin has personally gotten most of the necessary approvals from other nations for three new natural gas pipelines stretching from Turkmenistan into the heart of Europe. Meanwhile, Washington is not yet out of the starting gate for its rival, Western-controlled pipeline system that also would begin in Turkmenistan.

But I have my doubts about Rice's seriousness given her singular focus on the Middle East as a legacy issue for the Bush administration. Even if she were actively seeking someone, it seems highly unlikely that this late in the administration she could get a commitment from anyone with enough star power to outplay the masterful Putin.

Someone such as Zbigniew Brzezinski or James Baker. And even if someone of that caliber did agree, he or she would likely be in the job just 11 months, until the next administration takes over, which doesn’t seem sufficient time to mold the Western plan into shape.

Back in November, it looked like U.S. super-diplomat Thomas Pickering was imminently to be appointed. In the end, I’m told that the lawyers couldn’t work it out given his position as an adviser to Boeing.

The most realistic question now may be whether it will be too late when the next administration gets up and running.

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Another Death in England

England is seeming less and less safe for its multitude of political exiles. The latest death is a colorful Georgian businessman named Badri Patarkatsishvili (whom I will call Badri). British authorities say they expect to finish a post-mortem on the 52-year-old Badri today after he was found dead yesterday of a possible heart attack in the county of Surrey. As is their routine in unexpected deaths, they have handed over the case to their major crimes investigation unit. (Photo by Reuters' David Mdzinarishvili)

Badri’s possible enemies list isn’t short. Just a few short weeks ago, he lost in an election for president of Georgia against Mikheil Saakashvili. He has been charged there with plotting a coup and planning a ``terrorist attack'' on a government official. He denied the charges.

But Badri was best known as the main business partner of Russian oligarch Boris Berezovsky, who himself lives in England in political exile. That has put both Badri and Berezovsky on a black list in Russia. Both men have been charged with fraud there for allegedly stealing cars in the mid-1990s from AvtoVAZ, a company they controlled.

If the British deem foul play to have been involved, Badri's business dealings would also be in question. In his 2000 book on Berezovsky, American journalist Paul Klebnikov described Badri as Berezovsky's "primary emissary to the traditional underworld."

In a BBC report, Berezovsky said he had seen Badri yesterday. He said that Badri wasn’t sick but did complain about his heart. "I have lost my closest friend," Berezovsky said.

Pipeline War Watch—Russia’s Vladimir Putin has astutely assembled most of the pieces for a Gazprom triumph in its battle with the West to control Europe’s natural gas market, and win the political leverage that goes with it. By appearances, he’s got the main player on board – Turkmenistan, which has all the natural gas. And he also has the main countries along the route of his proposed South Stream pipeline – Bulgaria, Austria and even Serbia.

Now, Putin seems to be moving in to harden the market victory by tying up the second-tier buyers of Turkmen gas, the objective being to completely submerge the West’s comparatively amateurish, rival pipeline plans. The key second-tier buyers of Turkmen gas are Hungary, Slovakia and Poland.

Readers of The Oil and the Glory know that when middlemen show up, deals get murky. That’s the situation with this latest turn in the pipeline war. I’m told that two middleman companies – a Hungarian firm named Millander International, and a shadowy Ukrainian-Russian company called RosUkrEnergo – are working to seal a long-term contract selling Turkmen natural gas to Hungary. The deal would be signed by these two firms, Gazprom, Turkmenistan and Hungary. I am told that it could happen as early as this week.

Currently, no Western oil company has obtained rights to any Turkmen gas fields, so there’s no guaranteed natural gas to feed into the West’s proposed trans-Caspian and Nabucco pipelines.

Such Gazprom deals mean to keep it that way.

Guest Column: How the Pipeline War Will Turn Out

Hi, my name is Paul Sampson, a London-based journalist for the newsletter Nefte-Compass who shares Steve's fascination with energy-related intrigue in Russia and Central Asia. When Steve asked me to contribute to his blog, I agreed partly because I really enjoyed his book, which ranks alongside those two oil greats, The Prize and The Seven Sisters, and partly because I’ve never blogged before. This is my first effort, so readers please go easy and save your ammo (or polonium) for later. A quick disclaimer: These views are strictly my own and no-one else's.

As hard as it tries, the European Union and the United States are no match for the 800-pound Russian gorilla when it comes to pipeline politics. Russia’s natural gas colossus Gazprom and its masters in the Kremlin have so far successfully countered the EU- and U.S.-backed Nabucco natural gas pipeline. But can they actually stop Nabucco? My hunch is no. In the end, both Nabucco and the Russian-backed Nord Stream and South Stream pipelines will be built. And the EU and Russia will find a modus vivendi that keeps Gazprom powerful, but lets new suppliers such as Azerbaijan join the fray.

This is the way it has to be. After all, neither side wants a new cold war over gas supplies, do they? If Brussels and Moscow agree to work more closely on energy, then I see no reason why Washington wouldn’t go along.

It’s been an excellent 2008 so far for Gazprom and its chairman, Russia’s president-in-waiting, Dmitry Medvedev. Medvedev and his mentor Vladimir Putin signed a deal in Bulgaria giving Gazprom a 50% stake in the crucial European hub for South Stream, which Gazprom and Italy’s Eni plan to build under the Black Sea. Then Serbia's Boris Tadic gave Gazprom majority ownership of a trunk line into South Stream, plus a 51% interest in Serbia’s state oil company, NIS. Finally, the Russians won joint ownership of Central Europe's largest gas marketing hub at Baumgarten, the terminus for the West’s proposed Nabucco pipeline. According to Nefte Compass, Gazprom now has its sights set on a gas deal in Hungary.

These deals reveal the extent to which energy and politics are intertwined in Russia. Take the Serbian deal, which was signed ten days or so before today's second round of presidential elections in the country pitting pro-European incumbent Boris Tadic against the nationalist Tomislav Nikolic. That Tadic was in Moscow to sign the pact with Gazprom suggests that it was all designed to improve his chances of re-election. Crude tactics indeed.

In general, the deals help to polish Medvedev’s image as he campaigns to inherit Putin’s mantle next month. Having kept a low profile over the past years, Medvedev is now taking some of the limelight and portraying himself as a strong and credible leader. How much freedom he will have when he ascends to the throne and to what extent Putin and the siloviki will control him is a subject for another blog.

Horelma: Here is a quick addition to Steve’s blogs on the mysterious Kazakh buyer of the $100 million London property. My interest isn't who the real owner is – let’s face it, $100 million isn’t that much for your average Kazakh billionaire – but why anyone would pay so much for such a bizarre place on a busy street in north London. I drive down Bishops' Avenue perhaps once a month, and it never fails to astound me how over-the-top the houses on it are. Having lived for several years in Dubai, I've seen my fair share of post-modern eye-sores. But Bishops Avenue has to take the biscuit.

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Serbia, Bulgaria and the World

Vladimir Putin today racked up another in a string of unbroken victories in the European Pipeline War. Serbia has sold Gazprom a majority stake in the state oil company, NIS, and joined Russia's South Stream Pipeline consortium. Last week, Bulgaria signed onto South Stream as well.

The pipeline is part of Putin's strategy to cement Russia's domination of Europe's energy market, which receives around a third of its oil and natural gas from Russia. Ultimately at stake is political influence in Europe, as Andrew Ross Sorkin discussed today in The New York Times.

The United States and the European Union oppose Russia gaining more of a foothold in Europe, but Putin has far eclipsed their rival Nabucco pipeline project, which would feed natural gas from Turkmenistan to Europe.

Putin's triumphs stem from his personal role in the energy strategy. He himself has flown to Central Asia, to eastern Europe and elsewhere numerous times to court the presidents of the transit countries personally. He even got former German Chancellor Gerhard Schroeder to chair a companion pipeline, called Nord Stream.

Europe and the United States meanwhile have barely gotten started. In recent days, the State Department has discussed a new name to lead the Western effort -- Bush family friend Donald Evans -- but there is legitimate doubt that he has sufficient star power to upstage Putin. The U.S. presidential election may push the issue even further back on the Western agenda.

For a contrarian view of the issue, read this piece by Stratfor, which argues that the Bulgaria deal shows that Russia is actually losing the pipeline war. I personally think this analysis is upside down, but afficionados of pipeline politics should hear all sides.

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Why Russia is Winning the Pipeline War

Vladimir Putin.

That's how Russia today made another advance in one of the most important battles under way anywhere in the world at the intersection of commerce and geopolitics -- for control of the natural gas market between Central Asia and Europe. This battle will decide who dominates the European energy market, and obtains commensurate political leverage in Europe and Central Asia. Russia already supplies more than 30% of Europe's natural gas and oil.

In another example of the role of personal diplomacy in the battle, Putin was in Sofia today and signed a deal nailing down Bulgaria's role as the principal transit point for the South Stream natural gas pipeline, which is meant to cement Russia's dominance of southern Europe's gas supply.

Putin had previously used the prestige of the Kremlin to push through plans for a separate pipeline serving northern Europe, called Nord Stream. And last month, he secured the natural gas supply required to feed the two lines. Turkmenistan and Kazakhstan sold a large portion of their natural gas supply for the next thirty years, and agreed to a third pipeline to take their natural gas to Europe.

One would hardly know that Russia has a competitor in this epic market battle. But it does -- the West, specifically the European Union and the U.S., which have advanced their own dual-pipeline idea. They are a proposed trans-Caspian natural gas pipeline, also starting in Turkmenistan, and hooking into a proposed Nabucco pipeline into Europe.

How is the Western effort faring? It's stalled at the starting gate. Indeed, while Putin personally jets around the world, wining, dining and flattering the presidents of other nations whose favor is required, no Western leader has invited any of them for a personal meal. The U.S. hasn't even managed to select a senior statesman to lead the effort since Thomas Pickering dropped out and decided to stay in the private sector.

If it were not for the way that post-Soviet history has been so topsy-turvy, with a winner one day ultimately losing, I'd say the battle is over. For starters, it's high time for Turkmenistan President Gurbanguly Berdymukhamedov to spend some time at Camp David.

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Fence-Sitting on the Caspian

Oil and the Glory readers are acquainted with irascible Valekh Aleskerov, Azerbaijan’s preening, blustery, table-pounding former chief oil negotiator. Aleskerov was in Washington this week for a conference run by my friend Zeyno Baran at the Hudson Institute.

I unfortunately wasn’t present, but heard that Aleskerov was his best, straight-talking self. I was particularly struck by a point on the second round of Pipeline Politics currently under way between Moscow, Europe and the U.S.

He noted that Azerbaijan’s courage was largely responsible for the diplomatic triumph in the game's first round, capped by last year’s completion of the Baku-Ceyhan oil pipeline linking the Caspian and Mediterranean seas. Azerbaijan President Heydar Aliyev opted to ignore Russian threats and, in partnership with Georgia’s Eduard Shevardnadze, spearhead the strategy of the thousand-mile, U.S.-backed line.

But Aleskerov was speaking in the context of the second-round battle between the West and Russia over who will control the resources of the Eastern side of the Caspian. Russia wants to take Kazakhstan’s and Turkmenistan’s natural gas north for onward shipment to Europe. But Europe and the U.S. are pressing a competing proposal to ship the gas west through a new trans-Caspian pipeline linking Turkmenistan to Turkey.

The Western proposal is prudent since going along with the Russian plan would mean isolation for Kazakhstan and Turkmenistan, which would then rely on a single buyer and shipper of this huge cash-earner.

The trans-Caspian idea is beset with indecisiveness and bungling from the Caspian all the way to Washington -- mainly in Europe and Washington -- but one of the problems is that neither Turkmenistan nor Kazakhstan have committed to the proposed line. And that’s the foremost step before anyone else can move. As Aleskerov put it: “Turkmenistan will not take risks like Azerbaijan took risks” with Baku-Ceyhan.

Yesterday, Kazakhstan unintentionally provided Aleskerov a coda.

For more than a decade, Kazakhstan’s president has played the cautious middle ground in Pipeline Politics. When Nursultan Nazarbayev is in front of Russian leaders, he says, We will ship our oil through Russia! Before Chinese leaders, it’s, China or bust! And with his Turkic brothers or the West, he’s a gushing fan of Baku-Ceyhan.

Yesterday was more of the same in the Kazakh capital of Astana. Standing with Turkish President Abdullah Gül, Nazarbayev was uncontainable. “Kazakh oil will be transported to the Baku-Tbilisi-Ceyhan pipeline,” he stated unequivocably.

Well, yes, because Chevron intends to ship a few hundred thousand barrels a day that way from its Tengiz oilfield. And so do the Italian-led developers of Kashagan, the mother of all Caspian oilfields, once they get on line in a few years.

But do the Kazakhs intend to ship any of their state-owned oil through the line? More to the point, would Nazarbayev ship oil or natural gas through trans-Caspian lines were they built?

As I write these questions, their absurdity becomes almost profound. Why would Nazarbayev not do so? And if there's no reason not to, why doesn’t Nazarbayev – the strongest current leader in the eight-nation Caucasus and Central Asia region – commit definite volumes to Baku-Ceyhan and a trans-Caspian line?

The answer is wrapped into Russia's own assumptions in its Pipeline Politics strategy. As Aleskerov put it so well, Vladimir Putin assumes that Turkmenistan and Kazakhstan "will not take risks like Azerbaijan took risks.”

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Notes on the Pipeline War: Amateur Hour in Washington and Europe

Note: I had an interesting interview today with David Inge of WILL Radio at the University of Illinois. Lots of history, Russia, Iran and China.

Now to pipelines. I’ve been exchanging emails with an oilman friend about a long natural gas pipeline championed by the United States and Europe to meet Vladimir Putin’s petro-thrust into Europe. This friend, who chooses to correspond privately, thinks the West’s handling of the pipeline, called Nabucco, has been amateurish at best. And I must say after going over it with him that he makes a strong case.

As background, this clumsily named, 2,000-mile-long pipeline would start in Turkey and terminate in Austria. It would transport natural gas from the Central Asian republics of Turkmenistan, Kazakhstan and Uzbekistan, providing them a financial channel independent of current monopoly-buyer Russia. It would also help to diversify the natural gas supply of Europe, which relies on Russia for some 30% of its gas.

Nabucco is the West’s response to three big Russian-planned pipelines that instead would channel Central Asian gas north to Russia, for onward export to Europe through the planned Nord Stream and South Stream pipelines. The pipelines would advance a shrewd Russian market strategy to cement and build on its domination of Europe's energy supply.

Russia is far advanced in the contest, but the West thinks it can catch up. As readers of this blog know, the Bush administration is about to name Thomas Pickering, one of Washington’s most seasoned statesmen, to head the diplomatic effort in a newly created office within the State Department.

But my friend argues that, not only would Pickering not be poised to push Nabucco over the finish line, the West is currently “not even in the starting gate.”

Putting aside for the moment that the Central Asians have yet to make a necessary commitment to the line, Nabucco’s advocates have to date failed to perform a detailed economic analysis of the proposed line. And because they also have no convincing engineering study of the line, along with a detailed, country-by-country understanding of how big or small the role of each player in the complex line would be, the West ends up at risk of being manipulated by those with a vested interest in its construction.

In the 1990s, when the U.S. got behind the Baku-Ceyhan pipeline – the million-barrel-a-day line connecting Baku with the Turkish Mediterranean – it corralled support money from organizations like the Export-Import Bank and the European Bank for Reconstruction and Development. No equivalent effort has accompanied the campaign for Nabucco.

So is the West serious? If so, my friend says it might move beyond a pose and create a program. He makes sense.

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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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