If it’s not about the oil, could it be about the gas?

by thedirtyho

For many people the instinctive, even reflex, response to the Western intervention in Libya has been “it’s all about the oil”. However, in a recent article the well-respected Middle East commentator Professor Juan Cole dismissed these assumptions, saying:

That is daft. Libya was already integrated into the international oil markets, and had done billions of deals with BP, ENI, etc., etc. None of those companies would have wanted to endanger their contracts by getting rid of the ruler who had signed them.

And goes on to say:

An economic argument for imperialism is fine if it makes sense, but this one does not, and there is no good evidence for it (that Qaddafi was erratic is not enough), and is therefore just a conspiracy theory.

This should give anyone promoting the oil-motive theory pause for thought, as Professor Cole’s credentials are well established. However, I found this troubling, as for me the party-line rationale for intervention in Libya does not really seem that convincing. For his part, Professor Cole accepts this at face value, writing:

those who question whether there were US interests in Libya seem to me a little blind. The US has an interest in there not being massacres of people for merely exercising their right to free assembly

But to me this is incongruous with historical events, and it also begs the question of why we are willing to get involved in Libya, when atrocities of a similar nature (if not, perhaps, of the same scale) are happening across the region in Syria, Bahrain and Yemen. In generalised terms it is probably fair to say that the profit-motive usually takes precedence over humanitarian concerns, hence our willingness to turn a blind eye to the repressive regimes that are ‘on our side’. This brings us back to Professor Cole’s point – Libya has well established relations with a number of Western-based corporations and has a fully-functioning oil industry capable of supplying a bit more than a million barrels of oil per day, of which around 85% is said to go to European markets. If we were to look a little closer at how this market is divided, then it is estimated (Reuters) that 32% goes to Italy, 14% to Germany, 10% to France, 10% to China and 5% to the USA.

So on the surface it does seem entirely self-defeating for the NATO countries and the USA to become involved in Libya. However, it’s worth bearing in mind that these are the statistics for fully-functioning oil-fields that are already producing. If we are to start with the hypothesis that there is an underlying profit-motive, then the sensible course of action is to follow the money.

Since Libya came in from the cold it has held a series of auctions for Exploration and Production Sharing Agreements (EPSA) to open up new areas for development.

The first of these took place on the 30th of January 2005 and this first round heavily favoured US firms, with Occidental Petroleum, ChevronTexaco, and Amerada Hess winning interests in 11 of the 15 permits. This apparent favouritism was not replicated in the second round, which saw contracts awarded to:

  • Eight Asian companies: Nippon Oil Corp., Mitsubishi Corp., Japan Petroleum Exploration Co. Ltd. (Japex), Inpex Corp., and Teikoku Oil Co. Ltd. (OGJ, Oct. 10, 2005, Newsletter); PT Pertamina; Chinese Petroleum Corp.
  • Six European companies: Total ASA, Norsk Hydro AS, Statoil ASA, BG Group PLC, Eni North Africa, and OAO Tatneft.
  • Three Indian companies: Oil India Ltd., Indian Oil Corp. Ltd., and ONGC Videsh Ltd.
  • Turkish Petroleum Overseas Co. Ltd.
  • ExxonMobil Libya Ltd.

The third round, according to reports saw the Russian firms Tatneft and Gazprom make significant advances, with Barrows Company declaring them ‘the big winners’, and then in the fourth round you again have Gazprom winning a fair proportion of the contracts.

Gazprom’s consolidation of the gas market, at a time when Europe is already concerned about the security of its supply – having seen the disputes with the Ukraine and the knock-on effect they had – further compounded by its deal with ENI, and then buyout, has raised the stakes in the volatile global energy market.

This reflects a growing concern, which has been seen over the last few years that Gazprom (and therefore – by proxy – the Russian government) has been ‘winning the pipeline war‘. This concern can be seen further in the leaked diplomatic cables concerning the relationship between Italy and Russia, ENI and Gazprom, and Berlusconi and Putin:

THERE IS ALSO CONTINUED POLICYMAKER INTEREST IN THE ITALIAN GOVERNMENT’S ECONOMIC RELATIONSHIP WITH RUSSIA, PARTICULARLY IN THE ENERGY SECTOR.

PLEASE PROVIDE ANY INFORMATION ON THE PERSONAL RELATIONSHIP BETWEEN RUSSIAN PM VLADIMIR PUTIN AND ITALIAN PM SILVIO BERLUSCONI. WHAT PERSONAL INVESTMENTS, IF ANY, DO THEY HAVE THAT MIGHT DRIVE THEIR FOREIGN OR ECONOMIC POLICIES?

PLEASE PROVIDE EXAMPLES, IF POSSIBLE, OF ANY INSTANCES WHERE THE ITALIAN GOVERNMENT MADE DECISIONS TO BENEFIT ITALIAN BUSINESS OR COMMERCIAL INTERESTS AT THE EXPENSE OF POLITICAL CONCERNS ABOUT ENERGY POLICY.

And the answer they got in return may not have pleased them either:

XXXXXXXXXXXX told us during a February 4 lunch that his Embassy and his Foreign Ministry often only learn of conversations between PM Berlusconi and PM Putin after the fact, and with little detail or background.

On major issues, it seems that Russian-Italian economic relations are directed by PMs who have a direct line to each other as well as control over some of the largest assets of their respective economies.

our contact himself acknowledged — “it seems that everything that happens at the lower levels is just for show.”

Russia has been trying to corner the market in Libya for some time, offering to buy “all of Libya’s gas” as far back as 2008, which some analysts have speculated is an attempt to form an ‘OPEC of gas’:

“It fits with their strategy of, if not forming a gas OPEC by discussion, then doing it by just cornering all the resources,” he said. “Hydrocarbons is where they want to be, and having as much of it as possible.”

So it is no surprise that with the stakes so high, what to do about the Russian influence on energy security has been the subject of UK Parliamentary publications. Whilst not directly about the situation in Libya, this at least shows considerable angst at an administrative level:

The received energy policy view is that gas is a fuel that raises significant energy security concerns. This view has gained considerable traction as a result of declining gas reserves within the European Union and the impact of the Gazprom-Ukraine gas disputes.

The Gazprom-Ukraine disputes in 2006 and 2009 [9] where Europe, caught in the middle, had suffered supply cut offs raised serious energy security concerns in respect of Russian gas supplies.

In this context with the prospect of 84% of European gas coming from external sources by 2030 there were serious concerns for European energy security [12] . Gas as a major fuel source raised hard energy security concerns; scarcity concerns and consequent price concerns. Indeed Ungerer referred to gas as the ‘Achilles heel of European energy security’.

The second major difficulty for the Russian government and Gazprom is their current pipeline strategy. If we have gas to gas competition in Europe it is imperative that Russian gas is delivered as cheaply as possible into the European market if market share is to be maintained. This requires not only some form of efficiency focused liberalisation at home but an entirely different external pipeline strategy.

There is now a compelling commercial logic coming into place which is pushing Gazprom and the Russian government in the direction of liberalisation and the creation of an effective rule of law system in the energy sector.

Some might argue that there are other motives behind the Libyan operation, and that recent developments regarding both the souring of diplomatic relations between the US and Libya and the strong bargaining by Libya to change the oil contracts, reducing the share received by foreign companies from 30-40% to now less than 20% may have instigated moves against the regime. However, this does have the touch of Machiavellian scheming about it, not to mention the aforementioned conspiracy theory.

However, I do not think the worry over Russia’s influence in the energy sector has been overstated here, and I believe it to be a reasonable hypothesis that in the ongoing economic and geo-political battle for dominance, the Libyan intervention would not be considered a bridge too far.

Intervention in Libya might go some way towards redressing the balance and shifting the tables in our favour. Already since the NATO operation began we’ve seen the ENI-Gazprom deal postponed, and the rebels have made their position fairly clear:

“We don’t have a problem with Western countries like Italians, French and U.K. companies,” Abdeljalil Mayouf, a spokesman for the Libyan rebel oil company Agoco, was quoted by Reuters as saying. “But we may have some political issues with Russia, China and Brazil.”

So – if it’s not about the oil, could it be about the gas?

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