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O, To Be Angola by David Hogarth 27 October 2005 Too little attention has been paid to the technical obstacles to the development of Russia's oil industry and the implications for foreign policy. If Russia's oilmen could choose their weather and geography, what would they choose? It may seem unlikely, but Angola is in many respects the ideal source of oil. At war for many years, Angola nonetheless always managed to get large quantities of oil to market. Because it had oil fields offshore, its production was unaffected by the fighting; and because it could use tankers to distribute its oil, it could sell its oil on almost any market, enabling it to react rapidly to changes in market prices. Unlike Angola, Russia cannot produce oil with relative ease and get it to almost any market it chooses. That might be hard to guess by reading optimistic academic theories about Russia's potential as an energy giant. But for some time now, the technical evidence available has indicated that Russia's environment is a fundamental obstacle to the development of its oil industry. Even so, engineers still have problems convincing social scientists about the gravity of their findings not because the evidence is hard to understand but more perhaps because the data often contradicts established theories. Richly endowed with black gold (estimates of Siberia's oil reserves hover around 100 billion barrels) and bordering many of the world's great or emerging markets, Russia does on paper have huge potential to supply the world and make its citizens richer. However, geography makes its potential hard to realize and almost impossible to realize efficiently. Moreover, while oil may give Russia strategic strength, it also leaves Russia exposed. TOO LITTLE FROST, TOO MUCH ICE This is not, of course, the first time that Russia's weather has been underestimated. "In general, people exaggerate the climate here," wrote Marshall Davout during Napoleon's wretched 1812 campaign. It was also in part because of the environment that Russia's energy resources were left largely stranded during the Soviet era. Technology has advanced since then, but for two reasons, Russia's weather remains a huge engineering and logistical problem for the energy industry. Indeed, it is becoming increasingly unpredictable and testing. Like the Trans-Alaska Pipeline, all Siberian pipelines are built on permafrost. Unfortunately, though, permafrost is no longer so permanent. As global temperatures rise, the permafrost is starting to melt. This phenomenon is confounding traditional construction techniques and is turning concrete foundations into tectonic plates. The stress could cause new and existing pipelines to subside, buckle, or in the worst case to topple over, with potentially serious environmental consequences. A ruptured pipeline at Nyagan in 1993 narrowly missed fouling the Sosvinsky Nature Preserve; a year later another accident, at Usa, heavily polluted the Pechora and Kolva rivers. Secondly, the calm, warm African waters off Angola are a world away from the realities of Russia's ports. Mainland Russia's only ports serving Europe Murmansk, Kogulev Island, and Varandey all lie along the coast of the Barents Sea, in the Arctic. The best time to load is, of course, the summer, but even then it is extremely difficult. At the Varandey oil terminal, for example, crude oil is pumped aboard tankers through an underwater pipe that has to be manually connected to the ships' hulls by teams of frogmen. In winter, empty tankers usually have to make several slow runs at protruding ice shelves before they shave off enough ice to get close to the loading point. The crude oil is then poured aboard from a mobile sledge-mounted pump that has been pulled over the ice. Unfortunately, pumps regularly go for a walk: the ice sheets have a tendency to break up during the loading process, causing the makeshift terminal to float away, dragging men behind it, and leaving hoses spurting oil into the air. (Oil trapped under ice is the bane of oil-spill response teams. Cleaning it up is dangerous and the inevitable residual oil that cleaners can't reach keeps re-emerging during thaws. Oil may be a biodegradable product, but the low Arctic temperatures cause it to congeal and solidify both on land and in the water.) Once loaded, tankers reach the open sea by following in the wake of icebreakers. There are similar difficulties in the east. A recent study by Plymouth University on Japan's energy shipping policy argues that, because of the extreme conditions and the unsuitability of loading terminals, it will not be viable to extract oil from one key project on Sakhalin Island that could have been a major source of oil for Japan. In the south, geography seems more promising, since, in Novorosiisk, Russia has a warm-water port. But that promise has faded. The Bosphorus Straits that separate Europe from Asia are a bottleneck. Delays are common and significant even at current capacity; in future, limitations on tankers (and also on Black Sea pipelines) may become tighter because of environmental concerns. Those concerns may eventually be reflected in law, since Turkey's bid for European Union membership will oblige it to adopt EU environmental law. In other words, Russia's efforts to get oil to market from the Arctic are undermined by thawing ice and largely trapped by ice floes and, in the Black Sea, stuck in a bottleneck in the highly sensitive marine environment. THE DEPENDENT ENERGY SUPERPOWER To make full use of its potential, Russia needs to find solutions to the difficulties of distributing its oil. Technologically, that is currently difficult; politically it may prove even more complicated. There must also be a question about Russia's willingness to engage with that challenge, since it has for many years neglected even its existing energy distribution infrastructure. The capacity of its trunk "source-to-port" pipelines is low, restricting export potential. Russia's leader, though, does not seem particularly concerned. President Putin has so far declined to spend money on upgrading the pipeline network of state-owned Transneft, which distributes 93 percent of Russia's oil. Badly corroded and unreliable (over 300 leaks were recorded in its western Siberian pipelines in 2002), the network also lacks the ability to separate the different grades of crude oil traveling through it. The network therefore produces a sub-standard mongrel blend called "Urals oil" that, not surprisingly, sells for less than benchmark crude. The oil is again mixed with a cocktail of additives to stop it from "waxing" (a process in which paraffin in the oil begins to solidify and can clog up the pipe) in sub-zero temperatures. The oil is worth less but costs more to refine than benchmark crude, because the additives must then be removed from the oil. An upgrade of the system is vital to ensuring Russian oil is competitive. Still, while seemingly unwilling to invest in vital technology, Russia's leaders have outlined a geopolitical strategy. Yevgeny Primakov, prime minister and foreign minister in the Yeltsin era, advocated a strategic reorientation towards India and China partly to reduce dependence on the West and also partly because he envisaged pipelines carrying oil (and gas) to these huge markets. Putin initially embraced Primakov's policies, but after 9/11 he turned westward. Now he is warming up relations with India and China again, and Iran too is a strategic focus. These kinds of solutions to Russia's problems of distribution are extremely problematic. Russia's relationship with Western Europe has been relatively predictable (and that probably helps explain Putin's pro-Western record), but relations with former communist states continue to be complicated by wariness and scandals (including the alleged attempt by a former KGB agent to bribe a Polish minister and buy a state-owned Polish oil refinery at a knockdown price). Ukraine's new pro-Western, pro-NATO orientation raises question marks in Moscow, while a stronger embrace of Belarus would reinforce Western reservations about Russia's course. And to the east lie two huge economies capable of consuming all the oil that Russia currently produces: Japan and China. Earlier this year, Putin indicated that a pipeline that could have run to Japan via the eastern port of Nakhodka would instead run to Daqing in northern China. Putin then reneged on his promise to deliver oil directly to Daqing. Now, it seems, oil will be sent to China by rail, a complicated process that requires a change of rolling stock at the Chinese border since Russian and Chinese trains have different gauges. Still, trains the clumsy and relatively inefficient land equivalent of tankers at provide Russia some flexibility in its energy policy. Putin's wavering over the Daqing pipeline highlights the fundamental strategic problem associated with pipelines. As is often seen with other parts of the former Soviet Union, pipelines can easily create a relationship of dependence but it is a dependence that also ties the producer to the customer. In the absence of a large-capacity warm-water port, the best that Russia can perhaps do to avoid dependence is to diversify its customer base. That may not be possible given the technical, geographical, and political obstacles. Even in the best-case scenario, however, Russia's potential diversification is limited to a relatively small clutch of countries. As such, no diversification would enable Russia's energy policy to be purely price-driven. To divert oil from one important neighbor to another important neighbor becomes a political decision. To increase oil deliveries to one rather than the other could be taken as a measure of the relative strength of geostrategic relations. An energy superpower it may be, but pipeline politics will ensure that the foreign-policy agenda of Russia's president will be tricky, nervous, and ambiguous. -------------------------- Want to discuss this topic? Head on over to our discussion list, [EMAIL PROTECTED] -------------------------- Brooks Isoldi, editor [EMAIL PROTECTED] http://www.intellnet.org Post message: osint@yahoogroups.com Subscribe: [EMAIL PROTECTED] Unsubscribe: [EMAIL PROTECTED] *** FAIR USE NOTICE. This message contains copyrighted material whose use has not been specifically authorized by the copyright owner. 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