OIL AND GAS

N.Arveladze

The year 2006 started with record oil and gas prices. At the end of January, when oil prices reached 70 USD per barrel in New- York and 69 USD in London, OPEC countries decided that the 10 countries will not increase production quota to 28 million barrels a day, which is a third of the daily world production.

This indicator will remain unchanged till the conference in Vienna in March. What are the factors that stipulated for such increase of oil prices? Disturbances in Nigeria, the threat of handing over of Iranian nuclear dossier to the Security Council, similarity of views of all UN Security Council’s member-countries on this issue, aggravation of the situation around Iran, as well as unprecedented frosts at Russia’s main oil fields, political instability in Kuwait, incessant threats of Al Quiada, cold winter in the whole of Europe, unprecedented growth of Chinese economy and increasing of oil consumption there. Against this background, the tendency of increasing of gasoline prices that started in late December stopped for some time, but now the prices are rising again. The price of “Super” gasoline has become 155 tetri. The world gas price has increased as well. Oil Prices Exceed the Level of 69 USD There are reports from London that the price for one barrel of oil is higher than 69 USD. Since 1 September, 2005, the highest oil price was fixed in New-York – 69.20 USD per barrel. Analysts believe that oil price will exceed the level of 70 USD and, according to them, such increasing of oil price was expected, and they conclude that cheapening of oil in future will not be a surprise to them. After the August hurricane in the Gulf region, the futures price for crude oil has reached a historical maximum. After the destructive hurricane, a barrel of oil cost 70.85 USD in New-York, and in London – 68.89 USD. Major oil producing countries – Iran and Nigeria have well-known problems, and, besides, Al Quiada’s threat to the US is added to this. Disturbances in Nigeria have already disabled Africa’s largest oil field, meanwhile Iran and the West sort out their relations – Europe is strongly opposed to Iran’s nuclear program. China’s largest oil and natural gas corporation SNOOC agrees to purchase a big share of capital of Nigeria’s field. China has to import 1/ of crude oil, the country’s demand for oil has doubled over the past decade. France is trying to reduce oil consumption because of the increased oil prices which caused confusion in the world economy. French President Jacque Shirak has made a statement on the plan in accordance with which more attention should be paid to nuclear power stations. He also stressed that France should develop solar energy by means of which oil consumption will be reduced. The world famous oil company Royal Dutch Shell has suffered serious losses in Nigeria after its 4 workers were kidnapped and the pipeline was damaged. After this incident the oil field was closed down there as a result of which the company has lost a great amount of produce. In January unknown people attacked another oil pipeline in south Nigeria. The company’s representatives say that recovery work at the pipeline is underway. In spite of the fact that Nigeria is Africa’s largest oil producing country, the income per head is very low there – 260 USD, and unemployment rate in some regions exceeds 90 %. Shell owns a half of the country’s oil, however, the company constantly becomes a target of local villages’ inhabitants that kidnap workers, brick up oil wells or use other violent methods for blackmailing Shell and other companies. The US experts say that in 2006 the price of natural gas will increase as well. According to their forecast, in July of this year natural gas price will increase by 57 cents. The demand for natural gas will not considerably increase this year, but in 2007 a 1. % increase is expected. In 2006-2007 the demand of dwelling houses for natural gas will increase by 0.8%, and the demand of enterprises – by .5%. In spite of the fact that most of the fields on the Gulf coast have been restored and will be enabled in spring, the price for energy resources is high again. Historically, oil and Gas 24 high prices, especially for natural gas, remain a big problem for the US economy. After the known confrontation between Russia and Ukraine over the gas issue, natural gas is rising in price in Europe. The Western Europe is painfully affected by the fact that 25% of its natural gas supply falls on Russia. According to forecasts, natural gas price in the UK will increase by 9 cents in 2006. Analysts call this phenomenon “a geopolitical drama”. Another country rich in oil – Kuwait also found itself in the focus of attention. Its government declared that their Emir is too old and sick (78 years old) to rule the country and addressed the parliament so that it would take necessary steps to dismiss him. The struggle for power as a result of which Abdullah al-Sabbah became the Emir after the death of his predecessor (at the age of 82) caused unprecedented political crisis in the gulf emirate. Futures are constantly increasing, analysts draw a parallel with the Iranian revolution of 1979 when oil price reached a historically high level. in Case of Sanctions against iran Oil Price will Exceed 100 USD The current oil price is almost 70 USD per barrel, but if Iran does not stop its nuclear program, oil will rise in price still more. Experts believe that if UN Security Council imposes trade sanctions against the Middle East countries that are trying to create nuclear weapons, Iran will in response stop oil export which will by all means cause a global economic downturn. This represents a serious dilemma for The US and the European Union and they do not know how to act. However, stopping of export will cost Iran dearly as well, and will be a very active step. Iran is the world second largest oil producing country, its daily export makes up 2.5 million barrels. Russia May Reap a Profit Senior researcher of Rand Co, James Bartis says that if Iran withdraws a small amount of oil from the market, its price will exceed 100 USD, and this is not an exaggerated statement. However, another group of analysts believes that oil price will not be higher than 75 USD since along with decreasing of business activity the demand will decrease as well. So, who will suffer losses? The US and other nations maintain that it will be Iran and declare that they will not tolerate any economic blackmail: “We cannot be frightened of their threats to the economy”, – says a republican from Mississippi to CNN. Meanwhile oil prices are rising again, and Iran cannot get rid of the consequences of 1980-88 war with Iraq. On top of everything, Russia, which is rich in oil, may reap a profit out of high oil prices and equally high demand if Iran Iranian oil will disappear from the market. According to the Federal Statistics Service of the Russian Federation, gasoline price in Russia decreased by 0,1% in December, while in 2005 it increased by 15,8%. At the same time gasoline producers reduced its price in December by 11,8%, However, on the whole the prices rose by 18,1% last year. The government predicts rising of gasoline prices by 11%, and market participants warn against its deficit. According to “Rosstat”, 2 million tons of gasoline was produced in Russia in 2005. It also informs that oil producing companies increased prices by 40.9%, and the tariff for pipeline transportation increased by ,5%. According to Vice President of Moscow Fuel Association – Aleksei Nebolsin, the rate of rising of gasoline prices in 2006 will not exceed the inflation rate and will make up 10-10,5%. Vice-Premier Aleksandr Zhukov shares this opinion: “The rate of rising of gasoline prices will be compatible with the inflation rate, which means that gasoline will rise in price for one ruble a year on average”. “Gazprom” Wants to Implement a New Project in Uzbekistan Russian energy giant “Gazprom” is planning to reach an agreement with Uzbekistan in order to export three times as much natural gas from Central Asia. The Chairman of “Gazprom” Aleksey Miller visited Tashkent and met with President Islam Karimov with he purpose of consideration of these issues. According to “Gazprom’s” statement, the meeting was a planned one, though Uzbeki government denies this fact. “Gazprom” exports 5-6 billion m of natural gas annually; according to the company’s new plan, the export’s volume should increase to 17-18 m . In case of reaching an agreement, “Gazprom” will become a de facto monopolist in exporting gas from Uzbekistan. “Gazprom” is actively cooperating with a former soviet republic of Uzbekistan. The company is constantly developing the Kungrad- Shakhpakh deposits in western Uzbekistan. Official representatives of the both parties stated in December that they are planning to developed the state-owned natural gas deposit, which will cost 1 billion USD. Among the former soviet republics, Uzbekistan is the second largest gas producing country, however, most part of the produced gas is consumed by the country itself. Uzbekistan produces about 55 billion m of natural gas a year. China and Saudi arabia Sign an Energy Package China and Saudi Arabia have signed an agreement based on which they will actively cooperate on energy issues. The agreement on “oil, natural gas and minerals” was signed by Saudi Oil Minister Ali Al Nuaim and Chinese Minister of the Board for Public Development and Reforms Ma Kai. Saudi Foreign Minister said before the signing ceremony that this agreement will provide a basis for future relations between the two countries. Analysts point out that this agreement is the first one of this kind between the two countries. Saudi Arabia is the world largest oil exporter, while China is the second largest oil consumer in the world. Last year China imported 20 million tons more from Saudi Arabia, which makes up 14% of China’s total import. Under these circumstances, in conditions of unchanged taxation, gasoline price in Georgia in the first half of 2006 will rise to 165-180 tetri, while diesel fuel price – to 1 5 tetri. As to 110 USD Turkmenian-Russian gas, a more expensive Iranian one will be added to it, and the total price for 1m2 will be more than 27 tetri if the state does not pay for the difference between these prices or does not change taxation policy in gas sector.