CIS Oil & Gas Magazine

Making Progress

Energy Security in the 21st Century - The Assurance Infrastructure Model (AIM)


  C2G Energy in the Press

Private defence industry can ensure security of oil supply

Financial Times letters, 19 November 2008

Sir, The hijacking of the Sirius Star (reports, November 18) highlights the growing capability and capacity of pirates to undermine the economics of energy transportation. Ships can now be attacked on the high seas, along both European Union and US oil routes. This expansion of activities profoundly decreases the probability of detection, while increasing exponentially the reaction times by security forces. This is a setback.

Surely a new solution is now required to focus more on the economic impact of such a security of supply disruption? The use of international law to close down sanctuary locations, for example; a better understanding of the oil geopolitics in the region, which intrinsically also supports the final key factor; a transformation of the security strategy from one of reaction (based on deploying troops) to one of prevention, based on technology, intelligence, and law.

The sector best suited to harness these three activities into an economically driven assurance infrastructure model is the private defence industry. Unlike the private security industry, defence has the commercial scale, national security clearance with defence ministries, technology (satellite coverage, early warning systems, communications integration with coastguards/navies, intel ligence gathering etc) and geographical footprint to create such a preventative model as a solution to this growing economic problem, essentially, one of security of supply.

Such a commercial model does exist in the marketplace today. With Nato and the multinational naval force stretched even tighter now, and the International Maritime Organisation talking of creating its own defence force, the defence sector could play a role as a powerful industry partner, with a formidable commercial contribution.

Tim Reilly
Chief Eexecutive
C2G Energy
London SW1P 1SB


EU behind the curve on Russia energy matters

Financial Times letters, 5 September 2007

Sir, Katinka Barysch's article "The best answer to Gazprom is faster reform" (September 3) reveals more about European Union energy policy than it does about Gazprom. At every turn the views are incomplete, outdated or plain wrong. It is not in any Russian political group's interest to damage Gazprom; to be used somewhat around election time, yes, but to suffer collateral damage, no.

In the late 1990s the Russian Federation government appealed to "big oil" working in Russia to invest in non-oil capital projects to develop the Russian far east. They did not respond. However, some US oil companies did recognise the new deal in Russia: allow Russian energy companies into downstream ventures in the US/west in return for equity oil and gas in Russia (and help with national development projects). To suggest that the EU has now "come up with a possible solution" along these lines a decade later only illustrates how worryingly behind the curve it is regarding Russian energy matters.

Nor has BP or Shell been "pushed out" of Russia, as Ms Barysch asserts; Russia/Gazprom knows very well about the criticality of booked equity oil/gas for international oil companies, and this explains partly why neither Shell nor BP has chosen to leave Russia following recent events.

As to foreign cash and western technical investment being reduced as a result of events at Sakhalin and Kovytka, I suggest the EU energy folk take a look at the buoyant share prices in the oil services sector, with chief executives such as Schlumberger's publicly attributing a large part of their share price success to Russian activities.

Meanwhile, is the EU not aware of the deals President Vladimir Putin has agreed now with important central Asian countries to deliver oil and gas to Russia, and Gazprom's moves into its own coal sector (for domestic power generation, and in order to free up Russian/CIS-delivered gas to the EU)? This is one reason they can delay (but not avoid) upstream/infrastructure investment. Gazprom's ventures with the likes of Algeria's Sonatrach, which has already got liquefied natural gas infrastructure and gas contracts in place, is another typical reason.

To lecture Gazprom on EU/market principles and EU transparency takes some gall; the French government's principal reason for pushing the Suez/Gaz de France merger is to prevent a foreign takeover by another EU member. As Ms Barysch points out, the main opponents of unbundling (and, de facto, open competition) are France and Germany! The comment "given [Gazprom's] supposed shoddy management, asset grabbing and political meddling, Europeans may be forgiven for asking whether it understands market principles" is just plain wrong.

It occurs to me that Gazprom knows only too well about market principles, and the EU does not like that at all.

Tim Reilly
Chief Eexecutive
C2G Energy
London SW1P 1SB


Russia knows its history - and it plays a mean game of chess

Financial Times letters, 16 July 2007

Sir, The FT reports (July 12) that Total now holds a 25 per cent stake in the project company operating the Shtokman field. It is no surprise at all that Gazprom has chosen a European player and not a British/American major for this project.

At the same time elsewhere in the FT the same day, closer relations are reported between France's Gaz de France and Algeria's Sonatrach. The broader plan is to establish an economic partnership between resource-rich north Africa and energy hungry southern Europe. Gazprom is also in active talks with Algeria and has discussed joint upstream and downstream ventures in third party countries with Sonatrach, a gas concern that already supplies significant gas/LNG supplies to southern Europe, namely Italy, Spain and France.

Together these two announcements represent the culmination of a Russian energy strategy to dominate Europe from both the north and south of the region that has been at least 10 years in the planning. Gazprom probably cannot believe its luck that it has, to date, not been spotted.

Over the last 10 years French and Italian oil companies have quietly negotiated, in their respective former colony countries of Algeria and Libya, upstream positions for Russian energy companies. This is in return for Russia writing off previous Soviet weapon debts to these African countries. And the reward for France and Italy in all of this? In the coming months/years their respective national champions will be rewarded with choice upstream equity positions in Russia. Thus, Total's inclusion in Shtokman is entirely predictable and politically logical.

Russia understands history and it plays a mean game of chess. Using the cover of former colonial powers in key energy producing countries in north Africa to negotiate a position for its own energy industry in Algeria/Libya, under the eyes of the west, was a masterclass in the understanding and application of western colonial history to contemporary energy geopolitics. I imagine the next major step in this strategy regarding Gazprom will be the world's first merger/partnership or strategic JV joint venture, with another national oil company for joint activities outside of Russia. It may be Sonatrach; it may be a European major. What it will not be is a British or American international oil company.

To those in Europe demanding a competitive, deregulated and unified European energy industry to stand up to Gazprom's dominance in Europe, the message is: look to your own if you want to apportion blame. Gazprom only did what any smart international oil company would do given the chance. Alongside Total, Gazprom will seek the US market with its LNG from Shtokman. In a possible partnership with Sonatrach, Gazprom would dominate pipeline gas into southern Europe, thus freeing up Algerian/Russian LNG to sell into the Atlantic and Pacific basins, and take advantage eventually of the developing (and hugely profitable) LNG spot market.

Check mate, Comrade!

Tim Reilly
Chief Executive
C2G Energy
London SW1P 1SB