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USA Under Obama Worries GME Oil Producers; But Some Talk Of Nationalisations.

*** Obama's Energy Secretary, Nobel Prize Laureate Steven Chu, Has An 'Aggressive But Achievable' Plan For Major Increases In Vehicle Fuel Efficiency, Big Rise In Biofuel Production And CO[sup.2] Cap&Trade Programme - These And Other Low-Carbon Plans And An Increase In Domestic Oil & Gas E&P, Must Help In Ending US Dependence On Foreign Supply Of Petroleum

*** In Most Of His Statements To The Public, Mr. Obama Mentions More About His Preference For Renewables And Higher Spending On R&D In Search For Better Technologies To Make Alternative Fuels Commercial And Exportable

*** Energy Security Via Independence Projects Is A Top US Priority, Affecting OPEC, Russia, Etc.

NICOSIA: Under President Barack Hussein Obama, a Democrat who took over on Jan. 20, the US will be the first world power to focus on the non-petroleum sector in its energy policy. Unlike his Republican predecessor George W. Bush, Obama is adopting the Kyoto Protocol on climate change and is turning against fossil fuels which are seen as a primary cause of global warming. His new administration will spend $15 bn per annum for 10 years on renewables and energy efficiency. One of Obama's objectives under this plan is to create 5m "green collar jobs" in the US - with him hoping there would be 2.5m new green jobs under his four-year term. This and other achievements might help him win a second term. Obama has promised the US "will share" its technology with other nations, including Iraq and Saudi Arabia if they are interested.

Saudi Arabia, however, is the world's biggest exporter of crude oil (with its heavy and sour crudes being among the worst fossil fuels for the environment) and has the globe's largest reserves of conventional oil. A shift against fossil fuels by the US, now the world's biggest consumer of this oil, goes directly against Saudi Arabia's top strategic priority: to preserve the leading share of conventional oil in the global energy mix. It is also against Russia's strategic priority.

This US shift is causing Saudi Arabia's partners in OPEC to opt for defensive moves and the radicals among them are beginning to think again of oil nationalisations - i.e., seizing the assets of IOCs as they did in the 1970s. Libyan ruler Mu'ammar al-Qadhafi, among the first to seize IOC assets in the early 1970s, now is saying such measures might be inevitable if the oil exporting states are to control the market and reverse the fall in oil prices. This could potentially cause a confrontation with the West.

On the other hand, the leadership in the UAE emirate of Abu Dhabi is going green is thus setting a new trend among the relatively wealthier members of the oil club. Abu Dhabi, now having the biggest sovereign wealth fund (SWF) in the world, is moving into renewables and having a $22 bn carbon-free city built as a model. Its strong-man, Shaikh Muhammad bin Zayed al-Nahyan, is behind this shift. His projects will have global implications. The $1 trillion Abu Dhabi Investment Authority (ADIA), its biggest SWF, is backing these projects. Its diversified SWF, Mubadala Development Co., is the parent of Abu Dhabi Future Energy Co. (Masdar), a huge company to have $35 bn in clean energy investments including the carbon-free city (see omt4AbuDwho'sJan26-09).

In Iraq, meanwhile, there are mounting concerns over interest in Baghdad's first auction of fields and gas fields. With crude oil at the $30-40/b mark, not all IOCs are going to proceed with what remains a very risky play. Several prominent IOCs pre-qualified to bid in Iraq's first oil round warn they will not proceed with firm bids. Senior Asian and Western executives say the oil glut and an unprecedented global squeeze on bank credits are deterring them from making offers (see ood1-IraqOilJan26-09).

At a dinner on Jan. 25 for visiting King Juan Carlos of Spain, Qadhafi said Tripoli could nationalise foreign oil firms operating in the country unless crude oil prices rose to $100/b. He said: "There have been calls for the nationalisation of the oil and gas industry. We hope this will not happen. We hope oil prices will rise to a reasonable level. A price which stabilises at around $ a reasonable target price".

The Libyan press wants the petroleum sector to be nationalised to enable Tripoli to control production levels and stop oil price falls. Qadhafi has since said repeatedly that nationalisation was "a legitimate right" and would allow Libya "to control the oil industry without foreign participation". But the Libyan ruler, whose country now has a capacity to produces 1.7m b/d, had given IOCs assurances that no rash decision would be taken.

Qadhafi said: "In the past, decisions on nationalisation have been taken unilaterally and rapidly... But today I don't think that [Libya's] executive bodies would take any such sudden decision. There must be a compromise with the foreign partner". Yet his nationalisation calls have raised fears among IOCs. Libya is Africa's third-largest oil producer after Nigeria and Angola, and has 42 bn barrels of proven oil reserves. But it is under-explored.

Speaking via a satellite link to students at Georgetown University in Washington, Qadhafi on Jan. 21 called the current low price of crude oil "unbearable", compared to a peak of $147.27/b for paper WTI on July 11, 2008. He said: "We would not adhere to OPEC's regulations because our livelihood depends on oil". He did not explain how Libya might not stick to its OPEC production quota. Last month, Libya told oil firms to cut output by 270,000 b/d from Jan. 1, more than the curb it needs to make under an OPEC deal to produce less.

Qadhafi, no longer taken seriously by the Arabs or in most African states, referred to recent Libyan press reports over the nationalisation calls. The daily widely seen as his mouth-piece said the Basic People Congresses, Libya's top executive and legislative bodies, should vote to nationalise oil firms. He told the Georgetown students: "Oil exporting states may move towards nationalisation because of the rapidly declining prices. This is put on the table and is being discussed seriously... Oil maybe should be owned by national companies (NOCs) or the public sector at this point, in order to control the oil prices, the oil production or maybe to stop it. We may refuse to sell it at this very low price". This is just one example of his inconsistent statements.

Reports of nationalisation came after Libya's state-owned National Oil Corp (NOC) issued a report for 2008 suggesting officials wanted to modify policy based mainly on exploration and production sharing agreements (EPSAs). Some diplomats argue such reports are aimed at putting more pressure on IOCs in forthcoming negotiations. Libya in 2008 earned $5.4 bn in additional oil revenues from changes to EPSAs with four IOCs, NOC said in its report made public earlier in January.

Prominent Libyan oilman 'Umar al-Badri was on Jan. 23 quoted by MEED as saying Arab political reaction to the recent Israel-Hamas war in the Gaza Strip could prompt the nationalisation of oil and gas resources in the region. Badri, who was secretary-general of OPEC in 1970 and is now a consultant in Libya, told MEED the nationalisation talk now was mere "hearsay" but such a move was "in the offing". He said a lack of Western reaction or intervention in Gaza had led to ill-feeling in the Arab world, and the nationalisation of assets may only be part of a wider movement. He added: "I feel it also in Iraq. There is so much anger and frustration. As a political commentator, I can say that all sorts of reactions are going to take place".

Badri, distinct from OPEC's current Secretary-General 'Abdullah al-Badri of Libya, said: "You can never hold out on the political implications. We have failed to use [oil] post-Gaza, but in this part of the world we are going to see a chain reaction. What happened in Gaza was on such a terrific scale that you cannot imagine that we can just turn the page. Something more drastic will come".

However, Craig McAhon, lead analyst for North Africa and the Middle East at UK-based energy consultant Wood Mackenzie disagrees. He says the situation is "politically engineered" and that nationalisation "won't happen" as Libya required the IOCs' expertise and technical input.

In a luncheon speech to the Bilateral US-Arab Chamber of Commerce in Houston, Libyan Ambassador 'Ali Suleiman Aujali on Jan. 27 said paper WTI at $100/b was a fair price for all concerned. He said Tripoli was open for business and needed investors in the petroleum sector as well as expertise on infrastructure projects. But later he said he could not guarantee that Libya would not nationalise foreign petroleum interests. He asked: "Who would have believed the American government would be so involved in the American economy the way it is now?" - referring to the US federal government's $1.5 tn bail-out of numerous banks and the auto industry.

Aujali said Libya had the biggest budgets in its history in the last three years, with much of the spending focused on badly-needed upgrades to its infrastructure. He would not say on what crude oil price Libya based those budgets. Because of nationalisations and poor resource management by its regime, Libya has lost more than half of its crude oil production capacity since the mid-1970s, when its output would exceed 3.5m b/d. Without the help of IOCs which have returned to Libya since its long isolation ended in 2004/05, the country's petroleum sector could fall into chaos again.

Resource nationalism has caused Venezuela to lose over 2.1m b/d of oil production capacity since early 1999, when populist President Hugo Chavez came to power; Iran is losing 500,000 b/d of capacity every year, down from over 6m b/d in the 1970s; and Russia has lost over 1m b/d of capacity since Vladimir Putin began squeezing IOCs out of his country in recent years. Now Caracas is reversing that policy and inviting IOCs back to Venezuela (see this change and other the implications of erratic decisions in omt3AbuDexportJan19-09).

Russian Navy Bases In Libya, Syria & Yemen; But Sends Positive Signal To Obama & EU: Itar-Tass on Jan. 16 quoted a Russian military official as saying Moscow had decided to establish naval bases in Libya, Syria and Yemen within a few years. He added: "It is difficult to say how much time it will take to create the bases for our fleet in these countries, but within a few years this will be done without question. The political decision on this question has been taken".

Last week, Interfax quoted a Russian military official as saying Moscow was no longer to deploy missiles in Kaliningrad. US-Russia relations are expected to improve considerably in the coming months in view of a change in the order of strategic priorities by the Obama administration - such as putting off the proposed missile defence shield in Central Europe and not pushing Ukraine and Georgia towards joining NATO, in return for Russia committing itself to prevent Iran from having atomic bombs.

PM Putin on Jan. 29 told the World Economic Forum (WEF) at Davos the globe needed a new energy charter for energy security, saying: "The collapse of the oil price will encourage irrational investment... We need balanced prices...[and] common tariffs for the movement of energy, with diversification of routes and types of transport". He outlined plans to build several new pipelines to achieve the security of transport he was describing. He listed energy pipelines to the east, north, south and west.

Putin spoke of new lines through the Baltic and the Black Sea in the north and west, through the Caspian in the south, and in east Siberia reaching the Pacific. His call came after a review of the global recession, which he likened to a perfect storm, in which all the elements came together and multiplied their effects. He said: "This was a crisis which had been treated as though it was totally unexpected, but in fact it was as unexpected as winter, which comes to Russia every year. It was due to the collapse of the system, low quality of management, a mis-match between risk and gain, one economy printing money [referring to the US] and another saving money [China], and inflated expectations supported by nothing".

Looking ahead, Putin said all states should "avoid any drastic step which we will regret later. We have to avoid protectionism, and have no barriers to trade, which will simply worsen the global financial crisis". He said Russia would work with the US, EU and other parts of the world to resolve the crisis, adding: "We must all act together. We cannot afford to be isolationist and egoistic". He warned against too much interference by the state, saying: "In Russia we have already paid a very dear price for that", referring to the experience of the USSR.

Putin then listed steps he recommended for stopping the recession: "We should draw the line now. Write offs should be efficient. We should clear up the bad assets and stop fake money. The rating system should be based on fundamentals. We should encourage the emergence of several reserve currencies". Finally, he echoed calls from many others at the WEF to change the international bodies which monitor the financial system, saying: "We need global multilateral organisations, with more equitable economic architecture".
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Title Annotation:Barack Obama and the Greater Middle East
Publication:APS Diplomat News Service
Article Type:Report
Geographic Code:7UNIT
Date:Jan 26, 2009
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