BLUFF OR REALITY?

The debate about alternative energy projects, the role of traditional energy sources in the global economy and their prices in the foreseeable future took a strange turn in November. In the first 10 days of last month, the International Energy Agency (IEA) presented a report, claiming that recovery in the world economy may very soon lead to a deep energy crisis, with increased demand for fossil fuels from China and other developing countries, as well as a shortage of oil supplies and price hikes. The reverse is projected for the gas sector. According to the report, in the short-term, the traditional price link between oil and gas will disappear. This will be exacerbated by the development of new deposits in the USA and a sharp increase in liquefied gas supplies. Thus, the prevailing relationship between the prices of gas and oil will disappear, with beneficial effects on consumers' gas bills. Amid the global economic crisis and with closer attention to renewable energy resources, the IEA predicts a significant fall in demand for gas by 2030. Excess on the natural gas market will lead to lower prices and reduce Russia's control over energy supplies to Europe. Another consequence of this phenomenon will be a blow to Russia's ambitions in terms of sales abroad of liquefied natural gas. The expediency of building capital-intensive gas pipelines is thrown into doubt, while opportunities for using the "energy stick" as political pressure are reduced. Although the IEA says that the peak in the world's oil production has already passed, it also predicts a certain increase in oil prices: in 2020 - $100 and in 2030 - $115 per barrel.

The report also pays close attention to the environment. For example, it states that if the world continues to expend non-renewable energy sources at the current rate, the average temperature on Earth will rise 6 degrees by 2030. In order to avoid dramatic consequences, it is necessary to spend about 10.5 trillion dollars in additional funds to develop new, low-carbon energy resources between 2010 and 2030.

It should be noted that during US President Barack Obama's visit to Japan, one of the important topics discussed was the search for and greater use of eco-friendly alternative energy. For example, the production of vehicles running on hydrogen was examined.

How true is the IEA report? Is it not a clever move of the knight? It is possible that the report is politically convenient in an era of increased geopolitical games going on around Russia, China, the South Caucasus, Central Asia and the Greater Middle East, especially as some current and former senior members of the IEA recognize in private conversations with the press that in some reports the agency has not disdained to "correct" figures at the request of, and in the interests of, Washington.

A few words about the upsurge in oil prices in the short-term. I think that the US is not opposed to such a scenario, because it is not only the largest consumer of traditional energy resources, but is also a no less important producer of energy. Besides, the bitter struggle for control over energy-rich regions is aimed at reaping economic dividends. Washington's desire to break the "oil-gas" price link is dictated by the US-Russia confrontation. Although Russia is the world's leading oil producer, its reserves (79 billion barrels) comprise only 4.6 per cent of world reserves (7th in the world order). On the other hand, the West is not as heavily dependent on Russian oil as it is on its gas. In the former, the West has good support in the face of OPEC countries and the rich reserves of the Middle East region. To a certain extent, high oil prices are of benefit to the United States. High oil prices are often due not to increased demand, but to skilful speculation, in which American financiers are unmatched. Control over Iraq is an excellent opportunity for the US to pump oil out without answering to anyone. No-one knows what kind of profit Washington received during the period of high prices for oil, using such a windfall.

And finally, high prices for conventional energy reserves weaken the dollar, which is very advantageous to Washington as long as the global financial crisis continues. Breaking the "oil-gas" price link may in fact result in a decline in natural gas prices, which will primarily affect Russian's economy. It owns 28 per cent (47.5 trillion cubic metres) of proven world natural gas reserves. This makes it the world leader. There is a similar picture in gas production (673 billion cubic metres).

Next year Russia will face a gas reduction of 75-150 billion cubic metres, due to the depletion of easily accessible deposits. This may cause problems in supplies to foreign consumers. Russia's gasification only to 60 per cent and insufficient investment in the development of new deposits are not conducive to development. This is why Moscow has made tremendous efforts towards securing the wholesale purchase of gas from other Caspian countries in the post-Soviet area, trying to fill the South Stream and Nord Stream pipelines. Such a scenario would be absolutely disadvantageous to Washington, which is trying to bring down gas prices through the construction of alternative pipelines. The forecast of the imminent demise of the era of traditional energy reserves is clearly exaggerated. Or rather, it is a political directive in someone's interests. Otherwise, there would not have been intriguing surrounding alternative energy routes last month.

During his visit to Azerbaijan, the deputy director of the same IEA, R. Johnson, focused on the fact that, due to the depletion of traditional energy resources, especially in the North Sea, the global community has designs on and plans for the Caspian region. Thus Baku should handle its energy reserves carefully and lobby actively for alternative energy projects that benefit Azerbaijan itself. This focus is also dictated by Azerbaijan-Russia and Azerbaijan-Iran gas contracts. No less intriguing was the 4th Energy Summit held in Budapest in November. Washington predicts that this winter the EU countries will once again face Moscow's "gas stick". Hungary and the Czech Republic, sharing this view, immediately began to take measures to ensure energy security, for at least this season. At the same time, Budapest threw a spanner in the workings of the Russian monopoly Gazprom. The Europeans say that the Russian monster is buying shares in European energy companies through figureheads and false firms, trying to break into the internal markets of European countries. Senior Advisor to the US Special Envoy for Eurasian Energy Daniel Stein said, during his visits to Turkmenistan and Azerbaijan, that his country was ready to mediate in the dispute between Ashgabat and Baku to clarify the origin of three gas fields in the Caspian Sea. Regarding the transportation of Turkmen gas, he noted that this should happen only by transit through Azerbaijani. The Americans' mood in such a delicate matter could be spoilt by a statement by Arnaud Breuillac, vice-president of the French company TotalFinalElf (co-owner of 10 per cent of shares in the Sah Daniz-1 project): "The Azerbaijani-Turkish talks on the transit price of gas are progressing with difficulty. If Ankara takes an unfair position on the tariff, the shareholders of Sah Daniz-1 will be forced to consider alternative routes, not excluding Russian and Iranian transit." But, apparently, Washington has no intention of bowing to its European allies in such sensitive matters. Thus the words of US Special Envoy on Eurasian Energy Richard Morningstar, perhaps, will prove to be a cold shower for some European heavyweights. The US official flatly rejected Russian and Iranian transit in the event of failure in the Turkish-Azerbaijani talks to find alternative routes. In such a situation, the US would prefer a delivery of natural gas from the Caspian region in compressed, liquid form to the Black Sea and thence pumped via White Stream. But Washington is not so much against the participation of Iranian gas in alternative projects as against an Iranian transit route for Caspian gas. Washington is apparently in a hurry to begin energy delivery from this region and to bypass Russia and Iran by any means, despite the lack of alternative pipelines. Fortunately, compressed, liquefied gas creates this opportunity. The construction of factories to produce it in Azerbaijan and Turkmenistan is a matter of time. Incidentally, this gas is increasingly gaining a place in the sun.

On the other hand, the German company RWE (a member of the Nabucco group) has already started gas production on the Caspian shelf of Turkmenistan, and it is possible that this gas will be used in the Nabucco project. The head of the company's Turkmen representation believes that the creation of connecting communications between Azerbaijani and Turkmen platforms in the Caspian Sea would be the best option.

Such alacrity by the United States is also due to lengthy discussions about the financing of Nabucco. As a result, the Caspian producer countries, wishing to gain direct access to world markets, might turn towards Asia. SOCAR Vice-President E. Nasirov even openly hinted at such a possibility. Indeed, there are many oddities in Europe's behaviour concerning the implementation of Nabucco. Russia is ready to finance the South Stream and Nord Stream alone, which will require much more investment than Nabucco. At the same time, the leading EU countries (Germany, France and Italy) are sabotaging the financing of Nabucco, which requires 8 billion euros. The positions of these countries, which are engaged in backroom bargaining with Moscow, in pursuit of their own economic interests, may eventually bury alternative energy projects. This is why Nabucco's construction schedule was disrupted again in November. The final investment contract for the project was postponed from the first to the fourth quarter of 2010. Once again, the common European community did not want to help, while Moscow, through economic preferences in favour of Finland and Sweden, managed to overcome their resistance to the realization of Nord Stream. The US is absolutely against such a disposition. Washington's irritation also becomes evident in a statement by Associate Director of the Eurasia Energy Centre at the US Atlantic Council, Alexandros Petersen, who called Nord Stream a "Ribbentrop-Molotov" gas pipeline, which sounds like open criticism of German Chancellor Angela Merkel. This suggests that Washington is becoming disenchanted with its European allies. Iran immediately reacted to a US proposal for mediation between Azerbaijan and Turkmenistan, even though the official positions of the parties themselves are still unknown. Iranian Foreign Minister Manuchehr Mottaki says that all the problems of the Caspian region, from the status of the Caspian Sea to bilateral problems between countries, must be addressed collectively and only with the participation of the five littoral states, without outside interference. But he somehow failed to touch on the unconstructive position of Tehran, which is the most important obstacle to the determination of the status of the Caspian Sea. All the above shows that, despite IEA claims, the era of traditional energy resources is not going to give up so easily, as proved by the increasing struggle for control. And this era will not soon yield to renewable alternative energy. Although it should be noted that many countries have focused on the use of precisely such energy sources. Last month Azerbaijan's President Ilham Aliyev even signed a special decree "On additional measures to use alternative and renewable sources of energy in the republic". Nevertheless, we cannot rule out a fall in natural gas prices, which is quite possible due to increased supply. This may also be bolstered by alternative gas pipelines. But prices are unlikely to collapse. The rising demand in the world economy for traditional energy resources, especially in rapidly developing countries, can play a moderating role. On the other hand, there may be attempts to reduce gas prices through skilful games at exchanges. The main target will be the Russian economy. The West is trying to prevent excessive enrichment of Russia, which is tightening its rhetoric in its relations with the West. The IEA report is also an instrument of psychological pressure on Moscow. Now that an end to the era of traditional energy resources is being predicted, before embarking on the construction of capital-intensive pipelines, Russia will have to decide: "Is the game worth the candle?"