The countries/regions listed in this report are: a) important from an energy perspective; and/or b) experiencing significant economic, political, or other problems which currently (or likely in the short-term) could affect their energy sectors. Information contained in this report is the best available as of August 2000 and can change.
Caspian/Caucasus
Main Concerns: The Caspian Sea is developing into a significant oil and gas exporting area, and the Caucasus is a potentially major world oil transit center. Proven oil reserves for the entire Caspian Sea region are estimated at 18-35 billion barrels, comparable to (or greater than) those in the United States (22 billion barrels) and the North Sea (17 billion barrels).
Natural gas reserves are even larger, accounting for almost 2/3 of the hydrocarbon reserves (proved plus possible) in the Caspian Sea region. Getting this oil and gas out of the region to world markets, however, is complicated by several factors, including geography and geopolitics.
The "northern route" for early oil from Azerbaijan, for instance, which (combined with a western route to Georgia), could carry up to 235,000 bbl/d, passes for 80 miles through the war-torn Russian republic of Chechnya en route to the Black Sea port of Novorosiisk.
Deadlocks over negotiations prompted Russia to announce that it would build another pipeline that would bypass Chechnya. One proposed alternative pipeline would use the northern route, but would add a new segment that would pass along the Chechen border in the southern Russian republic of Dagestan, and then proceed towards the Stavropol region, ending at Terskoye in North Ossetia. Dagestan has security concerns of its own.
In August 1999, fighting flared between Islamic militants (largely from Chechnya) and Russian forces in Dagestan, and in late September 1999, Russian troops invaded Chechnya for the second time in the past five years, largely in response to the Dagestan situation.
Russia's military action in Chechnya, which continues as of early August 2000, has potential implications for increased usage of the Baku-Novorosiisk pipeline, which has throughput capacity of 140,000 bbl/d but is usually loaded with no more than 40,000 bbl/d. The Transneft oil transport company announced in late December 1999 the completion of the first stage of a Baku-Novorosiisk pipeline bypassing Chechnya, and despite an estimated cost of $250-$300 million, the ongoing Chechen conflict may make the bypass pipeline more attractive.
INDONESIA
Main Concerns: Indonesia has experienced significant economic and political turbulence over the past few years, which has impacted the country's energy sector. In August 1999, for instance, violence erupted in East Timor, which had voted for independence.
Ultimately, this led to the introduction of a multinational peacekeeping force to the region. East Timorese independence has called into question the Timor Gap Treaty, under which Indonesia and Australia had agreed to split revenues from oil and gas development in the Timor Gap.
The Timor Gap is being explored by Pertamina, Phillips Petroleum Co., BHP, Santos, and Shell Australia for possibly large oil and gas deposits. Although East Timorese pro-independence groups have said they would honor the Timor Gap Treaty, there is no East Timorese government yet to confirm this officially.
On September 7, 1999, Indonesia's Energy Minister announced that Indonesia would revoke the Timor Gap Treaty and that the matter now "is up to the next government of East Timor." The treaty currently is being renegotiated.
Besides East Timor, Indonesia faces a separatist movement in Aceh, an oil and gas rich province in north Sumatra which abuts the strategically important Strait of Malacca, as well as communal violence between Muslims and Christians in the Molucca islands.
In addition, communities in Irian Jaya and Kalimantan have demanded higher revenues from natural resources produced in their regions. Finally, Indonesia's President Wahid has been under fire, and on August 10, 2000, was pressured into handing over daily supervision of his government to the Vice President, Megawati Sukarnoputri.
Indonesia's oil refining and liquefied natural gas (LNG) sectors were adversely affected by the Asian economic crisis. Indonesia's oil demand, which had been growing rapidly for years, fell from 999,000 bbl/d in 1997 to an estimated 970,000 bbl/d in 1998.
As far as natural gas is concerned, Japan, which had been a fast-growing LNG market in recent years, now is unlikely to need more LNG supplies until 2001. In July 1998, Indonesia announced that it would postpone exploration at the giant (42 trillion cubic feet) Natuna natural gas field from 2003 to 2007.
In early July 1999, a mob attacked the Arun LNG facility (run by Mobil/Pertamina) and located in Aceh, part of the northwestern Indonesia island of Sumatra. Local residents apparently have been angered by their perception that the Indonesian government spends revenues earned in Sumatra (and Aceh particularly) on the island of Java, leaving Aceh behind.
IRAN
Main Concerns: U.S. economic sanctions and diplomatic pressure are complicating Iran's efforts aimed at attracting needed investment to its oil and gas industries. Iran's President, Mohammad Khatami, has expressed interest in a dialogue with the West, but the extent to which such dialogue may proceed given the extensive influence of the country's Islamist fundamentalists is uncertain.
Despite some moves towards improved relations between Iran and the West, particularly the United States, since Khatami's election in May 1997, no major breakthrough has occurred as of early August 2000. Continuing points of contention include: 1) Iran's opposition to the Middle East peace process; 2) U.S. accusations of Iranian support for various terrorist groups; 3) Iranian purchases of missiles and other military equipment from North Korea, Russia, and elsewhere; 4) the Iran and Libya Sanctions Act of 1996 (Public Law104-073), which authorizes the imposition of U.S. sanctions against foreign companies investing in Iranian oil or gas projects (originally applied to investments of $40 million or more annually, automatically lowered to $20 million one year after enactment); and 5) Iran's occupation of three islands in the Persian Gulf also claimed by the United Arab Emirates. The United States has had no diplomatic ties with Iran since 1979, after Islamic militants stormed the U.S. Embassy and held 52 Americans hostage for 444 days.
Iran currently is producing around 3.65 million bbl/d of oil (with net exports of about 2.45 million bbl/d).
IRAQ
Main Concerns: Iraq, which contains huge oil and gas reserves and is a major oil producer and exporter, has been subject to international sanctions since its 1990 invasion of Kuwait. Sanctions are to remain in place until Iraq complies with the provisions of the United Nations (U.N.) Security Council resolutions ending hostilities in the subsequent 1991 Persian Gulf War.
A key provision is the destruction of long-range missiles and weapons of mass destruction. However, Iraq refuses to cooperate with U.N. weapons inspectors responsible for verifying compliance.
On December 16, 1998, the United States launched air strikes against Iraq following a report by Richard Butler, head of the U.N. Special Commission in Iraq (UNSCOM), stating that Iraq was not cooperating on several fronts. (Note: On December 17, 1999, the Security Council adopted resolution 1284, replacing UNSCOM with the United Nations Monitoring Verification and Inspection Commission, or UNMOVIC). During the first half of 2000, Iraq produced over 2.5 million bbl/d and exported around 2.0-2.1 million bbl/d under U.N. Security Council Resolution 986, which allows oil sales to raise revenue for humanitarian purposes, war reparations, and U.N. operations in Iraq.
On June 9, 2000 the Security Council voted to renew the "oil-for-food" program for another six months. In anticipation of the eventual lifting of economic sanctions, Iraq already has signed potentially lucrative oil and gas deals (which will come into effect when sanctions are lifted) with companies from Russia, France, and China, and has invited international partners to invest in natural gas projects worth $4.2 billion.
Prior to August 1990, Iraq was producing over 3 million bbl/d and exporting 2.8 million bbl/d (1.6 million bbl/d via pipeline to the Turkish port of Ceyhan; 800,000 bbl/d via the IPSA2 pipeline across Saudi Arabia, which is currently closed; 300,000 bbl/d via the Persian Gulf port of Mina al-Bakr; and somewhat less than 100,000 bbl/d by truck through Turkey).
LIBYA
Main Concerns: On April 5, 1999, more than 10 years after the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland that killed 270 people, Libya, which exports around 1.2 million bbl/d of oil, extradited two men suspected in the attack.
In response, the United Nations suspended economic and other sanctions against Libya which had been in place since April 1992. These sanctions, expanded in November 1993, had included a freeze on Libyan funds overseas, a ban on the sale of oil equipment for oil and gas export terminals and refineries, and restrictions on civil aviation and the supply of arms. U.S. sanctions, including the Iran-Libya Sanctions Act (ILSA) of 1996, remain in effect. ILSA extends U.S. sanctions on Libya to cover foreign companies that make new investments of $40 million or more over a 12-month period in Libya's oil or gas sectors.
With the suspension of sanctions, numerous oil and gas companies are eager to either expand operations and/or reenter the country. A full lifting of sanctions may occur 90 days after the U.N. certifies that Libya has met all requirements, including renunciation of support for terrorist acts. On July 9, 1999, the U.N. Security Council issued a statement saying that while it "welcomed the significant progress" which Libya had made in complying with U.N. demands, that at the same time Libya would need to do more (i.e., cooperate with court proceedings, pay compensation to families if the suspects are convicted, etc.) before sanctions were lifted permanently. Meanwhile, on July 7, 1999, Britain reestablished diplomatic relations with Libya.
NIGERIA
Main Concerns: Throughout 1999 and early 2000, a situation of daily disturbances ranging from the southern Niger Delta region to Kano in northern Nigeria prompted President Obasanjo (elected in May 1999) to threaten to impose a state of emergency. In addition to inter-ethnic tension, there have been persistent attacks against oil companies by youths protesting the environmental degradation of indigenous homelands and their marginalization in terms of federal resource allocation.
The attacks have resulted in disruptions of oil production and exports.
Illegal fuel siphoning as a result of a thriving black market for fuel products has increased the number of oil pipeline explosions in recent years. The most serious disaster was the October 1998 Jesse fire in which over 1000 people died. One of the latest pipeline explosions outside Warri city in July 2000 resulted in 250 deaths, and marked (at least) the fifth such explosion during the last two years.
In an effort to stop vandalism, the Nigerian government has ordered satellite equipment from the United States to monitor pipeline and oil installations in the Niger Delta region. According to NNPC managing director Jackson Gaius-Obaseki, Nigeria lost an estimated $18.8 million (2 billion Naira) during the first five months of 2000 because of vandalism of fuel pipelines.
Nigeria is one of the world's leading oil exporters, with production of around 2 million bbl/d of oil in the first half of 2000, and with exports of around 800,000 bbl/d to the United States.
VENEZUELA
Main Concerns:Venezuela, which has the largest oil reserves in the Western Hemisphere and is a major oil exporter, especially to the United States, has been experiencing serious political and economic uncertainty in recent years.
In December 1998, Hugo Chávez won election as president with 56 percent of the vote, running on a populist agenda against the established political order, as head of a leftist coalition. Chávez was overwhelmingly reelected on July 30, 2000. On August 10, 2000, Chávez visited Iraq, prompting sharp criticism from the United States.
There has been much speculation about what the recent governmental changes will mean for Venezuela's energy sector, its state oil company, Petróleos de Venezuela (PdVSA), and foreign investment. Venezuela is home to the Western Hemisphere's largest oil reserves, and its economy is extremely oil-dependent, despite efforts at diversification. Oil accounts for roughly three-quarters of total exports, about half of government revenues, and about one-third of GDP.
To date, official energy policy has changed significantly under the Chávez government. To gain greater control over PdVSA, for instance, Chávez appointed his ally, Hector Ciavaldini, as president of the company in August 1999. This prompted several top PdVSA executives to resign.
PdVSA is once again under the jurisdiction of the Ministry of Energy and Mines, headed by Minister Alí Rodríguez. President Chávez advocates a shift in focus away from crude oil production and toward petrochemical, refining, and natural gas production.
Venezuela's adherence to its production quotas is another policy change under the Chávez government. Venezuela currently is producing around 3.1 million bbl/d of oil, and exporting around 2.4 million bbl/d (of which about 1.5 million bbl/d is sold to the United States), roughly in line with its OPEC quota. In the past, Venezuela was widely considered one of OPEC's main "over-producers."
While Chávez is tightening government control over the oil industry, foreign investment does not appear to be immediately threatened. In August 1999, Venezuela's Supreme Court upheld the constitutionality of eight oil exploration contracts with foreign oil companies.
The decision stood, despite the resignation of the President of the Supreme Court later that month. Some of Chávez's changes might make operations more expensive for foreign investors, however, as social benefits are increasing. For instance, the work week has been reduced from 48 to 44 hours. Furthermore, increased government control is not seen as a positive sign for long-term investment in the Venezuelan oil industry.
Source:UNITED STATES ENERGY INFORMATION ADMINISTRATION.
© 2000 Mena Report (www.menareport.com)
