Tag Archives: Iraq
Reference ID Created Released Classification Origin
07BAGHDAD2453 2007-07-25 05:57 2011-08-30 01:44 CONFIDENTIAL Embassy Baghdad
OO RUEHBC RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #2453/01 2060557
ZNY CCCCC ZZH
O 250557Z JUL 07
FM AMEMBASSY BAGHDAD
TO RUCNRAQ/IRAQ COLLECTIVE IMMEDIATE
INFO RUEHC/SECSTATE WASHDC IMMEDIATE 2415
C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002453
E.O. 12958: DECL: 07/23/2017
TAGS: ECON ENRG IZ PREL
SUBJECT: CODEL BURGESS MEETING WITH MINISTER OF OIL HUSAYN
Classified By: ECONOMIC MINISTER CHARLES P. RIES FOR REASONS 1.5 (b) an
¶1. (C). SUMMARY. On July 22, Congressmen Michael Burgess
(R-TX), Steve King (R-IA), Jim Jordan (R-OH), John Carter
(R-TX), Kevin Brady (R-TX), and David Davis (R-TN) met with
Minister of Oil Husayn al-Shahristani to discuss issues
related to the state of Iraq,s petroleum infrastructure,
plans to improve the infrastructure and revitalize petroleum
exploration and production. Minister Shahristani
acknowledged the important role of the petroleum industry in
Iraq,s economy and the need for passage of the
hydrocarbon-related laws as signaling Iraq,s emergence as a
dominant petroleum producing country. END SUMMARY.
¶2. (C). Minister Shahristani introduced the topic of the
status of Iraq,s petroleum industry by observing that the
industry provides 93% of the country,s budget; that of the
500 known potential petroleum-bearing geophysical structures,
only about 80 have been evaluated and expected to make up the
majority of the 115 billion barrel reserve; and that of these
80 structures, 10 are “super giants,” 10 are “giants,” and 10
are “very large” structures. He also stated that most of
these 80 structures are currently in production although
perhaps not being optimally produced at this time.
Shahristani also predicted that of the 500 known structures,
300 will eventually produce commercial quantities of oil.
¶3. (C). Shahristani observed that even though private oil
companies have not been willing to work in Iraq as a result
of the security situation, the state-owned oil companies have
been able to drill some new wells. He also noted that while
the level of oil production in the country has not risen as
he desired, the rising price oil has allowed Iraq to more or
less maintain a level income from exports.
¶4. (C). Shahristani noted successes in having new meters
installed in the southern export facilities, but also noted
that if problems occur, it is likely the fault of the
American company that required an extra year to complete the
project. He predicted no interruption in oil exports from
the southern facilities, unless problems arise between Iran
and the United States. He encouraged the United States and
Iran to continue their dialogue to solve issues that impact
¶5. (C). A member of the Congressional delegation, having
toured the Bayji oil refinery yesterday asked what
infrastructure improvements were needed to increase the
refinery,s production potential. Shahristani stated that
while foreign companies were not willing to work in Iraq due
to the current security situation, he has asked that they
supply needed equipment, for example for the hydrocracker.
He also stated that he is attempting to replace trained
workers, originally from the south of the country, who have
fled the sectarian violence of the area.
¶6. (C). When asked about the Ministry of Oil,s budget,
Shahristani stated that he had a budget of $2.2 billion. He
complained that the Ministry of Finance had delayed the
allocation of funds for the first quarter of the year and
those funds were not available until the end of March. In
any event, he noted that by the second quarter, he had been
able to spend 25% of his budget and expects to spend 85% of
his budget by the end of the year.
¶7. (C). Shahristani explained that the Council of Ministers
had approved and sent to the Council of Representatives a law
that would encourage investment in Iraq,s oil refineries; he
expected a third reading of this law to occur soon. He
expressed support for the Framework Hydrocarbon Law stating
that “all the right elements were present in the law” and
promised that he would be in the Council of Representatives
(CoR) to explain the law. He also stated that while he could
not predict what the lawmakers would do, he anticipated its
eventual passage. He noted that he had already prepared a
list of those fields to be drilled and produced first.
¶8. (C). A member of the delegation asked about Chinese
exploration and production contracts. Shahristani answered
by explaining that there was one contract in existence with
the Chinese, which was legitimate and was signed by the
previous regime to develop a small field just south of
Baghdad (Adhab) and would produce no more than 100,000
barrels per day of heavy crude. He explained that under the
current draft of the framework Hydrocarbon law, such
contracts must be reviewed and meet the conditions of the new
law. He also stated that this contract would have to be
amended and that the production from this field was not for
export, but rather to supply crude oil to a refinery planned
to be constructed in the area by the Chinese.
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¶9. (C). A member of the delegation asked if the Iraqi
people understood that they could become rich from the
development of their petroleum resources, if only they would
cooperate with each other. Shahristani responded that the
people will not understand the details of the various
hydrocarbon-related laws, but will follow the impressions
created by others and the media. He proceeded to explain
that several local media stations are supported by members of
Saddam,s regime, living mostly in Jordan now, and by the
Saudis and Emirates. He characterized as more damaging, the
influence of Al-Jazeera. He stated that, in his opinion,
Saudi Arabia feels threatened by the prospect of a
significant Iraqi contribution to the international oil
market; Iraq was not a threat to the Saudis as long as
exports remained no greater than 2 to 3 million barrels.
¶10. (C). When asked about exports in the north, Shahristani
noted that the exports brought in about $400,000 per day and
that the Bayji refinery has limited production capacity.
(Note: In the absence of more explanation that was not
provided to the delegation, this statement appears at odds
with the fact that the export pipeline to Turkey operates
only intermittently. Also, the Bayji refinery capacity is
limited primarily by unreliable electricity supply and
limited heavy fuel oil storage capability. End Note.)
Shahristani also noted that northern exports were at the
mercy of the security situation. He stated that the
Strategic Infrastructure Brigades (SIBs) were established by
a “leader of the insurgency” and that he informed the
multi-national forces of this fact. He also stated that
contrary to the opinion of the multi-national force
commanders, the SIBs cannot be retrained to an effective
status. Shahristani stated his expectation that a new effort
to contract with local tribal leaders for security of the
pipelines will be more effective and lead to a resumption of
northern exports in one to two months.
¶11. (C). Addressing Congressional benchmarks, Shahristani
said that he expected the Framework Hydrocarbon and Revenue
Management Laws to proceed in tandem to the CoR and will be
debated together. He assessed that the refinery investment
law, already in the CoR, will be passed soon. He stated that
the Kurdish Regional Government (KRG) has reservations about
the Revenue Management Law, but that KRG representatives will
be in Baghdad in a week, and that he expected the law will go
to the CoR within the next 2 to 3 weeks. He also stated
that, while no one has objection to the Revenue Management
Law in principle, Sunni factions were attacking it for
political reasons. Shahristani stated that there was also
strong Sunni opposition to the Framework Hydrocarbon Law, but
that he agreed with Ambassador Crocker that some Sunni
support for the law was needed.
¶12. (C). Shahristani was asked what he was doing to secure
the petroleum infrastructure in the event coalition forces
left Iraq. He responded that a withdrawal would not impact
the southern pipelines and other facilities since Coalition
Forces are not now protecting those facilities. As for the
northern facilities, he stated that the Bayji refinery could
be shut down, but that would have consequences equally
adverse for the insurgency.
¶13. (C). Shahristani reiterated that he was working hard to
meet the benchmarks, that half of the benchmarks were met and
that the other half could be met if government,s efforts
were supported by the Sunnis, Saudi Arabia, and other Gulf
states. He requested that the USG pressure these other
entities to stop supporting the groups opposing Iraq,s
efforts to meet the remaining benchmarks.
¶14. (C). Minister Shahristani concluded the meeting with an
expression of determination that Iraq will export to the
world oil market “its fair share of resources.” He stated
that he wanted the American public to know that this conflict
was not about oil, but about Islamic fundamentalism. He also
stated that Al-Qaeda was a long-term problem for the world.
¶15. (C). CODEL Burgess did not have an opportunity to clear
Reference ID Created Released Classification Origin
07BAGHDAD3071 2007-09-12 06:02 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Baghdad
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3071/01 2550602
ZNR UUUUU ZZH
P 120602Z SEP 07
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 3336
INFO RUCNRAQ/IRAQ COLLECTIVE
UNCLAS SECTION 01 OF 03 BAGHDAD 003071
E.O. 12958: N/A
TAGS: EPET EINV ENRG IZ
SUBJECT: HUNT OIL SIGNS AGREEMENT WITH KRG UNDER KRG OIL LAW
SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISRIBUTION. PROTECT
This is a Kurdistan Regional Reconstruction Team (RRT) cable.
¶1. (SBU) The Kurdistan Regional Government (KRG) recently signed a
production sharing contract (PSC) with Hunt Oil Company that covers
oil exploration and production in “the Dohuk area.” Comments by
Hunt officials indicate that the block is actually in the Ninewa
Governorate’s northern administrative districts. The PSC marks the
first oil deal signed by the KRG, following enactment of the
Kurdistan Region’s hydrocarbons law on August 6, 2007. Considerable
legal ambiguity surrounds the PSC with Hunt Oil, as the districts in
northern Ninewa to be explored by the company are classified as
“disputed territories” under the Iraqi constitution. A senior Hunt
Oil manager told RRT Erbil’s Team Leader that northern Ninewa
province has significant potential for oil production, and that this
factor trumps the legal ambiguities and risks associated with the
company’s PSC with the KRG. The oil potential of northern Iraq
continues to attract significant investor interest. Several other
international energy companies are expected to announce oil deals
with the KRG during coming weeks. Despite the KRG’s aggressive
pursuit of foreign direct investment to develop the Kurdistan
Region’s hydrocarbons production potential, KRG Prime Minister
Nechirvan reiterated the KRG’s commitment to the federal hydrocarbon
revenue sharing agreement that allocates Iraq’s oil wealth to all
Iraqis on a per capita basis. Meanwhile, senior central government
officials expressed their dismay that the KRG enacted a regional
hydrocarbons law, and that the KRG continues to pursue oil
investment from foreign companies in advance of enactment of
comprehensive national hydrocarbons legislation. [NOTE: The ability
of regional governments to sign contracts has been among the key
issues of contention during negotiation of the national hydrocarbon
law. The KRG has reluctantly agreed, at times. to refrain from
finalizing agreements in advance of a national law, but have
maintained that they would not wait indefinitely for national
legislation to be approved by the Council of Representatives. END
KRG Contract with Hunt in Disputed Territory
¶2. (SBU) On September 8, 2007, the KRG, Hunt Oil Company, and
Impulse Energy Corporation (IEC) jointly announced they had signed a
PSC covering petroleum exploration activities “in the Dohuk area of
the Kurdistan Region.” Hunt Oil’s General Manager for Europe,
Africa and the Middle East, David McDonald, told RRT Erbil’s Team
Leader on September 5 that the envisioned “Dohuk area” of operations
under the PSC consists of the administrative districts of northern
Ninewa province. McDonald did not disclose the exact areas in
northern Ninewa to be initially targeted for exploration by Hunt Oil
but he mentioned Shekkan and Akra as areas they had visited. While
the land to be explored by Hunt Oil has been behind the Green Line
of KRG control for many years and is occupied by a majority Kurdish
population who considers itself part of Dohuk Governorate, the area
falls within the legal boundaries of Ninewa province. Northern
Ninewa is “disputed territory,” according to the Iraqi federal
constitution, and the legal boundaries of the area are eventually to
be decided by a public referendum pursuant to Article 140 of the
¶3. (SBU) During discussions with RRT Erbil’s Team Leader, McDonald
seemed less than fully informed about the potential ramifications of
Article 140 on Hunt Oil’s negotiations with the KRG. He did not
express concern about the potential controversy surrounding
signature of a PSC with the KRG that covers areas of operation
currently outside the KRG’s legal control. He said, “This is a
significant opportunity that outweighs the legal ambiguity.” Hunt
Oil CEO Ray Hunt also discounted the fact that the northern Ninewa
districts targeted under the PSC are not yet within the KRG’s
legally defined borders. He expressed satisfaction on September 8
that his company was “actively participating in the establishment of
the petroleum industry in the Kurdistan Region of Iraq.”
¶4. (U) Enactment of the KRG’s new oil law may have spurred
completion of the PSC with Hunt Oil. The PSC was announced shortly
after publication of the English translation of the new oil and gas
law on the KRG’s website. Before the law was enacted, only one PSC
had been signed for the Dohuk area – with DNO of Norway. That PSC
covered operations only within the legal boundaries of Dohuk
Governorate. Enactment of the KRG oil law and the subsequent
announcement of the deal with Hunt Oil may accelerate the signing of
PSCs with other international oil companies. Several are
reportedly on the verge of signing PSCs with the KRG during coming
weeks. Article 19 of the KRG law states that “the Federal
Government must not practice any new Petroleum Operations in the
disputed territories without the approval of [the KRG] until such
time as the referendum required by Article 140 of the Federal
Constitution is conducted.” Article 20, however, allows the KRG to
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sign PSCs with foreign oil companies in disputed territories, based
on articles 112, 115 and 121(3) of the Federal Constitution.
Potential Bonanza Trumps Legal Ambiguity
¶5. (SBU) While McDonald said Hunt Oil must conduct further
assessments about the speed and scope of their operational
activities in northern Ninewa, with decisions regarding the focus of
initial seismic tests to begin “by the end of October,” he was
optimistic about the oil potential of the region. McDonald said
portions of the topography in all three districts of northern Ninewa
bode well for oil exploration. He said, “It’s like shooting fish in
a barrel.” A Hunt Oil company spokesman in Dallas said the company
will begin geological survey and seismic work by the end of 2007,
with plans to be in a position to drill an exploration well in
KRG Boldly Enacts Regional Hydrocarbons Law…
¶6. (U) The KRG deal with Hunt Oil marks the first PSC signed with a
foreign oil company following KRG enactment of the Oil and Gas Law
of the Kurdistan Region on August 6, 2007. Speaking of the KRG’s
rationale in passing a controversial regional hydrocarbons law while
a draft national oil and gas law remains intensely debated, KRG
Prime Minister Nechirvan Barzani told reporters on August 7,
“Successive governments in Iraq have deliberately left our oil in
the ground as an effort to keep our people [ethnic Kurds] poor and
to deny our aspirations for a better way of life. Today, with the
passage of this new Kurdistan Law in a federal Iraq, we know that
those days are gone.”
¶7. (U) While espousing the benefits of foreign direct investment in
the Kurdistan Region’s oil producing areas, Nechirvan acknowledged
federal constitution provisions that require any oil revenues
generated under the KRG’s hydrocarbons law to be shared equally with
all Iraqis. He confirmed the KRG intends to limit itself to its
constitutionally mandated share of national oil revenues, regardless
of whether the oil is sourced inside or outside the Kurdistan
Region. He said, “We will receive 17 percent of all revenues from
all oil production in all of Iraq.”
¶8. (U) KRG Minister of Natural Resources Ashti Hawrami echoed those
comments. Hawrami said on September 9, “We believe that the [KRG’s]
production-sharing agreements are the best way to move swiftly
forward and help not just the Kurds but all Iraqis.” He envisions
that the Kurdistan Region will produce one million barrels of oil
per day within five years. To achieve this goal, the KRG intends to
sign PSCs with other large international oil companies. On
September 9, Hawrami told Dow Jones, “I think we’ll be having an
announcement with a blue-chip company soon.”
While Criticizing Central Government Paralysis
¶9. (SBU) Following passage of the KRG hydrocarbons law, KRG
officials recommitted themselves to the February 2007 national
hydrocarbons framework agreement. Nechirvan told RRT Erbil’s Team
Leader on August 28 that he hoped the new KRG law “would spur
movment in Baghdad” to enact a national hydrocarbons law. During
that meeting, however, Nechirvan expressed disappointment with
political developments in Baghdad and pessimism about “whether the
Sunnis and the Shi’a want to live together.” He said the KRG does
not want Iraq’s central government to “hold up development of
regional resources for another ten years.”
Arab Leaders Critical of KRG Oil Law
¶10. (U) Senior central government officials in Baghdad condemned the
oil deals signed by the KRG in advance of enactment of national
hydrocarbons legislation. Abdul Hadi al Hasani, Deputy Chairman of
the national parliament’s Energy Committee, said recently that such
contracts may be overturned by the federal government, though he
conceded that such a move could discourage potential foreign
investments in Iraq’s oil sector. Sami al Askari, a parliamentarian
and senior advisor to Prime Minister al Maliki, told reporters on
September 7 that a federal oil and gas council to be formed under
the national hydrocarbons law could decide whether to rescind the
KRG’s handful of oil contracts with foreign investors. In a
concession to the reality that foreign direct investment in Iraq’s
oil infrastructure remains both valuable and scarce, the
parliamentarians said the private firms that signed deals with the
KRG should not be blocked from winning future oil contracts in
¶11. (SBU) USG policy has discouraged companies from signing oil
deals with the KRG until Iraq enacts its national hydrocarbon
framework law, as such regional contracts could act as an impediment
to negotiations toward a comprehensive national settlement that
equitably distributes Iraq’s oil wealth. Such contracts also remain
subject to significant legal ambiguity. This has not deterred Hunt
Oil and the other handful of companies that have signed PSCs with
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the KRG. Their concerns about the nebulous political environment
and possible eventual dissolution of their PSCs have been overridden
by the prospect of huge profits – from getting first access to the
choicest oil exploration fields in northern Iraq, and from
establishing productive relationships with key KRG and central
government officials. The potential pitfalls are especially acute
in cases (e.g. Hunt Oil and its junior partner IEC) where investors
will commence operations in disputed territories. It remains
doubtful that the KRG was legally entitled to enter into a binding
contract with Hunt Oil that covers oil exploration and eventual
hydrocarbons production in an area (i.e. northern Ninewa province)
that the KRG does not legally control. Legal considerations aside,
the KRG’s actions complicates enactment of a national hydrocarbons
Iraqi women wait with their sick children at a Baghdad hospital.(AFP Photo / Karim Sahib)
US and UK weapons ammunition were linked to heart defects, brain dysfunctions and malformed limbs, according to a recent study. The report revealed a shocking rise in birth defects in Iraqi children conceived after the US invasion.
Titled ‘Metal Contamination and the Epidemic of Congenital Birth Defects in Iraqi Cities,’ the study was published by the Bulletin of Environmental Contamination and Toxicology. It revealed a connection between military activity in the country and increased numbers of birth defects and miscarriages.
The report, which can be found here, also contains graphic images of Iraqi children born with birth defects. (The images were not published on RT due to their disturbing content.) It documents 56 families in Fallujah, which was invaded by US troops in 2004, and examines births in Basrah in southern Iraq, which was attacked by British forces in 2003.
The study concluded that US and UK ammunition is responsible for high rates of miscarriages, toxic levels of lead and mercury contamination and spiraling numbers of birth defects, which ranged from congenital heart defects to brain dysfunctions and malformed limbs.
Fallujah, around 40 miles west of Baghdad, was at the epicenter of these various health risks. The city was first invaded by US Marines in the spring of 2004, and then again 7 months later. Some of the heaviest artillery in the US arsenal was deployed during the attack, including phosphorus shells.
A round lights up the night-sky before a U.S. bombardment over the Iraqi city of Falluja at the beginning, November 8, 2004.(Reuters / Eliana Aponte)
Between 2007 and 2010 in Fallujah, more than half of all babies surveyed were born with birth defects. Before the war, this figure was around one in 10. Also, over 45 percent of all pregnancies surveyed ended in miscarriage in 2005 and 2006, compared to only 10 percent before the invasion.
In Basrah’s Maternity Hospital, more than 20 babies out of 1,000 were born with defects in 2003, 17 times higher than the figure recorded in the previous decade.
Overall, the study found that the number of babies in the region born with birth defects increased by more than 60 percent (37 out of every 1,000 are now born with defects) in the past seven years. This rise was linked to an increased exposure to metals released by the bombs and bullets used over the past decade.
Hair samples of the population of Fallujah revealed levels of lead in children with birth defects five times higher than in other children, and mercury levels six times higher. Basrah children with birth defects had three times more lead in their teeth than children living in areas not struck by the artillery.
The intense fighting in Iraq led by the US and UK is not the only thing that harmed children in cities like Fallujah and Basrah – a new study revealed a shocking rise in birth defects in children conceived after the invasion. (AFP Photo / Odd Andersen)
The study found a “footprint of metal in the population,” Mozhgan Savabieasfahani, one of the lead authors of the report said. Savabieasfahani is an environmental toxicologist at the University of Michigan’s School of Public Health.
“In utero exposure to pollutants can drastically change the outcome of an otherwise normal pregnancy. The metal levels we see in the Fallujah children with birth defects clearly indicates that metals were involved in manifestation of birth defects in these children,” she said.
The study’s preliminary findings, released in 2010, led to an in-depth inquiry on Fallujah by the World Health Organization (WHO), the results of which will be released next month. The inquiry is expected to show an increase in birth defects following the Iraq War.
According to the WHO, a pregnant woman can be exposed to lead or mercury through the air, water and soil. The woman can then pass the exposure to her unborn child through her bones, and high levels of toxins can damage kidneys and brains, and cause blindness, seizures, muteness, lack of coordination and even death.
US and UK ‘unaware’ of rise in birth defects
US Defense Department responded to the report by claiming that there are no official reports indicating a connection between military action and birth defects in Iraq.
“We are not aware of any official reports indicating an increase in birth defects in Al Basrah or Fallujah that may be related to exposure to the metals contained in munitions used by the US or coalition partners,” a US Defense Department spokesperson told the Independent. “We always take very seriously public health concerns about any population now living in a combat theatre. Unexploded ordnance, including improvised explosive devises, are a recognized hazard.”
An UK government spokesperson also said there was no “reliable scientific or medical evidence to confirm a link between conventional ammunition and birth defects in Basrah. All ammunition used by UK armed forces falls within international humanitarian law and is consistent with the Geneva Convention.”
23 August 2012
Published (with an intro by Tom Engelhardt) on TomDispatch
In 2011, after nearly nine years of war and occupation, U.S. troops finally left Iraq. In their place, Big Oil is now present in force and the country’s oil output, crippled for decades, is growing again. Iraq recently reclaimed the number two position in the Organization of the Petroleum Exporting Countries (OPEC), overtaking oil-sanctioned Iran. Now, there’s talk of a new world petroleum glut. So is this finally mission accomplished?
Well, not exactly. In fact, any oil company victory in Iraq is likely to prove as temporary as George W. Bush’s triumph in 2003. The main reason is yet another of those stories the mainstream media didn’t quite find room for: the role of Iraqi civil society. But before telling that story, let’s look at what’s happening to Iraqi oil today, and how we got from the “no blood for oil” global protests of 2003 to the present moment.
Here, as a start, is a little scorecard of what’s gone on in Iraq since Big Oil arrived two and a half years ago: corruption’s skyrocketed; two Western oil companies are being investigated for either giving or receiving bribes; the Iraqi government is paying oil companies a per-barrel fee according to wildly unrealistic production targets they’ve set, whether or not they deliver that number of barrels; contractors are heavily over-charging for drilling wells, which the companies don’t mind since the Iraqi government picks up the tab.
Meanwhile, to protect the oil giants from dissent and protest, trade union offices have been raided, computers seized and equipment smashed, leaders arrested and prosecuted. And that’s just in the oil-rich southern part of the country.
In Kurdistan in the north, the regional government awards contracts on land outside its jurisdiction, contracts which permit the government to transfer its stake in the oil projects — up to 25% — to private companies of its choice. Fuel is smuggled across the border to the tune of hundreds of tankers a day.
In Kurdistan, at least the approach is deliberate: the two ruling families of the region, the Barzanis and Talabanis, know that they can do whatever they like, since their Peshmerga militia control the territory. In contrast, the Iraqi federal government of Prime Minister Nouri al-Maliki has little control over anything. As a result, in the rest of the country the oil industry operates, gold-rush-style, in an almost complete absence of oversight or regulation.
Oil companies differ as to which of these two Iraqs they prefer to operate in. BP and Shell have opted to rush for black gold in the super-giant oilfields of southern Iraq. Exxon has hedged its bets by investing in both options. This summer, Chevron and the French oil company Total voted for the Kurdish approach, trading smaller oil fields for better terms and a bit more stability.
Keep in mind that the incapacity of the Iraqi government is hardly limited to the oil business: stagnation hangs over its every institution. Iraqis still have an average of just five hours of electricity a day, which in 130-degree heat causes tempers to boil over regularly. The country’s two great rivers, the Tigris and Euphrates, which watered the cradle of civilization 5,000 years ago, are drying up. This is largely due to the inability of the government to engage in effective regional diplomacy that would control upstream dam-building by Turkey.
After elections in 2010, the country’s leading politicians couldn’t even agree on how to form a government until the Iraqi Supreme Court forced them to. This record of haplessness, along with rampant corruption, significant repression, and a revival of sectarianism can all be traced back to American decisions in the occupation years. Tragically, these persistent ills have manifested themselves in a recent spate of car-bombings and other bloody attacks.
Washington’s Yen for Oil
In the period before and around the invasion, the Bush administration barely mentioned Iraqi oil, describing it reverently only as that country’s “patrimony.” As for the reasons for war, the administration insisted that it had barely noticed Iraq had one-tenth of the world’s oil reserves. But my new book reveals documents I received, marked SECRET/NOFORN, that laid out for the first time pre-war oil plans hatched in the Pentagon by arch-neoconservative Douglas Feith’s Energy Infrastructure Planning Group (EIPG).
In November 2002, four months before the invasion, that planning group came up with a novel idea: it proposed that any American occupation authority not repair war damage to the country’s oil infrastructure, as doing so “could discourage private sector involvement.” In other words, it suggested that the landscape should be cleared of Iraq’s homegrown oil industry to make room for Big Oil.
When the administration worried that this might disrupt oil markets, EIPG came up with a new strategy under which initial repairs would be carried out by KBR, a subsidiary of Halliburton. Long-term contracts with multinational companies, awarded by the U.S. occupation authority, would follow. International law notwithstanding, the EIPG documents noted cheerily that such an approach would put “long-term downward pressure on [the oil] price” and force “questions about Iraq’s future relations with OPEC.”
At the same time, the Pentagon planning group recommended that Washington state that its policy was “not to prejudice Iraq’s future decisions regarding its oil development policies.” Here, in writing, was the approach adopted in the years to come by the Bush administration and the occupation authorities: lie to the public while secretly planning to hand Iraq over to Big Oil.
There turned out, however, to be a small kink in the plan: the oil companies declined the American-awarded contracts, fearing that they would not stand up in international courts and so prove illegitimate. They wanted Iraq first to have an elected permanent government that would arrive at the same results. The question then became how to get the required results with the Iraqis nominally in charge. The answer: install a friendly government and destroy the Iraqi oil industry.
In July 2003, the U.S. occupation established the Iraqi Governing Council, a quasi-governmental body led by friendly Iraqi exiles who had been out of the country for the previous few decades. They would be housed in an area of Baghdad isolated from the Iraqi population by concrete blast walls and machine gun towers, and dubbed the Green Zone. There, the politicians would feast, oblivious to and unconcerned with the suffering of the rest of the population.
The first post-invasion Oil Minister was Ibrahim Bahr al-Uloum, a man who held the country’s homegrown oil expertise in open contempt. He quickly set about sacking the technicians and managers who had built the industry following nationalization in the 1970s and had kept it running through wars and sanctions. He replaced them with friends and fellow party members. One typical replacement was a former pizza chef.
The resulting damage to the oil industry exceeded anything caused by missiles and tanks. As a result the country found itself — as Washington had hoped — dependent on the expertise of foreign companies. Meanwhile, not only did the Coalition Provisional authority (CPA) that oversaw the occupation lose $6.6 billion of Iraqi money, it effectively suggested corruption wasn’t something to worry about. A December 2003 CPA policy document recommended that Iraq follow the lead of Azerbaijan, where the government had attracted oil multinationals despite an atmosphere of staggering corruption (“less attractive governance”) simply by offering highly profitable deals.
Now, so many years later, the corruption is all-pervasive and the multinationals continue to operate without oversight, since the country’s ministry is run by the equivalent of pizza chefs.
The first permanent government was formed under Prime Minister Maliki in May 2006. In the preceding months, the American and British governments made sure the candidates for prime minister knew what their first priority had to be: to pass a law legalizing the return of the foreign multinationals — tossed out of the country in the 1970s — to run the oil sector.
The law was drafted within weeks, dutifully shown to U.S. officials within days, and to oil multinationals not long after. Members of the Iraqi parliament, however, had to wait seven months to see the text.
How Temporary the Victory of Big Oil?
The trouble was: getting it through that parliament proved far more difficult than Washington or its officials in Iraq had anticipated. In January 2007, an impatient President Bush announced a “surge” of 30,000 U.S. troops into the country, by then wracked by a bloody civil war. Compliant journalists accepted the story of a gamble by General David Petraeus to bring peace to warring Iraqis.
In fact, those troops spearheaded a strategy with rather less altruistic objectives: first, broker a new political deal among U.S. allies, who were the most sectarian and corrupt of Iraq’s politicians (hence, with the irony characteristic of American foreign policy, regularly described as “moderates”); second, pressure them to deliver on political objectives set in Washington and known as “benchmarks” — of which passing the oil law was the only one ever really talked about: in President Bush’s biweekly video conferences with Maliki, in almost daily meetings of the U.S. ambassador in Baghdad, and in frequent visits by senior administration officials.
On this issue, the Democrats, by then increasingly against the Iraq War but still pro-Big Oil, lent a helping hand to a Republican administration. Having failed to end the war, the newly Democrat-controlled Congress passed an appropriations bill that would cut off reconstruction funds to Iraq if the oil law weren’t passed. Generals warned that without an oil law Prime Minister Maliki would lose their support, which he knew well would mean losing his job. And to ramp up the pressure further, the U.S. set a deadline of September 2007 to pass the law or face the consequences.
It was then that things started going really wrong for Bush and company. In December 2006, I was at a meeting where leaders of Iraq’s trade unions decided to fight the oil law. One of them summed up the general sentiment this way: “We do not need thieves to take us back to the middle ages.” So they began organizing. They printed pamphlets, held public meetings and conferences, staged protests, and watched support for their movement grow.
Most Iraqis feel strongly that the country’s oil reserves belong in the public sector, to be developed to benefit them, not foreign energy companies. And so word spread fast — and with it, popular anger. Iraq’s oil professionals and various civil society groups denounced the law. Preachers railed against it in Friday sermons. Demonstrations were held in Baghdad and elsewhere, and as Washington ratcheted up the pressure, members of the Iraqi parliament started to see political opportunity in aligning themselves with this ever more popular cause. Even some U.S. allies in Parliament confided in diplomats at the American embassy that it would be political suicide to vote for the law.
By the September deadline, a majority of the parliament was against the law and — a remarkable victory for the trade unions — it was not passed. It’s still not passed today.
Given the political capital the Bush administration had invested in the passage of the oil law, its failure offered Iraqis a glimpse of the limits of U.S. power, and from that moment on, Washington’s influence began to wane.
Things changed again in 2009 when the Maliki government, eager for oil revenues, began awarding contracts to them even without an oil law in place. As a result, however, the victory of Big Oil is likely to be a temporary one: the present contracts are illegal, and so they will last only as long as there’s a government in Baghdad that supports them.
This helps explain why the government’s repression of trade unions increased once the contracts were signed. Now, Iraq is showing signs of a more general return to authoritarianism (as well as internecine violence and possibly renewed sectarian conflict).
But there is another possibility for Iraq. Years before the Arab Spring, I saw what Iraqi civil society can achieve by organizing: it stopped the world’s superpower from reaching its main objective and steered Iraq onto a more positive course.
Many times since 2003 Iraqis have moved their country in a more democratic direction: establishing trade unions in that year, building Shi’a-Sunni connections in 2004, promoting anti-sectarian politicians in 2007 and 2008, and voting for them in 2009. Sadly, each of these times Washington has pushed it back toward sectarianism, the atmosphere in which its allies thrive. While mainstream commentators now regularly blame the recent escalation of violence on the departure of U.S. troops, it would be more accurate to say that the real reason is they didn’t leave far sooner.
Now, without its troops and bases, much of Washington’s political heft has vanished. Whether Iraq heads in the direction of dictatorship, sectarianism, or democracy remains to be seen, but if Iraqis again start to build a more democratic future, the U.S. will no longer be there to obstruct it. Meanwhile, if a new politics does emerge, Big Oil may discover that, in the end, it was mission unaccomplished. [source]
President Vladimir Putin lobbied Iraq’s prime minister on Wednesday to support Russian energy investment, as the oil arm of gas export monopoly Gazprom (GAZP.MM) pushes for a foothold in the semi-autonomous region of Kurdistan.
Gazprom Neft (SIBN.MM) is still interested in Kurdistan’s oil, company sources and the province’s spokesman said, rebutting reports it had frozen projects in the Iraqi province.
Putin, a vocal opponent of the U.S.-led invasion of Iraq in 2003, called for Russia to strengthen its presence in the OPEC oil producer state at talks with Prime Minister Nuri al-Maliki at his residence near Moscow.
“Our companies are boosting their activities in Iraq – the whole list of our large energy companies,” Putin said. “I hope their work will develop step by step and we are very much hoping for your support, Mr Prime Minister.”
Russia’s second-largest crude producer LUKOIL (LKOH.MM) is developing the vast West Qurna-2 oil, while mid-sized Bashneft (BANE.MM) is teaming up with Britain’s Premier Oil PLC (PMO.L) after they won the right to tap oil in the Middle East country.
LUKOIL bought Norway’s Statoil (STL.OL) out of their partnership in West Qurna-2 in March, and CEO Vagit Alekperov said he would be open to taking on board a new partner.
“We bought it, 100 pct, if there is a good offer we can sell part of it, so far we feel comfortable with it,” Alekperov told Reuters. Asked if there was an offer in the works, he said “at the moment no, only outline ideas.”
Russia signed $4.2 billion worth of arms deals with Iraq on Tuesday.
DEAL NOT FROZEN
Late on Tuesday, the International Oil Daily cited Iraqi Oil Minister Abdul-Kareem Luaibi as saying Baghdad had received a letter from Gazprom, in which the company said it had frozen its contract with Kurdistan.
Baghdad has been angered by the plans of some international majors, including ExxonMobil (XOM.N), to tap oil and gas in the northern region. The central government says the deals are illegal.
A spokesman for the Kurdistan Regional Government (KRG) said Gazprom Neft had informed the KRG on Wednesday that it remains committed to its contract in the Kurdistan region.
Sources at Gazprom Neft also knocked down the report.
In August, Gazprom Neft acquired interests in two blocks in Kurdistan.
“Gazprom Neft is still working on these projects. The company keeps its interest in Kurdistan,” a Gazprom Neft source told Reuters.
Another source at the company said Gazprom Neft would be able to go ahead with the projects once the Iraqi central government and KRG resolve their differences.
He also said Gazprom Neft management will travel to Kurdistan before year-end to discuss oil development in the province. A company spokeswoman declined to comment.
Gazprom Neft already has a project in Iraq, near the Iranian border, where it expects to produce about 15,000 barrels per day from 2013. [source ]
And the other side “de la moneda” Judge for yourselves
October 11, 2012
Iraq today stands on the brink of total control by Iran and the establishment of a new dictatorship.
The dream for which so many American soldiers believed they were fighting is slipping away as Iraq moves in the opposite direction – toward Iran.
Iran’s presence is already visible in Iraq, from the droves of pilgrims at Shi’ite holy sites to the brands of yogurt and jam on grocery shelves, and Iraqis see clear Iranian influence since the US troops left at the end of last year.
It could be considered a natural step for the only two Shi’ite Muslim-led governments in the Sunnidominated Middle East to expand their relationship. However, many Iraqi Shi’ites are cautious of intrusion of their country’s sovereignty and afraid of being overrun by the Iranian theocracy.
Iraqis are accusing Iran of meddling in Iraqi affairs to destabilize the new democracy and strengthen Iran’s influence over it and its neighbors. Top Iranian officials maintain they are only strengthening diplomatic and economic ties with Iraq, as they have sought to do since the 2003 ouster of Saddam Hussein. On the other hand, head of Iranian al-Quds Brigades General Qasim Sulaimani announced recently that Iraq and South Lebanon are submissive to Tehran’s will, stating that his country could regulate any movement with the aim to form Islamic governments in both countries.
Not to mention the close relationship between Iran and Syria. This is the goal of the Iranians: to form the Shi’ite crescent – Iran, Iraq, Syria and Southern Lebanon – controlled by Hezbollah. The aim is to encircle Israel. Israel should worry about Iraq acquiring F-16 aircraft from the United States, especially since their pilots will be selected from among the Shi’ites most loyal to the regime in Tehran. “Iran wants to make Iraq a weak state,” said Maj.- Gen. Jeffrey S. Buchanan, a US military spokesman in Iraq, a few years ago.
This issue has also worried many American officials who have long feared what they described as Iranian meddling in Iraq and its potential to sow unrest across the Middle East. Those worries were a chief driver of failed efforts to leave at least several thousand American troops in Iraq beyond the end of last year’s withdrawal deadline.
“The more you think about it, the more examples there are of Iranian influence,” says Buchanan. “They’re circumstantial, but that’s how behind-thescenes influence works.” Since Iraq’s 2010 election, Iraqis have witnessed the subordination of the state to Prime Minister Nouri al- Maliki’s Iranian-backed Da’awa party, the erosion of judicial independence and intimidation of opponents. All of this happened during the Arab Spring while other countries were ousting dictators in favor of democracy. Iraq has become a sectarian battleground in which identity politics have crippled democratic development.
Maliki has laid siege to his political opponents’ homes and offices, surrounded them with his security forces, all with the blessing of politicized judiciary and law enforcement systems that have become virtual extensions of his personal office.
This is a typical textbook definition of “lawfare.” His national security adviser has complete control over the Iraqi intelligence and national security agencies, which are supposed to be independent institutions but have become a virtual extension of Maliki’s Da’awa Party; and his Da’awa loyalists are in control of the security units that oversee the Green Zone. The Iraqi prime minister uses secret prisons under the supervision of his elite security apparatus, and the Red Cross has conclusive evidence about these prisons.
It was stated in its recent report that there is evidence detainees being tortured to extract confessions and information. The report mentioned that some of the torture sessions were attended by Iraqi judges. The Red Cross reported that there are three secret prisons in the Green Zone alone that are linked to Maliki’s office. The political process in Iraq is going in a very wrong direction; it’s going toward a dictatorship, while Iran views Maliki as its man in Baghdad and has dictated the shape of the current government.
This Shi’ite Islamist government bodes ill for the country’s future. Today in Iraq, we see Maliki silencing and eliminating his opponents, using the law as a silent weapon for a quiet war. MALIKI IS using the judicial system to attack his political opponents, and the security services in Iraq have become part of the problem as they have been proven to be managing secret detention centers where torture is practiced under the personal supervision of the Office of the Prime Minister. It was revealed recently that 36 out of 38 inspectors-general at Iraqi ministries are from Maliki’s Da’awa Party.
What we also see in Iraq now is that Iraq supports Syria, weapons from Iran being transported to Syria through Iraq, violations of UN security council resolutions against Iran and money laundering through Iraqi banks in favor of Iran with the full knowledge and support of the Office of the Prime Minister. The Iranian government played an important role in the revitalization of money laundering in Iraq by private banks in coordination with the Office of the Prime Minister. Armed groups backed by Tehran receive millions of dollars monthly in salaries and benefits from Iraqi banks under the guise of bank transfers or investment projects or grants to civil society organizations. It has been confirmed that Tehran-backed armed groups present in southern, central and northern Iraq are dealing with specific banks in these areas and receive their funds facilitated by the Da’awa Party. By consistently thinking of Maliki as a Shi’ite rather than an Iraqi Arab, American officials overlooked opportunities that once existed in Iraq but are now gone. Thanks to their own flawed policies, the Iraq they left behind is more similar to the desperate and divided country of 2006 than to the optimistic Iraq of early 2009. When American forces withdrew from Iraq at the end of last year, it was thought that they would be leaving behind a country that was politically unstable, increasingly volatile, and at risk of descending into the sort of sectarian fighting that killed thousands in 2006 and 2007. Nothing like this actually happened or will happen; instead we see Iraq falling under the full control of Iran. It is controlled by Iran’s embassy in Baghdad and its many consulates in other Iraqi cities. From a strategic standpoint, one can say that Iraq, with all its territory and capabilities, has become Iran’s strategic depth, supplementing its regional expansion.
Iran controls the political decision-making and economy of Iraq. For all of its potential, Iraq has become merely an advanced strategic base for Iran. Iran may want to strike Israel via Hezbollah, and Iraq, due to its geographical location and the nature of the ruling powers, will be a key player in this regard.
This is especially true when we observe in Iraq today that there is education, promoted by the Shi’ite parties linked to Iran, saying that the expulsion of Jews from the land of Palestine will be only at the hands of the Islamic Republic of Iran. It should also be noted that Iran is not crazy enough to attack the Gulf States and risk losing its legitimacy, as happened with Iraq when it invaded Kuwait. Iran must not be seen attacking Muslim states, which will antagonize the Muslim world. Iran will certainly target Israel first; this is the issue, aided by warmongering media campaigns, that would garner sympathy for Iran among the ignorant people of the Islamic world.[source]
Fourth release, 31 July 2011
During the second half of 2009, Iraq held two auctions of its largest oilfields, awarding them to multinational companies such as BP, Shell and ExxonMobil to operate under 20-year contracts. Between them the oilfields account for over 60% of Iraq’s reserves. The contracts were service contracts rather than the companies’ preferred production sharing agreements, which had been proposed for Iraq but rejected as giving too much away.
Media reports of the auction focused on the headline remuneration fees. These sounded so low – between $1.15 and $5.50 per barrel – that many commentators questioned the profitability of the deals. But as always in oil contracts, the devil is in the detail. And whereas the auctions were billed by the Iraqi government as among the world’s most transparent contracting processes, the first contract, for the super-giant Rumaila field near Basra, was privately renegotiated between the Iraqi government and the winning BP/CNPC consortium for more than three months after the auction.The result was that the terms changed significantly from the published model contract on which the auction was based, to make it much more attractive to BP and CNPC, at the expense of the Iraqi people.
- We have obtained the renegotiated Rumaila contract, and can reveal its contents for the first time. The major changes are explained in the report “From Glass Box to Smoke Filled Room – How BP secretly renegotiated its Iraqi oil contract, and how Iraqis will pay the price”, written by Fuel on the Fire author Greg Muttitt and published by PLATFORM.
NEW REPORT: From Glass Box to Smoke Filled Room.
Also in today’s release:
- Another document released today reveals the possible reason BP was so successful in changing the terms in its favour, by focusing on the detailed terms of the contract. In April 2009, Ministry of Oil officials travelled to the UK to explore how to meet their training needs. Just two months before the auction, foremost among the areas where they sought training were commercial and negotiating skills. And the training provider they went to? BP!
DOCUMENT 14: Letter from BP to Iraq Ministry of Oil, 28 April 2009.
- The contracts were opposed by many in Iraq, including oil experts, the management of the South Oil Company (which would have to work with BP on the Rumaila field), the oil trade union and the parliamentary oil and gas committee. When parliamentarians called in the Iraqi Oil Minister for questioning about the contract, Prime Minister Nouri al-Maliki wrote to the speaker of parliament to warn against the move. In the private and confidential letter, released today, he told the speaker that he would consider such questioning to be “in harmony” with recent major terrorist bombings in Baghdad.
DOCUMENT 15: Letter from Nouri al-Maliki to parliament, October 2009 (Arabic original)
DOCUMENT 16: Letter from Nouri al-Maliki to parliament, October 2009 (English translation)
Fifth release, July 17, 2012
(See also today’s press release)
Two documents are published today, revealing for the first time the role of the Energy Infrastructure Planning Group, whose purpose was to plan for the running of Iraq’s oil industry during the period of direct U.S. occupation and administration of Iraq (under the CPA of Paul Bremer, as it became).
EIPG was established in summer 2002 by Undersecretary of Defense for Policy Douglas Feith. It was led by Michael Mobbs, a political appointee in the Department of Defense. The other members were Michael Makovsy of the Department of Defense, Seneca Johnson of the Department of State, Clark Turner of the Department of Energy (Strategic Petroleum Reserve) and a CIA analyst.
The EIPG did the thinking behind the subject, and made recommendations to the Deputies and Principals Committees of the National Security Council (comprising the heads and second-in-commands of the government agencies relevant to national security).
They were obtained from the Department of Defense under the Freedom of Information Act. This is the first clear evidence, more than nine years on, that Bush administration officials were planning before the war to open the way to multinational oil companies, an assertion consistently denied by the government.
DOCUMENT 17: a briefing to the Deputies Committee on November 6, 2002. The main topic of the meeting is how to spend the proceeds from Iraqi oil.
See especially page 10, where weighing up whether to repair war-damaged Iraqi oil infrastructure, one of the cons is that it “could deter private sector involvement”. Although this route was rejected (see DOCUMENT 18), it could later be seen in the U.S. forces’ failure to stop looting of the infrastructure in April 2003 (they only protected the Oil Ministry building, which held the irreplaceable geological data – they did nothing to protect drill rigs, pump stations etc). The attitude was seen again when the Oil Ministry’s considerable human resources were cleared out in fall 2003, in favor of friends and family of the new oil minister.
Note also on the contents page (2) the EIPG planned to consider later that month “whether to use control of Iraqi oil to advance important U.S. foreign policy objectives”. DOD reports that it holds no record of such discussions. They are likely to involve not direct U.S. energy interests, but whether to tear up eg Russian and Chinese contracts in order to harm those countries.
(The briefing was stored by the DOD as landscape printed on portrait paper – hence the edges are cut off in the official archive too!).
DOCUMENT 18: a briefing to the Secretary of Defense Donald Rumsfeld on January 11, 2003, incorporating comments and decisions from earlier Deputies meetings.
Here the option of leaving war damage unrepaired so as to make room for Big Oil has been rejected, in favor of appointing Halliburton subsidiary KBR to carry out repairs (page 5).
Priorities are set of restoring crude oil production (which the USA needed) over electricity and fuel (which Iraqis needed – page 6).
Increasing Iraqi production to 5 million barrels per day (from 2.5m bpd) is favored as it “helps consumers” and “puts long-term downward pressure on the oil price”
Strikingly, “pubic diplomacy” (page 4) means the message that would be given to the public, including saying that “we will act… so as not to prejudice Iraq’s future decisions” – even though the opposite is proposed as substantive policy. In other words, the briefing recommends that the Bush administration mislead the public on how it would approach Iraqi oil.
Zion Oil Wars: U.S. secret mission sent to Jordan to control Syrian chemical weapons ( BP-Shell drilling in Jordan)
-Tony Hayward’s anglo-turkish oil firm Genel Energy today confirmed that drilling has now begun on its first well on the Chia Surkh exploration block in Iraqi Kurdistan.
The block spans 984 square kilometres in the southern part of the Kurdish region. It has an estimated 300 million barrels of prospective oil resources.
The Chia Surkh 10 well will be drilled to a total depth of 2,500 metres to test Lower Miocene to Palaeocene targets.
The well results are expected in the first quarter of next year.
Genel has a 60% interest in Chia Surkh. City broker Oriel Securities estimate that Chia Surkh is worth a ‘risked’ 38p per share at this stage.
The broker highlighted, in a note today, that Genel is hosting a capital markets day this week and it beleives the company is likely to update on the plans for the Miran gas development as well as its exploration programme – which now includes new licences in Malta, Morocco, Cote d’Ivoire and Somaliland.
Gazprom Neft, the oil arm of Russia’s top natural gas producer Gazprom, is still interested in Kurdistan’s oil, a Gazprom Neft source said, rebutting reports it had frozen projects in the Iraqi province.
In August, Gazprom Neft acquired interests in two blocks in Iraq’s Kurdistan region, after similar moves by international rivals angered the central Iraqi government in Baghdad.
The International Oil Daily cited Iraqi Oil Minister Abdul-Kareem Luaibi as saying Baghdad received a letter from Gazprom, in which the company said it had frozen the contract with Kurdistan.
“Gazprom Neft is still working on these projects. The company keeps its interest in Kurdistan,” a Gazprom Neft source told Reuters.
A company spokeswoman declined to comment.
Gazprom Neft already has a project in Iraq, near the Iranian border, where it expects to produce about 15,000 barrels per day from 2013.
Baghdad was angered by the plans of some international majors, including ExxonMobil, to tap oil and gas in the semi-autonomous region. The central government says the deals are illegal.
Later on Wednesday Iraqi Prime Minister Nuri al-Maliki is due to meet Russian President Vladimir Putin in Moscow where they may discuss energy issues.
Russia said on Tuesday it had signed $4.2 billion worth of arms deals with Iraq.
The Kurdistan Regional Government (KRG) is planning to build an oil pipeline to Turkey with a capacity of 1 million barrels a day, according to a report from Platts.
KRG natural resources minister Ashti Hawrami told an energy conference in Turkey on Thursday that plans were already in place for the construction of short spur lines from producing fields and that funding had been arranged for a main export line to carry crude from these fields to the border.
Plans are underway to launch a construction tender for the project, he added.
He said that initially the new line would connect with the existing Turkish section of the Kirkuk-Ceyhan oil line but that talks were underway with investors interested in building a new pipeline inside Turkey running from the border with northern Iraq to the Mediterranean port of Ceyhan.
“Any such pipeline will be an Iraqi pipeline…it will be for the benefit of all nations, all the Iraqi people and all the Turkish people,” Hawrami said.
“It is not designed to be anything else except supplying secure oil to the market,” he added in an apparent reference to recent talk that the KRG was planning its own oil export routes independent of the federal government in Baghdad.
Talk of building new pipelines through Turkey, which currently serves as an outlet for Iraqi crude oil produced in the north through the Mediterranean port of Ceyhan, has given rise to speculation that this might be a first step toward greater independence by the Kurdish province.
Hawrami stressed that the new pipeline would be Iraqi property on the Iraqi side of the border and Turkish on the Turkish and that the oil the line carried would remain the property of the Iraqi state.
“We believe that by 2015 we will safely reach 1 million bpd and by 2019, 2 million bpd,” Hawrami said.
Gulf Keystone, one of the biggest companies listed on London’s junior AIM stock market, is due to start the defence of its ownership of a huge oil field in Iraqi Kurdistan in a London court this week.
The company has long been touted as a potential acquisition target for an oil major looking for a foothold in Kurdistan, but the looming legal battle has been cited as a potential obstacle to any takeover deal.
Kurdistan is emerging as an attractive oil province for big western oil companies. Exxon Mobil, Total and Gazprom have all taken acreage there over the last year, lured by the lucrative terms on offer in Iraq’s semi-autonomous northern region.
Gulf Keystone will contest claims made by Excalibur Ventures LLC at the English Commercial Court. The claimant, which commenced legal action in 2010, asserts it is entitled to an interest of up to 30 percent in all of Gulf Keystone’s blocks in Kurdistan.
Gulf Keystone’s prize asset in Kurdistan is the Shaikan field, which could hold up to 15 billion barrels of oil – a volume which would make it one of the biggest discoveries made anywhere in recent years.
Under legal orders, Excalibur has paid 6 million pounds ($9.6 million) to the court as security for Gulf Keystone’s legal costs, and 3.5 million as security for the costs of Texas Keystone, a U.S.-based company against which it has also made the claims.
Texas Keystone, a company founded by Gulf Keystone Chief Executive Todd Kozel and of which he is still a director, holds a small interest in the Shaikan field in trust for Gulf Keystone.
Kozel, whose expensive divorce attracted media coverage nine months ago, is one of Britain’s highest-paid executives, having earned around $20 million in 2011.
The court case, which is expected to take between 10 and 12 weeks, was scheduled to start on Wednesday but was delayed by the judge.
Shares in Gulf Keystone closed at 205.75 pence on Tuesday, down over 50 percent from an all-time high reached in February, and valuing the company at about 1.75 billion pounds.
U.S. secret mission sent to Jordan to control Syrian chemical weapons: report
The United States military has secretly sent a task force of more than 150 planners and other specialists to Jordan to help the armed forces there to prepare for the possibility that Syria could lose control of its chemical weapons and be positioned should the turmoil in Syria expand into a wider conflict, a report published by the New York Times on Wednesday said.
The secret mission, led by a senior American officer, will also help in handling the estimated 180,000 Syrian refugees who have crossed the border and are severely straining the country’s resources, the report said.
The task force is based at a Jordanian military training center built into an old rock quarry north of Amman.
According to the report, U.S. officials familiar with the operation said the mission includes drawing up plans to try to insulate Jordan, a strong U.S., from the upheaval in Syria and to avoid the kind of clashes now occurring along the border of Syria and Turkey.
“We have been working closely with our Jordanian partners on a variety of issues related to Syria for some time now,” George Little, the Pentagon press secretary, was quoted as saying by the New York Times. He added that a specific concern was the security of Syria’s stockpiles of chemical and biological weapons. “As we’ve said before, we have been planning for various contingencies, both unilaterally and with our regional partners.”
The Obama administration has declined to intervene in the Syrian conflict beyond providing communications equipment and other non-lethal assistance to the rebels. However, the outpost near Amman could play a broader role should U.S. policy change.
The New York Times mentioned that there were no comments on the U.S. military operation from neither the Pentagon nor the Jordanian Embassy in Washington.
Analysts have always said that the Syrian regime of President Bashar al-Assad might deliberately force the Syrian conflict to spill over beyond the Syrian borders in order to keep the world’s attention away from the violence committed against civilians inside Syrian.
Over the past week, Syria and Turkey have exchanged artillery and mortar fire across Syria’s northern border. In western Syria, intense fighting recently broke out in villages near the border crossing that leads to the Bekaa Valley in Lebanon. To the east, the Syrian government has lost control of some border crossings, including the one near al-Qaim in Iraq.
Recent scuffles have also broken out between the Syrian military and Jordanians guarding the country’s northern border, where many families have ties to Syria.
Jordan, which was one of the first Arab countries to call for Assad’s resignation, has become increasingly concerned that Islamic armed groups, coming to join the fight in Syria, could cross the porous border between the two countries.
Al Arabiya has recently revealed that Assad gave instructions for his agents to try to ignite unrest in Jordan. According to “classified intelligence documents” leaked to Al Arabiya, Assad gave orders to provide peaceful protesters, who call for reform in Jordan, with weapons.
According to the New York Times report, the U.S. mission in Jordan quietly began this summer. In May, the U.S. organized a major training exercise, which was dubbed Eager Lion. About 12,000 troops from 19 countries, including Special Forces troops, participated in the exercise.
After it ended, the small American contingent stayed on and the task force was established at a Jordanian training center north of Amman. It includes communications specialists, logistics experts, planners, trainers and headquarters staff members, the report mentioned citing American officials.
Defense Secretary Leon E. Panetta met in Amman in August with King Abdullah II of Jordan. Panetta was then followed in September by Gen. James N. Mattis, the head of Central Command, who met with senior Jordanian officials in Amman.
Members of the American task force are spending the bulk of their time working with the Jordanian military on logistics — figuring out how to deploy tons of food, water and latrines to the border, for example, and training the Jordanian military to handle the refugees, the report said.
Jordan is currently hosting around 100,000 Syrians who have either registered or are awaiting registration, the United Nations said.
Royal Dutch Shell PLC (RDSA) has drilled more than 100 wells in Jordan in the two years since it a concession agreement to explore for oil from the country’s vast oil shale reserves, a person familiar with the project said.
Shell signed a production-sharing agreement with Jordan in May 2009 and pledged to spend some $500 million for exploration, assessment and designs on the project. The project aims at exploring for and, if successful, developing and producing oil from Jordan’s vast oil shale resources that are estimated at 40 billion metric tons. Many analysts now see oil shale–an unconventional form of oil contained in difficult-to-extract reservoirs–as a serious rival to crude.
Shell is mobilizing two rigs in the project that covers an area of 22,000 square kilometers from northern Jordan and west Safawi to Azraq in the middle and Sirhan and al-Jafer in the south. A third rig will be mobilized next year, the person told Dow Jones Newswires.
If the exploration proves successful Shell would invest billions of dollars and produce thousands of barrels of oil a day, the person said. Jordan signed similar agreements with companies such as U.K.-registered Jordan Energy & Mining Ltd., or JEML, and Estonian EESTi Energy.
Jordan, home to around 6 million people, imports some 100,000 barrels of oil a day, which constitutes around 98% of its energy needs.
BP last week began drilling the first well in its concession in the Risha natural gas field in eastern Jordan, near the border with Iraq, the British oil major said on Monday.
The drilling follows two years of preparation and a “very successful 5,000 square km seismic acquisition program in 2011”, BP said.
The well is expected to take three to four months to complete, and a number of international oil and gas service contractors as well as local firms are involved, it said.
Jordanian officials hope intensive exploration and drilling at Risha will lead to the discovery of extensive recoverable gas reserves, which will help cut dependence on oil imports to fuel Jordan’s power sector and industries.
Risha, which was discovered in 1987, has not delivered encouraging exploration results in the past.
In 2009, BP was given up to four years to spend at least $237 million to explore and evaluate the Risha block, which covers an area of 7,000 square km, Jordanian officials said.
If the exploration leads to the discovery of large commercially viable reserves of natural gas, officials said BP would enter a second phase to invest billions of dollars in developing the field.
BP said the seismic survey “was one of the largest ever acquired in the Middle East and one of the safest and highest-productivity surveys acquired in BP history.”
The government strategy calls for Risha to produce 330 million cubic feet of gas per day by 2015. The field has a current modest daily output of about 18 million cubic feet.
The kingdom, which imports most of its energy, is struggling to meet electricity demand, which is growing by more than 7 percent per year, due to fast growing population and rising industrial needs.
Zion Oil Executes Memorandum of Understanding Regarding Drilling Partnership
Dallas, Texas and Caesarea Israel – June 4, 2012 – Zion Oil & Gas, Inc. (“Zion Oil”) (NASDAQ GM: ZN) announced today that the Company recently signed a Memorandum of Understanding (MoU) with Lapidoth Israel Oil Prospectors Corp. Ltd. (“Lapidoth”), a forerunner of onshore oil prospecting in Israel. Lapidoth was incorporated in 1959 and its securities are traded on the Tel Aviv Stock Exchange.
The MoU, effective June 4, 2012, outlines plans to establish a company, tentatively named “Zion-Lapidoth Drilling”, which is to locate and purchase a drilling rig suitable for drilling wells to a depth of up to 25,000 feet. The MoU contemplates that Zion-Lapidoth Drilling will be 50% owned by Zion Oil and 50% by Lapidoth. The anticipated cost of the drilling rig is up to US$ 15 million and each party will share equally in the financing of Zion-Lapidoth Drilling.
The MoU provides that Zion Oil will retain Zion-Lapidoth Drilling for its drilling program and when not required by Zion Oil, Zion-Lapidoth Drilling may lease the drilling rig to third party oil and gas drilling entities.
The MoU is subject to certain standard conditions, including the execution of definitive purchase agreements, obtaining required approvals and the completion of acceptable due diligence by the parties. Additionally, the implementation of the MoU is subject to Zion raising at least US$ 10 million within the next 12 months.
The MoU provides that for the next 12 months Lapidoth will have a right of first refusal to drill wells, as needed, in accordance with Zion Oil’s work program.
Zion’s Founder and Chairman, John Brown, said today, “The signing of this MoU marks a significant milestone in the life of Zion Oil & Gas. We are looking forward to the future expectantly and the partnership with Lapidoth Israel Oil Prospectors Corp. Ltd helps solidify our commitment to drill our prospective exploratory wells.”
Zion’s Chief Executive Officer, Richard Rinberg, noted, “The partnership with Lapidoth helps to alleviate a longstanding concern about our ability to continue to drill exploratory wells in Israel without dependence on an outside third party. Zion will also benefit from Lapidoth’s significant experience in operating drilling projects in Israel. We believe that the ultimate establishment of Zion-Lapidoth Drilling will take Zion Oil, as a business, to a completely new level.
We remain excited about the possibility of recovering hydrocarbons on our license areas, onshore Israel, especially due to the U.S. Geological Survey report, published in April 2010, containing their assessment that there may be 1.7 billion barrels of recoverable undiscovered oil and 122 trillion cubic feet of recoverable gas in the Levant Basin, as all of Zion’s exploration rights fall within the area of the Levant Basin.”
Zion’s common stock trades on the NASDAQ Global Market under the symbol “ZN” and Zion’s warrants trade under the symbol “ZNWAW, ZNWAZ and ZNWAL”.
Zion Oil & Gas, a Delaware corporation, explores for oil and gas in Israel in areas located onshore between Haifa and Tel Aviv. It currently holds three petroleum exploration licenses, the Joseph License (on approximately 83,272 acres) and the Asher-Menashe License (on approximately 78,824 acres) between Netanya, in the south, and Haifa, in the north and the Jordan Valley License (on approximately 55,845 acres), just south of the Sea of Galilee. The total license area amounts to approximately 217,941 acres.
FORWARD LOOKING STATEMENTS: Statements in this communication that are not historical fact, including statements regarding Zion’s planned operations, geophysical and geological data and interpretation, the successful establishment of the drilling subsidiary and the negotiation and execution of definitive agreements with Lapidoth with respect thereto, the presence or recoverability of hydrocarbons, sufficiency of cash reserves, ability to raise additional capital and timing and potential results thereof and plans contingent thereon are forward-looking statements as defined in the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements are based on assumptions that are subject to significant known and unknown risks, uncertainties and other unpredictable factors, many of which are described in Zion’s periodic reports filed with the SEC and are beyond Zion’s control. These risks could cause Zion’s actual performance to differ materially from the results predicted by these forward-looking statements. Zion can give no assurance that the expectations reflected in these statements will prove to be correct and assumes no responsibility to update these statements.
- Deputy PM: Iraq to cut ties with America and other foreign oil firms over Kurdish deals (thesantosrepublic.com)
- Genel Energy, Gulf Keystone Gain on Kurdistan-Iraq Revenue Deal – Bloomberg (bloomberg.com)
- Baghdad and Erbil Battle for Iraq (nationalinterest.org)
- Insight: Oil’s big players raise the stakes in Iraqi Kurdistan (conservativeread.com)
BAGHDAD (AP) — A Middle East subsidiary of Russia’s Gazprom Neft has inked two oil deals with Iraq’s self-ruled northern Kurdish region, becoming the fourth major oil company to enter into agreements with Iraqi Kurds that bypass the central government in Baghdad.
The Kurds and the central government are at loggerheads over rights to develop resources. Baghdad wants to manage its energy resources nationwide, but Kurds insist the constitution doesn’t require them to go through Baghdad.
Since the 2003 U.S.-led invasion, the Kurds have signed scores of oil deals with small and mid-sized oil companies. But the entry of the oil majors may be a game changer that could lead to de facto policies the Kurds have long sought.
In a statement issued on Wednesday, the St. Petersburg-based company said it has acquired a 40 percent share in the 1,780-square-kilometer (687-square-mile) Garmian block. The Canada-based WesternZagros company will also hold a 40 percent share.
In the second deal, the company will hold an 80 percent share in the 474-square-kilometer (183-square-mile) Shakal block. The Kurdish Regional Government will hold a 20 percent share in each contract.
Both blocks are located in the southeastern part of the region and are expected to hold about 3.6 billion barrels of oil reserves. Gazprom’s up-front payment is to be around $260 million.
“Gazprom Neft considers the territory of the Kurdistan Region of Iraq promising for further geological study and consequent production at the fields,” First Deputy CEO, Vadim Yakovlev said.
With its latest deals, Gazprom has joined France’s Total S.A., U.S. oil majors Chevron Corp. and Exxon Mobil Corp. who have already made their own forays into the region.
Iraq’s post-invasion governments have until recently blacklisted energy companies that signed contracts with the Kurdish government to prevent them from working elsewhere in the country or purchase crude oil.
But in the case of Exxon Mobil, the Iraqi government has had a light hand. Baghdad prevented the U.S. company from taking part in Iraq’s fourth energy bidding round in May but has not touched its deal to develop the 8.6 billion West Qurna field near the southern city of Basra along with Royal Dutch Shell PLC.
No moves have been made against Total, which has a share in a consortium led by China’s National Petroleum Corporation to develop the 4.945 billion barrel Halfaya field in the south. Gazprom is developing the 100 million barrel Badra field in central Iraq.
Baghdad has so far only blacklisted Chevron, which has no deals with the government.
There is considerable incentive to work directly with the Kurds — unlike the flat fee the central government pays for each of barrel of oil extracted, the Kurds offer lucrative contracts allowing the developers to claim a share in reserves and the oil produced.
Also Wednesday, the Iraqi Kurds announced that they will resume crude oil exports from their region in the first week of August after they were halted in April over a payment row with Baghdad.
In 2011, the two administrations struck a tentative deal by which the Kurds send oil to Baghdad, which then sells it and each side then takes 50 percent of the revenues. But exports were halted in April by the Kurds who claimed that Baghdad failed to send them the money. In return, Baghdad accused the Kurds of keeping billions of dollars that ought to go to government coffers and also of smuggling oil.
The Kurdish statement said the exports will start at 100,000 barrels a day for a month as a “confidence-building” measure and if payments were forthcoming, they could move swiftly up to 200,000 bpd. If not, the exports will be halted again.
Since 2008, Iraq has awarded 15 oil and gas deals to international energy companies, the first major investments in the country’s energy industry in more than three decades.
The original goal was to boost daily production from about 3 million barrels now to 12 million barrels by 2017. That may be revised downward to fewer than 10 million barrels however, given infrastructure bottlenecks and a possible falloff in demand on international markets [source]
BARROSO AND PUTIN LOCK HORNS ON GAZPROM
Putin has signed a decree giving the government the right to protect natural gas
giant Gazprom from a stupid antitrust probe of Barroso. Galileo muttered the
phrase Eppur si muove, And yet it moves, after being forced
to recant in 1633, before the Inquisition, his belief that the Earth moves
around the Sun. Similarly the new inquisition of regulators forces executives
to admit something they did not do, in order to get smaller penalties. Eppur si
There is an Antitrust Armageddon in Europe between tiptop companies and Fourth
Reich(EU). Eurokleptocrats are willing to do anything in order to get kickbacks
from industry leaders. The European antitrust laws have the unfortunate
consequence of harming Europeans by chilling innovation and discouraging
competition. Instead of protecting competition, EU laws protect competitors who
give kickbacks to kleptocrats! Kickback is the lubricant that allows a European
industry to run smoothly! No European machinery can run without lubricant! Eppur
The new Russian law prohibits companies deemed strategic from disclosing
information, disposing of assets or amending agreements without Russian
authorities’ ratification in the case that the claims are initiated by foreign
states or entities.
European antitrust law is wielded most often by favor-seeking businessmen and
their kleptocrat allies. Instead of focusing on new and better products,
disgruntled rivals try to exploit the law by consorting with kleptocrats. EU
officials routinely direct antitrust regulators to bend the rules in pursuit of
political ends. In reality, the threat of abusive EC power is far larger than
the threat of oligopoly. Eppur si muove!
Gazprom declares it is incorporated beyond EU jurisdiction, and is a company
which under Russian law exercises functions of public importance and has the
status of a strategic organization controlled by the state.
When a company is forward-thinking, proactive, innovative, and productive, it
will produce good products that customers want to buy. As a result, it will win a
large market share. If the company is much better than its competitors, it might
win most, or almost all, of the market. This is the case with Microsoft. It has
earned its market share by producing good products that customers want to buy.
Barroso is investigating whether Gazprom, the world’s largest gas exporter,
resorted to unfair competition and price-fixing in Central and Eastern Europe’s
natural gas markets. The EU, which gets 25% of its gas from Russia, wrongfully
claims that Gazprom has hindered the free flow of gas across its member states,
preventing supply diversification and limiting customer choice in delivery
points. Barroso also suspects Gazprom of imposing unfair costs on its customers
by linking the prices of gas and oil.
A company that wins a large market through its own productive efforts deserves
accolades. This is because justice, morally, tells us that we must reward the
good. However, to the government, a large market share is taken as evidence of
anti-competitive behavior, which makes the company a target for antitrust
action. This seems to be the motive behind the antitrust suits against Microsoft
Barroso notes Gazprom’s long-term supply contracts linking gas prices to oil
prices are no longer justified because of the appearance of a spot market for
gas and increased supplies of shale gas. Gazprom may face a
fourteen-billion-euro penalty, according to estimates based on the fact that
companies found to breach EU competition rules can be fined as much as 10% of
European antitrust laws lead to huge corruption, because government officials
ask for kickbacks in order to erase the alleged violation. The standard kickback
in EU is 10% of the erased penalty! Many Greek officials were caught on tape
asking for the corrupt tithe! Many European political parties make up their
election expenses from kickbacks on antitrust cases! This is the worst possible
blackmail, where tiptop ethical companies are held hostage by European
kleptocrats. Eppur si muove!
Putin warns Barroso that there would be losses on both sides if the thorny issue
isn’t tackled. Putin accuses Barroso of trying to burden Russia with the
subsidizing of formerly communist EU states by forcing Gazprom to reduce prices
for customers in Eastern and Central Europe. Gazprom says the Barroso
investigation is an attempt to reduce gas prices, and it won’t give discounts to
Barroso without the Russian government’s go-ahead. [source]
The Gazprom Cables ‘Not a Competitive Global Company’
Gas giant Gazprom was meant to catapult Russia back into its role as a global superpower. Executives dreamed of the “most valuable company in the world.” But secret cables from the US Embassy in Moscow provide a different picture: The Americans consider the mega firm to be chaotically organized and corrupt.
June 10, 2009, Moscow: “Too many political constraints”
XXXXXX: Redacted by the editors. Important note on the dispatches…
DE RUEHMO #2528/01 2791102
ZNY CCCCC ZZH
P 061102Z OCT 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 4993
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
TAGS: EPET, ENRG, ECON, PREL, RS
SUBJECT: GAZPROM’S REVERSAL OF FORTUNE, PART ONE
REF: A. MOSCOW 971
C o n f i d e n t i a l moscow 002528
Dept for eur/rus, eeb/esc/iec gallogly and wright, s/eee
doe for hegburg, ekimoff
doc for jbrougher
nsc for mmcfaul
E.o. 12958: decl: 10/05/2019
Tags: epet, enrg, econ, prel, rs
Subject: gazprom’s reversal of fortune, part one
Ref: a. Moscow 971
b. Moscow 403
c. Moscow 367
Classified By: Econ MC Matthias J. Mitman for Reasons 1.4 (b/d)
1. (U) This is the first of a two-part report on the new
economic realities facing Gazprom, Russia’s state-owned gas
2. (SBU) Far from reaching its ambitions of becoming “the
most valuable company in the world,” Gazprom’s fortunes have
reversed dramatically in the past year. The company’s market
value, production, and sales have all plummeted since the
onset of the economic crisis. With dramatically reduced
cash-flow, the company has been forced to cut back on capital
expenditures and its ambitions, despite political rhetoric to
the contrary. However, as we will examine in part two of
this report, Gazprom’s problems are likely longer term. End
massive reversal in major indicators
3. (U) Major indicators of Gazprom’s performance have all
reversed course dramatically in the past year. (Note:
Figures in this report are taken from Gazprom reports,
statements, and presentations, unless otherwise indicated.
Market capitalization —
4. (U) At its peak in May 2008, Gazprom’s market valuation,
based on the small percentage of its shares that trade
publicly, was over $350 billion, and company president Alexey
Miller declared Gazprom would become “the most valuable
company in the world.” Miller suggested Gazprom’s market
capitalization would reach $1 trillion in the near future.
By May 2009, in the midst of the global economic and
financial crisis, the company’s market capitalization had
dropped to its recent low of approximately $75 billion, but
has since rebounded to approximately $120 billion.
5. (U) Gazprom’s gas production peaked in 2006, at 556
billion cubic meters (bcm). In 2008, it was 550 bcm. In the
first seven months of 2009, however, Gazprom’s production was
down almost 25% over the same period in 2008. As of
September 2009, Gazprom expects 2009 production to reach just
474 bcm, and many analysts believe that figure to be overly
optimistic. In a September note on Gazprom, investment bank
Troika Dialog predicted Gazprom would have difficulty even
reaching 460 bcm. On the low end, some analysts estimate
Gazprom could produce just 450 bcm or less in 2009 — a 100
bcm or more decline from its peak production. Even this
massive drop in production is masked to some degree by the
halt in gas imports from Turkmenistan since April (ref A).
In 2008, Gazprom imported 42 bcm from Turkmenistan, nearly
all of which was re-exported to Ukraine. Having halted these
imports, Gazprom itself is supplying the Ukrainian market out
of Russian production.
6. (U) The Russian Customs Service reports that Russian gas
export revenues were down 50% in the first 7 months of 2009,
compared to the same period in 2008, a decline of almost $20
billion. While Gazprom’s official results for 2009 will not
be published until well into 2010, a back-of-the-envelope
calculation using Gazprom’s own projections for average price
and volumes of exports to Europe in 2009 (ref C) indicates
the company might receive about $30 billion less from exports
to Europe in 2009 than in 2008. This represents a loss of
about 2% of Russian GDP and is in line with estimates from
various analysts. (Note: Given the relative significance of
export sales to Europe (excluding FSU), the relative
reliability of the figures, and to avoid exchange rate
complications, we focus only on export revenues here.
According to its recent bond prospectus, Gazprom’s exports
are divided into sales to the FSU, and to Europe. Sales to
the FSU and Europe represent 16% and 63%, respectively, of
its sales by revenue — meaning exports represent 79% of
Gazprom’s revenues. End note.)
Domestic sales —
7. (U) Gazprom’s domestic sales are not down as dramatically
as one would expect given the economic crisis, due primarily
to artificially low domestic prices, which prop up demand.
While Gazprom has not yet reported official results for the
first half of 2009 (1H09), various analysts predict a drop of
about 10% in gas volumes to the domestic market.
Export volumes —
8. (U) Gazprom’s overall exports peaked in 2008 at 281 bcm.
Gazprom’s sales to the FSU peaked in 2007, at 101 bcm,
dropping slightly to 97 bcm in 2008. Sales to the rest of
Europe peaked in 2008, at 184 bcm. (Note: Interim
statements regarding 2009 sales often do not coincide in
definition with audited annual reports. Thus 1H09 sales
estimates only give an indication of the trend and are not an
exact comparison with 2008 figures. Gazprom has not yet
released official results for 1H09 and only released first
quarter (1Q09) results on August 26. End note.) Through
1H09, Gazprom has said it shipped about 33% less gas to
European customers than in 1H08. In a recent statement, the
company said its exports to the FSU in 1H09 dropped 54%
compared to 1H08. A weighted average of those estimates
indicates overall exports shrunk by about 40% 1H09.
9. (U) As Gazprom and many analysts point out, however, 2H09
should be much better for Gazprom exports as many European
customers restrained purchases in 1H09, knowing that prices
— which are tied to oil prices with a six to nine month lag
— would drop dramatically in 3Q09. Furthermore, export
volumes in 2H08 were already dropping rapidly due to the
economic crisis and high gas prices that were reaching their
peak in 4Q08. Results for 1H09 were also significantly
affected by the 21 day gas cutoff to Ukraine and 10 day
cutoff to Europe in January. That said, 2009 will still be a
dismal year for Gazprom export volumes.
10. (C) Facing financial realities, Gazprom recently cut its
capital expenditure budget by $7.5 billion, or about 25%,
including cuts to Shtokman and Yamal development. However,
Gazprom and GOR leadership continue to take the tack that
“everything is fine” (ref B). One attendee at the recent
gathering of the “Valdai” group of international Russia
experts told us that Gazprom CEO Alexey Miller told the group
that the company’s plans for the Nord Stream and South Stream
gas pipelines, and for the development of the Shtokman and
Yamal gas fields are “all on track.”
11. (C)xxxxxxxxxxxx told us recently that
Miller’s and other GOR leaders’ public statements on Gazprom
should be ignored. xxxxxxxxxxxx said these leaders understand well
that Gazprom is in trouble but they just don’t know what to
do about it.
12. (C) According to xxxxxxxxxxxx, Gazprom simply doesn’t have the
money to move forward on all its so-called “priorities,” and
it will need to choose which are most important, while facing
insatiable political demands on its revenue streams. xxxxxxxxxxxx, told us
recently that he believes Gazprom has “a heck of a lot of
cost-cutting capacity” still available, but that the company
has too many political constraints preventing it from taking
the most necessary and painful measures. Furthermore, he
figures the company needs to spend about $5 to $8 billion a
year just to maintain its aging system and that these costs
will rise in the future. xxxxxxxxxxxx is thus also very
skeptical of Gazprom’s other major commitments such as South
Stream and Shtokman.
13. (C) Gazprom’s capital expenditure cuts reflect an
understanding that, public rhetoric aside, the company can’t
spend money it doesn’t have. However, Gazprom’s longer-run
problems are largely beyond its control and require
fundamental reforms that will be difficult to achieve. In
part two of this report, we examine the constraints to
Gazprom’s return to dominance.
Gazprom headquarters in Moscow: “Private bank accounts and dirty deals”
Gas giant Gazprom was meant to catapult Russia back into its role as a global superpower. Executives dreamed of the “most valuable company in the world.” But secret cables from the US Embassy in Moscow provide a different picture: The Americans consider the mega firm to be chaotically organized and corrupt.
High-ranking representatives of Russian gas giant Gazprom are hard to pin down for appointments. So when American diplomats finally got the chance, they cut right to the chase: What are the giant energy company’s actual business aims?
The Gazprom man was candid. The first priority, he said according to US diplomatic cables obtained by WikiLeaks and shared with SPIEGEL and other partners, is to provide reliable and affordable gas to the domestic population. The second, he said is to “fulfill its social obligations,” including charitable projects all across Russia.
The American envoys persisted in their questioning. Was it not also the goal of the company to maximize its shareholder value and its market share? Yes, of course. The cable cites the official also adding a third priority to his company’s goal: to maximize “control over global energy resources.”
A “Gazprom official describes the company as a socialist rent-seeking monopolist,” the US envoys reported after a September 2008 meeting in a dispatch cabled to Washington.
‘Huge Wealth, but Inefficient’
That’s the tenor of a number of secret US Embassy reports about the model Russian company, cables that are filled with critical American assessments about a bureaucracy that has gone overboard and a mafia-like political system in Russia.
But the assessments are particularly pointed when it comes to Gazprom, the company the Russians themselves most like to celebrate and to deploy in their battle to regain lost power in the world. Even as recently as May 2008, Chairman Alexei Miller was pledging that Gazprom would soon be “the most valuable company in the world,” with market capitalization that would reach $1 trillion in the near future. But around one year later, in the midst of the global economic and financial crisis, the company’s market capitalization had dropped to $75 billion.
“Gazprom is,” the Americans summed up in one cable, “what one would expect of a state-owned monopoly sitting atop huge wealth — inefficient, politically driven, and corrupt.” The American diplomats also painstakingly detailed the sectors in which the energy giant is engaged in and in which falling gas prices are creating problems for it.
Falling Demand for Gas
Their results are sobering. One 2009 cable states: “Far from reaching its ambitions of becoming ‘the most valuable company in the world,’ Gazprom’s fortunes have reversed dramatically this year. The company’s market value, production, and sales have all plummeted since the onset of the economic crisis.” With dramatically reduced cash-flow, the cable reads, the company has been forced to cut back on capital expenditures and its ambitions, despite political rhetoric to the contrary.
The US diplomats described Gazprom’s problems as likely being “longer term,” and not just a by-product of the crisis. That’s because demand for gas in Germany and Europe is in decline because industrial production there and across Europe has become more efficient.
At the same time, a cable noted, few new markets are opening up in the former Soviet states. Ukraine, for example, indicated it was considering halving its gas purchases. Gazprom Chairman Miller has for some time now been longing to establish a new market in the US but, as a cable states, the country is “looking more and more saturated every day with ever larger estimates for domestic production.”
According to the assessment by the US diplomats, Gazprom’s greatest problem is the company’s own Byzantine structures. “Gazprom is not a competitive global company,” the assessment reads, despite sitting on the world’s largest gas reserves. “Gazprom is the legacy of the old Soviet Ministry of Gas and still operates much the same way.”
A Top Executive with a Love for Hockey
There were many indications that this was the case. The Americans learned from an informant that a senior partner in an international accountancy firm needed two years just to unravel Gazprom’s holdings. The empire included one of Russia’s largest banks, an important Russian media company and a major construction firm.
Originals: Key Gazprom Cables
July 10, 2009, Moscow: “Huge wealth … corrupt’
XXXXXX: Redacted by the editors. Important note on the dispatches…
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHMO #2541/01 2801342
ZNY CCCCC ZZH
P 071342Z OCT 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 5023
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
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RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
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RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
TAGS: EPET, ENRG, ECON, PREL, RS
SUBJECT: GAZPROM’S REVERSAL OF FORTUNE, PART TWO; COMEBACK
REF: A. MOSCOW 2528
C o n f i d e n t i a l section 01 of 04 moscow 002541
Dept for eur/rus, eeb/esc/iec gallogly and greenstein,
doe for hegburg, ekimoff
doc for jbrougher
nsc for mmcfaul
E.o. 12958: decl: 10/06/2019
Tags: epet, enrg, econ, prel, rs
Subject: gazprom’s reversal of fortune, part two; comeback
Ref: a. Moscow 2528
b. Vladivostok 110
c. Moscow 854
Classified By: Ambassador John R. Beyrle for Reasons 1.4 (b/d)
1. (U) This is part two of a two-part cable on the new
economic realities facing Gazprom, Russia’s state-owned gas
2. (C) Gazprom faces many external and internal constraints
to renewed growth, following a dismal year in which all main
indicators of its performance deteriorated dramatically. The
globalizing gas market, a gas glut that shows no signs of
reversal, and politicized management likely mean that Gazprom
will not reach the heights of revenues and power achieved at
its peak in 2008. Unfortunately, the types of reforms (e.g.
privatization) that would result in a more valuable and
productive gas industry are stymied by the GOR’s seemingly
firm belief in a state-controlled sector. While Gazprom will
remain a major economic force, its influence on GOR policy
and its relative role in the Russian economy likely will
diminish in the short- and medium-term. End summary.
external constraints to a rebound
3. (SBU) Gazprom’s current problems (ref A) are not solely
the result of one-off contractions in demand due to the
economic crisis. Gazprom faces a fundamental shift in the
gas demand picture at a time of increasing competition.
Demand stabilization and decline —
4. (SBU) xxxxxxxxxxxx told us recently that Gazprom was simply unprepared
for the inevitable leveling off and current decline in
European gas demand. He explained that Gazprom’s management
has only known rapidly rising European demand for Russian gas
as most European countries “gassified” their economies over
the past two decades. He noted that anyone looking at the
trend could have been excused for thinking it would continue
perpetually; but now the period of gassification is over.
According to xxxxxxxxxxxx demand for gas in Germany is
actually in decline, as industrial production in Germany (and
across Europe) has become more efficient and as much of it
has been outsourced.
5. (SBU) Gazprom not only faces a demand problem, but also
competition from an increasingly globalized gas market —
“for the next 5 to 10 years, gas will clearly be a buyers
market,” said xxxxxxxxxxxx has calculated (using data
from the BP Statistical Review of World Energy) that
Gazprom’s share of EU 27 gas imports has dropped steadily
from about 50% in the mid-90s (when gassification increased
demand) to just 34% in 2009. xxxxxxxxxxxx expects Gazprom’s share to
decline to about 30% and stabilize at that level. xxxxxxxxxxxx also
calculated that LNG’s contribution to EU imports over the
last decade has increased from about 10% to about 20%, a
figure he projected to continue to grow. In addition,
Gazprom will have to cope with massive new volumes of LNG on
the global market from projects already underway in Qatar and
elsewhere (ref C).
No help from other markets —
6. (C) Gazprom is unlikely to get any relief from its former
Soviet Union(FSU) customers either. Despite the likely rise
to “market prices” for gas sales to the FSU, lower demand
will continue to hurt Gazprom. Ukraine, Gazprom’s major
export market outside of non-FSU Europe, earlier signed a
take-or-pay contract which outlines a minimum amount of gas
which Ukraine is obliged to purchase from Russia. Ukraine
Moscow 00002541 002 of 004
has recently indicated it might take as little as 50% of the
52 bcm of gas it had earlier agreed to buy in 2010. Russian
government officials remain concerned over Ukraine’s ability
to pay for gas this winter and are already signaling they are
prepared to shut off exports to Ukraine in the event of
7. (SBU) Global markets will also offer little hope for
Gazprom, at least in the medium-term. Gazprom executives
have often expressed the expectation that the company would
become a global gas supplier, perhaps through newly expanded
LNG capacity. However, their preferred future export
destination, the U.S., is looking more and more saturated
every day with ever larger estimates for domestic production.
In a recent meeting with Embassy officials in Sakhalin,
Shell oil representatives stated that no LNG had been shipped
from the Sakhalin II facility to the U.S. due to soft prices
in that market. Much of this LNG has been shipped to Japan
Domestic market —
8. (SBU) Gazprom often touts future revenue gains from
domestic market price liberalization. However, it neglects
to account for demand elasticity in the wake of sharp
proposed increases in prices. With one of the most energy
intensive economies in the world, future hikes in domestic
gas prices would likely cut domestic demand substantially, as
evidenced in other countries that have implemented rational
pricing. Thus Gazprom’s revenue gains from higher domestic
prices would be at least partly offset by lower sales volumes.
External politics —
9. (SBU) In addition to the headwinds from market forces,
Gazprom faces the political and PR difficulties in external
markets that it has largely brought on itself through the gas
cutoffs of 2009 and 2006. Despite some pain in certain
Central and Eastern European countries, Ovchinnikov
explained, the 2009 gas cutoff showed that Europe could get
by without Russian gas. This should bolster EU determination
to minimize its dependence on Russian gas, and to explore new
options to diversify energy supplies.
internal constraints to growth
The Ministry of Gas —
10. (SBU) A Gazprom that behaved more like a competitive
global company would probably find a new path to growth more
quickly. But Gazprom is not a competitive global company,
despite sitting on the world’s largest gas reserves. Gazprom
is a legacy of the old Soviet Ministry of Gas and it still
operates much the same way. As a Gazprom executive himself
admitted to us, the company’s first two priorities are to
provide reliable and affordable gas to the domestic
population, to “fulfill its social obligations.” One contact
with direct information told us it took a senior partner from
a major accounting firm two years of full-time investigation
just to unravel Gazprom’s holdings, which include one of
Russia’s largest banks, one of Russia’s major media
companies, and a major construction company.
Technologically backward —
11. (SBU) Gazprom’s legacy and the government’s ownership of
the company also mean that it must act in the interests of
its political masters, even at the expense of sound economic
decision-making. From building unneeded pipelines (ref B) to
maintaining employment at some unneeded facilities, Gazprom
declines to solely act on financial and economic grounds. As
a state-controlled monopoly during the flush times of the
past decade, Gazprom had little incentive to develop new
technologies and capabilities long enjoyed by other global
oil and gas companies. Despite management’s interest in
expanding Gazprom’s LNG capacity, the company has only one
LNG export terminal, which it took over by forcibly becoming
the majority owner in a Shell-led consortium. Rapid
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expansion of LNG export capacity is unlikely without the help
of international oil companies (IOCs), who are still trying
to find an acceptable future working model in Russia.
Inability to adapt —
12. (SBU) Gazprom’s inability to meet competitive pressures
is apparent in the current European gas market. According to
xxxxxxxxxxxx Gazprom is the only major European supplier that
has had to cut production. xxxxxxxxxxxx blames Gazprom’s “self
inflicting wound” of tying gas prices to oil prices. He said
this convention dates back to when gas was a substitute for
fuel oil for heating. xxxxxxxxxxxx explained that this oil
price link has made Gazprom the high-price supplier in
Europe, a situation that is likely to continue into the near
future. xxxxxxxxxxxx said that with European gas demand unlikely to
recover to pre-crisis levels until 2013 and Europe facing
“excess supply” for at least the next decade, Gazprom will
have a very tough time just maintaining market share. A
major oil company senior executive echoed this analysis in a
recent meeting with us, noting “if you are a European
consumer, the last molecule of gas you want to buy is from
possible tensions, but reforms unlikely
13. (SBU) The tough times may be creating (or exacerbating)
tensions within Gazprom and the GOR over the company’s
future. Several contacts have told us they have heard of
such tensions. One Russian company executive said he has
heard that xxxxxxxxxxxx has been pushing for dismantling
Gazprom, to at least take away its control over the domestic
gas pipeline system. An executive at a Western company told
us recently that there are two camps within the upper levels
of the GOR on the issue of Gazprom’s direction. One camp
favors the current “one national company” approach, while the
other favors competition to spur a more efficient and modern
gas sector. Unfortunately, this executive explained, “the
number one factor” in managing Gazprom from the GOR
perspective is “how to increase government revenues from the
14. (C) xxxxxxxxxxxx, brushed off rumors of infighting
at Gazprom as nothing new. xxxxxxxxxxxx said there has always been
infighting at the company because it is such a bureaucratic
behemoth. “Everyone is always looking to make others look
bad in order to move ahead themselves,” xxxxxxxxxxxx said. While
xxxxxxxxxxxx acknowledged Gazprom’s substantial problems, xxxxxxxxxxxx did
not think any major reforms would be forthcoming.
15. (SBU) Rumors aside, nobody with whom we have talked
believes Gazprom is in any danger of losing its monopoly on
exports or its preferred status within the Russian economy.
Nor is the government likely to give up control of the
company anytime soon. Without such fundamental reforms, it
is difficult to see how Gazprom can transform itself into a
modern corporation in the current environment.
16. (C) Gazprom is what one would expect of a state-owned
monopoly sitting atop huge wealth — inefficient, politically
driven, and corrupt. For years, with its exports and export
prices rising rapidly, it could easily pretend that all was
well and that the future was bright. That pretense may now
be giving way to the new reality of declining sales, lost
market share, and an inability to maneuver adeptly in the
face of global competition. Although Gazprom will likely
muddle along as a major corporation and major contributor of
jobs and budget funds, its economic contribution will likely
be diminished. While Gazprom can still shut off gas to
Ukraine or to other parts of Europe, each such threat further
undermines the company’s credibility as a reliable energy
supplier, and underscores the fact that Gazprom is
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politically subordinate to the Kremlin. Gazprom’s influence,
both domestic and international, has been directly tied to
its cash flow — money that funds employment, suppliers,
budgets, charities, foreign ventures, and, surely, many
private bank accounts and dirty deals. Unfortunately for
Gazprom and for the GOR, the massive revenues and profits
that the company produced in 2008 are unlikely to return
anytime soon. End comment.
Experts estimated that the company had to also spend between $5 billion and $8 billion on keeping its aging infrastructure in good working order — costs that will only increase in the future. A prominent Western oil executive told the US diplomats that while drilling a borehole in Canada only took 10 days in Russia it took twice as long.
A meeting with top Gazprom executives, such as Deputy CEO Alexander Medvedev, were also sobering. In a discussion with US diplomats, the hockey fan complained that there was still no cooperation between the Russian and American hockey leagues — and fulminated against Ukraine, which he claimed had orchestrated the gas dispute with Russia.
The Americans’ conclusion is devastating: “Gazprom’s legacy and the government’s ownership of the company … mean that it must act in the interests of its political masters, even at the expense of sound economic decision-making.” The company had made funds available for many “private bank accounts and dirty deals,” one cable wrote, though it lacked any concrete proof for this claim. Gazprom itself has consistently defended itself against accusations of corruption.
In any case, the Gazprom money was not flowing as much as previously, the US diplomats wrote. “Unfortunately for Gazprom and for the Russian government, the massive revenues and profits that the company produced in 2008 are unlikely to return anytime soon,” one cable reported. Although Gazprom would remain a major company, its economic contribution was likely to be diminished, the US diplomats concluded.
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