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Los Angeles Times: Russia, China picking up where OPEC is leaving off

As the Kremlin’s dominance grows, it uses energy more for political gain
By ELIZABETH DOUGLASS

If gasoline prices have you muttering curses at OPEC during each fill-up, maybe you should just say nyet.

The big-time producers in the Organization of the Petroleum Exporting Countries have plenty of clout, but with global oil output barely covering demand, countries outside the cartel are wielding more sway, affecting the price of oil and everything made from it.

Indeed, when world energy leaders gathered in Houston last week to dissect industry issues, their remarks were translated from English into only two other languages — Russian and Chinese.

Daniel Yergin, chairman of conference sponsor Cambridge Energy Research Associates, said the language selection “just reflects the force of globalization.” So did the delegates’ list: 55 countries were represented at the influential energy conference, including a large contingent from Russia.

With substantial oil and the world’s largest natural gas reserves, Russia has seen its dominance grow on the world energy stage.

But the country’s trading partners, particularly European nations, have grown increasingly wary amid moves by the Kremlin to use its supplies for political leverage. A U.S. Energy Department report described it as “an inclination to advance the state’s influence in the energy sector, not to reduce it.”

Critics cite the Kremlin’s efforts to gain more control over oil and natural gas projects that involve major outside oil companies, such as Exxon Mobil Corp. and Royal Dutch Shell. They also point to a January dispute between Russia and Belarus over oil taxes that led to a cutoff in the flow of crude oil through a pipeline serving European customers. And a year earlier, natural gas producer OAO Gazprom cut off supplies to Ukraine because the two nations couldn’t agree on price — a disruption that also affected exports to Europe.

“Russia uses energy now because that’s where it has strength,” said Elena Herold, a strategist at Washington-based PFC Energy and an expert on Russian energy issues. “That’s why whenever the U.S. says something unpleasant about Russia or to Russian officials, Russian officials in response become kind of nasty about their ability to cut off supplies here and there. It’s paranoia on both sides.”

Curtailing a large share of its massive oil and natural gas exports, however, is a threat Russia couldn’t afford to carry out, Herold said. Tax receipts from oil and natural gas sales fund about half of Russia’s annual budget, she added.

In a speech during the Houston event, U.S. Energy Secretary Samuel Bodman chided nations that have used their resource clout to radically change — or cancel — long-term oil deals with foreign oil companies. While he did not name the countries, it was an apparent reference to actions by Russia, Venezuela, Ecuador and others.

“Moves to restrict foreign investment and increase the reach of state-run energy industries limit access to capital and to the expertise needed to unlock new resources,” Bodman said. “While this type of behavior may garner some short-term advantage, in the long run, it deprives those very countries of productivity and prosperity.”

Bodman also made clear his displeasure that Russia and Qatar — which together hold more than 40 percent of the world’s natural gas reserves — recently agreed to discuss forming a natural gas producers’ group akin to OPEC. The suggested gas cartel has even picked up a nickname: “Gas-pec.”

“I don’t like it. It is not something that we encourage, and I will make my views known as I visit with the various ministers in question,” Bodman told reporters after his speech. “All countries can act as they see fit … but I think it’s fair to say that efforts to manipulate markets; efforts to try to organize the suppliers in such a fashion, over the long term, is not going to accrue to the benefit of the suppliers.”

With more than 1,680 trillion cubic feet of natural gas reserves, almost twice as much as the next-largest country, Russia is the world’s largest natural gas exporter, according to the Energy Department.

In a speech at the same Houston event, Andrei Reus, Russia’s deputy minister of industry and energy, decried the mood of distrust that has begun to color worldwide oil and gas markets.

“The measures we undertake are not always properly interpreted,” he said through an interpreter. “While our dialogues with business and government representatives yield productive results, the Western mass media are always suffering from an old disease called ‘Russophobia.’ Only this time it’s energy.”

China, meanwhile, has become a force in world energy markets because of the country’s fast-growing demand for oil and natural gas. The country’s rapid rise in energy consumption is closely watched by commodities traders, and other nations have begun to fret that China’s drive to secure supplies will keep prices high and make imports harder to come by.

“A few years ago, the Chinese were not a big player either in the industry or as consumers,” Yergin said. “Now they are very big players in both areas.”

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