Robert Kaplan has a book review up in the WSJ of “Crude World.”

A Gusher Of Trouble
Why nations rich in oil are often plagued by poverty and corruption.

By ROBERT D. KAPLAN

Just as there was the Bronze Age and the Iron Age, there is now the Oil Age, and we are living through its last waning decades. Juan Pablo Perez Alfonzo, a former Venezuelan oil minister who came up with the idea for a cartel in the 1960s, called oil the “devil’s excrement.” Peter Maass, in “Crude World,” a spare, engaging work of reporting and travel writing, calls oil “black oxygen.” It is a neat phrase because, as Mr. Maass demonstrates, oil is almost as essential to our lives as the air we breathe, yet its effect on the countries that produce it, and on the super-alpha males who run the oil industry, is quite sinister. This is a dark book, though not because Mr. Maass is a pessimist—he isn’t. It’s just that his itinerary (Equatorial Guinea, Nigeria, Russia, and other benighted locales) lends itself to deep foreboding about the human condition.

Oil corrupts, Mr. Maass says, because it is an “extractive” industry. The computer business and other industries actually design and produce something, but oil is simply taken out of the ground. Thus power lies in the hands of the king, dictator or prime minister who controls the real estate and with whom all sorts of unsavory deals can be struck. Extractive industries “do most of their business in compromise-inducing countries,” Mr. Maass explains. “The problem is not that extractive industries have lower principles than other industries. The problem is that they must have better principles”—something that shareholders do not necessarily encourage. Because the number of oil fields on the planet is finite, and the oil in many of them is difficult to extract, the industry is governed by a zero-sum and aggressive realism of the bleakest sort.

Read the rest.

Russia oil production overtakes Saudi Arabia
Russia is extracting more oil than Saudi Arabia, making it the biggest producer of “black gold” in the world, figures show.

The statistics, from the OPEC, reflect a trend that has seen the Russians periodically surpass the Saudis as the world’s biggest oil producers on and off since 2002.

These latest figures are being hailed in Russia as evidence that such periodic production spikes are not one-offs though and that Moscow really does have a right to lay claim to the No 1 spot.

According to OPEC, Russia extracted 9.236 million barrels of oil a day in June, 46,000 more than Saudi Arabia.

Russia has surpassed Saudi Arabia in energy exports for years, thanks to its large exports of natural gas. Now it even surpasses Saudi Arabia in terms of oil exports alone.

The Global Trends Final Report says we may be at the cusp of a “Post-Petroleum Age”—but the realistic expectations for renewable sources such as wind and solar will remain an extremely small portion of world energy supplies. And as energy use increases, it will be coal that grows as the primary source of enegry, not nuclear power.

HYDROCARBONS AND OIL
Non-OPEC liquid hydrocarbon production (i.e., crude oil, natural gas liquids, and unconventionals such as tar sands) will not be able to grow commensurate with demand. The production levels of many traditional energy producers—Yemen, Norway, Oman, Colombia, the UK, Indonesia, Argentina, Syria, Egypt, Peru, Tunisia—are already in decline. Others’ production levels—Mexico, Brunei, Malaysia, China, India, Qatar—have flattened. The number of countries capable of meaningfully expanding production will decline. Only six countries—Saudi Arabia, Iran, Kuwait, the UAE, Iraq (potentially), and Russia—are projected to account for 39 percent of total world oil production in 2025.

Think the Middle East’s role as energy titan is over? Think again. The major producers increasingly will be located in the Middle East, which contains some two-thirds of world reserves. Saudi Arabia alone will account for almost half of all Gulf production, an amount greater than that expected from Africa and the Caspian area combined.

NATURAL GAS/LNG
The number and geographic distribution of oil producers will decrease concurrent with another energy transition: the move to cleaner fuels. The prized fuel in the shorter term likely will be natural gas. By 2025, consumption of natural gas is expected to grow by about 60 percent, according to DoE/Energy Information Agency projections. Although natural gas deposits are not necessarily co-located with oil, they are highly concentrated.

Three countries—Russia, Iran, and Qatar—hold over 57 percent of the world’s natural gas reserves. Considering oil and natural gas together, two countries—Russia and Iran—emerge as energy kingpins. Nevertheless, North America (the US, Canada, and Mexico) is expected to produce an appreciable proportion—18 percent—of total world production by 2025.

COAL
Coal will likely be the fastest growing energy source despite being the “dirtiest.” Rising prices for oil and natural gas would put a new premium on energy sources that are cheap, abundant, and close to markets. Three of the largest and fastest-growing energy consumers (the US, China, and India) and Russia possess the four largest recoverable coal reserves, representing 67 percent of known global reserves. Increased coal production could extend non-renewable carbon-based energy systems for one or even two centuries. China will still be very dependent on coal in 2025 and Beijing is likely to be under increasing international pressure to use clean technologies to burn it. China is overtaking the US in the amount of carbon emissions it puts in the atmosphere despite its much smaller GDP.

Development of clean coal technologies and carbon capture and storage is gaining momentum and—if such technologies were cost-competitive by 2025—would enable coal to generate more electricity in a carbon-constrained regulatory environment.

NUCLEAR
The use of nuclear fuel for electrical power generation is expected to expand, but the increase will not be sufficient to fill growing demand for electricity. Third-generation nuclear reactors are economically competitive, and are beginning to be deployed around the world. Although most nuclear power plants are currently in industrialized countries, growing demand for electricity in China, India, South Africa and other rapidly growing countries will increase the demand for nuclear power. The supply of uranium, which is the principal feedstock for nuclear power, is likely to be sufficient through the 21st century.

RENEWABLES
For all the media and public excitement about wind and solar power, it remains highly unlikely that these renewable sources will total even 1% of world energy supply in 20 years. The present generation of biofuels is too expensive to grow, as this would further boost food prices, and their manufacture consumes essentially the same amount of energy they produce. Other ways of converting nonfood biomass resources to fuels and chemical products should be more promising, such as those based on high-growth algae or agricultural waste products, especially cellulosic biomass.

HYRDOGEN FUEL CELLS
Long-lasting hydrogen fuel cells have potential, but they remain in their infancy and are at least a decade away from commercial production. Enormous infrastructure investment might be required to support a “hydrogen economy.” An Argonne National Laboratory study found that hydrogen, from well to tank, is likely to be at least twice as costly as gasoline. Even with the favorable policy and funding environment that would be needed for biofuels, clean coal, or hydrogen, major technologies historically have had an “adoption lag.” A recent study found that in the energy sector, it takes an average of 25 years for a new production technology to become widely adopted. A major reason for this lag is the need for new infrastructure to handle major innovation. For energy in particular, massive and sustained infrastructure investments made for almost 150 years encompass production, transportation, refining, marketing, and retail activities.

This is something for John Robb, proof of the ongoing trend of community resilience. Will be interesting to see how/if this pans out.

Nuclear power plants smaller than a garden shed and able to power 20,000 homes will be on sale within five years, say scientists at Los Alamos, the US government laboratory which developed the first atomic bomb. The miniature reactors will be factory-sealed, contain no weapons-grade material, have no moving parts and will be nearly impossible to steal because they will be encased in concrete and buried underground.

The US government has licensed the technology to Hyperion, a New Mexico-based company which said last week that it has taken its first firm orders and plans to start mass production within five years. ‘Our goal is to generate electricity for 10 cents a watt anywhere in the world,’ said John Deal, chief executive of Hyperion. ‘They will cost approximately $25m [£13m] each. For a community with 10,000 households, that is a very affordable $250 per home.’

Deal claims to have more than 100 firm orders, largely from the oil and electricity industries, but says the company is also targeting developing countries and isolated communities. ‘It’s leapfrog technology,’ he said.

Nice.

The BBC has Cuba finding 20 billion barrels offshore.

Background:

Cuba has suffered from blackouts countrywise since 2004. Last year, high metal prices have boosted Cuban revenue from nickel and Cobalt. Due to ongoing electricity shortages, the government has continued to invest in the energy sector. Cuba currently produces about 58,300 barrels of oil a day and consumes 150,000 a day. It acquires the remainder largely through Venezuela. As of January 2007, its proven oil reserves were 242 million barrels. The United States Geological Survey estimated in the past that Cuba holds reserves of 4.6 billion barrels of oil, and 9.8 trillion cubic feet of natural gas in its Gulf of Mexico waters. today, the USGS estimates that as much as 9bn barrels of oil and 21 trillion cubic feet of natural gas could lie in the North Cuba Basin. Currently, Canadian and Chinese companies are drilling in Cuba.

Story:

The state-owned Cuban oil company says the country may have more than 20bn barrels of oil in its offshore fields – more than double the previous estimate. Cubapetroleo’s exploration manager said drilling in the offshore wells would begin as early as the middle of 2009. Such reserves would place Cuba among the top 20 oil producing nations.

Cubapetroleo’s estimates are based on comparisons to known oil reserves found within similar geological structures off the coasts of the US and Mexico. The company said Cuba had undersea geology “very similar” to that surrounding Mexico’s giant Cantarell and Poza Rica oil fields in the Bay of Campeche.

Commentary & Analysis:

Despite currently declining oil prices, this recent find, if proven, will be both a financial and political boost for the current regime. This development is another reason the U.S. should finally pursue detent with Cuba and normalize relations. Cuba would potentially provide a stable, cheap and nearby source of energy to the United States. Additionally, Cuban revenue would be reinvested in infrastructure and development which would come at least partially through U.S. firms. If the US can buy oil from unsavory characters like Saudi Arabia, Venezuela and Nigeria, little ole Cuba can hardly be held up as worse.

Libya is no longer listed as a sponsor of terrorism by the US, but don’t forget that Libya remains a dictatorship ruled at the pleasure of Moammar Gadhafi. Just Wednesday, Libya’s state-owned oil company Tamoil said that it stopped all crude deliveries to Switzerland. Libya supplies about a fifth of all the petroleum used in Switzerland.

The same thing happened in July. The reason? A dispute over the arrest of Hannibal Gadhafi, Moammar Gadhafi’s son, at a luxury hotel in Geneva on suspicion of beating two of his servants. Gadhafi Jr. was released on bail three days later and returned to Libya with his wife, but the episode prompted a series of diplomatic recriminations that included Libya recalling some of its diplomats from Switzerland, suspending the issuing of visas for Swiss citizens, reducing the number of flights to Switzerland and detaining two Swiss nationals. The two were later released on bail but ordered to stay in Libya.

Is Switzerland in trouble? Not quite.

“It’s annoying, but the delivery stop won’t cause fundamental problems for Switzerland’s oil supply,” said Rolf Hartl, managing director of the Swiss Petroleum Association, noting that Swiss petroleum buyers would switch to other suppliers if Tamoil runs out of stock.

“In the end it’s an economic own-goal because the only ones who suffer will be Tamoil, which is owned by Libya,” Hartl said. “Sooner or later all parties have an interest in returning to business as usual.”

Thanks to Dr. A. R. Wallace for passing on the AP story.

Today’s nuclear news unsurprisingly involves Russia, both times.

First of all, Russia and Venezuela may sign a cooperation agreement leading Russia to construct nuclear power plants and supply the necessary fuel for them.

Putin greeted Venezuelan President Hugo Chavez, on his second trip to Russia in just over two months, with offers to discuss further arms sales to Venezuela and possibly helping it to develop nuclear energy.[...] Putin did not mention any specifics of potential Russian-Venezuelan military cooperation in his opening remarks, but Russian news reports said that Venezuela could buy Russian air defense missiles and more Sukhoi fighter jets.
[...] Putin did not specify what kind of cooperation Russia could offer Venezuela in the nuclear field, but Russia is aggressively promoting itself as a builder of nuclear power plants and supplier of fuel to nations seeking nuclear energy.

Second today, is the news that Turkey received only one bid for its planned nuclear power plant near Mersin, and the sole bidder was…Russia, on whom they already rely for the majority of their gas imports. Embarassing for Turkey’s civilian nuclear aspirations and risky from a national security perspective. And keep in mind, the Russian company, Atomstroyexport, is the same one building Iran’s reactor at Bushehr. However, it is presently unclear whether the deal will actually go through.

“The reason Russia was interested in the project was because it is the largest supplier of natural gas to Turkey, which gives it extraordinary bargaining power,” noted columnist Metin Munir in the daily Milliyet. “One of the main reasons the other companies kept their distance was concern about payment for the electricity that they would produce. Russia has no such worries. It is confident that all it would have to do would be to give the government a kick in the backside by cutting off the gas for a couple of days in the middle of winter” (Milliyet, September 25).

Given Russia’s struggle to assert itself on the world stage and attempts to undermine American power and influence where ever possible, it should come as no surprise that Russia is resorting to its nuclear technology to spread influence into the third and developing world again. With little to offer the world except energy and weapons, Russia will push forward not only to gain influence in the target country, but also vis-a-vis the United States. While the U.S. for example agreed to assist Egypt in building nuclear power plants there, Russia is obviously willing to go where the West is not. This is currently playing out in Iran. The question is, where will it go next.

Readers, do you think Venezuela may intend to develop a clandestine nuclear weapons program? Given the ability of both Brazil and Argentina to develop weapons with a few months to a year, would this factor into Chavez’s thinking? Or is creating one more problem for the U.S. more important?

No, I’m not talking about the Olympics. Angola recently beat out Nigeria to become Africa’s largest oil producer, exceeding its 1.9 million barrel a day OPEC quota.

Angola shows that, while mega producers such as Saudi Arabia cannot meet the expectations of a decade ago, a number of other potential producers such as Angola, Chad, Brazil, and elsewhere have the capacity to produce with the right technology and investment.

1974: 172,000 barrels per day
1991: 490,000 barrels per day
1995: 635,000 barrels per day
2001: 800,000 barrels per day
2006: 1,460,000 barrels per day
2008: 1,970,000 barrels per day (approximately, expected)

Nigeria is meanwhile struggling to meet its monthly OPEC commitment following repeated attacks on its oil infrastructure by militants which has suspended—hopefully temporarily—output from some of its major fields.

Almost all of Angola’s oil is exported to the United States.

Until today I have stayed quiet regarding the excitement around the deal between China and Japan to “jointly” develop gas fields in the disputed EEZ region of the East China Sea. I have been cautious because rather than seeing an acceleration of China-Japan relations, I think this deal is simply a matter of changing lanes.

Japan and China’s dispute over gas deposits in the East China Sea revolve around the demarcation of each countries’ respective Exclusive Economic Zone (EEZ). Under the United Nations Convention on the Law of the Sea (UNCLOS) an exclusive economic zone is an area beyond and adjacent to the territorial sea where the coastal state has “sovereign rights for the purpose of exploring and exploiting, conserving and managing the natural resources.” According to the UNCLOS Articles 56 and 57, coastal states have a right to claim up to 200 nautical miles as an EEZ. Problematically, the East China Sea is only 360 nautical miles across at its widest point. Japan has proposed an EEZ border at the halfway point between the two countries (On the Yomiuri’s map the orange line is the median and the “#” symbols are the four fields in question). China has insisted on the principle of “natural prolongation” of the continental shelf, which would place the border along the Ryukyu Island chain.

The UNCLOS stipulates in cases of contested zones interested parties should begin development negotiations and come to an agreement both sides can accept. Until now Japan has seen the demarcation of the maritime border as a precondition to any agreement. China on the other hand sees the definition of a border as a source of dispute, and wishes to put the border issue off as long as possible. Five years ago China started development on one of the fields (Shirakaba/Chungxiao) located to the west of the median line, angering the Japanese who are concerned that the undersea gas field may extend to its side of the line. The United Nations has previously stated a decision on global offshore territorial claims will be made by May 2009. This deal may be the beginnings of an agreement which will preclude any such decisions.

However, I think that it is important to clarify that there are really two points of concern tied up in the gas fields issue: 1) energy security; and 2) territoriality.

This deal is by no means a solution to Japan or China’s energy dependency problems. The amounts of gas we are talking about are relatively small, as Jun Okumura has pointed out. This morning’s Asahi ran a headline calling the deal a “cooperation more than profit” model (rieki yori renkei moderu). That is really what is being played up about this deal: cooperation. China’s rapidly growing thirst for energy resources and Japan’s utter dependency on imported energy resources has been a touchstone for pundits forecasting conflict in East Asia since the 1990s. Oil on the fire as it were. This deal shows that energy is not a zero sum game in East Asia. There are choices available to all sides.

That brings me to territoriality, which in foreign policy terms, I think is potentially the bigger problem. Japan has territoriality issues with all its neighbouring countries. This deal does not solve territoriality in the East China Sea. In order to push forward this deal with China the Japanese have somewhat conceded on the border demarcation precondition, which I think is natural progression for a post-modern state (to use Robert Cooper’s terminology). However, I fear that China is still a “modern” country, who could re-invoke a doctrine of strict sovereignty at any time. Territoriality is one of the key elements in China foreign policy (Paracel Islands, Senkaku Islands, Tibet, Chinese Turkestan, etc). It can always get more energy from Africa and the Middle East.

As Tobias has said, the impact of this deal should not be overstated. Something as “trivial” as online public outcry could put the brakes on everything. How the public perceives the issue — as one of energy security or territoriality — will play an important role in whether or not this deal becomes the foundation for lasting cooperation in the future.

Read more about the details of the deal at the sites below:

Observing Japan
Shisaku here and here
Jun Okumura here here and here

The Scramble for Africa was a quick proliferation of often conflicting European colonial claims on Africa. While imperialism was initially an indirect process, i.e. ruling or influencing the through locals, it ultimately led to outright annexation and centralized control of foreign lands. As borders hardened and “free territory” quickly disappeared, European empires raced to snatch up what was left. It would seem, at the beginning of the 21st century, the same is playing out as the world’s resources become scarce, or are at least perceived to be scarce. It started in the Arctic and has now moved to all of the world’s oceans.

Oil reserves are running out, gas prices are soaring. France’s government is reacting to the dwindling energy supply much like Russia and Great Britain: the government is laying claim to vast stretches of the world’s oceans. In France’s case, the claims span the globe: from French Guyana in South America to Africa and across the Indian Ocean.

Paris would like to see its Exclusive Economic Zone (EEZ) [...] expanded by almost a million square kilometers. [...]

Like many other states, the French government will be arguing in the next year that its geographic features in many cases extend far beyond the 370 kilometer zone. At most, that could mean an extension of its EEZ to 650 kilometers past the coastline. Right now, France claims more than 11 million square kilometers of the world’s oceans—the second largest in the world, after the United States. May 13, 2009 is the deadline for countries to submit territorial claims to the United Nation’s Commission on the Limits of the Continental Shelf (CLCS). A handful of governments have been scrambling to prepare the way for claims down the road by sending out exploration missions and establishing outposts in remote parts of the globe.

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Under the Commission on the Limits of the Continental Shelf (CLCS) at the United Nations, member states have until May 13th to officially submit their claims. The key parts of the treaty involves the various oceanic zones radiating out from sovereign territory. The UN Law of the Seas Treaty establishes several different types of zones: internal waters, territorial waters, Archipelagic waters, Contiguous zone, Exclusive economic zones (EEZs) and Continental shelf. The EEZ, as described above, is defined as follows

Exclusive economic zones (EEZs) – Extend 200 nautical miles from the baseline. Within this area, the coastal nation has sole exploitation rights over all natural resources.

Unlike the high profile Russian attempts to stake a claim to the Arctic, increasing countries’ Exclusive Economic Zones has thusfar remained under the radar. But as claims proliferate and controversy ensues, even friends may clash over faraway islands and seas. Just as the nation-state system has begun to settle and borders have become more stable in many parts of the world, the race to claim every last bit of land, water and ice may undermine that stability, inflame tensions between enemies and divide friends. Oh, and let’s not forget about space.