Belmont Club

War For Oil

The New York Times reports “when Russia seized Crimea in March, it acquired not just the Crimean landmass but also a maritime zone more than three times its size with the rights to underwater resources potentially worth trillions of dollars.” And you thought it was America that went to war for oil.

Russia portrayed the takeover as reclamation of its rightful territory, drawing no attention to the oil and gas rush that had recently been heating up in the Black Sea. But the move also extended Russia’s maritime boundaries, quietly giving Russia dominion over vast oil and gas reserves while dealing a crippling blow to Ukraine’s hopes for energy independence.

Meanwhile, China is grabbing up as much of the South China Sea as it can. And Southeast Asian countries are baffled by Washington’s response, perhaps because Washington itself has no coherent framework for dealing with the realpolitik world. Or maybe because Obama is still looking for an angle.

U.S. President Barack Obama sought to reassure allies in Asia last month that the United States would support them in the face of a more assertive China.

But after one of Beijing’s boldest moves in years to lay claim to contested waters off Vietnam, some Asia countries are asking a simple question: Where is Washington?

Days after Obama left the region, China deployed an oil drilling rig 150 miles off the coast of Vietnam, into a part of the South China Sea claimed by itself and Hanoi. That sparked deadly anti-China riots in central Vietnam and raised questions over whether Obama’s long-promised strategic “pivot” of military assets to Asia is more than talk.

“We have been pushing the U.S. to change its policy and take sides in the regional dispute,” said a senior Philippine defense official. “I wanted to see the U.S. match with stronger action what President Obama has said during his recent visit in the Philippines.”

Japan has posed an interesting thought experiment to gauge Obama’s thinking. The Washington Post’s Editorial board writes: “Let’s say North Korea shoots a missile at a U.S. aircraft carrier, and Japan has the ability to knock the missile down before it strikes. Should it do so?”.  Because if it doesn’t, then who will?

The U.S. sailors aboard the carrier would certainly say yes. Japanese Prime Minister Shinzo Abe thinks so, too. But Mr. Abe says that, under current law and constitutional interpretation, Japan would be unable to act. He wants to change that.

This strange state of affairs dates back to 1947 , when a defeated Japan, under U.S. occupation, adopted an unprecedented “peace” constitution. “Aspiring sincerely to an international peace based on justice and order, the Japanese people forever renounce war as a sovereign right of the nation and the threat or use of force as means of settling international disputes,” the charter proclaimed.

Until recently Japan had no need to defend itself because the assumption is America would defend Japan. But in our topsy-turvy world the question is now different. Is Japan allowed to defend America?

The change, supported by the Obama administration, makes sense. But it needs to be accomplished with caution. Many Japanese — a majority, according to some polls — are dubious about the change; they are proud of the “peace constitution” and the special global role Japan has carved out as a kind of pacifist power.

Obama would probably be happy if he  doesn’t have to defend a US aircraft carrier. But Japan can’t help but face those decisions squarely. As an island whose existence depends on trade it has to make hard choices.  But the United States is less dependent on the world, so when foreign policy threatens to undermine Obama’s domestic power calculus, the president can still say ‘Obamaphones first’. For example, Vladimir Putin is currently in China trying to sell Beijing gas.  The Chinese, who are businessmen foremost, have so far turned him down on price.  They think they can get a better deal from Turkmenistan or perhaps North America.

President Xi Jinping of China and the Russian leader, Vladimir V. Putin, were unable to announce an agreement on a natural gas deal on Tuesday, despite high expectations that mutual political interests would help finally push through the project.

Instead, commercial concerns continued to dominate — specifically, the price of the gas, which China and Russia have been haggling over for nearly a decade. After the meeting between the two leaders, Mr. Putin’s spokesman, Dmitri S. Peskov, said that talks were continuing.

The Wall Street Journal describes Putin’s bind. He needs to sell gas at a high price to offset his domestically subsidized gas. But he’s messed things up with Europe and wants to unload his gas on China.

Gazprom provides 30% of Europe’s gas, around half of which flows through Ukraine. Gazprom needs the higher price it receives for exports to Europe to compensate for the much cheaper price it charges in its domestic market, where gas is subsidized. Last year Gazprom made 2.1 billion rubles ($60 million) from the 174 billion cubic meters it sold to Europe, a far higher profit margin than for domestic sales. It made just 794 million rubles from domestic sales of 243 billion cubic meters of gas.

Any deal with China, on the other hand, would take years to become reality. Russia Energy Minister Alexander Novak said in March that Gazprom could start to supply China in 2019 or 2020.

Putin may play the Big Man in Eastern Europe, but he is clearly the junior partner with respect to China. Yet both are playing the Great Power game: snatching up the sinews of power — gas, oil, nuclear power.  You would think Obama could steal a march on him, but Obama has decided to tilt at windmills — literally — in part because his environmental supporters won’t let him use oil as a lever.  It’s a perfect example of international versus domestic imperatives. Jonah Goldberg writes:

The State Department announced that it would delay its decision on the Keystone XL pipeline until after the Nebraska Supreme Court rules in a case involving the route. The administration insists the decision to punt has nothing to do with politics. Pretty much everyone else thinks otherwise.

Obama, who is rarely reluctant to act unilaterally when it benefits him politically, and who regularly brags about his red-tape cutting, is paralyzed by perhaps the only big shovel-ready jobs project he’s been presented with.

He welcomes the Keystone red tape because he’s trapped between an overwhelmingly popular initiative and an overwhelmingly powerful constituency within the Democratic Party opposed to it: obdurate rich environmentalists and the door-knocking minions they employ.

Undercutting Putin would be asking too much of the Sierra Club. Still it’s not all about Gaia. Even the environmentalists are driven by money, though they won’t admit it.

WASHINGTON: A bi-partisan group of 22 American senators have expressed reservation on the export of natural gas to Asian countries such as India and China, arguing that such a move by Obama Administration would result in an increase in cost for consumers and businesses at home.

“Natural gas prices in Asia are currently three to four times higher than those in the US. Integration of US and Asian natural gas markets through US exports could lead to further increases in prices for American consumers and businesses, which may fundamentally reverse many of the economic benefits that have led to the current surge in manufacturing job growth in the US,” the senators said in a letter to Obama.

Of course Keystone is designed to move oil, not natural gas.  But petroleum products are essentially substitutable and the principle is the same. Forbes looks at it the pipeline’s impact on energy prices. “For there’s something else about the US markets that needs explaining. It is not legal to export US derived crude from the US, not under usual circumstances. But it is entirely legal to export crude derived products, like gasoline, from the US.”  Forbes concludes Keystone be not affect prices.

To directly compete with Russia, the US would have to liquefy the natural gas and ship to China.  These deals already exist in embryo. The problem is getting the permits for the gas  plants.

(Reuters) – Countries across the world have been quietly signing deals in recent months to import natural gas from the United States, revealing a growing appetite for the fuel overseas as domestic output soars.

Up to a dozen long-term deals, each worth billions of dollars, have been penned behind closed doors with companies in China, Japan, Taiwan, Spain, France and Chile as global demand spikes, according to company, industry and trade sources.

Through the agreements, China in particular has emerged as one of the biggest beneficiaries of cheap American natural gas that in the coming years will be piped to Gulf Coast plants and liquefied for shipment abroad in tankers.

The unannounced deals, which amount to about 2 percent of daily U.S. supply, are not the first of their kind, and they depend on U.S. government approval to construct two new liquefied natural gas (LNG) plants.

But the number of new buyers, and their global scope, show how the United States is taking steps to becoming a major export hub by stealing ahead of rivals in Australia and East Africa, successfully wooing needy Asian buyers even before projects begin construction. Global competition may squeeze profit margins on some exports of U.S. gas.

And again politics comes into play. The Economic Times notes domestic political opposition to selling natural gas to either India or China because it might mean increasing domestic prices to a level equal to the Asian market .  “The senators said that the recent approval for export of liquefied natural gas from a sixth export facility has meant that the total approved exports now exceeds the amount of gas currently being used in every single American home and commercial business. ”

The fact is that most of the world is going to “war” — openly or covertly — for oil. Energy — and money — is the thread that runs through the Green Game as much as it runs through Ukraine.  Energy politics influence many things: who is declared or not declared to be a terrorist; it may even influence whether 300 Christian girls kidnapped by Boko Haram are ever found. The world is playing the Great Energy Game. But what game is Obama playing?

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