By Andrej Nosko, and Martin Horanský guest author
Slovak government is still unclear on the support for the project of oil pipeline extending the Soviet-era pipeline Druzhba through the largest Central European Aquifer of Žitný ostrov (Rye Island) from early nineties. The previous actions of the ruling party ministers are not matching the pre-election promises. The project of exporting the Russian oil into the Austrian refinery of Schwechat close to Wien was started by the joint venture between the Slovak Transpetrol (74% share) and Austrian OMV (26% share) in 2005.
This project made sense for both parties in the consortium, the Slovak Transpetrol fully under managerial control of largest Russian private oil company Yukos (with 49% ownership in Transpetrol) having access to its own upstream production, as well as the OMV, large refinery seeking to diversify its crude oil imports away from pricey Mediterranean tanker based supplies, in order to increase its competitiveness in the Central-European market (also against the Slovak refinery Slovnaft which is only 60 km away). The 60 km long pipeline with the capacity of 2.5 Mcm (with possibility of doubling this capacity) was nonetheless stopped by the Slovak Ministry of Environment (under control of minister László Miklós – SMK – Hungarian Coalition Party of the Dzurinda’s government), because of the questions around the ability to protect the important Aquifer as is illustrated in the Environmental Impact Assessment - EIA of the project from 2005.
Last year, the idea of building the oil pipeline through the national water reserve and important European Aquifer has been resurrected by the Fico’s government, when on 16 October 2009, his minister for Economy Jahnatek and his Austrian counterpart Mitterlehner signed a Memorandum of Understanding resurrecting the project, originally proposed by Vladimir Meciar on 2 March 1993.
This was complemented by an attempt of Fico’s party colleague MP Pellegrini, who attempted to reassign the level of protection for the Aquifer area in order to simplify the permitting process. Only under the intensive pressure from the media this attempt have been withdrawn. The concern for the public is that while there is an alternative routing for the pipeline, this would prolong the pipeline and in order to protect the aquifer, pipeline would have to pass through Austrian bird-refuge areas.
The current option, which has already received the Austrian green light for the 50km in Austria, is problematic for Slovaks, because of the strategic importance of the Danube Aquifer. According to the publicized information from the back-than minister Simon, the 10 km of projected pipeline in Slovakia is to be wholly owned, and under the control of the Slovak government. It is only the 50km of Austrian pipeline where the Slovak government has ‘only’ 74% share.
Therefore it is not understandable why in this context the Slovak government does not take active steps, although the politicians are uttering the pre-electoral words, the planning continues as if there was nothing to loose, or as if the environment on the Slovak side of the border was of lower value than that on the Austrian side.
It is appropriate to remember that it was the Fico’s minister of Economy who has re-started the Meciar’s project, and it is very important to remind our readers, the current ownership structure of the consortium: The shares in the joint venture Bratislava – Schwechat Pipeline GmbH, are same as in 2005, nonetheless the sole owner of Transpetrol a.s. is the Slovak Republic represented by Slovak Ministry of Economy. It is the same ministry, which is governed by Mr. Ľubomír Jahnátek (of Fico’s SMER-SD).
While the project is of small economic importance to Slovakia (EUR 30-90M per year if the whole capacity was utilized, less amortization and operating costs of transit depending on the split of revenue and the level of tariff, which are not known; in case the transit on the whole territory of Slovakia is considered, which is cca 0.03-0.09% of GDP), the risks for the country are too high. Besides the ecological risks from building the pipeline through the aquifer, there are additional economic risks. Pipeline, could improve the possibility of OMV's Schwechat refinery to compete with the Bratislava's MOL-Slovnaft refinery, thus potentially endangering the employment and tax revenues in Slovakia. Economic competition is a positive, nonetheless, not when the negative externalities are to be borne unilaterally by Slovakia.
Therefore what is really puzzling is why, the government and party of Robert Fico is supporting projects which are of minimal benefit for Slovakia and make more sense for Russia and Austria?
Regardless of the recent PR statements of Robert Fico saying, that while he is the prime minister, there will be no pipeline, and he does not understand why this is still making news. PM Fico has a track record of proposing projects of questionable value for Slovakia, while at the same time of real benefit for Russia. Recently, he agreed to fund a feasibility study to build a wide-gauge railroad through Slovakia, thus enabling direct rail connection from Russia to Austria. Similarly to the pipeline, this project has negative costs to Slovakia and lacks the commensurate benefits. While the railroad is different story, similarly to pipeline it increases the revenues and tax incomes of Slovakia’s neighbors at the costs of Slovakia. (Since the recently modernized rail transfer terminal Cierna nad Tisov in the high-unemployment burdened east of Slovakia would go out of business if the rail link to Vienna is completed)
The energy security argument, although mentioned by the politicians, does not work in this case. The theoretical possibility for Slovakia, to import oil from Austria and thus further diversify its oil supplies is unrealistic and not feasible. The AWP pipeline from Adriatic to Wiena does not have sufficient capacity to supply both Austria and Slovakia, (through the new pipeline in reverse mode) should a need arise, this has also been a reason why in early nineties, diversification for Czechoslovakia was not done via AWP but via TAL through Ingolstadt to Kralupy and Litvinov.
Moreover, Slovakia is already connected to Adriatic via Adria-pipeline connection shared with Hungary, which could supply additional oil in case of crisis, or need for price-motivated diversification of MOL owned Bratislava based refinery. Finally, if the rationale has been security, Fico’s government should not have turned down the offer from MERO, we have written about previously.
It therefore remains puzzling why is Mr. Fico acting more in the interest of Russia (and Austria) than in the interest of the country he has been elected to be a prime minister of.
May 10, 2010
Austrian oil pipeline through the Central European Aquifer
May 6, 2009
Two new books on energy in Central Europe
By: Andrej Nosko
The following review was originally published in the CEU Political Science Journal Vol. 4, Issue 2, April 2009.
Balmaceda, Margarita M.: Energy Dependency, Politics and Corruption in the Former Soviet Union: Russia’s Power, Oligarch’s Profits and Ukraine’s Missing Energy Policy, 1995-2006. London: Routledge, 2008, 222pp; includes tables, maps, ISBN: 978-0-415-43779-0 (Preview at books.google.com)
Orbán, Anita: Power, Energy, and the New Russian Imperialism. Praeger Security International, 2008, 264pp, includes tables, maps, chronological timeline, ISBN: 978-0-313-35222-4
The year 2009, unsurprisingly, started with a traditional gas row between Ukraine and Russia. What was surprising, however, was that it was not only a mild nuisance as in prior years. This year, for the first time in the 40-years history of gas trade between Russia and Europe, there was no gas coming from Russia through Ukraine. As a result of dependence on the single supplier, and the single supply route, for the first time in history two EU member states, Bulgaria and Slovakia, were on the brink of a comprehensive blackout. Politicians in the affected countries were competing in blaming either Ukraine or Russia, or those more diplomatic blamed them both. Blame helps no one's understanding of the problem, and it always takes two to tango, not only in the Russian-Ukrainian energy relations, but also in the wider post-socialist-bloc energy dependence. Students of Central Europe who want to understand how Russia and her former vassals in Central and Eastern Europe (CEE) have been dancing now have a unique opportunity to find answers to these questions in two books published last year.
Two knowledgeable experts on the CEE region, Margarita Balmaceda, associate professor of International Relations and Diplomacy at Seton Hall University, and an Associate of the Harvard Ukrainian Research Institute and of the Davis Center for Russian Studies at Harvard University (PhD from Princeton University); and Anita Orbán, director of Constellation Energy Institute in Budapest, (PhD from Fletcher School of Law and Diplomacy at Tufts University in Boston), in their books provide complementary views on the underlying aspects of energy policy in the region. These two books are excellent guides not only for students of international relations or transition studies wanting to understand energy policy in CEE region, but also for policymakers, journalists, or practitioners in the energy business and PR companies.
There are two major questions to the post-socialist tango. First, how is it possible that these countries, which share part of their history, large sections of energy infrastructure, and set out on the path of transition at around same time, differ so much in how they manage their energy dependency? Why some are very picky about dancing with Russia, while others dance just like Russia wants them to? Second, why is it that Russia has been more assertive in this dependence tango at some times and not others? At times being very pushy about dancing in Central Europe, while at others minding just its own business? Answers to these questions are not only relevant to understanding relations between Russia and Ukraine, which is the focus of Balmaceda’s book; or relations between Russia and Poland, Slovakia and Hungary, analysis of which is offered by Orbán. Answers to these questions can help us not only for better understanding of post-cold-war (some say resurgent) Russia, but these answers help us also to understand the broader intricacies of post-socialist transition east of Berlin.
The presented books, despite using different cases and different theoretical approaches are exceptionally complementary in tackling these questions. Orbán on the case of economic relations between Russia on the one side and Slovakia, Hungary, and Poland on the other, focuses on the reasons why Russia, through its energy companies, succeeded in moving into Central Europe in certain times, while not in others. Since she argues that for Russia today the primary means to achieve power in international relations is through its energy companies, this perspective focuses primarily on explaining the conditions for the outcome of Russian foreign policy through economic means. She thus provides analytical means for understanding temporal variation in the relation of dependency in the theoretical context of neoclassical realism.
Balmaceda, on the other hand, using a modified institutional approach, analyzes effects of the domestic political circumstances on the management of Ukraine’s energy dependencies on Russia. The puzzle that she researched evolves around “domestic factors that stand behind Ukraine’s continued energy dependency on Russia and its apparent inability to escape it.” Balmaceda criticizes the state-as-actor perspective, which is traditional to realism, (and is modified by Orbán to include perception of elites), and offers an incentive to rethink both interest representation and policy-making in the post-soviet transition. Balmaceda points out that it is not sufficient to look at policy-making only in terms of ‘state’ vs. ‘private’ but the role of specific interests and actors should be analyzed especially in the post-soviet transition.
Orbán looks at states as influence maximizers, guided by the perceptions of their elites. Balmaceda does not question the final outcome that Orbán offers, but goes deeper and opens up the black-box-of-state for further analysis through focusing on the internal interest formation, and cross-border elite collusion, which is unthinkable in the classical realism school. While Orbán’s perspective explains well the perspective of Russia’s foreign policy goals and its variation on the side of Russia, it does not aim to explain the responses of target countries. Therefore, reader might be wondering, why is it that Russia’s foreign policy outcome in, for example Slovakia, was 1 out of 2 times Russia-friendly, even if the government was “Russia-skeptical” and the outcome was not necessarily in the interest of influence maximization for the Slovak state? The analysis offered by Balmaceda in the case of Ukraine offers a good explanation of why Ukraine was unable to rid itself of this dependency. Through extrapolation, this analysis also offers an opportunity to understand why ridding of Russian influence in the energy sector was such a rare incidence among former socialist countries.
According to Orbán’s argument, Russian energy companies expand in Central Europe, if and when Russian elites perceive Russian influence in the world as being low – giving them the will to act – and the Russian state has enough power to mobilize the necessary resources, thus providing Russia with the ability to act. Orbán tests this hypothesis during six periods, between 1991 and 2008. In the three empirical chapters, she walks the reader through six periods of Russian activity in three countries – offering together 15 events, which form the core cases. Balmaceda’s argument, on the other hand, is that the domestic political system of Ukraine created certain “windows of opportunity” for access to energy rents, which created also incentive for the involved actors to preempt changes in the system of existing suboptimal institutions that were intertwined with rents distribution. The central role in the interest formation in Ukraine, according to Balmaceda, was played by competition, struggle and accommodation between intra- as well as inter-state economic groups. This happened in the context of conflict and reintegration-attempts with Russia, over access to energy markets, supplies, transit and distribution of economic rents. The surprising conclusion that Balmaceda offers is collusion between the Russian and Ukrainian elites, which explains why Ukraine was unable to form independent energy policy, and set out on a genuine reform path. Her detailed account of the 2006 gas row sheds strong light also on the Orange-revolutionaries. After reading the accounts of gas trade and allegations of involvement of the highest political leaders, (which have also partly reemerged in the context of the 2009 gas row) the sweet ideals of the anti-corruption ticket of the pro-western Orange revolution have a somewhat bitter aftertaste. It is nonetheless important to note that author is cautious and presents publicly available allegations and supports the claims with many references to original sources in Ukrainian media or publicly made proclamations.
The research design Orbán employs is simple yet robust. The effects of the independent variable of relative distribution of power in the international system are catalyzed by two intervening variables. The domestic perception of the international system, measured through the analysis of a wide-array of media sources, and interviews; and the level of state power available for the country’s leaders, operationalized as state’s ability to collect recurring revenues, as second. She chooses to use share of tax revenues on total GDP to measure this variable. The dependent variable of the book is foreign political outcome, which is operationalized as the behavior of Russian energy companies in Central Europe. The Russian strategy, as Orbán argues, was in securing the monopoly position in the energy supply; this by first entrenching in the role of the monopoly supplier, and second by preventing diversification attempts. Russian companies were trying to gain leverage over the whole value chain through controlling companies with import rights, transmission owners, and wholesale companies, or refineries in the case of oil.
When summarizing Orbán’s results, Poland can be portrayed as Russia’s ‘bad neighbor’ with only 50% of Russian attempts to gain stronghold in its energy sector succeeding, followed by a 75% success rate in Slovakia and Hungary. Orbán further differentiates the results according to the stance of the domestic government. Thus, if a Russia-skeptical government is ruling the country, Russia still had 50% chance of getting its goals in Slovakia, while it had nil chance in Hungary, and only one out of three attempts could succeed in Poland. What is lacking in Orbán’s book, and the theoretical school that she is embedded in, is the explanation of the internal mechanics of the domestic receptiveness towards Russia. This is precisely where Balmaceda fills the gap.
Balmaceda operationalizes her variables carefully, offering a precise working definition of energy dependency (p. 16) as well as management of it, which she conceptualizes as way of handling energy supply diversification, organization of energy trade with main supplier, and energy-policy-making. The primary interest aggregators that she works with are the “Business-Administrative Groups” (BAGs, sometimes referred as ‘clans’). Balmaceda’s analysis is organized into three parts. In the first part, she sets the context and frame of reference of the interest formation, focusing on the role of energy in the relations of Ukraine with the main international partners, including EU and Russia, and provides the historical evidence for her argument. In the second part of her book, she further analyzes president Kuchma’s period and introduces the reader to the intricacies of the energy dependency rent system from 1995-2004. In the third part of the book, Balmaceda looks at energy policy and energy dependency after the Orange revolution. In the final chapter she focuses on an in-depth analysis of energy policy during Yuschenko’s rule.
An important policy conclusion that Balmaceda comes to is that the international community should not look at the problem in terms of Ukraine vs. Russia, but rather as a problem of corruption and lack of transparency. As a way out Balmaceda suggests eliminating innate features of the post-soviet energy market, such as lack of transparency, attractive arbitrage opportunities, difference between near-abroad export prices and lack of liberalization of domestic markets. She further notes Russia’s refusal to ratify the Energy Charter Treaty and her control over the exports of energy among additional problems. Finally, (p. 143) she puts energy in the context of transition, pointing out that raising energy prices and the pressure on the reform of the energy-inefficient economy could be a blessing in disguise. The feasibility of this is, nonetheless, even more questionable in the current economic situation in Ukraine.
The conclusion offered by Orbán is somewhat more alarming and sobering. She vividly demonstrates the relationship between the Russian corporate activity and the Kremlin’s foreign policy. In addition to Moscow's already observed attempts to build-up a neo-mercantilist empire in the so called near-abroad, as recently demonstrated also by the adventure in Georgia, she presents persuasive evidence of similar strategies pursued in the eastern part of the EU and NATO.
Both books are quite ‘readable,’ with sufficient theoretical basis, but not too much to ‘put-off’ the less theory-informed policy practitioners. In order to keep the depth of theoretical discussion, Orbán even offers an extension of it via 43 pages of endnotes. Both books are well illustrated with a number of lucid maps to walk even an untrained eye through potentially confusing meshwork of pipelines crossing the region. The annex of Orbán’s book also includes chronologies for her case countries, listing the most important political, and economic milestones. What might be surprising is that 68 pages of endnotes accompany Balmaceda’s book, which is all together 145 pages long. This only further exemplifies the level of detail with which she researched her case.
There are only few, forgivable beauty spots that one can notice. In Orbán’s book, due to perhaps a typographic mistake, the introduction of the main argument confuses reader, when in the introductory chapter (p. 5) the main hypothesis is introduced reversely from what the she later illustrates in a table (p. 32), and what she proceeds with testing, and concluding. It is also regretful that many of the hyperlinks listed in Balmaceda’s endnotes do not work, which might be partly because they are ‘dynamic’, stretching over many lines, and thus more susceptible to typographic errors. The solution, useful also for other authors wishing to list the complete uniform resource locator (URL) to the electronic source they are citing, could be in using ‘URL shortening services’.
Overall, both books are well-researched works, enriching not only understanding of energy policymaking in CEE, relations between Russia and its western neighbors, but also transition studies in general. Both books significantly contribute to their respective theoretical schools, while also generating new research avenues to be followed. Either on the side of neoclassical realism, where Orbán’s research design could be replicated in the so-called near abroad, and tested on the case of Ukraine, or Balmaceda’s research design which could be tested on the cases of Poland, Slovakia and Hungary.
It is also pleasantly surprising for a well-informed student of CEE region to find two books presented in English that master the local cross-country context and empirical evidence with such a high level of detail and insight. Both of these books not only offer ready-to-use policy advice for the governments of the case-study countries, EU as well as USA, they also stand as an excellent reference for journalists covering Central and Eastern Europe, and Russia. Finally, thanks to their academic rigor, well-grasped theoretical context, and empirical richness, they are an indispensable resource for students and researchers of economic relations in the CEE region during the first two decades of transition.
Jan 8, 2009
Russians are strangling Europe
[Original published in Slovak on 7.1.2009, translated by Andrej Nosko. Translated and republished with the permission of the author.]
January 2009 marks the end of 40-years-long fair and mutually beneficial energy cooperation between Moscow and Europe. From now on, European customers must be well aware that the Russian partner is not only trading with them, but his priority is promotion of geopolitical interests of the Kremlin. Vladimir Putin, already in March 2000 declared, that "Our work (meaning the export of oil and gas) will be driven by our geo-strategic interests!" Since then, in a targeted and very effective way, the Kremlin uses energy cooperation and the supply of raw materials for the promotion of its foreign policy interests. Brezhnev's doctrine of limited political and [national] security sovereignty for Eastern Europe was replaced by Putin's doctrine of limited energy sovereignty.
The argument that it is primarily a trade dispute between inadequately paying Ukraine, and tough Russia is ultimately wrong and misleading. Regular followers of these issues known, that these tensions have always been present between Ukraine and Russia. But it is only since February 2004, when Gazprom for the first time deliberately disrupted gas supplies to Belarus, as well as a further transit to Poland and Germany, that switching off gas and oil pipelines has become a regular Russian practice. This has nothing to do with civilized business, because the question of price and the letter of the agreement is always a matter of agreement of both parties, and the third parties cannot suffer due to this. THE KREMLIN AND GAZPROM VERY WELL KNOW THAT WHENEVER THEY CLOSE VALVES TO UKRAINE OR BELARUS, THEY ARE CLOSING THEM FOR EUROPE AS WELL. The subsequent Russian "P.R." aerobics about how evil Ukrainians steal transited gas are spiteful, because in the given technological circumstances, Ukrainians simply do not have enough gas to power their transit compressors, and at the same time to balance their pipeline system. Targeted and repeated discrediting of Ukraine as a reliable transit country for gas and oil, should compel the Europeans to swiftly agree, and primarily to foot, the huge and unnecessary bills for the construction of new pipelines through the Baltic and Black Sea.
Are today's events surprising? For a considerable part of the EU they certainly are. European leaders, particularly those from key countries such as Germany, France and Italy, often prefer narrow commercial interests over international security interests of not only their EU partners, but even of their own citizens.
The real shock is experienced by those countries and governments that still have not done anything for the diversification of gas and oil, and remained totally dependent on the Russian supplies. All Slovak governments, and managements of SPP [Slovak Gas Company] up to date, have failed in this area. Let me be personal. For the past ten years, I have repeatedly emphasized the gravity of this situation in my various articles, analyses, as well as numerous speeches at various conferences, and personal meetings with various politicians.
For years, I have been frustrated over the fact that almost none of them considered this a problem. I was disappointed that representatives of investors repeated phrases about the reliability of Russian supplies, while they knew that the absolute priority of their domestic companies has always been diversification of supplies so that no supplier could blackmail them.
The responsibility for the situation in which we had to declare the emergency, and a real energy crisis is around the corner, is not borne only by Gazprom, but also by all responsible in Bratislava, because they were not properly prepared for this situation.
The hard lesson for citizens and businesses is, that not artificially low domestic prices should be the priority, but fair prices reflecting the highest possible reliability and continuity of supply from abroad.
What's the use of low price, if the pipe is empty? The case of diversification is similar to insurance. It is costly, but if my life, property or business is to be ensured against unexpected events and unfair partners it's a necessary expense. This is one but not the only reason why we have to urgently review the reality of our recently approved energy security strategy.
Nov 29, 2008
Nationalization of energy companies (Slovakia not Venezuela this time)
By Andrej Nosko
That Mr. Hugo Chavez, Venezuelan president, is not too 'fond' of foreign investors is no secret, but that he has a zealous follower in the fastest growing economy of the EU, Slovak Republic, is not that well known. Slovak Prime-minister, Robert Fico is recently gaining attention for his plans of restoring full state control, and ownership over (49% of) previously privatized assets as his way of winning (?) the price war against the partly state-owned gas supplier. The previous government of Mikulas Dzurinda (and Finance Minister Ivan Miklos), has succeeded in putting Slovakia on the global investor map, and provided solid basis for the current economic growth. In 2002, this government has also sold 49% 0f Slovak gas company, SPP - previously integrated (now legally unbundled) to the Slovak Gas Holding B.V., a consortium of Gaz de France and E.ON Ruhrgas. The remaining 51% of SPP's shares are held by the Slovak National Property Fund.
"You have nothing to do with it"
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"And Miklos"
"And Dzurinda"
Prime minister Fico, who in line with his political philosophy, has vocally opposed any and all privatization, is now, at least verbally, trying to get hold of the previously privatized assets, and calls for limiting the scope of private entrepreneurship in the country. Be it in the health care, pension, or energy sector. In this post I focus on the case of gas company SPP (although the story of Transpetrol deserves some interest as well). The current Slovak government doesn't believe in markets, and especially not in those in energy sector, and would like to dictate prices, and conduct social welfare policy by digging into the private pockets of foreign investors. To the calls, that prices of gas are into large extent dictated by Russian Gazprom, and SPP has to reflect rising prices on the wolrd markets Fico remains silent. When asked why Fico's government does not negotiate better prices of gas for Slovakia, he only replies that they would be stupid to do so if there are foreign co-owners to cover the costs of subsidizing the prices as well. The above cartoon says it all.
There are following options signalled by Mr. Fico to his co-owners of energy sector companies:
- either the private companies succumb to the political decisions (sometimes conveyed via the energy regulator) to keep their prices artificially low, conduct investments as Fico's government wishes, or
- their assets will be nationalized (threats to, SPP, Enel (EN: subscription required) article in SK), or
- the government changes the law in such a way to get the company to do what they want, or
- they sell their share back to the government (at the price they bought it for 6 years ago)
"Independent" regulator as a means of social policy
The story is not new. Chairman Fico, has been opposing the privatization since it was on the agenda. This is not incongruent with his party line. Since his party SMER got into the government, Fico has been struggling to gain control over the 'monopolies,' and the economy as a whole. The 'independent' regulatory body URSO (Regulatory Office for Network Industries), cannot be any longer seen as independent. To illustrate this point, we can quote the chairman of the regulatory board Jozef Holjencik, and his reaction to the alleged using of the regulator to promote social policy: "simply, it was interest of the state to protect them [households and small companies]. We respect that." That the work of the Slovak regulator is under political pressure was recently pointed out also by Blahoslav Němeček from the Czech regulatory authority during a recent conference in Bratislava.
Fight against 'the bad, bad capitalists' as a political marketing
Fico, was using the anti-capitalist rhetoric of class struggle against the corporations to get elected, and has never approved of the privatization (although very much needed for financing of the economic reforms (he did not approve of those either)). The price war (leaving the question whether he actually means it or its just a strategy of political marketing) of the government and the foreign investors in SPP has had so far three phases:
- Verbal threats of nationalization (August 2008)
- Attempts to change the conditions of privatization contract via change of legislation
- Concurrent Buy-back offer and change of Business Code (November 2008)
Although the foreign investors have minority of shares, at the time of privatization, they were given managerial control over the company - an element that has been a thorn in Fico's side since then - he has attempted to change the business law in order to change the conditions of the privatization contract, since that hasn't work out; he has threatened to expropriate the company, or offered an unrealistic buy-back at previous price (TA3, Téma dňa, 17.10.2008, 19h55) and finally succeeded in changing of the law (TA3, Téma dňa 04.11.2008, 19h55). Previously, an application for price increases to the URSO was a decision of the management. Now the general assembly of all stakeholders has to vote on the decision - thus state (with its 51% of shares) can block such decision.
Mr. Fico's argumentation is quite surprising, according to him (Téma dňa, 17.10.2008, 19h55), companies should follow the political decision of the government, or sell their shares back to the state at the original value (of 2002). Nonetheless, when the reporter asked him how this operation would be financed, prime minister only replied that he, "cannot say how this would be done, since they would do it in a similar way as buying back of Transpetrol (from Yukos Finance), but he cannot share details, in order not to threaten the Transpetrol buy back operation."
It is also important to remind in this context, what will happen according to Russian media (article in Russian, article in Slovak), after Slovak government buys back shares of Transpetrol from Yukos. If the Russian media is better informed, they might be handed to Russia, I have observed this eventuality already at the end of the previous post.
Absolutely surprising is how prime minister Fico, suggests to the co-owners of SPP to cross-subsidize the sales of gas. Pointing out the fact that SPP group is generating profit, nonetheless, he is indirectly hinting that SPP should subsidize the prices for households from the income from the transit-generated profits. The logic of this might be surprising to those in the EU, that are well versed in the Energy legislation. Slovak prime minister, although aware of this, is trying to push SPP to figure out how to bypass the anti cross-subsidization legislation in order to lower the prices for households. In the context, when the chairman of the regulatory board of URSO Jozef Holjencik also thinks that unbundling doesn't solve anything and only leads to higher prices (sic!), this comes at no suprise.
Finally, when a journalist asked, why state doesn't use its dividends (from the 51% shares) to cover for the protection of households, and to conduct the social policy directly, Fico only responded: why should only state cover for the costs of the household subsidies, [...] and if there is a 49% foreign shareholder, [...] they [state] are not stupid to cover it. (sic!)
Read more on Nationalization of energy companies (Slovakia not Venezuela this time)
Nov 15, 2008
Crude’s Bumpy Ride: In Search of Fundamental Determinants of Oil Price
By Michal Trnik, PERG guest author, http://michal.trnik.sk/
Providing credible and accurate forecasts of crude oil prices was always a tricky business resembling rather fortune telling than an exact science. With the unfolding oil price volatility, the reputation of analysts suffered a heavy blow once again. Only recently, many experts prognosticated record high $200 per barrel to be hit in a reasonably short time. Today, oil price continues its unexpected nose-dive, and oscillates below $60 a barrel, however.
Source: Shooty; used and modified with the kind permission from the author.
To be clear, explanations and estimates of crude prices were always a messy field. The recent unexpected price volatility unraveled weaknesses of many silver bullet explanations and left average consumers with the pressing question on their mind: "So who the hell can I blame?" The list of potential culprits has always been long.
It’s OPEC, stupid
The OPEC’s influence is still by many believed to be one of the most important causes defining the crude oil price. However, the market power of OPEC today is not what it used to be. Although the shortening of supply to increase oil price was used as a tool to boost producers’ profit, nowadays the situation is largely different as a result of OPEC being an example of undisciplined cartel; increasing availability of energy substitutes, and the nature of the current oil pricing system. The so called reference price regime in place today is based on two main freely traded reference crudes – Brent and WTI – both of which determine the price of other types of crudes, which are not freely traded. This current regime thus largely eliminates the drawbacks of the OPEC price regime (1970-85) in which prices were unilaterally determined by producers.
Crises raise prices
Political crises and instability in oil-producing regions became one of the most routine media used explanations on oil price increases. Such interpretation, however, is of no use given that political unsteadiness is rather a norm than an exception and in today’s globalized world it is fairly easy to find a geopolitical disturbance to which climbing prices can be attributed. No doubt that severe geopolitical crises can impact oil prices. Nevertheless, this explanation has to be used reasonably and with extreme caution.
Running out of oil (once again)
The Hubbert’s famous peak-oil theory rightly predicts that oil as a definite source will have to reach its production peak sooner or later. The price is expected to rise as a consequence of oil production reaching its terminal decline and thus becoming increasingly scarcer. There are many "prophets" who regularly omen that the end is near or had mistakenly announced the peak already some decades ago (video at 5:45). Briefly, we’re not there yet. Linking any oil price run-up with the alleged peak thus cannot be taken seriously.
Hedge funds, pension funds, speculators and other vermin
Various funds and fortune hunters are often accused of sky-rocketing oil prices and such view still enjoys credibility whether among consumers, politicians, analysts, industry executives, or among former chief speculators themselves.
Keeping the argument as simple as it gets, it was very recently the speculators were accused of artificial inflating of oil price, which was believed to be above the level at which demand is in balance with supply. Higher price allegedly created by artificial speculative demand would in effect mean a necessary existence of physical excess oil supply that has to be hoarded by the seller for future sale to fulfill his commitments to the buyer. Likewise, if the price is suddenly too high, then demand from the traditional consumers would shrink, leading to a large surplus of the oil in the market. The question is: what happens to this excess supply then? Well, as it is not consumed it should be stored in physical inventories somewhere. There is no empirical evidence of such accumulation at any point during the last price increase, however, which in turn means that the alleged existence of price bubble does not hold up to the economic reality.
Moreover, speculators cannot directly influence prices as they are nothing more than price bettors willing to throw their millions into the market hoping their forecasts of future price will be accurate enough to earn them profits. In any case, the oil price remains unaffected as betting on the future oil price has no direct effect on actual price moves similarly as betting on horses has no direct effect on the winner of the race no matter how much cash and how many people bet on that particular horse. It is the futures market which is the main playing field of all ‘speculators’ who instead of buying physical barrels bet on future prices of oil by buying futures contract.
What the future(s) hold
Sometimes the least sexy explanations are the most valuable ones. The futures market and trading of futures is the key to understanding the working of current oil price mechanism. The market with futures, which is a market for financial contracts, is where the oil price is determined.
The oil market, like any other commodity markets, can be divided into the spot market and futures market. In the spot market physical “wet barrels” of oil are traded. The futures market, where “paper barrels” are traded, on the other hand serves the needs of those who need oil in the future but do not want to purchase it today but rather when their actual demand arises. These traders instead of purchasing physical oil barrels opt for a futures contract which entitles them for those barrels later on. The price of such contract is set by an agreement between the buyer and seller. At the same time these contracts make predictions about the future direction of prices, which determines also the current price on the stock market. Today, only a small portion of oil is traded on the spot market, however, as it has became very thin due to its insufficient liquidity caused by a rapid decline in oil production of the two reference crudes (WTI and Brent). The futures market should not be understood as a cause of the oil price changes but rather as a place where it happens.
Current volatility and good ol’ supply and demand
In economics you won’t usually go off the track too much if you go for the supply and demand explanation whenever you are not sure about the answer. There is nothing fundamentally wrong with such answer neither in the oil markets. As the world tends to be complicated, saying supply and demand is not enough, nevertheless it is crucial for understanding the recent oil price tumble. Moreover, the recent unexpected plunge of oil price indirectly confirms that OPEC, political crises, peak oil or speculators are not the most important factors shaping the oil price.
One barrel of fresh crude without bubbles please
The recent extreme volatility is related to shocks to both supply and demand. First, the sharply increasing demand for crude in developed and developing countries combined with structurally stagnant supply stemming from persistent shortage of refining capacity stood behind the soaring price. Second, its subsequent plummet is a logical reaction to contracting demand caused by slumping economies all around the globe triggered by the credit crunch.
Supply and demand, no rocket science. Making analogies between the development of price in oil markets and the price bubble we’we encountered in the US housing market thus seems rather inadequate.
Oct 30, 2008
3rd Energy Forum Budapest
The event opened by a presentation of The annual Energy Outlook 2008, introduced by Justine Barde, EIA Economist. Second day was opened by President Solyom, followed by 7 panels on wide-ranging topics. Out of the political speeches, Hungarian opposition leader Viktor Orban, in his address, emphasized new regional cooperation, strengthening north-south infrastructural linkages, and framing of the energy crisis as an economic opportunity. It was quite interesting hearing from him also about the geothermal and solar opportunities in Hungary, which was later on taken up by more technical presentation by MOL experts (MOL is a leader in Geothermal in Hungary). Zeyno Baran emphasized the need for clear Russian strategy, for EU and especially for CEE. Kresimir Cosic, member of the Foreign Affairs Committee of the Croatian Parliament, presented Croatian Energy strategy and plans to build LNG terminal at Krk. Interesting discussion emerged during the panel on trade-off between competition and Energy security, when Laslo Varro, vice president for strategy and development of MOL Hungary, and Said Nachet, the energy director of International Energy forum secretariat, Saudi Arabia discussed market issues of spare capacity, pricing incentives of not removing the infrastructure bottle necks, and the effects of (de)regulation and unbundling.
Although there were no surprising news, if one follows the energy landscape in Central Europe, the discussions pointed out some re-emerging topics, and highlighted issues that will be on the agenda in the upcoming months or even years. We will surely follow developments around Nabucco v. South Stream, which should be discussed early next year at the special Nabucco summit to be held in Budapest, as well as issues of Central European Energy cooperation, which does not yet have any specific contours. Read more on 3rd Energy Forum Budapest
Sep 12, 2008
The Economics of Energy Security panel
Freedom House Europe, with support from the embassies of the United States, the United Kingdom, the Czech Republic, the Netherlands, Norway, and Central European University, organized a roundtable series focusing on energy security in Europe.
PERG section editor Andrej Nosko moderated the first of the series, The Economics of Energy Security panel. The proceedings of the panel are now fully available in flash video format on the Freedom House Europe website. In addition, downloadable versions of select presentations are also available.
Video of Andrej Nosko introducing the Freedom House Panel on The Economics of Energy Security and the first speaker Professor Alan Riley from City University in London discussing the challenges posed by Russia’s inefficient gas industry to Europe’s long-term energy supplies:
More videos are available directly from the Freedom House Europe website.
Aug 27, 2008
Energy and the South Ossetian War: the BTC as the Main Casualty?
By Vladimír Šimoňák, PERG guest author
For the first time in the nearly twenty years since it began, the events in and around South Ossetia hit the world´s media landscape, almost overshadowing even the massive spectacle posed by the beginning Beijing Olympics. A peculiar tragedy of the events consists in the fact that this one has been regarded as the „friendliest frozen conflict“ in the South Caucasus. Intermarriage rates between Ossetians and Georgians and the density of contacts between ordinary citizens on both sides, the frequency and ease of travelling between the regions had been much higher than in Abkhazia and Nagorno Karabakh. Yet, few people ever assumed any degree of hostility between the two peoples might have caused the events of August 2008. It is equally evident that NATO´s interest in Georgia is to a major degree substantiated by the hydrocarbon transport routes running through the small and poor nation.
Being a part of a prolonged and rather complicated conflict, this full-scale war broke out after a shock-and-awe onslaught by Georgian forces on Tskhinvali, the separatist capital of South Ossetia located some five kilometres away from the de facto border. Even though the swiftness of Russia´s response has been interpreted as the corpus delicti of its evil intentions, it took a less than vigilant observer to see something was to come. Over the past months, tensions between Georgia and its breakaway regions had been rising and military confrontation had become a common sight. Immediately before August 8th, South Ossetian leadership decided to evacuate a part of its population, by itself an unprecedented step. By early August, signs of immediate escalation had become ubiquitous and Russia was certainly well informed and ready for action. The initial Georgian advance was halted and reversed after some three hours. In a nutshell, more than five years of intense and costly U.S.-led foreign military aid to Georgia produced an advance by less than twenty kilometres for a couple of hours. Afterwards, with the Georgian military effectively dissolved in thin air, the Russian troops took their time to complete what business their leadership wanted to get done. Russian forces took their time to inflict as massive a damage as they could to Georgia´s strategic infrastructure, the seaport of Poti and the only trans-Georgian railway being just examples. The next occassion for the Russians to roam about freely in Georgia might take years to come. With the fog of war dissolving, what is the impact on the energy market?
Regarding the oil transport, the Baku – Tbilisi – Ceyhan (BTC) pipeline had already been put out to a halt. Two days prior to the Georgian assault on Tskhinvali, a bomb exploded near the BTC on Turkish soil, forcing the operator to shut down oil transports for weeks. The Kurdish PKK claimed responsiblity, shifting the event out of focus. During the fighting, the BTC was also allegedly targeted by Russian jets, which the Georgian side swiftly interpreted as an attempt to destroy the facility. This isolated incident may be explained rather as a sort of message to the BTC operators, as nothing could have prevented the Russian forces from destroying the pipeline, had they intended to do so. The oil transport via the Black Sea port of Supsa has come to a halt on August 12th, the operator citing „security concerns“. Russian troops making themselves at home in the narby Poti have probably been thought to be more dangerous than the intense fighting itself, as August 12th was precisely the day on which Medvedev announced the end of Russian military actions.
The Baku – Tbilisi – Erzurum gas pipeline was working until August 12th and resumed functioning only two days later. No direct threat to the pipeline has been reported, not even by hysterical Georgian officials. Rather than the weapons used in the conflict, what we may find surprising are the ones actually not used: Russia never cut its gas supply to Georgia during the fighting, albeit it had done so several times in recent years. A possible explanation is the intention not to harm natural gas supplies to Armenia, Russia´s ally already put in a difficult position by the events.
Quite remarkably, the global oil market showed no perceivable reaction, even though the events effectively stopped Azerbaijani and Kazakh oil from using the „Georgian passage“ bypassing Russia´s pipelines. Russian troops have effectively stopped this highly valued transport routes from working for weeks, and showed a good deal of reluctance to leave central Georgia, the pipelines´ most sensitive point. Despite such tangible insecurity, the world markets recorded a decline in crude prices, actually quite a sharp one, compared to the record of several recent years. The bottom line is, there is no reason at all to claim that the energy industry in the region was caught by surprise by the events and that the war affected its business-as-usual. But are there consequences in the long run?
Not only have the Russians physically occupied territories adjacent to the highly valued and strategically important pipelines, forcing them to shut down. They even declared their firm intentions to establish a permanent presence in extensive „buffer zones“ close to South Ossetia and Abkhazia. Such a step would basically remove the advantage gained by forcing Russian troops from their cherished bases of Viazani and Akhalkalaki in recent years. What had been cited as an unacceptable threat to the BTC project in construction is escaping all attention as it is functioning.
The United States have reacted in perhaps the least self-confident way since 9/11. Strong rhetorics and high-profile visits (including the quite riduculous use of a destroyer for carrying „humanitarian aid“, instead of a freighter) are clearly less than expected by anyone, including the nervous Georgian president. The lack of a clear preference regarding the future of the region in general and of Saakashvili´s leadership in particular (accentuated by the forthcoming U.S. presidential elections) remind of Shevardnadze´s last years in office. South Ossetian war may well be the point when a replacement has to be found to overcome the barrier so painfully hit by Georgia.
In the eyes of the public, the only goal not attained by the Russians was their supposed interest in removing Saakashvili from power. A feasible explanation might be the simple remark that leaders are removed from power by being replaced by another ones and the Russians clearly had not had a full-fledged “liberation“ scenario including an alternative leadership. But, is there an option to regime change when the Russians leave? Georgian society will be left in deep depression, both economically and psychologically, with its leadership´s emblematic policies having suffered the most evident and complete defeat and foreign investors´ confidence plunging into the abyss. The opposition, once suppressed by Saakashvili´s regime, might come to pose a serious alternative.
The rhetoric confrontation accompanied by a striking lack of actions may be indicative of a change in direction. As almost anybody is more acceptable to Russia than Saakashvili, it should not be difficult to find an alternative acceptable to NATO. Such a person may also prove to be more predictable and controllable in his or her (let´s not forget several important female figures of Georgian politics) actions. The sight of a ruined and defeated important U.S. ally may lead to a number of conclusions, including the one that Saakashvili has been quite more of a maverick than fitted his role. Given Saakashvili´s deep-rooted Russophobia, almost anyone can be expected to understand the simple fact of Russian neighborhood more than he had.
As a conclusion, the recent events may well result in o certain sharing of influence in Tbilisi, or rather an acknowledgement of legitimate Russian interest in the Southerm Caucasus. Under such terms, the BTC may well lose most of its political appeal to potentially independent-minded leaders around the Caspian Sea, a signal that has probably already been understood in Astana. A partial gain of influence of Russia over the BTC means more of a loss for the others, depriving the region of the only way of exporting its oil and gas (by far largest source of income for any of its governments) without Russia´s interference. The „buffer zones“ and Russian posts along the pipelines may well be just the first steps of putting this emerging reality on the map.
August 26th, 2008
Aug 16, 2008
Nuclear Energy revival in Czech Republic, Slovakia and Hungary
By Andrej Nosko
Czech ambassador-at-large for energy Bartuska recently compared European countries' nuclear power policy to people, that want to legalize marijuana, while half of them already smoking in private, being afraid to admit it in public. In this post I look at three of these smokers - Czech Republic, Hungary and Slovakia.
Czech Republic, Slovakia as well as Hungary are experienced 'smokers.' Generating around 40%, 55% and around 40% of their electricity by nuclear respectively.
Czech Republic has two nuclear power plant (NPP) sites - Dukovany (2x WWER 440 / V213) and Temelín (2x WWER 1000). Slovakia has had two NPPs Jaslovské Bohunice (WWER 440 / V213) last two of its five units are scheduled for shutdown by the end of 2008 after the political decision during the EU accession negotiations; and Mochovce with two units functioning (WWER 440 / V213) and two more units foreseen to be completed in 2012 and 2013 respectively doubling its overall capacity. Hungary has a single NPP site at Paks, operating four WWER 440/V213 units (one of which was bought from Poland, after its nearly completed Żarnowiec NPP was abandoned)
The renewed interest in nuclear is not confined to CEE countries, whole world is reconsidering nuclear, since, although leaving many questions open, it currently is the only commercially tested and viable technology that provides CO2 free alternative to fossil fuels.
The debate was stirred-up again just before the Brussels summer holidays at July 2, 2008 conference, when Known supporter of nuclear energy, Hungarian MEP Edit Herczog (MSZP) mentioned that Hungary should increase its nuclear potential.
This comes at the same time as Czech ČEZ announced that it would double the capacity of its Temelín NPP, and Slovak PM mentioned at various occasions that political decision to close Bohunice NPP should be reconsidered, or a new NPP should be constructed at the site, as well as at other sites.
These moves are not limited to our three regional 'smokers,' Italy, country that shut down its NPPs after a referendum in 1987 has announced that it would go nuclear again. Poland, which after a local referendum suspended construction of its first NPP seems to be reconsidering its anti-nuclear stance and should join the 'smokers' club by 2020.
Although nuclear is currently the only viable solution if EU is to stay true to its aims of cutting the CE2 emissions, it is not without problems. Most of the EU countries have not considered answers to the question of spent fuel and associated waste. Also the question of nuclear proliferation is one that needs to be taken very seriously. Nonetheless, just like with the smoking, pretending that it doesn't happen is not helpful, we need to talk about the associated problems and weight the solutions.
EDITED 18/12/2008:
On December 18, 2008 Slovak government announced its selection of Czech national energy champion CEZ, as its strategic partner for construction of the 5th unit. This should be done by a common company with shares of 49%CEZ and 51% Slovak government to be set-up next year. New NPP unit should be operational in 2020. Minister of economy Jahnatek mentioned 7 points criteria for selection, including (quoting Minister Jahnatek):
- ability and experience with building 3rd generation reactors
- whether the company is vertically established in Slovakia
- opportunities and ability in terms of dynamic stability of transport network and grid
- sufficient financial backing
Minister mentioned EdF and Enel as trailing in the second group behind CEZ, according to government information, 10 companies were in the selection process.
The event gain attention in Slovak news primarily through the voiced criticism of government for not announcing a open competition, or transparent selection of this strategic partner.
Jul 17, 2008
How do you tell a difference between political, and commercial? (Oil Cut to Czech Republic)
By Andrej Nosko
How does one tell what is politics and what is business? If business uses the state to further its interests, people call it state capture. How do you call it when state uses business to further its interests? Raison d'etre?
Following the recent news in Czech Republic makes one wonder about Russia, or maybe rather about the rest of the Europe? Is not Russia the 'normal' one in the equation? It is doing what states have been doing for hundreds of years - maximizing its power.
Oil supplies from Russia have been cut to Czech republic, without any warning (in accordance to the agreement with Russia, the EC should have been informed), and U.S. presidential candidate Mr. McCain, subconsciously turned-on his Cold War reflex, when he expressed “regret some of the recent behavior that Russia has exhibited [...] including reduction in oil supplies to Czechoslovakia.”
When Nicollo Machiavelli wrote to his friend Francesco Vettori 495 years ago, that he can only talk about politics, because he doesn't understand business, the political reality was quite different. In the contemporary polyarchic political systems (people sometiems call them democracies, but this is energy security section, so I leave the conceptualization issues aside) interests (whose?) tend to be aggregated through political parties. Therefore state should cater for the needs of its citizens, through politicians aggregating the preferences and interests of their constituencies to maximize their potential for re-election, (which, if democracy functions well, should happen through catering for the decisive amount of electorate). Nonetheless, this is theory, the reality is, as usual, bit different. State uses business to pursue its needs and interests, and business uses the state reciprocally. This is particularly the case in the energy sector.
Without advertising a new movie (which in itself advertises bio fuels), the first few seconds of the following clip fit this blog: "Energy is really political, and it was always political."
On the July 10, Czech Ministry of Economy confirmed cuts in oil supplies from Russia. Nothing serious, previously I have written about the fact that Czech Republic has diversified its oil supplies, it also has sufficient strategic stockpiles (at 02/06/2008 CR had more than required 90 days of its consumption of fuels) this means that Czech refineries have sufficient time to buy substitute crude oil elsewhere, and they also have alternative route to ship it into the country.
So if there is nothing serious, one could ask why this blog-post. I would like to point out couple of similarities from the history, and pose couple of questions, without any definitive answers. On July 8, Czech Republic and USA signed an agreement on 'controversial' anti-missile shield radar base to be stationed in Czech Republic. This is part of a US system, that aims to protect USA against Iran, the other part of the system to be stationed in EU - the ten interceptor missiles are planned for Poland. Russia was not happy about this. At numerous occasions Russia has voiced its discontent with US plans to station its installations in Europe. Another example is at the end of this video, when Mr. Putin, back than president of Russia, 'theorizes' over aiming missiles at Ukraine, if it joins NATO - a potential move that Russia is not very happy about.
Therefore it is interesting, that the oil supplies were significantly 'reduced' only to Czech Republic, and this happened just a day after the signing of the agreement with USA. Russian side claims reasons are unpolitical (the official press statement states reasons as "technical organizational problems in Russia"). Nonetheless, even Russian media makes the connection, see an article in Kommersant, Pravda or longer historical and regional comparison in RIA Novosti. Let's review context of similar events from the recent past, when supplies of energy were significantly reduced, or cut completely, for business or technical reasons.
Besides the well known issue of 'gas row' with Ukraine in 2006, 2007 and 2008, which would deserve a separate post, and very interesting case of gas cut for Georgia (2001, 2004, and combined with electricity in 2006 - mostly in connection with the Russian supported separatism movements), or oil cut in Belarus in 2007 (over prices of products and transit fees, followed by an agreement on early warning system), the case of Lithuanian refinery Mazeikiu deserves more attention.
In July 2006, Lithuanian refinery Mazeikiu ceased to receive its oil supplies through Druzhba pipeline allegedly due to technical problems. Ideas of some, who have pointed out, that the fact that the cut, and a peculiar fire in the refinery, occurred after Gazprom was not succesful in trying to acquire the only Baltic refinery, over Polish PKN Orlen, are supported by the fact that the supplies have still not been restored. The refinery imports oil through its Butinge terminal, originally conceived as an export terminal.
Seeing this situation, and the experience of PKN Orlen, from Lithuania, and Latvia (Ventspils bid), its Czech operator Unipetrol (owning both of the Czech Refineries), may be facing another struggle with the Russians in the eastern part of the EU. It may also be another proof, that the distance between the politics and business is much smaller than the 15 km, that Alexander Medvedev mentions. (In an interview for Euronews at 5:30"/6:55" in this video referring to the distance between the Kremlin and HQ of Gazprom in Moscow).
Jul 14, 2008
Energy, Environment, Philosophy and a Couple of Related (not only summer) Videos
By Andrej Nosko
It is summer. According to the calendar also in Brussels, and although the heating season in Europe is out of sight (well, its not too warm here in Brussels, but heating is not required, at least not yet), with the increasing temperature swings, and the requirements for air conditioning energy consumption does not decrease too much. People travel more, go on holidays, politicians go on their long summer holidays, so it may be appropriate to provide also our readers with bit lighter 'summer post.' Here it comes, after bit more philosophical beginning, there is a selection of energy related videos (some even bit lighter). So just kick off your shoes, turn on the fan, grab a cooled refreshment and see the more interactive side of energy.
This first video is actually rather long (30min) presentation by (or rather of) Al Gore. His usual message. Lots of words.
I do not want to endorse Al Gore, I would rather like to offer a complementary reading, to balance the opinions, You our dear reader can make up your mind for yourself, as a teaser here is an excerpt:"This small example of environmental atavism reveals a more fundamental aspect of the public discourse about climate change. At the core of environmentalist animus [...] is a categorical suspicion about technology itself, which is connected to a larger philosophical pessimism about human civilization and man’s supposed separation or alienation from nature. We have seen this style of argument during the long controversy over the arms race in the late stages of the Cold War, during which the immense political and technical aspects of the problem were, for a certain cast of mind, entirely subsumed beneath a more general critique of how the arms race was merely symptomatic of a larger crisis of civilization. Unless this larger crisis was addressed, it was suggested, there would be no hope the arms race could be solved.
I recommend reading the whole thing here. Okay, its bit long and I know that it's not entirely summery and light, but philosophy and seeing things in wider context is often important to be able to tell BS and possible also see hidden agendas. (Without referring to anything in particular, of course)
It was not but twenty years ago that the large nuclear weapons arsenals of the superpowers threatened the instantaneous destruction of civilization and perhaps human life itself. Today, climate change is said to threaten the same things, only more slowly. It is remarkable how similarly the leading advocates for these two problems understand and conceptualize them. In the case of both the arms race then and climate change today, we are told that the issue is ultimately philosophical in nature, and that wholesale changes in our philosophical perspective must necessarily precede political and policy remedies to the problem. Should this perspective be taken seriously? What can it really mean?"
For some reason when I saw the following commercial of Vatenfall AB, it reminded me of... well, see for yourself, if it reminds you of anything.
We like to buy stuff, when we feel guilty, just as this commercial points out:
If you feel guilty about your carbon footprint you can buy unlimited amount of clean consciousness here.
Here is a totally new and alternative source of energy, I have never heard of it before:
And finally two 'summer energy music hits' :
And another bit more energetic version of the same song:
Here is lyrics that comes with it (original by NFX):
One source of energy the ultimate discovery electric blue for me never more to be free electricity nuclear and H.E.P. Carbon fuels from the sea wasted electricity.
One source of energy electricity all we need to live today a gift for man to throw away the chances has nearly gone the alternative is one final source of energy solar electricity.
Jul 13, 2008
Europe’s greatest energy-secret hidden beneath the onions and garlic!
By Andrej Nosko
The natural gas field near the city of Makó, known for the garlic and onion farming, is considered to be one of the largest continental troughs in the world. If the initial estimates prove to be accurate, amount of the non-conventional gas found under the garlic and onion fields of Makó would mean it is the biggest onshore gas field since 1959 discovery of Groningen field in Netherlands. This would position Hungary as an important gas producer, potential exporter and would free Hungary altogether from its gas import dependence.
Makó in the recent news
Although the presence of the non-conventional gas in Hungary strictly speaking, is not such a novelty. The news reemerged when on March 31, 2008 USA, Texas based consultant RPS Scotia Group, published the Resource Estimates of the Makó trough, and in the begining of April MOL Nyrt, the largest acreage holder for unconventional plays in Hungary and the owner of a well-developed energy infrastructure in Hungary, announced results of its joint study with Exxon, noting great potential in the Makó area.
The following map has been compiled and redrawn from various illustrative images, included in the Falcon Oil and Gas Ltd. FORM 51-102F1 (Management Discussion and Analysis for the year ended December 31, 2007) and MOL April 14, Press release, to illustrate the contractual relationships in the Makó trough. The map is interactive, and annotated, feel free to click on the colored polygons, or open the larger map before reading further.
View Larger Map
Open Map in Google Earth Progam (You must have Google Earth software installed)
Contractual relations in Makó trough
Although the largest acreage owner of the unconventional gas resources in Hungary is MOL, the news of Makó deposits was publicized mainly in connection with a series of announcement of joint deals between Canadian Falcon Oil and Gas Ltd., Hungarian MOL, and USA based ExxonMobil.
On April 10, 2008 the TXM Exploration and Production LLC, wholly owned subsidiary of Canadian British-Columbia based Falcon Oil and Gas Ltd. entered into a Production and Development Agreement with ExxonMobil Corporation affiliate Esso Exploration International Limited (acting in Hungary through its subsidiary ExxonMobil Kutatas es Termeles Magyarorszag Kft). On April 11, 2008, was this agreement followed by MOL and Exxon which signed an agreement to start a joint exploration work program in blocks 106 and 107 (see the map) in Makó Trough, as well as MOL's taking part on the Exxon's stake of the previous deal with Falcon. On May 16, MOL and ExxonMobil signed a Heads of Agreement to undertake a joint technical study of basins in Hungary with unconventional hydrocarbon potential.
Makó deposits in historical perspective
The predecessor of MOL, Hungarian state-owned oil company was exploring nonconventional gas deposits in Hungary (click for map overlay) already in 1960's and 1970's, and as WSJ quotes, geologist Dr. Gyorgy Szabó, currently a director at Falcon, who took part in the geological survey of the region in 1970s, Hungarian geologists "knew there were hydrocarbons there, but we also knew the rock was low-permeability and low-porosity." According to WSJ, in the late 1980s, the World Bank financed a deep-drilling program in Hungary, supervised by experts from the U.S. Geological Survey. The results of that review ended up in the hands of John Gustavson, founder of USA Boulder-Colorado based Gustavson Associates, who was touring former Warsaw Pact nations in 1991 on the lookout for oil and gas. In 1998 he acquired the license for a big chunk of Makó. Gustavon unsuccessfully tried to entice major oil companies into the project. Acording to WSJ he won interest of Marc Brunner, now CEO of Falcon Oil and Gas and, back than founding chairman of Ultra Petroleum, Pannonian Energy (which was in 2001 acquired by Gasco Energy of which Mr Brunner is currently a Chairman) and Pennaco Energy (Acquired by Marathon Oil), all companies with significant exprience in nonconventional gas exploration, notably in Wyoming.
Estimations of recoverable sources
Besides the news converage which is rather unreliable, since it does not provide citations, one can use two available reports for the 'preise' estimations. It is the September 2006 Independent Resource Assessment from The Scotia Group and March 2008 update to this report. The reports can be obtained throught search in the SEDAR database. The selected data from the reports is included in the following table (The comparison data is used from the BP Statistical Review of World Energy 2008):
Show the table in full screen.
This table summarizes the probabilistic summation of the recoverable resource estimates, nonetheless, this is only the technical probability of the project, and the certainty of the exploration still varies significantly. According to various sources, time to go online for the Makó gas varies from late 2008 to 2012 or to even later dates. Nonetheless, the news of the Makó deposits is very interesting and important, and although the nonconventional resources are not the cheapests there are, with the prices of gas predicted to rise substantially for Europe, even the nonconventional gas resources will prove indispensable and affordable.
If the predictions of Alexei Miller, Gazprom CEO, of gas prices rising to $500 per 1,000 cubic metres from the current $400 by the end of 2008 - or even $1,000, should the oil prices hit $250 per barrel - prove accurate, Makó's Hungaricum will not be onions and garlic, but natural gas and, a new landscape populated by hundreds of gas drill rigs.
Link to photo gallery of drills (added on November 19, 2008)
May 27, 2008
The Renaissance of A Nuclear Option?
By Petr Lang, PERG guest author and PSSI Program Coordinator
As the oil prices are skyrocketing and biofuels have recently lost much of their charm due to their partial impact on rising food prices, the majority of participants of the second European Nuclear Energy Forum, which took place on May 22-23 in Prague, might have been expected to wax lyrical about the bright future of their industry. However that was not the case. Not because they have lost their drive for increasing the proportion of the nuclear energy in the European energy mix, they are certain about that indeed.
As CEO of Areva Anne Lauvergeon put it, whatever you think, we are going to go nuclear. The reasons for such an assertive statement are well known: EU energy consumption is increasing and EU has obliged itself to a substantial reduction of carbon dioxide emissions in the coming years. Add the feeling of insecurity surrounding the imports of natural gas from Russia and the nuclear renaissance will seem inevitable. These arguments were continuously repeated during the forum. Czech Prime Minister Mirek Topolánek added the novel argument to the toolbox of nuclear aficionados, when he cited Andrei Sakharov, who once wrote that the nuclear energy is the only chance for the West to stay free and secure. Should we stick to this assumption, the future of European security and freedom will look uncertain, because as Czech Foreign Minister Karel Schwarzenberg soberly mentioned, we will have to wait for the nuclear renaissance for some time to come. There are several factors delaying the return of the nuclear age.
First, EU has only recently started to overcome the nuclear hangover caused by the Chernobyl disaster. The presence of the President of the European Commission José Manuel Barroso at the European Nuclear Energy Forum was maybe the most important point of the whole session, although rather symbolic. The European Commission is at pains to stress that it is up to every member state to choose the structure of its energy mix, including nuclear energy, deliberately refusing to either bless the nuclear option or doom it for good. Mr Barroso called for a greater cooperation among EU institutions and member states with nuclear facilities (15 EU countries operate commercial nuclear power plants) to establish common framework for nuclear waste management, security standards etc. Compared to the flood of initiatives and subsidies fueling the recent biofuels bonanza in the EU, the nuclear industry might feel like the Cinderella. Even if the Commission decided to pledge its support for the nuclear option, it would take some time to get the business back to pre-Chernobyl levels.
Furthermore, the nuclear industry is experiencing the same problems as the oil business. The majority of skilled professionals is nearing the retirement age, and the universities cannot fill this gap immediately, although the situation is getting better according to Jean-Pierre Le Roux, Vice Chairman of French Atomic Energy. The time factor plays also crucial role because the nuclear power plants cannot be built as quickly as their gas or coal fueled alternatives. Should the new nuclear power plants get operational by 2020 and thus help the EU to fulfill its environmental plans, the construction would need to start soon.
The last and maybe the most important factor inhibiting the nuclear boom is uncertainty. The construction of the power plant is very expensive and the operator needs some safeguards that it will not be forced to close the shop because of the sudden change in political or popular mood. This weakness was exploited by the representative of Friends of Earth Patricia Lorenz who said that when so rationally oriented entities as investment banks have their doubts about the nuclear energy, why should this industry get support from the governments whose primary responsibility is the well-being of its citizens?
Needless to say, there were not so many antinuclear participants at the forum, but the environmentalist rhetoric was omnipresent as the fight against the global warming may be the decisive element triggering the nuclear renaissance in EU. In the appeal to the European Commission the participants recommend the Commission “to declare nuclear energy as a low carbon and emission free energy generation technology, with positive impact on environment and sustainable development.” Furthermore, “as an expression of responsibility of the EU in fighting climate change [the EC is recommended] to declare unambiguous support to nuclear energy as a way to fulfill EU targets in lowering emissions gases by 20% by 2020.” This wording points to win-win situation. If the nuclear option gets such an acknowledgment, the investors will be more willing to open their wallets and the EU will be able to reduce the carbon dioxide emissions much more easily.
The second European Nuclear Energy Forum was not designed as a discussion of the pros and cons of nuclear energy (the opponents were clearly outnumbered by the supporters) but as a rapprochement towards the European Commission and EU institutions in general. Given the fact that over the next twelve months EU will be presided by France and the Czech Republic, who generally support the nuclear renaissance, there is a chance that the Atomium in Brussels will shine brighter than ever.
