Benchmark: August 11
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By Duncan Sutherland – Exclusive to Crude Investing News
Fracas in the Caucasus
Last week this space reported on the fire that had damaged a Turkish section of the Baku-Tbilisi- Ceyhan oil pipeline, noting that the problem had contributed to an uptick in oil prices. The fire was contained and extinguished today, and exports were being routed through the Baku-Supsa pipeline through Georgia. A simple map of Caucasian pipelines can be found here.
At this point, there are much more pressing threats to the pipeline’s continued functioning. A long simmering dispute between Georgia and Russia over the disputed South Ossetia region erupted into war. Reports on Monday morning confirmed that Russian forces had pressed along the Greater Liakhvi River, beginning to enter the city of Gori. The advance has also included intense bombing of Poti, near the Baku-Supsa pipeline’s export terminals. Thus far the pipeline is continuing to flow, but Azerbaijan’s relationship with Russia is problematic, and the government appears to be supporting Georgia’s position in the war.
It remains to be seen whether Russia will halt its advance, continue and protect the pipeline or sabotage it. As the pipeline was constructed specifically to export Caspian oil without Russian influence, there is certainly an incentive for Russia to “accidentally” damage it in the course of their operations. Some analysts are suggesting that the war is preventing further slides in the oil price that are forthcoming due to the American economic slump.
Elsewhere
Petrobras, the Brasilian-owned oil giant has had mixed news this week. The nascent Ecuadorian oil sector is renegotiating contracts with foreign oil firms, including Repsol (NYSE:REP) and ConocoPhillips (NYSE:COP) subsidiary Burlington Resources. Petrobras will renegotiate its current production-sharing contract to create a fixed-rate service contract. Petrobras had better news when it hit a new deep-water field of sweet light crude in the Santos Basin.
Marathon’s (NYSE:MRO) potential division into separate producing and refining companies is spurring talk of acquisitions. The troubles affecting the refining sector have been previously discussed in this space, so any takeover attempt would be aimed at the production side. Record profits on reduced production have been a common trend in the recent flurry of second quarter results, a portent of diminishing assets for most publicly traded oil companies. The division of Marathon would present a chance to reinvest those profits and acquire new reserves simultaneously. Things should get very interesting if Marathon does split.
Marathon has already attracted interest from China’s Cnooc and Sinopec, who are competing against Petrobras and India’s Oil & Natural Gas Corp to buy a $1.5 billion Angolan property.
Iraq’s government is mulling the revival of a Saddam-era $1.2 billion deal with China’s National Petroleum Corp (Sinopec). The country has an ambitious target of bringing production up to 4.5 million bpd by 2013, from output that averages 2.5 million bpd currently. Though notionally committed to fair and open auctions of oil and gas blocks, the volatile political situation in Iraq means that redevelopment of the energy sector is unpredictable. An excellent overview can be found at the Council of Foreign Relations website here.
More Benchmark on Thursday. Until then, check out our sister sites at www.gasinvestingnews.com and www.heavyoilinvestingnews.com. If you are interested in other commodities, Dig Media is putting up more sites weekly. Go here http://www.digmediasolutions.com/ for a full list.
Tags: china, ConocoPhillips, contract, crude, Energy, exports, georgia, invest, investing, iraq, marathon, news, Oil, petrobras, petroleum, pipeline, price, prices, production, profit, refiners, refining, russia
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August 13th, 2008 at 10:14 pm
[...] “Fracas in the Caucasus” ™ has not greatly affected natural gas futures thus far, as only one major gas pipeline [contr...occupying and reinforcing the city of Gori in central Georgia. Gori sits across the only major [...]
August 14th, 2008 at 10:01 pm
[...] “Fracas in the Caucasus” and how it might affect oil and gas markets globally, I have written here about it. For analysis of the military actions themselves, Information Dissemination has a great [...]
August 18th, 2008 at 6:02 am
[...] Caucasus: The “fracas in the Caucasus” appears to have stabilized, though some reports continue to talk of sporadic clashes. Though the [...]
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