Russian energy plan makes sense for South Africa

Jul 15, 2006 02:00 AM

by John Helmer

In the Russian folk tradition, Dyed Moroz (Father Christmas) doesn't give children their presents because they have behaved well all year. Instead, he responds to those who shout the loudest to catch his attention.
That may have been the reason for the headline, following Deputy Foreign Minister Aziz Pahad's briefing, that South Africa intends to "talk tough" at the Group of Eight (G8) summit conference in St Petersburg. Pahad suggested that President Thabo Mbeki, who is attending as a member of the five "outreach" countries -- South Africa, India, China, Brazil and Mexico -- would demand Russia and the other G8 members do more to maintain an Africa priority in global development policy.

Pahad also suggested Mbeki should thump the G8 table for the lack of implementation, over the past year, of G8 promises to lift financial aid to Africa, improve the terms of trade for African exports, and support universal access to treatment for HIV/AIDS.
Mbeki has not had much successin catching President Vladimir Putin's attention at their earlier meetings. But Putin is now scheduling his first visit to Africa in September. Although the visit has been postponed several times before, September 5 has already been fixed for Putin's arrival in South Africa. The first African visit of a Russian head of government in almost half a century will be the opportunity for Russia to address Mbeki's Africa-wide agenda.

At the meetings, Russia is presenting a revolutionary agenda that Mbeki should have every reason to support. This is a new scheme for supplying, consuming and pricing energy -- principally oil, gas, coal and uranium -- to the world. Because this is meant to supersede the traditional arrangement for supplying and pricing crude oil through the Organisation of Petroleum Exporting Countries (OPEC), those who benefit most from OPEC -- with the US chief among these -- have criticised the Russian model, calling it unreliable, and attacking Putin for using energy exports as a political weapon.
From the Russian point of view, however, the new energy supply model is not negotiable.

The OPEC model has been limited to crude oil; the Russian model aims at covering both crude oil and natural gas supply. The OPEC model has been limited to regulating supply and price. Until now, this role has been played by Saudi Arabia, with its global lead in crude oil reserves, and in its flexible capacity to lift, pump to port and ship. The Russian model aims to supplant the role of the Saudis, emphasising its global lead in gas reserves, and in barrels of oil equivalent.
From the Russian perspective, the Saudi role and OPEC model have benefited the US, which can pressure Saudi Arabia into opening the spigot to deal with supply emergencies; the US also pressures other oil producers, such as Libya, Iraq, Iran, Venezuela and Indonesia, by military methods, diplomacy and economic sanctions. In the Russian alternative, the US will be far less influential, and have fewer levers, commercial or military, toeffect pressure on the energy suppliers.

In the OPEC model the benchmark is Brent crude, priced in dollars. In the Russian model, the discount and disadvantage between the Brent and Urals benchmarks will be reduced, and pricing will evolve towards a currency basket, including the rouble.
In the OPEC model, suppliers hold much of their cash and government securities in US-controlled institutions. In the Russian model, cash is held in the form of a currency basket, conversion from cash is sought into non-US assets, especially in the European market.

In the OPEC model, investment in new energy reserves should be open to, and may be controlled by, US corporations. In the Russian model, strategic reserves should be controlled by national companies, state-controlled champions, or by joint ventures in which Russian interests are in the majority.
The US-backed OPEC model assigns international priority to the Arab states. The Russian model assigns priority to the central Asian alliance, including China, India and Iran; secondarily to Latin America (Venezuela, Brazil); and ultimately Africa.

On this fundamental choice between the Russian and OPEC models, Russia is waiting to hear where South Africa stands. One thing is clear -- South Africa's dependence on OPEC for its crude oil imports has been growing. In 1996, 75 % of South Africa's oil imports came from the Gulf states, led by Iran.
In 2003, the latest year for which figures are available, it was up to 78 %. Saudi Arabia has also jumped ahead of Iran as the leading supplier. Nigeria is the leading African supplier of oil to South Africa, with 16 % of total in 2003. Imports from Russia are possible, but have been negligible so far.

The security of Russian energy supply is thus to be contrasted with the unreliability of US behaviour. In the short term, this Russian strategy also enables Russian companies to secure the capital and technology they need for high-cost, high-risk projects in difficult terrain. Reciprocally, it offers access to stable supply and pricing of oil and gas to consumer countries.
For South Africa's state energy company, PetroSA, the Russian model offers many opportunities, especially as PetroSA's domestic reserves of gas to fuel its Mossel Bay plant are swiftly running out. PetroSA executives are regular visitors to Moscow, but are reluctant to say what they have in mind for their energy partnership with Russia.

The first sign of this was announced a few weeks ago, when PetroSA took a 10 % stake in a Namibian oil and gas exploration venture, alongside the Russian company Sintezneftegaz.
There is considerable potential for joint ventures with the Russians in Angola, where LUKoil, Russia's largest oil producer and exporter, is negotiating concessions; and in other countries where PetroSA is also active, including Equatorial Guinea, Gabon, Sudan, Nigeria, Mozambique, and Algeria.

Source: Business Day
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