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As Profits Soar, Companies Pay U.S. Less for Gas Rights
E.L.Andrews, New Yorks Times
WASHINGTON, Jan. 22 - At a time when energy prices and industry profits are soaring, the federal government collected little more money last year than it did five years ago from the companies that extracted more than $60 billion in oil and gas from publicly owned lands and coastal waters.

If royalty payments in fiscal 2005 for natural gas had risen in step with market prices, the government would have received about $700 million more than it actually did, a three-month investigation by The New York Times has found.

But an often byzantine set of federal regulations, largely shaped and fiercely defended by the energy industry itself, allowed companies producing natural gas to provide the Interior Department with much lower sale prices - the crucial determinant for calculating government royalties - than they reported to their shareholders.

As a result, the nation's taxpayers, collectively, the biggest owner of American oil and gas reserves, have missed much of the recent energy bonanza.

The disparities in gas prices parallel those uncovered just five years ago in a wave of scandals involving royalty payments for oil. From 1998 to 2001, a dozen major companies, while admitting no wrongdoing, paid a total of $438 million to settle charges that they had fraudulently understated their sale prices for oil.

Since then, the government has tightened its rules for oil payments. But with natural gas, the Bush administration recently loosened the rules and eased its audits intended to uncover cheating.

Industry executives deny any wrongdoing, arguing that the disparities stem primarily from different rules for calculating the sale prices for paying royalties and the sale prices for informing shareholders. ...
(23 January 2006)

Sugar prices turn sour for consumers
Shakir Husain, Gulf News Dubai
Dubai: With the world's dominant sugar producer and exporter Brazil diverting its sugarcane crops to produce ethanol to provide cheaper fuel for motorists, sugar prices may be turning sour for consumers.

Coupled with a general rise in sugar consumption, the energy factor in sugarcane use is affecting supplies of sugar, an industry expert said. Sugar prices have risen from $270 per tonne at the start of 2005 to above $400 per tonne this week.

In the UAE, a kg bag that used to cost about Dh50 is now priced above Dh80. "We expect high sugar prices to prevail in the short term," said Somit Banerjee, an assistant general manager for trading at Al Khaleej Sugar. The UAE company sources its raw sugar from Brazil. There is a "perceived shortage" of sugar in the market and prices are volatile," Banerjee said.

This year Brazil is expected to divert 54 per cent of sugarcane yield towards producing biofuels. ...
(25 January 2006)

Russia blamed for 'gas sabotage'
BBC
Georgia's president has accused Moscow of serious acts of "sabotage"
after gas blasts on Russian pipelines cut off supplies to Georgia and
Armenia.

Mikhail Saakashvili told the BBC the near simultaneous attacks close to
Georgia's border were pre-planned actions orchestrated by Russia. An electricity transmission line was also destroyed as Georgia experiences extremely cold weather. Russia's foreign ministry dismissed Mr Saakashvili's remarks as "hysteria". Russian prosecutors earlier described the attacks as deliberate criminal
acts and said an investigation was under way.
(22 Jan 2006)
Given a Europe-wide gas shortage the list of those who benefit from the bombing of the pipeline could be pretty long.-LJ

Georgian Gas Crisis May Hint at Moscow’s New Energy Strategy
Victor J. Yasmann, MosNews.com
During a Dec. 22 meeting of the Russian Security Council, President Vladimir Putin outlined his vision for the development of Russia into an “energy superpower”.

As quoted by kremlin.ru, Putin told the council that “energy is the most important force of world economic progress. It always was and will be for a long time.” He noted that Russia has “competitive, natural, and technological advantages” that could place it in a leading position in the global energy sector. “In fact,” he conceded, “Russia has no other area in which to claim leadership.”

This would be amended by Putin’s “energy imperialism” strategy, so dubbed by observers, which entails pursuing a number of regional, domestic, and global objectives. The end goal, presumably, is for Russia to use its energy surplus to expand its political and economic
influence, gain the status of an “energy superpower,” and in so doing regain its former status as a political superpower as well. A new
federal agency, chaired by Prime Minister Mikhail Fradkov and including higher-ranking federal officials, business elites, and the heads of
Russia’s largest oil and gas companies, has been created to oversee Putin’s initiative.
(23 Jan 2006)

China: a bull in the energy shop
Brian Bremner, Business Week Online via Rigzone
The world rightly marvels at China's rapid economic ascendancy, but far less appreciated is how its modernization strategy hinges on access to energy. As the Chinese economy continues to expand, so does its thirst for oil, gas, coal, and electricity. China is a major importer of Middle East oil, and today it accounts for 12% of all world energy consumption, second only to the U.S. at 24%.

For the rest of the world that means two things. First, count on China to continue controversial petro-diplomacy and to lay out mega-yuan on oil and gas abroad in its quest for energy security. Second, it will spend lavishly on power infrastructure deals at home to improve its remarkably inefficient use of the energy it has.

You can see both forces at work in two unrelated events this week. There's the visit of Saudi King Abdullah to Beijing this week as part of a larger four-nation swing through Asia -- his first foreign trip since becoming monarch last year. And there's the ongoing global bidding war for the Westinghouse nuclear reactor business, which is largely about supplying Chinese demand for new power plants.
(24 January 2006)
Related:
A new world order ("China now consumes more of the Earth's resources than the US. Lester R Brown examines the consequences should its population devour at the American rate, and how growth is viable within our planet's boundaries")

Bomb blasts kill six in Iranian oil city
President cancels visit to restive southwest, state media says
Associated Press
TEHRAN, Iran - Bombs killed six people and wounded more than 30 others Tuesday in Ahvaz, a southwestern city with a history of violence involving members of Iran’s Arab minority, Iranian state media reported.

The bombs exploded outside a bank and a state environmental agency building in Ahvaz, the capital of oil-rich Khuzestan province, which borders Iraq, the official Islamic Republic News Agency said. President Mahmoud Ahmadinejad canceled a planned visit to Ahvaz Tuesday, citing a forecast calling for heavy rain, IRNA reported. The report did not say whether the blast had any bearing on the cancellation.

Ahmadinejad and his entire Cabinet had been expected to meet in Ahvaz as part of a series of visits to provincial capitals to address key local issues. State TV said the bombs killed six people and wounded 34 others.

Ahvaz was also the scene of bombings in June and October that the government blamed on Iranian Arab extremists whom it claimed were trained abroad and maintained ties to foreign governments, including Britain. The October bombings killed six people and those in June killed at least eight. Britain has denied any connection to the Khuzestan unrest. ...
(24 January 2006)

Iran Sanctions Could Drive Oil Past $100
AP, New York Times
A surge in oil prices last week to almost $70 a barrel on concerns about the restart of Iran's nuclear program only hints at what may lie ahead.

Prices could soar past $100 a barrel, experts say, if the U.N. Security Council authorizes trade sanctions against the Middle Eastern nation, which the West accuses of trying to make nuclear bombs, and Iran curbs oil exports in retaliation. A sharp global economic slowdown could follow.

That's the dilemma the United States and European nations face as they decide whether to act. But Iran would also pay a hefty price if the petro-dollars that now represent 80 percent of export revenues are reduced, potentially stirring civil unrest in a nation with a 14 percent unemployment rate.

''They would shoot themselves in the foot,'' said Mustafa Alani, director of national security and terrorism studies at the Dubai-based Gulf Research Center. ''It's one thing to test the market psychology, it's another to take the actual step and stop oil exports.''
(22 Jan 2006)

Evo's Challenge in Bolivia
Daphne Eviatar, The Nation
...the most potent symbol in this election for most Bolivians was natural gas, an ever more coveted resource as the international price of oil skyrockets. And the foreign oil companies that extract it--the transnacionales, as they call them here, almost spitting the word--represent to many just the latest form of foreign exploitation of Bolivia and its people. Thus every candidate in this election had to promise to "nationalize" the natural gas industry--a word that suggests expropriation of private company property and sets off alarm bells with foreign investors, but which actually means a range of different things in this ideologically charged political culture.

For the right-wing candidate Jorge Quiroga, it meant respecting existing oil and gas contracts but "nationalizing the benefits"--in other words, spending more to pacify the population. But for Morales it has meant forcing a conversion of existing gas contracts into ones in which the state gets 50 percent of the profits and retains control over how, to whom and at what price Bolivian gas is sold. Although that's not what's usually meant by expropriation, his plan still has foreign energy companies panicking. That's because under their current contracts and the 1996 hydrocarbons law that privatized the industry, private companies have had virtually complete control over the production, sale and pricing of oil and gas, and have paid only 18 percent royalties and no taxes--a deal that even government and industry insiders who helped write the law and negotiate the contracts now privately admit is a bad deal for Bolivia.

Still, when the last government, under Carlos Mesa, tried to change the law to increase government revenues, almost every major oil company--including Spain's Repsol, the French company Total, British Gas, ExxonMobil and Oklahoma-based Vintage Petroleum--threatened to bring a claim against Bolivia in international arbitration.

Although so far they've agreed to hold off to see what the new government does, if Morales nationalizes the industry, under the terms of the bilateral investment treaties between Bolivia and the companies' home countries, those companies could sue--in private, closed-door arbitration, without the safeguards normally provided by publicly appointed judges in an international court--not only for the approximately $3.5 billion private companies have already invested in the natural gas industry here but also for the loss of expected profits, which could total tens of billions of dollars.

For a country like Bolivia, whose annual revenues are only a little more than $2 billion, that's no small threat. "These processes could bring about requirements of indemnity against the Bolivian state that it cannot pay," says Carlos Romero, executive director of Centro de Estudios Jurídicos e Investigación Social (CEJIS), a prominent human rights organization based in Santa Cruz. It's for that reason--and a host of other ways the United States, the World Bank, the IMF and the Inter-American Development Bank can threaten to tighten the noose around Bolivia's highly indebted neck--that an Evo Morales presidency may well remain largely a symbolic victory.
(23 January 2006 issue)