OK, I suppose I am exaggerating just a bit—but just in terms of the timing. The saturation of Lake Kivu is not, in fact, imminent. Scientists who have studied the issue estimate that a limnic eruption there is probably a century or two away. But if it happens, a full eruption would without question produce destruction of human life on a horrifying scale. For comparison, the sudden release of CO2 from Cameroon’s Lake Nyos in 1986 killed 1700 people. But the volume of dissolved carbon dioxide in Lake Kivu is estimated to be 400 times more than the killer cloud from Lake Nyos—and its shores are much more densely populated.

From a natural disaster point of view, the problem is the CO2, since it is heavier than air. The methane released in an eruption of Lake Kivu would simply float off into the atmosphere, producing an upward blip in greenhouse gas emissions but representing no danger to people in the area. But in economic terms it is the methane—a.k.a. natural gas—which today presents a significant economic opportunity for Rwanda, and perhaps later for Congo as well.

As far back as the 1960s Rwanda’s only brewery, located in Gisenyi (just across the Congo-Rwanda border from Goma) and owned by Heineken, was using small volumes of methane extracted from Lake Kivu to power their operations. In recent years a number of projects have looked at extracting this gas on a larger scale and building a small gas-fired power plant; and a small pilot project is now operating.

The development benefits of such a project would be enormous. At the moment the electric power generated in Rwanda is very expensive, as local power generation depends on the import of costly diesel fuel that must be transported by truck across about 1500 kilometers from the Tanzanian port of Dar es Salaam. Furthermore there is today not nearly enough electricity to meet demand; this is leading to rapid deforestation as people seek other ways to produce light and heat.

After a false start with another project developer, the Rwandan government earlier this year signed an agreement with an American company called ContourGlobal to extract gas from Lake Kivu and also build a 25 MW power plant (later to be expanded to 100 MW) in the Rwandan city of Kibuye to run on this gas.

This is not a small investment. The total cost of the full project is estimated at $325 milion, with the first 25MW phase probably accounting for something like $100 million. The fact that the project is on track at all shows that the government of Paul Kagame has had considerable success in its energetic campaign to promote Rwanda as a plausible destination for foreign investment. But any way you look at it, $325 million is a large sum to invest in a project for which future cash flows will rest not on the export of resources to the world market, but on selling a product—in this case electricity—within Rwanda itself. ContourGlobal’s counterparty for the project is the state-owned electricity distribution company Electrogaz. I don’t know anything about Electrogaz and I am sure there are many nice things that can said about the company; but I doubt very much that “creditworthy” is one of them.

The status of the financing for this project is not clear. ContourGlobal’s press release says nothing about the subject apart from pointing out that its own main shareholder is a private equity firm with $4 billion under management. However, it’s fair to say that any rational investor would prefer to fund a project with this sort of risk profile more with borrowed money than with one’s own cash. In any case, credit crunch or not, a project with such obvious developmental benefits should be able to attract debt finance from multilateral and bilateral lenders with a mandate to support economic development in sub-Saharan Africa.

In response to my query about financing, ContourGlobal told me in an e-mail that they “are now working out the details with” multilateral lenders, but also said that “the full amount [of $325 million] is committed.” I suppose there may be ways to square these two statements, but I can’t figure out what they are.

This question notwithstanding, assuming that there are no serious technical, commercial, or transparency-related flaws with Lake Kivu project—and there is no reason to think that there are—then this is exactly the sort of project that deserves strong support from institutions like the IFC (the part of the World Bank that lends to the private sector) and OPIC (a US government agency). Electrogaz will also need external support if they are to build out their electricity distribution system to serve the demand that is currently going unmet with the new, cheaper electricity that can be produced from Lake Kivu gas.

It would be a bonus if one could argue that the Lake Kivu project would also prevent an otherwise imminent natural disaster. But the project is a good thing even without this.

Representing Shell were six executives, including two Nigerians. On the other side were 445 registered participants—ranging from NGO representatives to concerned citizens, some of whom were Nigerian—and they were asking tough questions.

The overall sense one got from Shell was that of a company cognizant of the oil industry’s poor track record in Nigeria, and which, at present, is legitimately trying to be a good corporate citizen under difficult circumstances.

The questions made it evident that Shell suffers a poor reputation in Nigeria due to its past sins, in particular the role it played in the environmental degradation of the Niger Delta. Largely because of this history, Shell will be pounced on for anything it does wrong in Nigeria—and for a lot of other things as well. In a general sense,  this seems to me a good thing. But the fact remains that picking on Shell is pretty much irrelevant to helping solve Nigeria’s real problem: bad government.

Shell has been the foreign oil company with the biggest presence in Nigeria for over half a century, and remains as such to this day. It operates a joint venture that accounts for roughly 40% of Nigerian oil production and manages most of the country’s onshore oil infrastructure, including 6000 kilometers of pipelines.

Since 2006 Shell (and other Nigerian operators as well) have been forced to shut down large volumes of oil production due to severe security threats resulting from conflict in the Niger Delta. Total Nigerian crude oil production, which reached 2.6 million barrels per day in 2006, is now running at just below 1.5 million barrels per day. This disruption of the Nigerian oil supply was one of the real-life factors that allowed speculators to push oil prices to its bubble price of nearly $150 per barrel last year.

Many of the questions and answers posed to Shell during the Q&A were about two environmental issues: oil spills caused by pipeline ruptures, and the flaring of natural gas. In response, Shell executives acknowledged the seriousness of these problems while trying to explain the constraints they face in solving them. They argued that most pipeline ruptures in Nigeria today result from attempts to tap into pipelines and steal oil. When ruptures do occur, the security situation in Nigeria makes it difficult to clean up the resulting spills quickly.

On the issue of gas flaring, Shell pointed to the $3 billion that its Nigerian joint venture has already spent to reduce flaring by 30%, all the while arguing that these investments have now halted to a stop only because the state oil company, NNPC, refuses to fund its share of the remaining $3 billion the venture required. I was only partly swayed by this argument, since there exists a multitude of ways to proceed with investment programs in Nigeria even when NNPC fails to fund its share. Then again, to be frank I don’t think Shell deserves the opprobrium it was getting on this issue.

Overall I thought that the questioners placed too much attention on these environmental issues. The presence of the oil industry in the Niger Delta has been an environmental and thus a human catastrophe. Of this there is no doubt. But most of the damage was done in the 1960s, 70s, and 80s, and my sense is that the impact of the oil industry’s present activity in the Delta is not of great significance when compared with the sad legacy of past operations.

Of greater concern for Nigeria today are poverty, conflict, and underdevelopment, all of which have the same deeper source: bad government. Here are the two sharpest questions and answers from the dialogue which touched on this theme, both answered by Shell’s Country Chairman for Nigeria:

Fiona:
Does Shell believe that pollution and environmental damage associated with the oil industry (including oil spills, gas flaring, waste disposal, river dredging) over the past five decades has contributed to poverty and conflict in the Niger Delta?
Basil E. Omiyi:
Yes, but even more so is the baseline demand of the people of the region for the Federal Government to grant them a greater share of the oil proceeds (a political matter) as well as corruption, criminality, and general poor governance.

. . .

Angelo de souza:
Hello, I would like to ask, is shell optmistic about peace in delta (end of militancy, vandalisation, kidnapping and so) as a result of the amnesty proposed by the government?
Basil E. Omiyi:
Given the fact that the political demand by the people in the Niger Delta for a greater share of the oil income is the main cause of the crisis in the region (as every person in the region will tell you) and not pollution or other secondary issues, I believe that the current dialogue between the Federal Government and the people of the region, if approached honestly and generously, will lead to a solution.

I have mixed feelings about Omiyi’s focus on the division of oil revenues between the federal government and the states in the Niger Delta. (Currently the Delta gets 13 percent with the balance going to the central government and other states.) True, the perceived unfairness of this division is a serious political problem and part of what is driving militant groups like the Movement for the Emancipation of the Niger Delta. The people of the Delta certainly deserve to benefit more from the oil that is produced from beneath their land. Yet at the same time I find it hard to believe that shifting control of a few billion dollars of revenue from one group of Nigerian political elites to another will be of much help to the average Nigerian citizen.

But Omiyi is right on track when he says that Nigeria’s fundamental problems are “corruption, criminality, and general poor governance.” I suppose some might criticize this comment for not its its failure to acknowledge Shell’s share of the blame for Nigeria’s historical problems. But if we look at the present and the future, it is clear that Shell and the oil industry in general can do little or nothing to change Nigeria’s fundamental course. That is up to Nigerians, and particularly the political elite.

I feel obliged to mention in conclusion that there is an argument to be made—actually a rather powerful argument—that oil (or more properly, an economic orientation toward the export of natural resources) is at the center of the political and economic pathologies of a malformed petro-state such as Nigeria. The seminal book on the so-called “curse of oil” remains Terry Karl’s The Paradox of Plenty. But that’s an argument focusing on structure rather than the evil deeds of oil companies or corrupt governments—and a topic for another time.

One cannot make a similar case for the comments Biden made about Russia two days ago in an interview with the Wall Street Journal.

Everyone knows that the Vice President has a serious problem filtering the things that come out of his mouth; yet it appears that President Obama and his team have decided that it would be more trouble than it’s worth to keep him on a script. They should think again. 

Despite Russia’s economic and geopolitical difficulties, Mr. Biden said, Moscow could become more belligerent in the short term unless the U.S. continues to treat Russia as a major player on the international stage. He said Russian leaders are gradually beginning to grasp their diminished global role, but that the U.S. should be cautious not to overplay its advantage.

“It won’t work if we go in and say: ‘Hey, you need us, man; belly up to the bar and pay your dues,’ ” he said. “It is never smart to embarrass an individual or a country when they’re dealing with significant loss of face. My dad used to put it another way: Never put another man in a corner where the only way out is over you.”

To state the obvious, it’s a bit strange for Biden to have preceded and followed this very important and correct point with a series of comments about how Russia is weak and in decline; that its economy is in collapse; and that is is losing influence in its so-called “near abroad.”

As for the substance of the remarks, I think Biden got some things right and other things wrong—although it’s hard to tell what Biden actually said, as Steve LeVine has pointed out. A full transcript of the interview would be useful (I found some additional excerpts here), although it’s hard to believe that this would do much good for Biden.

As far as energy goes, referring to January’s Russia-Ukraine gas crisis, Biden accuses Russia of “essentially blackmailing . . . a continent on natural gas” in January. It’s beyond dispute that Russia has engaged in energy blackmail with some of its post-Soviet neighbors, and that it behaved unconstructively at best in January. But as a way to describe this episode, “blackmail” of “the continent” is inaccurate and overly dramatic.

But whether the content was right or not isn’t the point. Biden insulted and demeaned Russia even while acknowledging that this would be a stupid thing for him to do.

Secretary of State Clinton has already had to walk back Biden’s remarks, but I think the damage has been done—and I think it’s significant. Most people in Russia will interpret this as a Kinsley gaffe: they will think that Biden is just saying what the rest of the administration believes. 

At this point I am starting to think the US would have had more luck trying to overcharge Russia for something than it has had so far with the so-called “reset.”

Photo: jurvetson

Not so fast. Most of what the license round told us about future of the Iraqi oil industry was actually positive.

In a narrow sense the auction can be judged a failure. There were substantial gaps between the maximum “service fees” acceptable to the Iraqi Oil Ministry—or rather, to the politicians who were calling the shots—and the minimum fees that bidding companies were willing to accept. Of the eight fields put out for bid, a deal was reached for only one, the biggest of them all, Rumaila, won by BP together with the Chinese National Petroleum Corporation.

Yet if one takes a step back and thinks about the big picture and the long term, there were three very positive signals coming out of this supposed catastrophe.

First, the transparency was impressive, at least for someone familiar with, ahem, less transparent mechanisms for awarding oil licenses. I don’t doubt that there were all sorts of strange things going on behind the scenes. But the openness of the bidding criteria and the live televised broadcast of the event sent a strong signal that oil contracts are not simply being awarded in exchange for side payments to politicians.

For me, this a sign that Iraq’s malformed and immature democracy is delivering the goods in at least one area: it is preventing the political leadership from simply stealing everything, which is how things work in many oil states, and what a pessimist might have predicted for Iraq.

Second, the license round showed that the Iraqi Oil Ministry and the major international oil companies (IOCs) have agreed on a way to cooperate, contractually speaking, that is at least acceptable to both sides. The IOCs have accepted, albeit grudgingly, the principle of working under service contracts, something that is anathema for them in other contexts. Meanwhile the Iraqi authorities have offered the foreign companies a higher level of operational control, and contracts with a longer term (20 years), than they had previously contemplated.

The significance of the gap between the IOC bids and the maximum service fees demanded by the Oil Ministry should not be exaggerated. To paraphrase George Bernard Shaw, the two sides have already established on what terms they will do a deal; now they are just haggling over the price.

The third and most important positive sign from the license round relates to what it revealed about the potential of Iraq’s existing oil fields.

For each field, bidders were required to specify the production level they ultimately expected to achieve if they were to win the contract. These figures were striking. Current production at the six oil fields offered in the license round is about 2.1 million barrels per day (representing almost 87% of Iraq’s current oil production). If service contracts were to be signed for all six, and the highest bid target achieved for each, these six fields would produce a total of roughly 8 million barrels per day. This would put Iraq nearly at the same level as Saudi Arabia and Russia without development of a single new field, including some substantial fields which have been discovered but never developed.

Unlike a lot of oil industry numbers one can find flying around, these figures mean something. These companies have had access to the data and the fields; and I presume that the contract terms give them a significant disincentive to put in bids that they would not be able to meet.

Of course, I have glided past a large number of caveats. There is still no new Petroleum Law in Iraq (these deals were done within the existing regulatory framework); security remains a serious problem; and there is huge political opposition in Iraq to the IOCs having any role at all. Nothing will be smooth sailing in Iraq, and it is extremely safe to say that Iraq will not be producing anything like 8 million barrels per day by 2015 or 2020.

But Iraq has taken its first steps on a path that will ultimately lead to a substantial increase in oil production. This will be good for consumers globally, and good for the Iraqi budget. On the most important question—whether it ends up being good for the Iraqi people—I will reserve judgement for now. But at least Iraq will have to face this challenge rather than simply dream about it.

Auto-Tune in action

At the heart of the matter, at least according to Spencer Ackerman, is Jay-Z’s new single D.O.A., in which he attacks the widespread use in hip-hop of the pitch correction software called Auto-Tune.

Which brings me to the topic of my post, which, as you will have probably guessed by now, is the potential of the oil and gas industry to generate high-tech spinoffs—and what this means for emerging petro-states such as the one where I lived for a couple of years, Azerbaijan.

Auto-Tune, it turns out, was invented by a geophysicist named Andy Hildebrand. Working with Exxon in the 1970s, Hildebrand specialized in interpreting seismic data collected in the process of oil exploration. When deciding whether to drill in a particular area, oil companies do what is called a “seismic shoot,” which entails generating bursts of sound and then recording the resulting echoes from the subsurface with highly sensitive equipment. This process allows geophysicists and geologists to “see” the formations below the surface, which are then assessed for hydrocarbon prospectivity.

In 1982 Hildebrand left Exxon to help found Landmark Graphics, a company which became the leader in seismic interpretation technology, producing workstations and software for seismic data imaging. Today this technology has advanced to the point where seismic data can be projected into a 3-D environment which allows geologists to walk around inside something resembling a Star Trek holodeck which has been transformed into a virtual hydrocarbon reservoir. Apparently this is very helpful for managing reservoirs and planning drilling programs, in addition to being cool.

Although it is still perceived very much as an “old economy” sector, the oil and gas industry is in fact extraordinarily advanced in terms of its application of technology, including IT. My respect for the industry’s technological capabilities, by the way, is one of the reasons I am a skeptic of the “peak oil” thesis (although before I start getting angry comments from people of the peakist persuasion I should say this is a complex issue to which I will return later).

Landmark was acquired by Halliburton in 1996, back when then-CEO Dick Cheney was slaking his thirst for conquest in benign ways. But Hildebrand had departed in 1990 to found yet another company, Antares Audio Technologies, where he used some of the other lessons he had learned in the oil business to create Auto-Tune. Although Hildebrand’s product has not only been attacked by Jay-Z but also blamed for destroying the integrity of live pop concerts more generally, he seems like a very nice guy based on this recent feature on PBS’s popular science show Nova.

But back to my point. The upstream part of the oil industry—the part that produces oil and gas—is often portrayed as being a negative force in the countries where it works, and there is clearly something to this. In corrupt and poorly governed countries (the classic example today is perhaps Equatorial Guinea) the oil money that international oil companies (IOCs) help to generate tends to enrich and entrench a narrow elite while doing little for the country. There’s not much IOCs can do about that except avoid these countries on principle . . . which is not seen in the industry as a wise business strategy considering where most of the world’s oil is located.

That being said, the major IOCs do try to have a long-term positive impact in countries where they work. One can attribute this to pure PR, but it’s also good business, and there is a certain amount of human goodwill involved too. (Yes, oilmen and women are people too!) Part of this is giving money to local charities, etc., but the impact of this sort of thing is necessarily limited.

Much more important for a petro-state’s long-term development is that IOCs train their local workforce to do the high-skilled, high-tech jobs that have traditionally been done by expatriate specialists. This is very clearly good business as well as good community relations, and it is has become an important goal for the IOCs operating in the countries I am familiar with, such as Azerbaijan.

Especially in the IT-heavy parts of the oil business, as IOCs train local citizens for high-tech jobs, the host government has a big opportunity to gain long-term benefits outside the oil sector. Azerbaijan does not have oil reserves on the scale of a Saudi Arabia or Kuwait. It cannot sit back and count on oil revenues to sustain its economy for the next few generations; it needs to develop a viable non-oil economy as well. Specialists trained in the oil industry serve as an engine for this development. It is possible that the next Auto-Tune could be invented by an Azerbaijani who had been trained by BP.

Of course, as Azerbaijan develops a growing cadre of highly trained professionals, they will face a choice about whether to use these skills in their country, or to go work abroad, where their talents will also be in demand.

This is where political factors start to intrude. Young and educated people everywhere in the world want to live in societies where they have freedom of expression, and where they can involve themselves constructively in the social, economic, and political life of their country. Recent evidence from Azerbaijan—I refer to the recent beating and arrest of two young activists on phony charges of “hooliganism”—shows that it is performing poorly in this regard. If things don’t change, Azerbaijan may well produce a future generation of technology entrepreneurs who will make their fortunes and generate employment in the United States, in the United Kingdom, in Turkey, or wherever else, rather than in their native land.

A recent post by John Judis on the New Republic’s blog The Plank offers a good example of this, while also getting some of its facts wrong.

Judis begins by pointing out all the well-known reasons why Iran is important for the world. Then he adds another one that we have all been supposedly missing: the fact that Iranian gas is required if the Nabucco pipeline is to be built.

From this point onward Judis’s argument starts to run into trouble.

First of all, Nabucco does not require Iranian gas. True, one can find some commentators saying that it does if one spends a few minutes on Google—but that doesn’t make it true.

Judis first of all neglects to mention Turkmenistan and Iraq, both of which have a lot of gas that could flow to Europe. There are certainly obstacles to bringing this gas to Europe, but no one ever said building multi-billion dollar pipeline across multiple borders was easy. I am confident that bringing Turkmen gas to Europe is a much easier challenge than, say, getting Iran to terminate its nuclear program (or dealing with a nuclear Iran).

In any case, by focusing on reserves, Judis is missing the point. Yes, Iran has something in the neighborhood of 30 trillion cubic meters [Tcm] of gas while Azerbaijan at the moment has proven up just 1.2 Tcm. But really all one needs is probably 2 Tcm of committed gas to drive not only Nabucco but a few of the other pipelines that together make up the so-called “Southern Corridor” of pipeline infrastructure projects intended to bring Caspian and/or Middle Eastern gas to Europe. Turkmenistan, Iraq and Iran each on their own have, in effect, an infinite amount of gas as far as these pipelines are concerned; and Azerbaijan is not too far off.

I am being a bit uncharitable here. The reality is that it would certainly be helpful to the prospects of the Southern Corridor if Iranian gas were to become available. But it’s obvious to me that Iran’s gas does not represent a source of leverage that would be usefully deployable in high-level geopolitical bargaining.

The more serious problem with Judis’s analysis, however, is his bad case of the geopolitics of energy bug.

If the Obama administration wants to get Europe to buy into a draconian sanctions strategy against Iran, it is going to have to convince EU countries that Nabucco makes sense without Iran.

This I find unbelievable. Europe will not support sanctions against Iran because it doesn’t believe Nabucco works without Iran. Hmm.

Let’s be clear here about the scenario Judis is painting. The Obama administration, having made precisely the sort of good-faith effort to engage with Iran that Europe had been longing for during the Bush years, and having met with Iranian intransigence, will push for tough sanctions against Iran—and do so with a huge amount of credibility and legitimacy. And this will come in the context of the Iranian regime stealing an election and causing outrage across Europe at its repression of its own people.

But Europe will respond by rejecting Obama’s proposal to impose tough sanctions on Iran. Not Russia, not China, but Europe. Why? Because of its determination to achieve a “major geopolitical and economic coup” by making Europe marginally less dependent on Russian gas!

And that’s the argument framed in Judis’s terms, in which Iran will determine whether Nabucco happens or not—which it won’t.

I think Nabucco and the other Southern Corridor projects are important; they would be good both for Europe and for the prospective gas suppliers. But to state the obvious, the disposition of European gas supply at the margins is not important enough to make Europe undermine the U.S. on Iran and destroy its relationship with the Obama administration in the process.

The geopolitics of energy bug, I tell you, it’s nasty. It makes normally brilliant commentators like Judis—I could here put years worth of links backing this up—sound a bit silly.

Photo by dbking

Well, I have developed a very good relationship with President Medvedev . . . But Prime Minister Putin still has a lot of sway in Russia, and I think that it’s important that even as we move forward with President Medvedev, that Putin understands that the old Cold War approaches to U.S.-Russian relations is outdated, that it’s time to move forward in a different direction. I think Medvedev understands that. I think Putin has one foot in the old ways of doing business and one foot in the new.

Looking for the stupidest interpretation of this comment, I found this from La Russophobe:

It’s a brilliant way test the water and see if there is any chance Medvedev might be induced to break with Putin, creating chaos within the Kremlin.

Pure genius! Next Obama can bring down the Iranian regime by commenting on the recent tensions between Khamenei and Rafsanjani!

I presume that the ambitions of Mike McFaul, Obama’s main Russia advisor, do not extend as far as “creating chaos within the Kremlin.” However it is hard to avoid the conclusion that Obama was going out of his way to disrespect Putin.

Fair enough, in one sense: Medvedev has more liberal instincts, and is presumably a more amenable person to negotiate with. But what on earth is the point of saying this out loud? Although he seems to have reacted calmly to Obama’s comment, and although there seems to have been a relatively good mood at the Obama-Putin breakfast meeting, Putin is not known for his thick skin.

Of course, for protocol reasons, Obama had to spend most of his time in Moscow with Medvedev; I don’t see that as a slight. But according to this article, Putin had already been insulted earlier this year by a U.S. proposal to recreate the Clinton-era Gore-Chernomyrdin Commission. This would be a very good idea if someone else were Prime Minister, but proposing a Biden-Putin Commission (I supposed they would have called it Putin-Biden) shows a pretty deep misunderstanding of current Russian politics.

To be clear on my own position: Putin runs Russia, and he will continue to run Russia. He certainly controls big decisions in the area of most interest to me, the oil and gas sector. Medvedev does not run Russia. Whatever recent tensions they may or may not have been between him and Putin, Medvedev is not going to “break with” Putin. Pretending or hoping otherwise is counterproductive.

In contrast to me in real life, as a blogger I will try to avoid addressing subjects I know nothing about. This means I will be writing mainly about the things I know: the upstream and midstream parts of the energy business (i.e. finding, producing and transporting oil and gas), and Eurasia, meaning roughly the states of the former USSR plus a bit more. Unfortunately it means I will largely avoid issues related to carbon, the environment, and clean energy. This is not because I do not think that they are extremely important; obviously, they are. But that’s not my field of expertise and thus I can’t add much there.

I think it’s appropriate to get on one of my favorite hobby horses right away: “the geopolitics of energy.” By this I mean the stance or approach that has taken hold in the media, in many think tanks, and to varying extents in governments, which holds that oil and gas supply has emerged (or re-emerged) in the past few years as an important driver of international politics, with regard both to means (the “energy weapon”) and to ends (the “geopolitical competition to secure future energy supplies.”)

In my view, this approach (I suppose it’s a “meme”) is at best problematic, and in the hands of more simpleminded analysts, simply wrong.

Obviously the oil and gas business is highly international, and highly political. Secure energy supplies are a significant national interest for any country that is a net importer of energy, particularly as far as natural gas is concerned (secure supply of oil is less of a problem since oil is physically easier to transport, and because it trades in liquid markets). And for major exporters the management of the oil and gas sector is always a crucial domestic political issue; and it can be a driver of an oil-exporting state’s international relationships.

That being said, the vast majority of analysis one can read about the geopolitics of energy starts with this foundation and then blows it way out of proportion.

For the moment I will back up my position with just one example: German policy toward Russia. A view has taken hold, most notably (but not exclusively) among some American analysts, that Germany is unable or unwilling to get tough with Russia because it buys 42% of its natural gas imports from Russia.

The recent evidence cited for this is (1) the fact that Germany did not support granting a NATO Membership Action Plan to Georgia and Ukraine in April 2008, because of Russian opposition in this interpretation; and (2) Germany’s relatively soft response, seen from this perspective as appeasement, to the Russian invasion of Georgia in August 2008.

The most obvious problem with this analysis is that one does not need to point to gas supply to explain why Germany has a different approach toward Russia than the United States. This is in fact the normal state of affairs and has been so before the first Soviet gas pipelines to Europe were laid. Ostpolitik, anyone?

(I might also add that the decision not to extend a Membership Action Plan invitation to Georgia now looks to have been correct; and that the substantive differences between the US and German reactions to the Russian invasion of Georgia were slight in any case.)

Second, in this reading, what exactly is Germany supposed to be afraid of? Does anyone really think that Gazprom is going to cut off German gas supply for an extended period of time in retaliation for Angela Merkel failing to dance to the Kremlin’s tune in international affairs? For Russia to do this — or even to threaten it — would turn out to be a economic and geopolitical catastrophe of enormous proportions for Russian national interests. To believe that Russia would do such a thing would be to assume not only malign ambitions (which I most certainly do not rule out) but also a level of stupidity that one simply does not find in the Kremlin, even at its short-sighted worst.

It is exceedingly rare, however, for an analysis to make it this far and consider the specific and tangible ways in which energy supply translates into political leverage. The influence of Russian gas on German foreign policy is simply asserted. I was surprised to find such a clear example of this in a respectable online publication (ForeignPolicy.com):

Of course, economic leverage [by which the author here means gas supply] translates seamlessly into political power, and Russia’s sway over German foreign policy has been conspicuous as the recent imbroglio in Georgia has continued to play out.

Admittedly this is a pretty weak straw horse, as the author of this article works for a Washington think tank whose main objective is deny the reality of climate change.

However, the same flaw appears in more sophisticated punditry from more credible sources. This piece, written by Ariel Cohen of the Heritage Foundation, makes the same mistake (if less egregiously). Cohen argues that the U.S. should take a number of steps intended to help reduce Europe’s dependence on Russian energy because Russia will “likely use Europe’s dependence to promote its largely anti-American foreign policy agenda.” How exactly Russia might do this, or indeed how it has done so already (since Europe has depended on Russian gas for three decades), is not addressed.

Cohen too is relying on an implicit and unsupported assertion that there is a direct (and perhaps even “seamless”) relationship between Russian gas supply and Russian influence over European foreign policy. But there is not. And indeed, when one gets down to specifics I think it’s suprisingly difficult even to draw a dotted line.

I am simplifying here too (after all, this is a blog post.) For one thing, the geopolitics of energy meme does have real-world impact to the extent that senior government policymakers believe it. The Russian government obviously does see its oil and gas as a geopolitical lever, and it has attempted to use this leverage in unsubtle ways on a number of occasions. But there is a big difference between bullying small former Soviet states and threatening Germany. I don’t believe for a second that German policy toward NATO expansion or the Russian invasion of Georgia was determined even to the tiniest extent by Germany’s dependence on Russian gas.

Photo by REGIERUNGonline/Kugler

A quick look suggests that this has increased Gazprom’s profile in the parts of the blogosphere that do not typically focus on the natural gas sector.