War, weather issues affect energy

The fatal 4-day siege at the In Amenas gas production plant in eastern Algeria near the Libyan border that left 81 people dead “heightens concerns over protecting infrastructure in remote areas—a key factor for the planned $20 billion Trans-Saharan Gas Pipeline as well as other long-distance international energy infrastructure linking Africa, the Middle East, Central Asia, and Europe,” said analysts at KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK.

They noted “small-scale force majeure sabotage disruptions of oil supplies from Iraq and Nigeria from time to time.” However, KBC analysts said, “As we become more reliant on major projects to move oil and gas to market, we can anticipate a larger bill for security and a greater dependence on the capabilities of the police and armed forces of the countries this infrastructure transits.” The Algerian incident “will no doubt raise both construction and security costs for future projects,” they predicted.

Government circles in London, Paris, and Washington fear North Africa may become a theatre for conflict “in the mold of Afghanistan and potentially for an extended period,” resulting in “a potential watershed in the evaluation and pricing of supply security in the region,” said Paul Horsnell at Barclays Capital in London. “Further deterioration of conditions in the Sahel [land that divides the desert from the wetter areas] has added another layer of complexity, producing greater concern about the integrity of energy export systems across North Africa.”

On Jan. 20, the day after Algerian special forces stormed the gas plant to rescue international hostages held by Islamic militants, US President Barack Obama delivered his second inaugural speech, in which he concentrated more on domestic than foreign affairs.

That prompted analysts at Chatham House, home of the Royal Institute of International Affairs in London, to predict, “US foreign policy is likely to be driven more by economic, developmental, and diplomatic tools rather than military ones. When the military is engaged, Obama will tend towards its targeted use through such mechanisms as drones, cyberspace, and Special Forces. Given the strong desire by the US public to pull back military forces and their high cost, Obama is very unlikely to redeploy them in large numbers except as a last resort (such as in Iran).”

They said, “The challenges and constraints that the US will face in projecting power abroad will also make it more important, and more likely, that the US will seek to collaborate with key partners, international institutions, and other stakeholders in order to achieve objectives. For this reason the trend towards greater multi- and plurilateralism will continue.”

Environment and energy

Both industry and political analysts noticed the paragraph Obama devoted to climate change in his inaugural address, with many assuming that issue will play a more prominent role in his second administration. He continued to dismiss those who disagree on causes and solutions of climate change, however, saying “some may still deny the overwhelming judgment of science.”

Obama said, “The path towards sustainable energy sources will be long and sometimes difficult. But America cannot resist this transition…. That is how we will preserve our planet, commanded to our care by God.” Some analysts interpreted Obama’s reference to God in that context as an attempt to transcend partisanship on the issue and appeal to those who embrace religion over science.

However, Frank Maisano, a Washington, DC-based energy and political analyst, more realistically noted: “It will take a lot more than a throw-away mention in a speech to get a significant number of his squeamish Democratic colleagues and certainly a very antagonistic Republican House to go along.”

KBC analysts said, “Obama will have to decide whether he continues to support the growing energy boom in North America or starts to act on the environmentalists’ agenda, including drilling on federal land, restrictions on fracking and coal-fired power plants, and the controversial construction of the Keystone XL pipeline, which could bring more than 800,000 b/d of ‘dirty’ Canadian crude to the US Gulf Coast (and possibly beyond, as some of this oil could then be exported).”

They noted, “Some argue that Obama ‘owes’ his more environmentally minded backers for their support, disillusioned as they might have been at the recent election. Any payback for this support should be tempered by consideration of the economic benefits of the domestic energy industry and backing for a stronger energy security agenda.”

(Online Jan. 28, 2013; author's e-mail: samf@ogjonline.com)

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