Beware of energy nationalism, warns global agency

London, July 11:

A growing trend towards nationalism over resources in Russia could backfire by cutting expenditure on oil and gas worldwide at a time when demand is likely to rise faster than expected over the next fi-ve years, the International Energy Agency warned yesterday.

At the same time, Shell signed a strategic agreement with Kremlin-controlled oil company Rosneft, weeks after BP agreed a similar deal with government-owned gas group, Gazprom. Both companies appear to be signalling that they need the influence of local operators in order to be involved in big developments in Russia.

The IEA criticised governments of energy-producing countries for using a period of high oil prices — currently $76 per barrel — to tighten their control over production. This comes as the IEA has adjusted its oil demand growth forecast from two per cent per year over next five years to 2.2 per cent on the back of booming cons-umption in the US and China.

“It is little wonder that consumers focus on supply diversity, both geographically and by fuel form. This can create a vicious circle for investment,” said the IEA, the Paris-based adviser to 26 industrialised nations in its medium-term oil market report.

Resource nationalism, where governments impose tougher terms on independent oil companies, has seen Shell and BP forced to hand over control of the Sakhalin-2 and Kovykta gas schemes in Russia while ConocoPhilips has in effect been made to leave Venezuela. But the IEA also said there were recent examples of rather more ‘benign’ examples of the trend with the recent North Sea tax rises and other developments in Britain and Norway.

All governments tend to use higher oil prices as an opportunity to shift revenue flows in their favour, the IEA explained. It said this was a trend that had been seen across the last century with Mexico nationalising its oil industry in the 1930s and OPEC, the producers’ cartel, being formed in 1960.

The current run of four years of high oil prices has done little todampen demand. The IEA now forecasts that global demand will increase from its current level of 86.1 million barrels a day to 95.8 million after 2011 and producing countries will struggle to keep up.

Yesterday the price of August-dated Brent crude increased to above $76-a-barrel after dipping slightly following the release of British child, Margaret Hill, aged three, who was kidnapped in Nigeria last Thursday. The seizure of the child, whose father works in the oil industry, fed into fears about political stability in Nigeria, a key oil producer. The day before Margaret Hill was grabbed, there was an attack on a Shell oil platform and five oil workers were taken.

Shell, meanwhile, announced it had agreed a deal with Rosneft under which the two companies are expected to work on joint projects in Russia.

Shell is keen to access the large reserves that Russia offers while Rosneft needs the kind of technology that the Anglo-Dutch group can offer.

Shell denied that the latest deal was a snub to Gazprom which wrenched a controlling stake in the $20 billion Sakhalin-2 scheme after allegations that operator was bre-aking its licence conditions.

“Russia has a diverse and significant set of opportunities where Shell can add value, and welook to grow business links with all the major Russian companies, including Gazprom and Rosneft,” said a Shell spokesman.

Artyom Konchin, oil analyst with Aton Capital in Moscow, said only time would tell how significant the agreement was.