Russia’s oil crisis has global reach

The Chinese have imported 40 percent more crude oil so far this year than during the same period in 2003. So anxious are they about future supplies, government officials have reportedly asked about the possibility of buying a Russian oil company.

Comrades, it’s a strange world, although not so strange the Russians are likely to let the Chinese nationalize some of their oilfields. But oil at nearly $50 a barrel has many governments looking at hole cards. The Bush administration, for example, is under some pressure to release oil from the nation’s Strategic Petroleum Reserve as a way of easing some of the hysteria in energy markets.

Monday, Russian President Vladimir Putin told President Bush that Russian oil companies will do their part by increasing output there. But Putin’s government has contributed to the mess by trying to collect billions in taxes allegedly owed by OAO Yukos, one of Russia’s biggest oil companies. Cash-strapped Yukos has responded by cutting back production. The government has retained an investment bank to determine how much Yukos’ largest subsidiary might be worth if sold off to settle some of the tax claims, which is where the Chinese come in.

The subsidiary, Yuganskneftegaz, supplies 7 percent of the oil consumed in China. Not only are they interested in buying the company, they have agreed to pay the costs of transporting its oil into China if Yukos cannot pay those costs itself. Yukos, for its part, supports a plan to build a pipeline from its Siberian production fields to China, while Russia’s state-owned oil company backs a competing plan to take that oil to Japan.

Meanwhile, Japan, Korea and China will contest access to new supplies of natural gas under development on Sakhalin, a large island off Russia’s Pacific coast. The U.S. figures in this competition as well, and this is where these petro-dramas begin to come home to Inland Northwest residents.

Shell and Sempra, a San Diego-based energy company, want to import liquefied natural gas from Sahkalin to a Mexican port where it could be returned to its gaseous form and piped into California. Concerns about safety and environmental damage will likely block much direct importation of LNG into ports on the U.S. West Coast.

California utilities and industries compete with Northwest companies for natural gas from Canada. Billions of cubic feet of the stuff flow right by Spokane every year on their way south to California customers. LNG may never represent more than a small fraction of all the gas consumed in the West, but anything that adds to supply will have at least a marginal effect on prices here. Wouldn’t the average area household welcome any relief from the kinds of rate increases filed by Avista Utilities and every other natural gas utility in the Northwest?

Sakhalin also sits atop oil reserves that may rival those of Alaska’s North Slope, the source of most of the crude processed by Washington’s five refineries. Exxon Mobil will start pumping oil from that area as early as next year. The Russians are working hard to build the pipelines and port facilities that will be required to get Sakhalin and Siberian oil on the global market. With Alaska fields gradually playing out, tankers already deliver the occasional load of crude from Indonesia or the Mideast to the Cherry Point and Anacortes plants. Why not Sakhalin as well?

An unusual combination of factors, terrorism not least among them, has caused what analysts say is only a temporary spike in oil prices. But they also point to escalating demand from India and China, which in 25 years may have as many automobiles as the U.S., as a source of continuing pressure on world markets.

With foreign sources of energy moving closer to Washington, watching developments in the Russian Far East could be more than an academic exercise for analysts. As the world sucks up reserves wherever they can be found, the competition for what remains will become ever more intense. Even if we never get a gallon or therm from across the North Pacific, our economy will continue to be affected by the efforts of those who do.