Inevitability

The scene: Andrei, a Russian friend, and I watching a local band in one of the shoddy clubs in Yuzhno-Sakhalinsk.

Me:  This fella’s a brilliant singer.

Andrei:  Yeah, but he likes to smoke crack.

A Live Band in Yuzhno-Sakhalinsk

This evening my wife was on duty in the hotel in which she works, so rather than sit at home alone I did what I had been meaning to do for months: go to the Chameleon Bar, and check out the amateur bands that play there every Monday evening.

My wife had rung up in advance and gleened that the band plays from 8pm until 10pm.  I arrived at 7:45pm, and found the door locked.  So I hung around outside, trying the door periodically, to no avail.  Every now and then some youths would turn up, bang on the door, and a greasy looking chap would speak to them and let them in.  I thought this was some sort of VIP entrance thing which a newcomer like me wasn’t entitled to.  Only when it got to 8:15pm was I sufficiently pissed off to bang on the door and demand entrance, at which point I discovered the place had been open all along.  Only in Russia does a club attract customers by locking the front door.

Unsurprisingly, the club was full of students, ranging in age between what looked like 12 and 18.  Or maybe I’m just getting old.  The students reminded me of those I attended university with in 1996, wearing unwashed trousers six sizes too big, shirts my old man would have been embarrassed to wear in the 1960s, and plimsoles which looked as though they’d been left rotting outside for an English winter before the owner deemed them cool enough to wear.  In trying so hard to look different, they ended up all looking the same.  One bloke even had on a lumberjack shirt, the kind not seen outside the backwoods of Canada since the 1980s.  And even he looked more fashionable than the fella with the German army shirt.  Several of them had backpacks, which identified them immediately as students no matter which city we were in.  A word of warning to those who wish to avoid being duffed up by drunkards: never wear a backpack with both straps unless you are wearing Scarpa boots and a Helly Hansen shirt, or your backpack is a military bergen.  Two of the students on the table next to me were struggling with some English homework, and feeling generous, I spent ten seconds inserting ten missing words in ten blank spaces to allow them enough free time to enjoy the band.

Which was awful.  The lead guitarist, of which there were three, struggled for half an hour to fix this complicated computerised pedal contraption which – when it was working – emitted various sounds which guitars were not meant to make.  I was reminded of a comment made some years back by a good friend of mine who was an excellent guitarist that if you need a load of electronic gear to make your guitar sound good, then your guitar is shite.  When they finally got going, they turned out to be a teenage metal band along the lines of…I don’t know, I don’t know any teenage metal bands.  Usually I switch off when I hear them come on the radio.  At a guess, someone like Feeder or McFly.  I knew they were in trouble when it transpired that their bass guitarist was the most tuneful out of the lot.  That said, they did possess one element essential for rock and roll success: a drummer who looked as if he would blow his brains out as soon as stardom had been achieved.  Unfortunately, this chap looked crazy enough to do it on his second night playing as a pub band.  They did get better towards the end, or maybe it was the three pints of vodka and orange I’d drunk for student prices which inspired this improvement.  Appropriately enough, the band was called Headache.

So all in all, a disappointing evening.  But I have heard some pretty decent bands show up at the Chameleon Bar, and I reckon it’s worth visiting again.

Summer 2007 and its Possible Significance

Clearly it is a slow day in Yuzhno-Sakahlinsk, and I am writing what is tediously the third oil and gas blog post of the day.  At least this one is related to Russia.

There will come a time in the next decade when historians will look for a point at which Russia changed from being the post-Soviet chaotic Russia of the 1990s and early 2000s into the Russia which will be a feature of next two decades.  At present, there is much debate about what sort of Russia that will be, with some in the west fearing an aggressive, revamped USSR sending bombers into British airspace, using secret agents to knock off meddlesome political opponents in London, and cutting off gas supplies to Europe, while others – mainly Russians – cling to the idea that Russia will become rich, powerful, stand shoulder to shoulder with the USA, and become a force to be reckoned with in the world.

As for me, I was asked the other day on a web forum what I thought would happen in the middle-term future.  My answer was as follows:

It’s so hard to say, as Russia is and has always been impossible to predict. It is likely that overall standards of living and real wages will continue to improve, and at a continued rate for a while, before the rate of improvement slows down as it reaches a point closer to where Russia “tops out” on its potential. This point will be a lot lower than what is present or possible in most European countries, because of the seemingly permanent problems which Russia faces: rampant alcoholism, a collapsing population, low birthrate, terrible public health, high levels of organised, semi-organised, and unorganised crime, a public which is content to wallow in its own misery, and expects nothing of its own leaders save a good dose of west-bashing every few months, etc. 

It’s a bit flippant, as I was writing at an informal venue, but this is pretty much what I think is in store for Russia in the next decade or more, and this view puts me very much in the minority of those who think about these things.  Going back to my point about historians, I think that the year 2007, and perhaps the summer of 2007, will be marked as the point where Russia set itself on a course for permanent mediocrity or steady decline when everything looked as though things were going to get so much better. 

The kick-off point will be when the Russian government exerted its power to take majority ownership of the Sakhalin II oil and gas project in April 2007.  This was followed shortly in June 2007 by similar pressure being put on TNK-BP to hand over the major stake in its Kovytka field to the Russian government, and in August 2007 it was looking increasing likely that the Exxon-led Sakhalin I consortium would be forbidden from selling its gas to anyone other than Gazprom.  These three actions, added to Gazprom’s decision made in October 2006 to develop the massive Shtokman field in the Barents Sea on its own, signalled that the era of foreign management of Russia’s hydrocarbon reserves was at an end, and that for the forseeable future – meaning the next 25 years or more – the Russian government would be firmly in charge of producing all its own oil and gas; foreign companies, if they have a role at all, will be minor investors and subcontractors.

Despite Russia attracting a lot of inward investment in areas such as retail and banking, its economy is still very much dependent on oil and gas revenues, and this is unlikely to change in the future.  The manner in which foreign businesses are treated in Russia in terms of the bureaucracy they must negotiate, discrimination they face compared to Russian companies, and in some cases the open hostility directed towards them from arms of the state, suggests that Russia is basing a large portion of its economy on selling oil and gas.  This leaves them wide open to fluctuations in the oil price, and relies on the Russian government – having chosen to follow this path – having the knowledge and ability to develop and manage the oilfields.  As I’ve said before, only one other national oil company has managed this properly, and aside from both knowing a thing or two about snow and ice, Russians are not Norwegians.  This point has not been lost on the nameless author of a good article in this week’s Sakhalin Times, who writes:

As much as some in the establishment may not like to read this, the fact is that foreign companies brought a great deal of professionalism to Sakhalin. Pay scales were introduced that were unimaginable in Sakhalin or any part of Russia. Infrastructure and corporate social responsibility were also products of oil companies in Sakhalin.
This professionalism was accompanied by a sense of social responsibility and concern towards the environment.

In the summer of 2007, the Russian government backed themselves to deliver what no other country has yet managed: a route to prosperity based almost entirely on a nationalised oil and gas industry.  When scholars of the future write about the next chapter of Russia’s history, they might well start it off from this date.  

An Industry Still In Crisis

Staying on the subject of the oil and gas industry, this article in Upstream Online elicits no sympathy from me whatsoever:

A shortage of highly-specialised professionals including sub-sea engineers, geoscience experts or reservoir engineers has caused painful cost rises for oil companies, even though many are now earning nearly $70 a barrel for oil.

The younger generation may be turned off by oil’s image as a heavy, sunset industry, industry executives say.

Well, industry executives probably will say that, because it is a lot easier and less embarrassing than having to examine their own ludicrous recruitment policies, by which I mean the insane list of requirements they attach to even junior positions in the industry.  At this point I will refer to my post on the subject from October last year and take the lazy route of repeating myself:

We all laugh at the mythical job description that asks for a 25 year old with 15 years experience, but there is some truth behind the joke.  It appears that companies are only interested in recruiting people who have a minimum of 10 years experience in a particular field of expertise.

[R]ealistically, a person who has at least 10 years experience in a particular field of expertise is going to be in his early 40s at best, and most likely in his mid 40s.  If, as many companies do, you want somebody with 15 years experience you’ll be looking at somebody in their 50s.

So as somebody of the younger generation in the oil and gas industry, I’d say the reason the younger generation is turned off by oil’s image is because the industry for the larger part refuses to recruit them.  And sure enough, back to the Upstream article:

“The demographics of the industry are changing,” said David Lesar, chief executive of US oil services company Halliburton. “It’s no secret that the average person in the industry is now in their mid-40s, statistics show.”

Now there’s a suprise!!  We insist on recruiting only those with a minimum 10-15 years experience, and the average age is in their mid-40s!  What other revelations are we in for today?  Nursery school intakes are devoid of pensioners?

Tom Botts, executive vice president of exploration and production at Royal Dutch Shell in Europe, said skilled staff in sub-surface engineering and reservoir and well engineering were in particularly short supply.

And in the UK there are not enough students on engineering courses.

“We need to get into the schools because just getting them out of university is not enough,” said Botts.

Whilst I don’t want to say anything harsh which might jeopardise my fledgling career in the oil and gas industry, I would like to gently advise Mr Botts that the problem is likely to remain unsolved for as long as the oil and gas industry values longevity of service – and by this I don’t mean experience – over and above ability.  In the year that has passed since I broached this subject last, I have seen little to persuade me that I was mistaken when I wrote this:

Companies in the oil and gas industry insist on a person having 15 years experience, and are adamant about this longevity of service, but are not so fussy about what those 15 years have actually entailed.  In fact, they barely ask.  So long as you have grey hair and have done something since you left university, you must be okay.  Hence it is better to have on your CV 15 years of blinding incompetence than 5 years of brilliance.

Understanding the Origins of Peak Oil

An article in Upstream Online confirms something which I have several times over the past year written on blog posts or expressed verbally: that whether or not talk of “Peak Oil” is premature, such discussions are pointless unless it is universally understood that the major obstacles to increasing oil production are political in nature, not technological.

High oil prices and perceptions of soaring industry profits have prompted many producing countries to give national oil companies more power to extract richer fiscal terms and greater control over resources, pushing out international players, Rex Tillerson, chief executive of US supermajor ExxonMobil, said.

Such policies will lead to tighter oil supplies as ExxonMobil and other majors stop deploying their technology, know-how and capital in some of those countries, he said.

“If there’s no room to share it then there is no role for us – it’s a simple as that,” he told business and political leaders at a meeting in Calgary, Reuters reported.

State oil companies now control 75% of the world’s proven oil reserves and international companies like ExxonMobil, Anglo-Dutch supermajor Shell and French giant Total account for about 10%, he said.

Total chairman Thierry Desmarest agreed that many countries in regions like the Middle East, former Soviet Union, Africa and South America have been putting more political obstacles in place, restricting access to new reserves.

Meanwhile, production in most of the rich countries of the West is expected to keep declining.

That the likes of Exxon-Mobil, Shell, and BP should find themselves shut out from most of the world’s oilfields will come as music to the ears to many of the anti-globalisation, anti-capitalist, green movements, assorted bands of halfwits, and the perpetually angry.  For when they talk of the evils of Big Oil, it is only the western, publically owned oil companies which come in for criticism with the state-owned giants which control most of the world’s production being given a free pass, usually due to a misguided view that they are vehicles of fairness, wealth redistribution, and social progression.

Such views are breathtaking in their naivety.  A look around the world reveals that the only national oil company which operates safely, efficiently, and on a par with international standards is Statoil of Norway.  The rest range from being bloated and inefficient to startling unsafe and riddled with corruption, with environmental concerns coming far down the list of priorities after production, profit, and protection of favoured sons in the organisation.  By contrast, despite their many faults, western oil companies are models of safety, efficiency, and environmental responsibility.

If the pattern of western oil companies being shut out of the world’s major oilfields continues, we can expect the price of oil to rise steeply because of two factors: a decrease in production figures caused by a decrease in reservoir extraction rates, and extraction costs increasing as operations become more inefficient.  We can also look forward to that production which is taking place to be accompanied by a significant increase in environmental damage, explosions, fires, and deaths.

If we are heading towards Peak Oil, the point at which production rates peak and decline from thereon after, the answer is simple: allow western oil companies access to the world’s largest oilfields.  The alternative is to allow the oil producing countries to steadily wreck the industry and the environment and force the world over the next couple of decades to find alternatives to oil long before the reservoirs run dry.