Spoils of war

Years of work in battle zones have convinced Lutz Kleveman that the role energy resources play in ca

About three years ago, I visited the American airbase of Bagram in Afghanistan. A US army public affairs officer gave me a tour of the sprawling camp, set up after the ouster of the Taliban in December 2001. As we walked past the endless rows of tents and men in desert camouflage uniforms, I spotted two makeshift wooden street signs. They read "Exxon Street" and "Petro Boulevard". Slightly embarrassed, the officer explained: "This is the fuel handlers' workplace. The signs are a joke, a sort of irony."

As I am sure they were. It just seemed an uncanny sight given that I was researching potential links between the "war on terror" and American oil interests in Central Asia. Years of work in war zones have convinced me that the role energy resources play in causing armed conflicts is the big story behind the headlines. Dwindling supplies and the ever-surging global consumption of oil, especially in China and India, have caused its price to soar to new heights. As doubts grow about the true size of Saudi reserves, global production is expected to peak soon, making oil unaffordable to many people and countries, and raising the prospect of a "last man standing" oil endgame.

The deepening rivalry over fossil reserves, especially between the US and China, makes energy wars increasingly likely. No Iraqi I know believes America would send soldiers to the Gulf region if there were only strawberry fields to protect. My research in places such as Nigeria, Azerbaijan and Iraq has shown that oil wealth is more of a curse than a blessing. In all oil-producing countries (except Britain and Norway), it has led to environmental degradation, economic decline, corruption, political instability, coup d'etats or even civil wars.

Central Asia offers a perfect case study of what is the trouble with oil. The warlords, diplomats, politicians, generals and oil bosses I have interviewed in the region are all players in a geostrategic struggle that has become increasingly intertwined with the anti-terrorist campaigns: the "New Great Game". The main spoils in this rerun of the 19th-century "Great Game" are the Caspian oil and gas reserves, the world's biggest untapped fossil fuel resources. While estimates range widely, the US Energy Department believes that Azerbaijan and Kazakhstan alone could sit on more than 130 billion barrels of crude. Oil giants such as ExxonMobil, ChevronTexaco and BP have already invested more than $40bn in new production facilities.

In May 2001 Dick Cheney, the US vice-president and ex-CEO of Halliburton (a provider of products and services to the oil and gas industries), recommended in the seminal national energy policy report that "the president make energy security a priority of our trade and foreign policy", singling out the Caspian Basin as a "rapidly growing new area of supply". Since 11 September, the Bush administration has accordingly used the "war on terror" to further American energy interests in Central Asia, deploying thousands of US troops not only in Afghanistan, but also in the newly independent republics of Uzbekistan, Kyrgyzstan and Georgia.

By 2010, the US will have to import more than two-thirds of its energy needs, and the Caspian region has become vital to its policy of "diversifying energy supply", designed to wean America off its dependence on the volatile Middle East. Yet Central Asia is no less volatile than the Middle East, and oil politics are making matters worse. Disputes persist over pipeline routes from the Caspian region to high-sea ports. While Russia promotes crude transport across its territory, China wants to build eastbound pipelines from Kazakhstan, and Iran is offering its pipeline network for exports via the Persian Gulf. Washington, on the other hand, has championed the $3.8bn Baku-Ceyhan oil pipeline through the South Caucasus, which was recently inaugurated amid much pomp. Controversial for environmental and social reasons, the project has also perpetuated instability in the South Caucasus.

With thousands of Russian troops still stationed in Georgia and Armenia, Moscow has for years sought to deter western pipeline investors by fomenting bloody ethnic conflicts near the pipeline route, in the Armenian enclave of Nagorno-Karabakh and in the Georgian breakaway regions of Abkhazia, South Ossetia and Ajaria. In return, the US has despatched 500 elite troops to Georgia. Moscow and Beijing resent the growing US influence in their energy-rich strategic backyard, and have repeatedly demanded that the Americans pull out. Russia's president, Vladimir Putin, has signed new security pacts with the Central Asian rulers and, in 2003, personally opened a new Russian military base in Kyrgyzstan, only 50km away from a US airbase. China, in turn, has conducted major military exercises with Central Asian states. In August, China's biggest state-owned oil company bought a major oil producer in Kazakhstan for $4,2bn. The purchase fits in with China's efforts to quench its enormous thirst for oil by intensifying ties to major energy-producing countries and buying a wide array of foreign petrol assets.

Besides raising the spectre of interstate conflict, energy imperialism also exacerbates the terrorist problem. Many Muslims hate America because for decades successive US governments, in a Faustian pact, were indifferent towards how badly the Middle Eastern regimes treated their people - as long as they kept the oil flowing. In Central Asia, the Bush administration repeats the mistakes that gave rise to Bin Ladenism in the 1980s and 1990s. Oil-motivated American support for Central Asian autocrats - such as Azerbaijan's Ilham Aliyev, Kazakhstan's Nursultan Nazarbayev and Uzbekistan's Islam Karimov - causes more and more of their disgusted subjects to embrace militant Islam and anti-Americanism. The Caspian region may be the next big gas station but, as in the Middle East, there are already a lot of men running around throwing matches.

Ultimately, no matter how many troops are deployed to protect oilfields and pipelines, the oil infrastructure might prove too vulnerable to terrorist attacks such as in Iraq to guarantee a stable supply anyway. In Iraq, chaos and violence have so far prevented any major oil companies from investing a huge amount in the country's old petrol industry. Efforts by Halliburton and the US army corps of engineers to rehabilitate the oilfields near Kirkuk and Basra have been largely undermined by insurgent attacks on pipelines. To make matters worse, conflicts have broken out between Iraq's Kurds and Arabs over who should control the Kirkuk oilfields.

With so much oil-related trouble looming, old-style policies of yet more fossil fuel production and waste continue in the wrong direction. The only wise strategy is a sustainable alternative energy policy that will steer us into the post-oil era. Reducing our dependence on oil will go a long way towards "defuelling" terror-breeding regimes and lessening international tension. This policy will require saving energy through more efficient technologies, increasing the role of other energy carriers (including gas but not nuclear power) and introducing next-generation transport fuels on a huge scale.

A new energy policy is badly needed anyway to slow the greenhouse effect and global climate change, which might turn out to be the worst energy-related source of conflict. Hurricane Katrina - with violence, anarchy and refugees in its wake - gave merely a foretaste of the suffering that global warming could cause. That was nature, some say with a shrug, but in fact it was nature on drugs - and we need a detox soon.

Lutz Kleveman (lutz@kleveman.com) is the author of The New Great Game: blood and oil in Central Asia (Atlantic Books, www.newgreatgame.com), and the host of an authors' conference on climate change. For more information visit www.ankeloheconversations.com

Natural gas is by some distance the least fascinating of all energy sources - at least, it is to most British citizens and their media. In the "debate" on energy and carbon policy, which largely amounts to special pleading for government funding or regulatory protection for (in particular) clean coal and nuclear power, there is virtually no interest in gas. The subject surfaces mainly in the context of claims made by supporters of other forms of generating capacity that, in 15 to 25 years from now, the power sector will be overwhelmingly dependent on imported gas from "unstable" countries, and that this will expose the British public to unacceptable security risks. A BBC2 docudrama - set in the future - showed Chechen terrorists blowing up a gas pipeline running from Russia's Baltic coast to Britain, plunging London into darkness an hour later. The debate that followed was largely about the future of nuclear power, rather than the unreality of such a scenario.

This lack of public interest in, or information about, gas is slightly strange given that it is the country's most important source of energy, accounting for 41 per cent of primary energy last year (compared with oil at 34 per cent), and 40 per cent of electricity generation (compared with 33 per cent from coal and 19 per cent from nuclear power). This was never intended to happen. But the post-privatisation "dash for gas" in power generation - partly a dash away from the problems of the coal and nuclear power industries - was followed by a realisation that the switch from coal-fired to gas-fired generation had made a big contribution towards meeting CO2 reduction targets.

In 2000, North Sea gas production peaked and began to decline at a faster rate than had been anticipated. Over the past few years, there has been a growing tightness of supply in the winter months, when gas usage peaks. This has been accompanied by much higher levels of prices, with substantial volatility and price spikes. These developments have caused regulatory and parliamentary investigations into the functioning of gas markets and improper corporate behaviour, which have failed to substantiate any allegations of wrong-doing. At the same time, an unprecedented amount of new import infrastructure is under construction, with two new pipelines, the expansion of an existing line, and three new liquefied natural gas (LNG) terminals.

This sudden interest in supply, demand and prices is a far cry from the focus of the past two decades, which has been on developing competition in utility markets. Since the mid-1980s, politicians, regulators and consultants have marched around the world lecturing the less fortunate on the wonders of "British experiment". The answer to all problems was to "privatise and leave it to the market", which would produce "the most efficient outcome". This proved to be the case for much of the 1990s and early 2000s, when British businesses and citizens enjoyed substantially cheaper gas prices than their counterparts in Continental Europe, where governments have been reluctant to liberalise their markets.

Gas production was allowed to proceed at the fastest possible rate - abandoning the careful "depletion policy" of the nationalised industry era, which was designed to eke out UK resources with the judicious use of imports. Government was also responsible for starting the process that resulted in a pipeline between Britain and Belgium exporting surplus UK gas, with the aim of accelerating European competition. With the peaking of domestic production, that pipeline is increasingly being used to import, and 2004 marked the end of the country's relatively short-lived spell as a net gas exporter, giving rise to dire warnings of impending disaster arising from dependence on foreign supplies.

Large-scale imports, when they begin in 2007-08, will initially return the UK to the position 20 years ago, when more than 20 per cent of gas demand was imported from Norway. Subsequently, and assuming higher prices do not stimulate the discovery and production of new gas, import dependence on piped and liquefied gas will increase from a variety of sources: Norway, Netherlands, Russia, Algeria, Egypt, Qatar and others. The diversity of sources and supply routes provides protection against problems with any individual supplier or facility. Gas imports, far from being the main problem, are going to be a large part of the solution to supply problems. "Unreliable and nasty foreigner" theories of security ignore the most important current problem - the reliability of ageing North Sea infrastructure and concern about how these may perform in severe weather conditions. The impact of severe weather on offshore and coastal oil and gas infrastructure - as demonstrated by Hurricane Katrina - is a major potential problem.

Both Transco and Ofgem have given assurances that, even if it is very cold, there will be sufficient gas and delivery capacity to get through next winter. But experience of the past year suggests that any significant supply problem or severe weather causing increases in demand, even of short duration, will at the very least lead to short-term price spikes. After this winter, imported supplies start to flood in and new gas storage (which was not needed when supply was overwhelmingly from domestic sources) will open up, making the position much more comfortable. In fact, so much new supply will be available that, through the early 2010s, exports may continue for a significant part of the year.

The future of UK energy supplies may be renewables, clean coal, some form of nuclear power and, more distantly, hydrogen. For the next 20 years, and probably for a great many more, natural gas will dominate the UK energy balance outside the transport sector. This is a closely guarded secret revealed only in discussions about supply security. But there is no specific reason to think that security of gas supplies will be a major problem - once we get through this winter.

Jonathan Stern is director of gas research at the Oxford Institute for Energy Studies and honorary professor at the Centre for Energy, Petroleum and Mineral Law and Policy, University of Dundee