Its in The Pipeline
Yesterday, a small piece of news added to the feeling that all roads lead East.
China secured access to vast oil deposits in western Kazakhstan on Wednesday after the energy-rich Central Asian nation said it had completed the expansion of a major oil pipeline to its eastern neighbour.
Now Kazakistan has a steady customer and China a secure supply. Good news all round. For those worrying about crude oil supply, stranded reserves like those in Central Asia, finding a market should ease worries.
Today we have a slightly different story, which illustrates that pipelines without oil are not very useful.
Russia is not producing enough oil to fill a new $4 billion pipeline to the Baltic, which is meant to cut reliance on export routes via neighbouring states, without making hard choices about flows through other outlets.
The strategy was to reduce reliance on transit countries, and send the oil North. However, what will happen to the existing pipelines? Will less crude reach the Med? Will the Druzba Pipeline run dry?
Russia faces some difficult decisions. They need to have excess export capacity if they are to maximise bargaining power. However, ignore a market and others will take it from you. Greater flows out of Iraq to Southern Turkey could well replace Ural Crude in the coming years.
