Economic Outlook: Energy sourcing: Going further east than Mideast

The Anglo-Australian energy giant, BHP Billiton, announced this week the discovery of oil at an exploratory well in the ultra deepwater Gulf of Mexico.

The news may have not impacted oil prices, more sensitive to the general strike in Nigeria and how it will affect the country's production, but it reverberated cheerfully in many circles around the world of big energy consumers.

That's mainly because the deepwater reserves in the Gulf of Mexico is one of the alternatives the U.S. is looking for to lessen reliance on energy imports from the Middle East.

Industrialised countries have been pushing big companies to invest in new regions, mainly in Mexico, the Caspian Sea basin and Russia. But the cost of exploration, and later production, of oil and gas from deep waters will almost triple the cost of developing known reserves in regions like the Middle East.

Now, with the news announced by BHP, energy investment there could be viable. The news from Mexico came just days after Russian President Vladimir Putin's visit to London to lure Western investments to the Russian energy sector.

At a London oil conference attended by Russia's president and top Russian and European oilmen, BP agreed on commercial terms for a joint venture deal worth over $6 billion that was announced earlier this year.

Britain and Russia also signed an agreement to co-operate in the construction of a gas pipeline under the Baltic Sea from Russia into Europe and connecting with Britain. The two moves and a recent $10 billion investment by rival Shell off Siberia's coast tie the world's second-largest oil exporter and the owner of the largest natural gas reserves, closer to industrialised consumers.

There are many factors in the Anglo-Russian business venture. Moscow wants to take a step away from Berlin and Paris and towards Washington. This can best be done via London, promising more investment money than German loans the Russians can't pay until now.

As Russia is claiming about $7 billion of debts from Iraq and oil contracts to its companies worth tens of billions of dollars, London can help persuade Washington to listen to Moscow's demands.

Norway's Petroleum Directorate said last week the country's known resources of oil and gas off its western coast had fallen by sevn per cent from last year. The directorate's report cited lower estimates of as-yet untapped natural gas and falling expectations of finding recoverable gas as the main reasons for the drop in total reserves.

Almost the same applies to Britain's north fields producing Brent crude (the benchmark for global oil prices). Though the demand on energy is growing in the western hemisphere, big companies are also eyeing the potential markets in Asia - traditionally Japan that imports almost its energy needs and fast growing markets in China and India.

Supplying these markets from Russia is definitely taking it off the list of customers buying Gulf oil and gas. And here comes the significance of the rush of Western investments further east of the Middle East.

Also last week, Vladimir Shkolnik, Minister of Energy and Mineral Resources of Kazakhstan, was in Canada to lure investments into his country's oil sector. From Calgary he announced that bidding will start next year for oil blocks in Kazakhstan's sector of the Caspian Sea, which the energy industry sees as one of the world's most promising regions for major discoveries.

More than 100 blocks will be available for exploration and development in the Caspian as part of a much-anticipated $70 billion plan to boost energy output in the former Soviet republic by 2015.

Driven by Caspian offshore development, Kazakhstan's oil production alone is projected to more than triple to 3.5 million barrels a day from about one million currently. The envisaged plan is expected to attract at least $150 billion in foreign investment from Western oil majors.

Among the foreign firms operating in Kazakhstan are Calgary-based Petro-Kazakhstan Inc., Shell, Italy's Agip, and ExxonMobil and ChevronTexaco.

All these developments highlight the interest of Western energy consumers to shift global reliance on Middle Eastern energy supplies, but achieving this is another story as many analysts still strongly think that Middle East oil will keep its position as a major fuel of global economy for years to come.

The author is a Arab writer based in Qatar.