Exxon’s Afghan Feint?

Via Foreign Policy’s Oil & Glory, an interesting commentary on Exxon Mobil’s Afghan initiative:

Ultra-frontier business-making — the pursuit of work in the more dangerous, out-of-the-way and fringe areas of the world — doesn’t ordinarily attract blue-chip companies, and Afghanistan is no exception. We don’t see the likes of Warren Buffett, Alan Mulaly, Tim Cook or Lakshmi Mittal in these parts of Asia. So why do we find gargantuan ExxonMobil among the names of those filing an expression of interest in a few oil exploration areas offered up by the Afghan government? The question is important because an Exxon win in Afghanistan could be a game-changer for this troubled country, at once bolstering its reputation as a serious place for investment. Yet the potential resource isn’t of the eye-popping scale that usually exemplifies an Exxon play: The northern Afghan fields in question contain fewer than 1 billion barrels of oil equivalent, according to the U.S. Geological Service — not a volume that would move the needle for a company of Exxon’s size. And even if the potential volume were larger, the working environment will be daunting, with years of instability and outright civil war seeming to lie ahead, especially after the 2014 U.S. troop withdrawal. Call me puzzled.

By way of explanation, Exxon itself offers up the boilerplate that its Afghan flirtation is “part of our on-going evaluation of oil and gas resources around the world.” But I wonder if we can derive a better answer by observing the larger geographic tableau. For instance, by turning our gaze a bit to the northwest: What if we are observing not an Afghan strategy, but a feint with an aim at Turkmenistan?

For years, ExxonMobil has patiently put down roots in Turkmenistan, the possessor of South Yolotan, the world’s second-largest natural gas field. In 2008, U.S. diplomat Richard Hoagland (now No. 2 in the U.S. Embassy in Islamabad) wrote a cable, disclosed by Wikileaks, describing Exxon’s eagerness for an onshore Turkmen gas deal, by which we presume it meant a piece of South Yolotan. To that end, two years ago, Exxon became the first global major to reopen an office in the capital of Ashgabad (its rival on the spot is Chevron). But Turkmenistan has been confounding Western oil companies for two decades, and President Gurbanguly Berdymukhamedov continues to do so. One reason is that they refuse to mimic the pioneering success formula established by the China National Petroleum Corp., which acquired rights to onshore Turkmen supplies after first agreeing to build an export pipeline to carry the gas to the Chinese market. Both Exxon and Chevron are pursuing the conventional Western approach of insisting on a large gas deal first, then discussion of a means of conveyance.

To loosen up this logjam, the U.S. government, development banks and regional powers areworking to organize an export pipeline that they call TAPI (for Turkmenistan, Afghanistan, Pakistan, India). I personally think that TAPI has little chance of materializing under current political conditions in the region, and, for argument’s sake, let’s say that Exxon feels the same way. In that case, how do you shake a confused and ambivalent object of desire (Berdymukhamedov) into clarity and decisiveness? An age-old answer is that you present a rival, and scare the bejesus out of him.

Enter Afghanistan. If we are watching a feint, the options are that you express interest in the fields, but don’t necessarily meet the October deadline for filing an actual bid. If signals of alarm do not surface in Ashgabad, you can file an intentionally losing bid. If that still fails to impress Berdymukhamedov, you can win, and let the development niggle at the Turkmen leader’s craw.

The question is whether Berdy is watching

This entry was posted on Sunday, July 15th, 2012 at 5:14 am and is filed under Afghanistan.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

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