Saturday, November 15, 2014
Putin's Falling Oil Income vs. US Energy Independence Policies
Russia’s petrodollar days of plenty are over, according to the St. Petersburg Times, Russia's largest English-language newspaper. SPT columnist Alexei Bayer, born and raised in Moscow and living in New York Cty, writes that Russian conspiratologists are convinced that, like Reagan before him, Obama made a deal with the Saudis, leading to a recent drop in oil prices. Bayer notes that conspiracy theories have a fatal attraction for the Russian public : "Nothing of importance can ever happen in the world without some powerful players arranging it behind the scenes There was apparently a clever plan to break up the Soviet Union in 1991 - developed by John Foster Dulles, the US secretary of state in President Dwight Eisenhower’s administration - even though Dulles has been dead since 1959....And so on." And now, as oil prices are falling, the conspiratologists, and possibly Vladimir Putin, are convinced that US President Barack Obama is leading the recent price drop. "Never mind that ever since OPEC lost its dominance in the 1980s, no one has been controlling trained, well-paid economists at major oil companies. Nor does it matter that, given rational economic policies, lower oil prices should have a positive impact on the Russian economy, just as falling oil production put impoverished Mexico and Indonesia on the path to economic development," Bayer writes that oil is a special commodity, but it is subject to technology laws : "Demand for oil simply pumped out of the ground, and countries that were lucky enough to have large deposits were the main beneficiaries....Critical mass was achieved this year, when the US, thanks to the shale oil boom, became the world’s largest oil producer. Historically, technology has been getting steadily cheaper. Thus, any temporary upticks will fund a new technological spiral, leading to a renewed decline in prices." So much for conspiracy theories. ~~~~~ BUT, consider this. Agence France-Presse, based in Paris and the world's oldest and one of the largest international news agencies, reported this week that US House Speaker John Boehner has warned that President Obama is waging a "crusade" against affordable energy, after the United States and China reached agreement Wednesday on curbing greenhouse gas emissions. Boehner said : "This announcement is yet another sign that the President intends to double down on his job-crushing policies no matter how devastating the impact for America's heartland and the country as a whole...It is the latest example of the President's crusade against affordable, reliable energy that is already hurting jobs and squeezing middle-class families." Senate Republican leader Mitch McConnell said he was "particularly distressed" by the deal, which sees the two global powers achieve breakthrough cooperation in the fight against climate change. "I read the agreement requires the Chinese to do nothing at all for 16 years while these carbon emission regulations are creating havoc in my state [Kentucky] and other states around the country," McConnell noted. This is an indication of the renewed Republican Party battle over climate change and energy policy in Congress, where the GOP will control both chambers beginning January 3 after Obama's Democrats suffered a humiliating defeat at the midterm polls. But lame duck Senate Majority Leader Harry Reid hailed the US-China pact as one that could "spur other countries" to join in the climate change fight. "The historic announcement...is exactly what is needed to ensure that America's efforts to clean up our energy supply are replicated around the world." In response, Boehner noted that the GOP House passed several bills to "rein in" the Environmental Protection Agency's regulations on carbon emissions and other energy issues, but that the legislation stalled in the Democratic-held Senate. ~~~~~ The US fight is not "conspiratorial" in the bigger-than-life Russian sense, but it does highlight the divide between Republicans and Democrats on energy, with each party blaming the other of deliverately choosing policies bad for America. But instead of conspiratorial sabre-rattling à la Putin, the Republican-led House, reinforced in the mid-term elections, made its first move to change the direction of US energy policy yesterday. The House approved the Keystone XL pipeline by 252 votes to 161, with 31 Democrats crossing the aisle to vote with the GOP majority. This is the 9th time the House has passed a Keystone XL Pipeline bill to approve the $8 billion project opposed by the Obama administration, which has been studying the project for more than six years. House supporters are confident that this time the Senate will finally pass its version, but Senate passage is not guaranted when the Senate votes, probably next Tuesday. Senate supporters say all 45 GOP Senators plus 12 Democrats will vote for the bill, leaving the need to find 3 more votes for the 60 that could overcome a filibuster blocking procedure. Approval for the pipeline, which would transport oil from Canada's oil sands to the US Gulf coast energy hub, is controlled by the Obama administration because it crosses an international border. Proponents of the pipeline say it would create thousands of construction jobs and be environmentally safer than the current use of railcars and trucks for oil transport, while environmentalists who oppose it say it would increase carbon emissions linked to climate change. If Congress passes the measure, Obama will have to decide whether to use his veto. The White House has not said if he will do this, but yesterday after House passage of the bill, Obama said he still favors the evaluation being done by the State Department. The President also noted that there is ongoing legal action in Nebraska, where a court is expected to rule soon on a case about whether the pipeline may pass through the state. Meanwhile, State Department spokesperson Jan Psaki said the House passage of the bill would have no impact on the State Department review and repeated that she does not know when it will be completed. With Obama leaning against approving the project, Democrats are divided about it, wondering whether to support Obama, whose unpopular policies were a big contributor to their election drubbings last week, by opposing the Pipeline, or to vote for it as a sign of solidarity with their constituents. ~~~~~ But, Senator Ron Johnson has a more political view of the recent Democrat Keystone about-face. The Senator told Newsmax on Friday that the Democrat support of the Keystone XL pipeline smacks of "100 percent pure political maneuvering, What’s remarkable to me is that Mary Landrieu has the gall to say in interviews that there’s no politics involved in this at all," the Republican said, referring to the Louisiana Democrat Senator whose political future may depend on her being able to get the 60 votes needed to approve the pipeline. "That’s all this is." Senator Johnson then likened Landrieu's remarks to those disparaging Americans by Obamacare architect Jonathan Gruber : "It just proves that what Jonathan Gruber was saying is true: Democrats truly believe that the American public is so stupid that they can stand up and say, 'Oh, there’s no politics in this' and actually believe that the American public - and the folks in Louisiana - would believe this. It’s unbelievable." Landrieu, seeking a fourth Senate term, is in a bitter December 6 runoff with GOP Representative Bill Cassidy after neither won 50% of the votes in the November 4 election. Both have pushed their energy credentials, as the Democrats seek to keep the Republicans from adding another seat to the biggest majority the GOP has had in the upper chamber since World War II. Since the lame-duck congressional session began on Wednesday, Landrieu has been working feverishly to find the 60 votes needed to pass the pipeline proposal. She persuaded Senate Majority Leader Harry Reid to schedule the Tuesday vote and told reporters on Friday that she had 59 votes - including all 45 Republicans and 14 Democrats. Passage would be assured with 60 votes that prevent filibusters. When asked whether she had the 60 votes, Landrieu responded in the conference call, "I am going to say I'm confident I'll have the 60 votes," The Hill reports. ~~~~~~ Dear readers, from Putin's Russian conspiracy theories on oil pricing to American political manouvers over energy independence and jobs, there are connecting threads related to power and status in the world. But, the real difference is that in Russia, Putin controls what Russians hear and read and he controls who may run for public office, while in the United States, politics is an open process where political leaders rise or fall on their ability to understand what the free American people want in political leadership. It's a rough-and-tumble marketplace of ideas. That's what the US energy independence policy and the Keystone XL Pipeline are all about.
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Since OPEC is no longer dominate in the world's oil markets, Russia is quickly faltering, Valenzuela has so many problems internally which hinders delivery ... is there a shortage on the open market that is being desiguised as other problems?
ReplyDeletePeople often fight over valuable resources. Is that supposed to be some kind of revelation? And, of course, not all fights are about oil, nor are the conflicts mentioned only about oil. And not all oil fields are the locus of conflict.
ReplyDeleteOne of the two largest oil producers in the world, Russia accounts for 12 percent of global output. Last year it again surpassed Saudi Arabia by pumping almost 10.4 million barrels per day (BPD). It is also one of the world’s largest exporters of oil, with nearly 5 million BPD. With the world’s largest proven reserves of natural gas, Russia is also the top producer of natural gas, accounting for about 20 percent of the world’s total. The centrality of hydrocarbons to Russia’s economy is hardly a new issue, but it is one well worth keeping in mind.
DeleteOn the one hand, new technologies are making natural resources cheaper and more abundant, threatening billions of dollars of the Russian state’s revenue. At the same time, to maintain the current level of production, not to mention increase it, Russia must make huge investments in exploring and recovering oil from virgin deposits (“greenfields”) of the east Siberian region and the Arctic shelf. Russia’s ability to meet both challenges will affect not only its preeminence as an energy supplier but also its ability to wield oil and gas as geostrategic tools. With a likely significant thinning of oil and gas rents, at stake might be the stability of the regime and perhaps even its survival.
As the world’s biggest consumer of energy, China is desperate to acquire fresh fossil fuel supplies wherever it can. Although its leaders are prepared to make increasingly large purchases of African, Russian, and Middle Eastern oil and gas to satisfy the nation’s growing energy requirements, they not surprisingly prefer to develop and exploit domestic supplies. For them, the South China Sea is not a “foreign” source of energy but a Chinese one, and they appear determined to use whatever means necessary to secure it.
Seems we are tired together and in conflict at the same time through “pipelines” end to end.
Fossil fuel competition drives conflicts like Iraq and Ukraine more than ancient hatreds. In Iraq, Syria, Nigeria, South Sudan, Ukraine, the East and South China Seas, etc. wherever you look, the world is aflame with new or intensifying conflicts. At first glance, these upheavals appear to be independent events, driven by their own unique and idiosyncratic circumstances. But look more closely and they share several key characteristics—all notably, are a scheme of ethnic, religious, and national antagonisms that have been brought to the boiling point by a addiction on energy.
ReplyDeleteIn each of these conflicts, the fighting is driven in large part by the eruption of long-standing historic antagonisms among neighboring (often intermingled) tribes, sects, and peoples. In Iraq and Syria, it is a clash among Sunnis, Shiites, Kurds, Turkmen, and others; in Nigeria, among Muslims, Christians, and assorted tribal groupings; in South Sudan, between the Dinka and Nuer; in Ukraine, between Ukrainian loyalists and Russian-speakers aligned with Moscow; in the East and South China Sea, among the Chinese, Japanese, Vietnamese, Filipinos, and others. It would be easy to attribute all this to age-old hatreds, as suggested by many analysts; but while such hostilities do help drive these conflicts, they are fueled by a most modern impulse as well: the desire to control valuable oil and natural gas assets. Make no mistake about it, these are 21st-century energy wars.
It should surprise no one that energy plays such a significant role in these conflicts. Oil and gas are, after all, the world’s most important and valuable commodities and constitute a major source of income for the governments and corporations that control their production and distribution. Indeed, the governments of Iraq, Nigeria, Russia, South Sudan, and Syria derive the great bulk of their revenues from oil sales, while the major energy firms (many state-owned) exercise immense power in these and the other countries involved. Whoever controls these states, or the oil- and gas-producing areas within them, also controls the collection and allocation of crucial revenues. Despite the patina of historical enmities, many of these conflicts, then, are really struggles for control over the principal source of national income.
The struggle over energy resources has been a conspicuous factor in many recent conflicts, including the Iran-Iraq War of 1980-1988, the Gulf War of 1990-1991, and the Sudanese Civil War of 1983-2005. On first glance, the fossil-fuel factor in the most recent outbreaks of tension and fighting may seem less evident. But look more closely and you’ll see that each of these conflicts is, at heart, an energy war.
Although Russia is not running out of oil, it may be running out of cheap oil for certain. Vladimir Putin’s commitment to oil and gas as the mainstay of Russia’s progress stems from a deep and abiding conviction about its importance to the nation’s economy. Long before he came to power, he had believed that “the restructuring of the national [Russian] economy on the basis of mineral and raw material resources” was “a strategic factor of economic growth in the near term.”
ReplyDeleteFor Putin, oil and gas were also paramount politically as guarantors of the security and stability of the Russian state. As he put it, “The country’s natural resource endowment is the most important economic and political factor in the development of social production.” Furthermore, the “raw material complex” was the “basis for the country’s military might” and an “essential condition” for modernization of the military-industrial complex. Finally, he believed the mineral extraction sector of the economy “diminishes social tensions” by raising the “level of well-being” of the Russian population.
The drop in US imports has freed up large volumes of natural gas and lowered prices on the world market. In addition, LNG transported by tankers from the Middle East has increased significantly, Europe’s reliance on LNG has expanded, and Europe’s LNG infrastructure has grown. The rapidly changing supply and price structure will be further altered by a possible (or even probable) transformation of the United States from an importer to an exporter of natural gas.
Among the most notable casualties of an increased supply and lower prices has been the Shtokman natural gas field in the Arctic Barents Sea, one of the world’s largest. Last August the members of the consortium—Gazprom, France’s Total, and Norway’s Statoil—quietly abandoned the project, which was to produce LNG to export to the United States, because it became unprofitable.
“Putin’s unchallenged power” rests on a tripartite foundation: “oil and gas money, the Federal Security Service, and television,” a Russian observer noted last December.[75] Today, one leg of this tripod is beginning to look wobbly.
These may not be the challenges of tomorrow or the day after. Yet in the medium term and longer term, trends in technology and the global economy, as well as the country’s own economic, social, political, and demographic dynamics, seem to have conspired to leave the Kremlin no good, risk-free choices.
In a fossil-fuel world, control over oil and gas reserves is an essential component of national power. Oil fuels more than automobiles and airplanes; oil fuels military power, national treasuries, and international politics. Far more than an ordinary trade commodity, it is a determinant of well-being, of national security, and international power for those who possess this vital resource and the converse for those who do not.
ReplyDeleteMoscow has used Europe's dependence on Russian oil as an economic weapon. Over the last decade it has cut off or slowed gas supplies to a range of countries when a dispute flared over pricing or politics.
ReplyDeleteThe shale revolution in the U.S.—controversial though it may be—has already strengthened Europe's hand somewhat. The world is ultimately one large energy market. Plentiful gas and oil in the U.S. means America is importing less, freeing global supply to migrate to Europe and driving down some prices. More U.S. coal is also finding buyers in Europe. That has helped European nations in some instances bargain for a better deal with Gazprom (Russia largest oil/gas exporter).
But Europe's lingering dependence on Mr. Putin's supplies is undeniable. It's made more so by Germany's retreat from nuclear energy. The West is threatening Russia with economic sanctions if it doesn't remove troops from Ukraine. But how tough will Europe get if Russia threatens to choke off its energy? This dynamic—allies dependent on an unstable supplier—isn't in U.S. interests, business or otherwise. It limits our partners' response during crises. And the instability potentially crimps global economic growth, which isn't good for anyone.
It would take some time for the U.S. to build a meaningful export infrastructure and for big supplies of U.S.-produced fuels to reach Europe. But that in some regard may be beside the point. Just the promise of more pressure on Mr. Putin's quasi-monopoly might make him treat his customers better. It might not force him out of Ukraine's Crimea. But it would give Europe more leverage to press the point.
After all, business is business. Even in Russia.
“Russia’s financial crisis has become so severe that President Vladimir Putin found himself reassuring investors late last week that the government would provide the support needed to the world’s largest oil company” as quoted from Bloomberg.
ReplyDeleteWith OAO Rosneft facing $21 billion of mostly foreign-currency debt maturities before April, Putin said the government will “definitely” help the company if necessary, according to an interview on the Kremlin’s website Nov. 14. After yields on Rosneft’s benchmark dollar bonds due in 2022 surged to a record 7.34 percent that day as oil sank to a four-year low, the statements may help restore investor confidence in the company, according to Commerzbank AG.
Rosneft, headed by long-time Putin ally Igor Sechin, has $10.2 billion in debt due this year and $19.5 billion in 2015, according to a company presentation on Oct. 29. Russia’s foreign-currency reserves dropped to a five-year low of $428.6 billion in October, with the Wellbeing Fund at $81.7 billion.
Putin and Russia have major money problem with austere problems the rest of this year and 2015.
The drooping oil prices on the open market spells nothing but serious trouble for the economies built solely on the ‘high price per barrel of oil’. Putin is another “know it all” leader much like Obama and they just rush forward without heeding the advice of people like Alexei Kudrin.
Maybe the free western world of nations can’t control idiots like Putin … but maybe the price of oil will be his Achilles Heel?