Russian Sanctions And The Negative Effect On Global Energy Security

Tyler Durden's picture

Submitted by Igor Alexeev via OilPrice.com,

After a series of headline-grabbing statements about the possibility of “switching” European consumers over to American gas, the US media hastened to announce the launch of Obama’s oil and gas offensive against Russia. In reality the EU is not currently prepared, neither technically nor in terms of price, to buy its energy resources from the US.  It would take at least ten years to adapt even the technically advanced German energy system to work with American gas supply. In a crisis, when it is particularly urgent to see a quick return on an investment, such projects are unrealistic.

Whether German industry is ready to pay more for gas from overseas just for the dubious pleasure of “punishing” someone is a big question. Unlike EU officials, the German government is not publicly calling into question either its long-term contracts with Russia or the future of the South Stream pipeline. On March 13, 2014, the chairman of the board of Gazprom, Alexei Miller, attended a meeting with the Vice-Chancellor and Minister of Economics and Energy of Germany Sigmar Gabriel. “Germany is Russia’s number one partner in Europe’s gas and energy market,” Miller stated. “Russian gas accounts for 40% of all German imports. And we’re also noting an upwards tick in the quantity of gas supplies coming from Russia.  Last year, shipments totaled more than 40 billion cubic meters and we’ve seen a 20% annual increase.” Looking at these statistics, it’s clear that all the talk about Atlantic solidarity is having zero effect on the German government’s rational decision making. “We don’t need conflict escalation”, said Sigmar Gabriel during an expert roundtable on energy policy later in March. “Russia met its obligations under the gas contracts even in the darkest years of the Cold War”.

Sigmar Gabriel knows what he’s talking about. For Europe to be able to fully utilize gas supplies from the US, it will be necessary to build expensive facilities to decompress and store the gas. Moreover, in order to incorporate the “American” gas into the existing local energy systems, the European countries would need to construct new pumping stations. The associated infrastructure will further add to the price for the end consumer. Neither the bosses of the German industry nor the responsible political leaders will support such policy.

So who’s behind the demands that Russia be punished?

Barack Obama continues to look outside of Europe for ways to pressure Moscow. It is no coincidence that the US president’s recent statements on energy policy coincided with his visit to Saudi Arabia. President Obama came to Riyadh to bring down prices in exchange for the development of Saudi Arabian facilities to extract and liquefy gas for delivery to Europe. It’s unlikely that even Charles Maurice de Talleyrand himself could have persuaded the Saudis to dump as many resources as possible onto the market in exchange for the nebulous promise of American help to obtain new gas facilities at some unspecified date in the future.

Qatar’s position needs to be kept in mind too. There are serious personal disagreements between the Saudis and the hypersensitive former emir of Qatar as no one in the Middle East needs a new competitor in the gas industry. Obama’s attempt to repeat Ronald Reagan’s oil trick in the Middle East and “shake down” global prices will face many obstacles. A hike in oil prices below $80 would expose yet another issue that was a real controversy during Obama’s reelection campaign, namely - what to do about Iraq. Even a 10% drop in oil prices would finish off the Iraqi economy, still reeling from the US invasion. And Israel is closely monitoring the White House’s attempts to initiate a rapprochement with Iran. If Uncle Sam tries to levy energy sanctions against Russia using his political positions in the Middle East, he will quickly find he has loaded a gun only to shoot himself in the foot.

The US Secretary of Energy, Ernest Moniz, an Obama appointee and shale enthusiast, has jumped right into the discussion of “punishing” Russia. He promised to consider new efforts to ship LNG from the USA to Europe. In this particular case his verbal intervention is unlikely to reflect the position of the CEOs of the oil majors. They know very well that the industry’s real break-even points are nowhere near where they were 30 years ago due to inflation and higher operation costs. Today one facility—Cheniere's $10 billion Sabine Pass terminal in Cameron Parish—has the required approvals from the Energy Department and U.S. Federal Energy Regulatory Commission.

In early March, the American economist Philip Verleger, who worked in the White House and the US Treasury in the 1970s, spoke as an expert on the issue of using energy as way to “punish” Russia. In the March 3, 2014 newsletter that he publishes for his clients, Verleger wrote that the US has a tool it can use to influence Russia - its Strategic Petroleum Reserve (SPR). US Reserve currently contains almost 700 million barrels of oil, five million of which were unloaded onto the market during the Washington visit of the interim Ukrainian Prime Minister Arseniy Yatsenyuk. “It almost defies logic to think there isn’t a link,” noted John Kingston, the director of Platts’ news division. Tapping the SPR to manipulate the global market would be a highly extraordinary decision. The only way to exert any real pressure on global oil prices would be to open up at least 50% of the entire SPR and grant export licenses to anyone who wanted one. The American DoE is obviously not ready for such draconian measures.

Looking at the 2014 report written by the DoE analysts who are known for their almost religious faith in alternative energy, the minimum price for oil in 2015 will be $89.75/barr. The Russian national budget in 2014, which was saddled with expenses related to the Olympics, was drawn up based on an average price of $93 per barrel. Ergo, even $80-90 would hardly spell disaster for Moscow, much less $100 a barrel. In addition, the “nonmarket” pressure by the US could be balanced by the exporter nations. For example, the idea of “energy currency” has long been a hot topic within OPEC and the Gas Exporting Countries Forum (GECF).

For the first time ever in the history of US-Russian relations we are seeing a public debate about a threat of economic sanctions that may have a long-range negative effect on global energy security. The Obama administration acts as if it is guided by a chapter out of an old Soviet textbook on political economy. At the moment, apparently, the sacred dogma of the free market, from Samuelson to Friedman, can be conveniently overlooked for the sake of punishing a sovereign nation. When the head of the most influential state in the world talks about manipulating market prices to punish recalcitrant players, what kind of “global free market” and fair play are we really talking about?

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johngaltfla's picture

As I said back on March 7, Russia holds all the cards. Especially if they retaliate against the US and EU by refusing to accept dollars and Euros for oil or natural gas and demand payment in Rubles, Yuan, or gold. They will bring the West to its knees in quite a rapid fashion....

 

Russia’s Financial Nuclear Option against America
dow jones 20000's picture

yeah, things are really falling into place for the death of the petrodollar arrangement (which is really the main reason for the last few months events in Ukraine are happening in the first place).

zaphod's picture

Why do you think we are suddenly approving natural gas EXPORT terminals from the US? The government is peparing for the fall of the petrodollar and they know once it falls the US needs a source of income since we don't produce anything anymore. 

McMolotov's picture

We're the world's leading producer of bullshit.

Anusocracy's picture

I do believe we are at the top of producing believers in bullshit too.

dow jones 20000's picture

Yeah, in a country where at least half the population thinks WWE and the Old Testament are nothing but the truth, no wonder the deep state got away with 9/11.

Latina Lover's picture

I think Obama has spent too much time smoking Crack with Reggie.

Doubleguns's picture

When it comes to the foreign policy games and abilities here, Obama has brought a kids tricycle to a motor cycle race and Putin is setting on a kawasaki 900. Obamas helpers Kerry and Biden are pushing a little red wagon as pit crew.

 

Pathetic showing from the pathetic national duffer and community organizer. 

jeff montanye's picture

barack obama, primary domestic accomplishment: obamacare; primary foreign policy accomplishment: tossup between destruction of libya or of the ukraine.  i would vote the latter since it has this add-on of the end of the forty year reign of the petrodollar. 

Rafferty's picture

I think Obama has spent too much time smoking Crack with Reggie.

 

And his crack was smoking after Reggie finished his services!

Harbanger's picture

Based on how many people throughout the World bought into the Global warming scam, I would say our BS has a lot of influence.  It also shows that idiocracy is a global problem.

http://en.wikipedia.org/wiki/File:Climate_change_awareness_by_country_20...

EatYourCornTakeyourPill's picture

Yes. Indeed Russia holds all the cards. Really powerful country with a really healthy middle class. With a ruble that devalues 30% in a matter of a week. I too am shocked that Russia does not require EU to pay with the petroruble. Things just don't make sense anymore.

Also, yes the U.S spreads all of these scams all around the world like global warming, the jfk unassassination, wookies, AIDS, 9/11, pretending like Crimea doesn't belong to Russia, abduction of the malaysian aircraft and many more. American science is fake science. 

I don't think you really need a brain much bigger than a peanut to know that global warming exists and that human beings are horrible destroyers and wasters of the earth. But yeah if you rather wave your jesus flag and sings with hannity on fox news about the second coming of christ and turn around and ignore scientific logic and what seems to be pretty much hardcore fact, like evolution and relativity theory. Sure, be my guest.

Harbanger's picture

It's not a scientific fact, it's a NWO tax/control scam, so don't compare it to evolution or relativity theory.  And don't assume I'm religious, penis breath.  Many religious freaks are believers in Al Gore much like yourself.  You're just a different flavor of freak believer and proved what I said about US influence on global idiots.

Rock On Roger's picture

Global warming on the sunny side of Earth.

Global cooling on the night side of Earth.

Of course the climate changes.

Daily.

 

Stack On

MeelionDollerBogus's picture

Except it isn't because the cooling at night is being stopped, which we can (and do) measure to provably show the warming effect happening.

Flakmeister's picture

Still playing the idiot re: AGW?

You are in a tiny minority pitching a tent next to the Flat Earthers...

Rock On Roger's picture

The Earth Turns

Many Wobbles

Flakmeister's picture

And your point is?

Why don't you write a paper about it...

You would have to show that the calculation of Milankovitch cycle that that predicts a peak about 6,000 BCE in perfect agreement with the paleo-data is wrong...

Are you or anybody you know up to it? 

Or are you just blowing smoke out of your ass...

wintermute's picture

The sad thing is that Obama, like a true Big Government socialist, has never understood the fundamental pillar of modern living standards which is a market set fair price for each good including money (are you listening Fed?).

NoDebt's picture

Not to pick nits, but since when did Obama care about living standards?  All he cares about is government control.  The more the better.

Nobody cares the state of the empire over which they rule, so long as they rule over it absolutely.

MrSteve's picture

Doubtless America's Last Black President has consulted with Pres / Reg / Imp / Czar Maduro of Venezuela for the most deft advice on managing oil supplies, prices and international / transnational disputes. Saul D.Alinsky would say put some pepper on top of a shot of vodka and call for yet another charm offensive by John Kerry. It has all worked so well in the past! Cynics will note that only Obama can make McCain look good in comparison to foreign policy genius wannabe.

You know when Jimmy Carter is on NPR telling the world that Obama doesn't call him for advice, the Ship of State is surely going aground. Carter's legacy as worst POTUS eveh has been saved by Obama's self-inflicted groin shot in the Ukraine. BH0's gun never even cleared his holster!

Winston Churchill's picture

Last move was announced by the PBoC on 3/29.

Full convertability of the yuan starts this coming June  in the Shanghai free

trade zone.Expect the Saudis ti start taking yuan for oil soon after.China is their biggest

customer now.

And that is checkmate for the petro dollar,

johngaltfla's picture

And who was in Beijing the week of 3/29? Yup, the heir, the Crown Prince of the Saudi royal family.....they cut the deal, no doubt about it.

sushi's picture

In addition to the expiry of the Petrodollar

1) EU loses access to growth markets in the East

2) High energy costs in EU drive cost push inflation and render their exports less competitive

3) War breaks out and The EU has the great option of being on the front lines as Nuland and colleagues burnish thier careers.

Some sane people somewhere must be asking how this mess got started, who started it, and was it really worth $5 billion in State Department funding.

Deathrips's picture

Gazprom will not be denied. Fuck off Warmongers.

 

Sincerely,

 

Everyone in the world, and RIPS

Breaking Wind's picture

How many gallons of gas can I get for my wedding band?

CrashisOptimistic's picture

Fewer and fewer because that wedding band has no function in Russian society.

Offer up an acre's worth of potatoes, though, and you're talking business.

falconflight's picture

Russia alone can't pull it off...they'd need China full bore...

TeamDepends's picture

Can't we all just get along?

nightshiftsucks's picture

Are you one of my coworkers ?

BeetleBailey's picture

Fuckbama and his band of douchebags will find a way to fuck this up. Count on it.

Dr. Engali's picture

"When the head of the most influential state in the world talks about manipulating market prices to punish recalcitrant players, what kind of “global free market” and fair play are we really talking about?"

Two points about this statement. 1) The central planners have taken over and destroyed the free markets long ago. 2) Can we really say we are the most influential state in the world? The way I see it the world is laughing at the lumbering giant retard.

i_call_you_my_base's picture

"lumbering giant retard"

Definitely the way it looks. I'm warming to the idea that it's not an act.

NoDebt's picture

So is the rest of the world.  

Putin figured it out years ago.  His first confirmation was probably when Obama accepted an obviously undeserved Nobel Peace Prize.  "Oh, so this guy is all about his own ego.  I see.  Well, time to make some plans and lay a few traps for this tool."  

 

Uncle Remus's picture

.

Can we really say we are the most influential state in the world?

In the context of Murphy, yes.

Snidley Whipsnae's picture

The US is going to replace Russian gas to Western Europe?... 

Maybe someone should tell the planners that the US is still an importer of gas?

Dewey Cheatum Howe's picture

The US has so much of it without infrastructure in place yet that to make use of the excess.

Infact there so much shale gas that they can't make money importing LNG so Cheniere is converting their import stations into exporting stations to process about 2.5 billion cubic feet of natural gas per day in Sabine Pass. Only issue everything probably wont be ready until 2015 plus once they finish widening the Panama Canal that will open up more markets for export.

The other factor is the ability to predict output and you don't want to overbuild exporting infrastructure capacity that winds up being unused.

 

CrashisOptimistic's picture

ENI runs GAZPROM's fields.  ENI CEO says Cheniere can't deliver LNG to Europe for less than $9.  GAZPROM delivers at $6.

Cheniere will never ship.

falconflight's picture

We import petroleum, not much gas...

sushi's picture

Up in the Bakken they flare (means burn) all the associated gas as it costs too much to install the required infrastructure to get to market.

Of course once the gas is headed for FUCK THE EU then all those infrastructure costs will drop remarkably. Much cheaper to ship from North Dakota to Bavaria than to some place like Salt Lake City.

Snidley Whipsnae's picture

The US is the number 6 natural gas importer in the world... 

Behind Germany, Japan, Italy, UK, S Korea and France...

http://en.wikipedia.org/wiki/List_of_countries_by_natural_gas_imports

and... these figures were updated Mar 3, 2014

Another problem is how quickly many of these shale plays decline... lots of expensive infastructure and poof, it's gone.

CrashisOptimistic's picture

Not bad, Snidley.  You're up to speed. 

Behold why the Bakken flares.  It's not because "there is no infrastructure to collect it".  It's because there can't be any infrastructure to collect it, cuz once it's built, the well is dead.

Snidley Whipsnae's picture

CrashOptimistic...

Why can't people do a simple check before they make comments like 'The US is not a large importer of nat gas'...  

Or, 'The US is going to send natural gas to Western Europe if the Russians cut off supplies'... 

???

Are the pols, msm, et al, too ignorant or lazy to do a simple search? Or do they believe they can say any damn thing and the world will believe it?

The fact is that Western Europe will need either Russian convential gas or gas from another country (Iran, the Stans, etc, with the needed pipelines) with large proven reserves... better that Europe has conventional gas reserves to rely on than fracking. To think that the US can provide W Europe with it's gas needs in the near future is wishful thinking.  

Flakmeister's picture

Yes, the idea the that the US can play any role in the European gas market is wishful thinking....

However, countries like France have LNG import facilities that have strong seasonal use patterns, there are underutilized LNG facilities that could be serviced by the Qataris....

In the event of a NG-war, the Europeans will be pinched but it could take almost a year for it to be realized. It will be a bidding war between Asia and Europe for LNG from the Gulf...

Leaping Lizard's picture

Fracking produces shale gas.  The chemicals used in fracking poisons the aquifers beneath the land and make it unfit for plants, animals, and humans,  The purpose of fracking is Agenda 21 - to make it impossible for an independent people to live off the land and to drive them into mega city "habitation zones."  Good luck to the sheeple, they'll need it.

CrashisOptimistic's picture

No it doesn't.  You're wrong.

I could leave it at that but meh.  You do realize the holes are cased in cement and pipes go through the middle of the cased hole?  And those pipes at their end point, the horizontal point TWO FUCKING MILES DOWN have holes in them for the fracking proppant to expel and the gas/oil to re-enter?  But the pipes coming to the surface DON'T have holes and if they did all that the stuff would escape to is a cement casing.

To get out and hit the aquifers you have to smash the pipe at just the right depth, and also smash the cement casing at the right depth, and that's not even the depth targeted for fracking.

It's 1.75 MILES higher up.

The_Prisoner's picture

It's not like the failure of cement casing are all that common at all, is it?

A 30 second google scholar search with the terms Cement Casing Failure yields over 16000 results. Such as:

Responsive Cementing Material Prevents Annular Leaks in Gas Wells https://www.onepetro.org/conference-paper/SPE-116757-MS

From the abstract: "Once the cement has set, however, the fixed set-cement properties do not address stresses that have not been planned for, and that may ultimately result in cement sheath failure."

If failure of cement casing wasn't a problem there wouldn't be so many papers dicussing new ways to prevent it.

From the begginging everyone knew fracking made no environmental sense, and now it has becoming clear that it does not make economic sense either. Unless you work for Halliburton.