Below is a short brief on the issue in Russia and Ukraine. I can see that
there's some backlash, but I think that this is going a bit deeper than
simple politics between Ukraine and Russia, it also involves a lot of
Russia's move into the spotlight of global political power. I tried to
maintain a neutral stance below.
I am always appreciative to be asked to post something here on oil and gas.
As many know, the components of energy have become major movers of the
biggest world's economies. Although there's been a push to move away from
fossil fuels, the least expensive and most efficient source of energy still
come from oil and natural gas. It's because of these commodities that new
sources of power have emerged. Currently, Ukraine is in some very grey
areas with Russia over natural gas and energy consumption. At stake is the
solidarity of Ukraine's Government and the welfare of its constituents. For
many outside of this part of the world, it's hard to fathom the trials and
tribulations of such mismanagement. The focus in the Western world is
clearly focused on the Middle East and its future.
As that may be, the differences between the importance of each of these
political firestorms remains loyal to one thing; energy supply. In the
Middle East the current political movement in Iran against other Arab
countries really drills down to oil production and their respective
economies. The US and President Obama have made it a priority to forge
ahead with peaceful negotiations with Iran, but now they are looking to make
peace with Saudi Arabia too. Looking for Iran to move back to a more well
handled nuclear country also means allowing them to fully commit to their
oil production. With oil prices well above $100 and OPEC countries getting
ahead at these levels, Iran's oil production is likely to increase supply
and disrupt oil prices unless demand can make some stride in the coming
We are still keeping the focus of this article on Russia and the Ukraine,
but we need to lay out these other developments because they play into the
bigger picture. With this negotiation with Iran, Russia has played a
significant role. We can also refer back to the issues with Egypt and most
recently Syria and understand that Russia and President Putin have conducted
solutions from the lead.
The US for all of its internal political and
economic strife has been trying to play catch up. We are already seeing a
lot of negative press over the Winter Olympics in Sochi although many of the
problems that are being published are similar to ones we saw when the
Olympics were in other countries. To this date, the last Olympics that saw
a terrorist attack was in the US (1996) and if we are discussing human
rights (particularly gay rights), China's stance was not much different.
Now we are seeing a lot of backlash around the Russian/Ukraine energy deals.
The fact is that Russia has learned quickly since Putin was last President
that energy matters. This is now a fight around the globe, not for military
presence or money, but for a global commodity that is fossil fuels. As of
2013, Russia has become the largest oil and gas producer in the world at
over 22m b/d. Add in natural gas and Russia's revenues account for at least
50% of federal budget and over 70% of total exports. The connection to the
Ukraine is not one of money or location, it's one of energy supply and
demand. This throughway in and out of Ukraine is a gateway to the rest of
Europe and as much, to Europe's demand for more cost effective energy.
For Russia, the move to global energy leader has been helped along with the
growth in China as well as Asia. During the times of strife in the past few
years in the Middle East, Russia has been able to provide stable oil and gas
flows to its neighbors in the East. It's no surprise that Russia's biggest
trade partner is China, taking in 15.5% of its imports and sending out 6.5%
of their exports. As China continues to grow and the Asian region in
general, the burden then swings to OPEC countries to fight for remaining
energy consumers. With the US fading out of this picture, we can see a
possible implosion between the East and West. Again, as we move politics
and wars aside the bottom line to power here is money and that money is
being measured by the supply, not the demand, of oil and gas.
The US has become more self sufficient in their own energy supply and have
cast off a large amount of imported energy in the past three years. We
think that when the US decides to open its borders to the Keystone XL
pipeline and bring more Canadian crude into the fold, we'll be seeing more
aggressive positioning in the rest of the world to keep petrodollars going
to the smartest players. Russia right now has the benefit of proximity and
political stability to maintain its perch atop the oil and gas mountain.
Further competition from more supply or lower prices can't move Russia from
its place in the world. What we can do though is see with more clarity what
is becoming a positioning of power and those with a supply of energy at the
top and those with a demand for energy staying below the line.
Photos: Kremlin - Presidential office