Category Archives: Energy and Geostrategy

An Oil-Price War´s Surprise Ending -My BPJ article on OPEC, Shale, Trump, Market & Geopolitics

bpj-oil-price-war-end-29nov16Here`s my latest at Berlin Policy Journal:  about  OPEC`s 30 Novermber meeting, US shale and the geopolitics from the  Trump Administration towards Iran and the Saudis. – Tom O`D.

An Oil-Price War’s Surprise Ending

No one expected shale producers to survive extended low oil prices.
, NOVEMBER 29, 2016 
The oil market’s oversupply – and the low prices that followed – was supposed to drive shale producers out of business. Instead, the economies of several large national producers have been upended, and the next act could prove even more destabilizing.

OPEC’s 171st meeting in Vienna on November 30 reflects the new paradigm of the global oil market. After two years, the Saudi-led price war to drive American shale and other “high cost” producers from the market has ended. However, to the surprise of many – not least the Saudis – shale has survived. What now?

The United States Energy Information Agency (EIA) expects persistent market oversupply to have been quenched by the second half of 2017. The Saudis view the diminishing oversupply as an opportunity to cut production by 600,000 or more barrels per day – although about twice this amount would be optimal – boosting prices from under $50 per barrel to $60 or more. The Saudis have worked intensely to reach an agreement at the OPEC summit to coordinate this production cut with Russia; any failure to achieve this highly anticipated deal would sink market confidence, pushing prices into the $30s.

The key obstacle to the Saudi plan is that Iran has refused to participate in any cut, insisting it should first be allowed to re-establish production it lost under years of sanctions. In response, the Saudis have threatened to boost their own production, punishing Iran by collapsing prices and by denying them market share. The Financial Times’ Nick Butler correctly characterizes this as “playing with fire,” and not only because of the severe pain this would impose on weaker OPEC states, but also for the geopolitical retaliation it might provoke from the new US administration as the Saudis would also bankrupt numerous shale producers in the US.

However, even if Russia, Iran, and the rest of OPEC agree to the Saudis’ cuts, US shale is widely expected to expand into the void, re-depressing prices by later next year. In all these scenarios, the future remains extremely difficult for OPEC, for Russia, and for other oil-dependent states.

A Price War Backfires

The prolonged high price of oil, starting to rise in 2002 and then dipping during the financial crisis before rising again till mid-2014, encouraged the emergence of new unconventional shale production. Driven by technical innovations in hydraulic fracturing plus abundant venture capital, by 2014 the US had added more new oil to the global market than what was lost in the Arab Spring and subsequent wars in Libya, Iraq, and Syria. By mid-2014, some two million excess barrels-per-day (bpd) were flowing into storage, and the price collapsed. Continue reading

Saudi & Russia seek oil deal as OPEC fight v US shale fails [My RTRadio Interview]

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RT Radio-Edinburgh’s Jack Foster interviewed me on the upcoming 30 November OPEC summit where the Saudis hope to set a cap on OPEC and Russian production. Here’s the interview:   Listen from time-stamp 9:00-to-17:30 (Streaming MP3) 

This would  mark the first-ever Russian cooperation with OPEC. However, market realities look bleak for OPEC and Russia whether they reach an agreement or not. The reason is the unprecedented continuing challenge from US shale, which has dramatically cut its costs via tech and operational innovations to stay profitable at low prices. Continue reading

Pipe Dream? Polish ruling complicates Nord Stream 2 pipeline for Gazprom & EU partners [My Berlin Policy Journal piece]

bpj_online_odonnell_nordstream2_cutHere’s my latest analysis in Berlin Policy Journal (German Council on Foreign Relations -DGAP).Pipe Dream? The Nord Stream 2 pipeline project is in danger of being derailed.
THOMAS W. O’DONNELL , SEPTEMBER 22, 2016 

A pipeline project to double Gazprom’s export capacity to Europe has always been controversial. A recent ruling by Poland’s competition authority could seriously undercut the support it has accrued, leaving its European backers at odds.

The proposed Nord Stream 2 pipeline project has bitterly pitted European states that back the project, including Germany, the Netherlands, Austria, and France, against project opponents, including Ukraine, Poland, and other former Soviet-bloc states. The project aims to double the capacity of the existing huge, 55-billion-cubic-meter-per-year Nord Stream 1 pipeline, running in parallel to it under the Baltic Sea from near St. Petersburg in Russia directly to Greifswald in Germany.

This dispute has exposed two very different views of Gazprom, Russia’s state-owned gas-export monopoly, and of Vladimir Putin’s Russia itself – one side sees it as a “necessary” and “reliable” energy supplier, the other a dangerous and manipulative adversary. This dispute is but one more collision inflicting lasting harm on the European Project.

Polish competition authority rejects project

The latest row involves a ruling in late July by the Polish Office of Competition and Consumer Protection (Urzed Ochrony Konkurencji i Konsumentow, or UOKiK) rejecting an application by five private western European energy firms proposing to partner with Gazprom to build and operate Nord Stream 2. The firms are Germany’s E.ON (soon to be Uniper) and Wintershall, Austria’s OMV, Anglo-Dutch Shell, and France’s Engie.

Shortly before the Polish announcement, the five companies agreed to withdraw their association proposal to avoid UOKiK initiating a legal process against them. The commission’s president, Marek Niechcial, declared categorically on August 12 that the Polish rejection was definitive, asserting “This will stop the [Nord Stream 2] deal.” The five firms have nevertheless made it clear they are seeking a strategy to work around the decision, and expect to proceed as planned. Gazprom has said the same.

So why go through this proceeding in the first place? To understand these events better, I spoke with several experts and diplomats working on these matters in Moscow, Berlin, Washington, Paris, and Warsaw.

Commercial Arguments

An often-heard line of argument is that at least some of the five companies might actually have little commercial interest in the project, but need to preserve their relationships in Russia where they have large investments in energy projects. After all, the Kremlin has a track record of taking over projects from foreign partners with whom it has fallen out. A further theme in this vein is that Nord Stream 2 is not really needed in northwestern Europe, even though the Groningen field in the Netherlands and Norway’s reserves in the North Sea are declining, because future demand in northwestern Europe is overestimated and Liquefied Natural Gas (LNG) will be available from the United States. This view led to press speculation that the five firms likely welcomed the Polish decision, allowing them a graceful exit.

However, virtually all the experts I spoke with had no doubt Nord Stream 2 would be a lucrative commercial enterprise over the long run, and that the five firms seem genuinely enthusiastic. Continue reading

“Energy independence” won’t free the USA from global oil market & geopolitics [I’m cited: CNNMoney]

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Credit: CNNMoney, 9 August 2016

Mr. Trump promises he’d use the USA’s shale-oil revolution to deliver “complete” independence from foreign oil, telling voters in May: “Imagine a world in which our foes and the oil cartels (sic) can no longer use energy as a weapon. Wouldn’t that be nice?” But, he is confusing two quite distinct things:

“Energy independence” – in the sense of the USA producing more oil than the country consumes – is indeed possible, even “tantalizingly close” as this CNNMoney article (Aug. 9, 2016, by Matt Egan) makes clear, citing myself and other experts.  For clarity, I’ll call this “net oil-exporter status.”

However, Donald Trump asks us to “imagine” he can use this net oil exporter status, to make the US independent of the global oil market and oil in geopolitics where our “foes” and “cartels” have leverage. Continue reading

Wikistrat Report “Saudi Arabia & the Future of Oil” cites my views

Wikistrat - my quote on US continued interestThis Wikistrat Report on the Saudi kingdom’s “reform” plans and the future of oil is from a press webinar I did on 17 May together with Dr. Ariel Cohen (Atlantic Council, Washington) and Prof. Shaul Mishal (Middle East Division, IDC Herzliya & Tel Aviv U.).  A nicely done report on oil market and geopolitical hot topics.

30May16 note: A couple typos I had found have been fixed by Wikistrat since I initially posted this Report.  The latest version is now linked here. – T.O’D.

I’m quoted by MarketWatch: Five key issues for OPEC’s June meet

Oil ministers of Venezuela, Saudi Arabia & Qatar had agreed in February to freeze output if others did too. AFP/Getty Images

After a Wikistrat Webinar I did, MarketWatch asked me about Saudi & OPEC policy, ond US Shale. Read on here, or at MarketWactch! – Tom O’D.

5 key issues OPEC must wrestle with at its June meeting

Oil output freeze is needed to ‘create a firm price floor’: analyst

The oil market has given members of the Organization of the Petroleum Exporting Countries a reason to crack a cautious smile when they meet June 2 in Vienna.

Signs of a more stable oil market have emerged since the cartel members last held a regularly-scheduled meeting. Oil prices CLN6, +0.04% LCON6, -0.38%  have gained more than 30% so far this year. And both West Texas Intermediate, the U.S. benchmark, and Brent crude, the global benchmark, briefly traded above $50 on Thursday.

Global production is falling following a larger-than-expected weekly decline in crude supplies, according to a report from the American Petroleum Institute late Tuesday. The report comes as the number of active-drilling rigs have been in a steady state of decline and oil-company spending cuts, oil-and-gas sector bankruptcies, and recent outages in Africa and North America, have been supportive for crude prices.

“OPEC members are likely to be a little happier going into June’s meeting than they were in December,” Tom Pugh, commodities economist at Capital Economics, said in recent research note.

Oil prices have “surged by about a third since the start of the year,” he said. The “higher prices will have removed some of the pressure on [OPEC] to act to prop up prices.”

But that doesn’t mean major oil producers can sit back and relax when they get together. Oil market supply and demand haven’t fully stabilized and there a lot of factors than can, and probably will, rock OPEC’s boat.

Here’s a rundown of what analysts see as the key issues at hand and possible outcomes for the OPEC summit: Continue reading

My AQ piece: “Russia Is Beating China to Venezuela’s Oil Fields”

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Russian Production & Stakes in Venezuelan Oil Projects (40% stake is limit)

Last October & November I succeeded in interviewing several people in the Venezuelan private sector directly knowledgeable of Russian oil projects with PDVSA. Many Venezuelans wonder what all the Russians-known for their secrecy-are up to there.  Some of my key findings are in Americas Quarterly‘s Winter 2016 edition. Read on … 

Russia Is Beating China to Venezuela’s Oil Fields – By THOMAS W. O’DONNELL

The profits, politics and luck behind Russia’s growing footprint.

Russian companies produce more oil in joint projects with PDVSA than their Chinese counterparts This article is adapted from our 1st print issue of 2016. 

The late Venezuelan President Hugo Chávez, had long envisioned China becoming Venezuela’s biggest oil-sector production partner. So when Rafael Ramírez, then president of Petróleos de Venezuela, S.A. (PDVSA), announced in January 2013 that Russia would produce enough oil with PDVSA by 2021 to become “the biggest petroleum partner of our country,” very few people believed him. It sounded like empty hype.

Yet it turns out that Ramírez was serious. Three years later, Russian companies are already producing more oil in joint projects with PDVSA than their Chinese counterparts. Official figures are either unreliable or unavailable, but according to field data provided by Global Business Consultants (GBC), a Caracas-based energy consulting firm, Russia-Venezuela production as of late 2015 was 209,000 barrels per day (bpd), compared to China-Venezuela’s at a bit over 171,000 bpd.

Continue reading

“The Road to Paris: COP21 …” Berlin HEEN Conference

heen_logoCOP21 begins soon in Paris.  A very interesting discussion of the issues, with diplomats from EU states and China, takes place tomorrow, Friday evening, at Hertie School of Governance in Berlin to open the Hertie Energy & Environmental Network’s (HEEN) conference. I’ll be moderating the session. The session is open to those interested. Read on:

Opening remarks by German Undersecretary of State, ret. Rolf-Dieter Schnelle, fellows & friends of the Hertie Foundation

Panelists:
• Philippe Etienne, Ambassador of France to Germany
• Friis Arne Petersen, Ambassador of Denmark to Germany
• Wang Tianling, Counsellor, Embassy of the People’s Republic of China in Berlin
• Iwona Jakuszko-Dudka, First Secretary to the Embassy of Poland to Germany
• Dr. Jan Minx, Professor for Science Policy and Sustainable Development, Hertie School of Governance, Head of Working Group on Applied Sustainability Science, Mercator Research Institute on Global Commons and Climate Change

• Moderation by Dr. Thomas O’Donnell, Hertie School of Governance

Please register until 25 November 2015 via the following link https://docs.google.com/f

Background

In December 2015, the COP 21 climate conference in Paris will bring together world leaders, scientists, pressure groups and United Nations agencies, with the task to craft an agreement at the highest political level to tackle global warming. The representatives from 196 countries must reach an agreement to replace the Kyoto protocol. The COP 15 summit in Copenhagen (2009) is remembered more for the difficulty of reaching a global consensus than for tangible progress.

What will the legacy of COP 21 in Paris be?

  •  Is putting a price on carbon worldwide politically feasible?
  •  Is the gap between the cost of energy produced from fossil fuels and energy produced from renewable energy sources narrowing as much as to be a game-changer?
  •  How would policy proposals that raise the cost of energy go down with national leaders from the developing world, under pressure to deliver standard-of-living improvements?
  •  How will Intended Nationally Determined Contributions (INDC) impact the negotiations?
  •  How will China’s early pledge to peak emissions ahead of 2030, and the USA’s commitment to deep reductions by 2025 shape what is globally possible?
  •  Will the European Commission get a critical mass of support for the Paris Protocol?
  •  Will all parties arrive at an robust enough agreement?
  •  What is the future of the Green Climate Fund?
  •  How will the financing volume necessary to keep global warming below 2 degrees be secured?

Speakers will provide their take on the above, and engage in a lively and dynamic discussion with the audience about the major challenges which will be tackled at the COP 21 in Paris in December 2015.

The Hertie Energy and Environment Network (HEEN) is an established platform bringing together fellows of the Gemeinnützige Hertie-Stiftung with professional experience in the field of Energy and Environment (E&E) in the public, private, academic or civil society sector. HEEN’s purpose is to facilitate dialogue, knowledge-sharing and learning, to provide a trust-based environment for career path reflection, and to facilitate the development of lasting professional connections among outstanding individuals of diverse backgrounds who share a common interest and motivation for further professional development in the E&E field.

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Bypass Operation: Nord Stream 2, Russia-to-Germany pipeline deal, raises questions

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Here’s my latest at Berlin Policy Journal (DGAP):  With Nord Stream 2, Russia’s President Vladimir Putin is nearing his goal of cutting Ukraine out of the gas supply picture.  October 20, 2015

On 18 June, during the annual St. Petersburg International Economic Forum, an agreement was signed to build a controversial new “Nord Stream 2” pipeline under the Baltic Sea that would go directly from Russia to northern Germany, with a capacity of 55 billion cubic meters (bcm). The project, which consists of two segments that would run along the same route as the existing two segments of the 55 bcm Nord Stream line, completed in 2011, has met with strong opposition from energy officials in Brussels, as well as leaders in Ukraine and some other EU states.

Indeed, the agreement between Russia’s Gazprom and a consortium of German, Austrian, French,, and Anglo-Dutch companies came as a surprise. After all, in January 2015 Gazprom announced it had abandoned the project, blaming both the falling price of gas over the previous year and anti-monopoly restrictions in the EU’s Third Energy Package, which prohibit suppliers of gas from also owning pipelines delivering it. This provision has prevented Gazprom from ever filling the original North Stream more than half way.[1] In retrospect, the sudden signing of a Nord Stream 2 agreement only six months after the project was supposedly abandoned, plus the fact that the consortium foresees a quick start reveals the prior cancellation to have been a political ruse. Continue reading

Containing Gazprom: Putin may be overplaying his hand on gas – but no thanks to Berlin and Paris

Russia’s President has used Europe’s dependence on Russian gas as a powerful geopolitical lever. But energy geopolitics is a risky game, especially with the world awash in cheap gas – and Brussels now poised to take advantage of opportunities to permanently slash Gazprom’s market share in Europe.

Russia’s president has used Europe’s dependence on Russian gas as a powerful geopolitical lever. But energy geopolitics is a risky game, especially with the world awash in cheap gas – and Brussels now poised to seize opportunities to permanently slash Gazprom’s market share in Europe.

Here is my article in today’s Berlin Policy Journal. Continue reading