|Russian icebreaker/LNG tanker|
Christophe de Margerie
The Russians do believe in global warming. It has opened up Arctic sea lanes to year-round navigation, supported by Russia’s new icebreaker fleet. They provide shortcuts to world’s sea freight while getting around strategic chokepoints such as the Straits of Malacca, the Suez Canal and the Straits of Gibraltar. The Russians have also taken advantage of the warming Arctic to open the region to oil and gas exploration and production. Late last year the ambitious new Yamal liquefied natural gas project opened to great fanfare. An entire new city was built above the Arctic circle. Putin himself flew in and gave the order to start pumping. A new fleet of ice-capable LNG tankers is being readied to take the gas to customers anywhere in the world.
Back in 2012 I wrote that there really isn’t a global natural gas market. Well, now there is! (But everything else I wrote then pretty much still stands.) In the meantime, the US went all-in on fracking—an expensive and environmentally damaging technique for exploiting the marginal hydrocarbons present in shale. This scheme has resulted in temporarily increased oil and gas volumes and in astronomical levels of indebtedness for the companies involved, which are now locked into a Ponzi scheme scenario, fighting for their lives while continuing to produce at a loss. But the temporarily increased volumes have allowed the Americans to dream that they will be able to become purveyors of natural gas to Europe and beyond, squeezing out Russia’s Gazprom. To this end, in the middle of last year the Trump administration imposed a set of sanctions designed to stop Russia from growing its share of the European gas market (which currently stands at 40%) to great consternation from Germany, Austria and others, which see no benefit to being forced to buy expensive, unreliable American gas.
At the time, I didn’t think that this scheme would work, and now it turns out that I was right. Not only are US gas deliveries to Europe turning out to be something of a joke, but the very first tanker load of LNG from Russia’s Yamal project is going to… Boston, due to arrive at the gasification plant in Everett on January 22. Apparently, the Trump administration is happy to let the Europeans shiver in the dark, deprived of access to Russian gas, but as far as the US itself is concerned—sanctions, shmanctions! The embarrassing fact that this episode pretty much puts paid to the idea that US LNG exports could compete with the world’s largest gas producer Gazprom can easily be dealt with by… refusing to talk about Russian gas imports and instead talking about importing people from “sh*thole countries.”
But is this a singular event, caused by record-breaking cold temperatures, or a sign of things to come? I believe that it is the way of the future. For one thing, the sanctions regime isn’t holding. The US is not the only “exceptional nation” as far as breaking its own sanctions: the British, when faced with gas shortages, have also chosen to ignore them, eager to become Yamal’s new customers. After such a ludicrous performance, why should anyone, anywhere in the world, take the US administration’s pronouncements seriously? At this point, the Americans themselves will probably prefer to keep quiet about anyone violating their sanctions, for fear of being laughed out of court. After all, there are far easier ways to dominate the news cycle; for instance, simply by saying something that gives people the excuse to act offended.
But while the Americans are keeping busy by acting offended, there is another, much bigger issue looming on the horizon. Do you think that Peak Oil is dead? Oh, then how about Global Warming?… The fact is, 2017 was nothing short of disastrous as far as oil and gas exploration. Geologists were only able to find replacement for 11% of the hydrocarbons that were produced over the course of the year. This is the worst result ever! Nothing of this sort has happened since the 1940s, when the world was too busy fighting a world war to engage in oil and gas exploration. What this means for energy prices is anyone’s guess: as I explained in this article, the conflict between prices higher than consumers can afford but lower than production costs will bankrupt both consumers and producers, but not all of them and not at the same time. But what is certain is that if this long-term trend continues (and why wouldn’t it?) serious oil and gas production shortfalls will start to occur within a decade.
What is particularly notable about this dismal result is that it is not in the least upsetting to the Russians. This is because most of the newly discovered oil and gas is in Russia. Over the course of last year, Russia was able to grow its oil reserves by a billion tonnes, 350 million of which can be produced without investing in new technology. In comparison, last year Russia produced 560 million tonnes. Thus, depending on its level of technology investment, Russia has either broken even or gotten ahead in terms of its ability to maintain and increase its oil production. A similar situation obtains with regard to natural gas: over last year, Russia was able to grow its reserves by 1.5 trillion cubic meters. This positive trend is likely to continue, because when it comes to exploring its vast reserves in the rapidly warming Arctic, Russia is just getting started.
Ever since the 2014 coup in the Ukraine, which was followed by the imposition of anti-Russian sanctions, there has been a great deal of thought given to what it would take for these various sanctions to be lifted. And now it seems that we have the answer: all it takes is a cold spell. The UK and the US are good examples, but here is an even better one: cold weather has caused the Ukrainian government to lift its sanctions against Russia’s Yuzhtrans and to resume importing Russian anthracite. The Ukraine is a sort of mini-me to America’s Dr. Evil, who tells it that its job is to hate Russia, and so it does its best with its own anti-Russian sanctions, all the “alternative facts” you can eat and ridiculous hate speech. But freezing to death in the dark would be more than it bargained for, and so it buys Russian nuclear fuel, and now Russian coal too.
But that is now; in the coming years, as hydrocarbon reserves outside of Russia are draw down, production shortfalls will become common and markets will break. Then governments throughout much of the world, perhaps even including the US, will come to the realization that they simply can’t get by without Russian energy. Eager to keep the lights on and the pipes from bursting, they will recognize that it is in their own interests to curb their Russophobia, go light on the anti-Russian rhetoric, either lift or simply ignore the sanctions, and simply try to make the best deal with Russia that they can.
Right on! The solar minimum that we have entered looks like a win-win for Russia, and perhaps the end of the insane and futile sword rattling by the Deep State in the West...Living in Southern AZ, where we have had no winter weather this year, it's all good...
I have it on good authority that, "Russia is a regional power that doesn't make anything." This is, of course, the same authority that said we are occupying Afghanistan in order to "deny them space in which to plan their attacks."
And people are foaming at the mouth over the stupidity of the things that Donald Trump says.
Yep, those militant anti-Russian regimes in eastern europe are having to learn the hard way - Russophobia dosen't put food on the table or coal in the fireplace. What utter morons!
@Dmitry: In spite of the lack of professionalism shown by Western politicians, I still believe that the people truly holding the power are very knowledgeable and understand the changes coming soon, as well as their consequences on their standards of living and political power. I tend to believe that the current sabre rattling is not just empty words, but it is used in order to prepare people for an upcoming confrontation. Why are you confident or why do you not consider a military campaign against Russia as a possible/viable option to getting for free what they would have to pay for?
Spot on, as usual, Dmitry, and hilarious about the sanctions. They certainly did get a kicking from the polar vortex this year, but the habitual deniers just keep on keeping on with their "See, it's cold, no global warming." Like the globe is their backyard and no further. However, I would be interested in your response to an objection I have heard, claiming that when the price of oil is low, lots of companies lay off their research sections until the price rises enough to make it worthwhile again. My counter to this is that the time lag between finding oil and getting it to market is many years, and serious companies wouldn't stop searching. They might stop pumping (if they aren't too much in debt to do so) or even not put down test drills if the geologists aren't positive enough about the possibilities, but they wouldn't stop searching. But I don't know where to find a reliable source of background information to back this up. Is there a hole in my reasoning here?
Anke, you really believe that the DC Swamp-things are ignorant and mad enough to think that they can attack, defeat and occupy Russia? Really! Some of the more insane neocons, maybe, in the padded cells of their wilful unreality. But the professional US military? You imagine that the properly clued-up, genuine patriots amongst them are going to let the neocon criminal-lunatics attempt such a terminal folly. Look for a coup d'etat in Washington first! What was that story floating about just recently - about a force of US Marines staging a raid on the CIA head-quarters...? A little playful demonstration, perhaps, of what might happen for real if the crazies got too out-of-hand?
Take a look at this documentary from Russian TV (fully subtitled; link below) about how VVPutin and colleagues handled the Krim referendum-and-enosis crisis; and then ask yourself: do the sane and properly knowledgeable people in the US military really - REALLY - believe that they can take on these people, and win? The US military machine, with its long, hopeless record of lost wars even against small, poor, ill-armed countries, and it's steady degradation into dysfunctionality? Have a read also of JMGreer's novella 'Twilights Last Gleaming' for some further sobering insights.
The two worst strategic mistakes ever made are: 1. march on Moscow and 2. march on Moscow. There is a theory that Western Europeans periodically march on Moscow, just to get the insanity thrashed out of them, in which case Russia is ready oblige.
The lag time between exploration and production is something like 17 years. The idea is to do exploration when the prices are low and produce like crazy when the prices are high, but the recent rapid whiplashing of prices has made such planning impossible.
You are right that we can count on low suicidality among the officer class. The suicide rate among the low ranks is high but gets lower as you go up the ranks. I am not too sure about the Pampered Princes of the Pentagon who have never seen action, never mind actually winning in an armed conflict. For all I know, they inhabit cloud-cuckoo-land.
Thank you for your reply, Dmitry.
My question did not aim to challenge anyone or delve into military capabilities, a topic which, I must admit, is out of grasp for me, although I do try to read and understand as much as I can about it.
I am confident that Russia will protect itself and its people will do their best in defending their country, as they always have. However, as a European who stands to be directly and indirectly (referring to family and friends) affected by a military conflict on the Continent, I am obviously very concerned about the broader consequences and impact of a military conflict, nuclear or not. Of course, the situation we are in today has been reached due to decades of decisions taken by governmental leaders & Co., not only Europeans, so in a way we now have to sleep in the bed we have made for ourselves.
I think there are many wars which should have never started, as they were not rational, but history seems to contradict us in many instances on this topic. I am particularly concerned about the proliferation of nuclear weapons and the idea, among some people, that a quick nuclear war can be won, if only they are quick enough to act first... Sadly, I think the same type of people who have this mindset are now in positions of power in many walks of life and probably for this reason we see the institutional decay that we are confronted with today.
Having said that, I do agree with the ideas presented in the article and I do hope that people will soon start focusing more on building connections and engaging in business which benefits all stakeholders involved. It is the interim which concerns me most.
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