Russian Oil and Gas Industry: News #2

GarryB wrote:I would however add that I do like the South Stream setup, where it was going to go through Bulgaria but they shot themselves in the foot and it ended up all going to turkey... I think that is ideal.

Sell the gas to Turkey... no one else... if those european customers want to buy it from Turkey they need to negotiate with Turkey over volumes and prices. Russia can offer Turkey a reasonable price and then Turkey can do with that gas supply anything they like... it greatly simplifies things for Russia... they can just supply Turkey at the full capacity of the pipes... Turkey can decide whether to sell it to the EU or keep it and use it... they can bargain with the EU and not being part of the EU they can name their price because it will always be cheaper than any LNG price but it has not got to be significantly cheaper... they will be able to make quite an income... they will need plenty of storage capacity but if the EU wont buy on their terms Russia can stop pumping and Turkey can use what it has bought already at a good price for a few years or perhaps just a winter or two and then offer to renew talks again with EU.

Rodion_Romanovic wrote:
Yes, the only problem is that Turkey is also not a reliable partner...

By the way, there are many people, both in Russia and even in this forum, that say at the same time Russia should tell the EU to go to hell, that  China is dangerous and that they should start a war with Turkey...

But yeah, I realise that the EU has become a despotic and non democratic organisation against their own citizen, and that membership in such group hast costed dearly to my country (Italy) and to Greece.

I do not care about the rest of EU nations. They already rejected all of our history and culture. Ironically Russia still treasures those.

Unfortunately I cannot see an easy way out for my own country. All the times a politician or an entrepreneur tried an independent policy and rapprochement with Russia and or with not NATO block countries (including China) they were destroyed (in some cases poliically/figuratively,  in other cases, literally killed).

EDIT: last year US publicly blackmailed Italy, saying that if we participate to the Chinese new silk road initiative there will be serious consequences for US

GarryB wrote:
When the US implodes it is not going to disappear, but its power will be diminished in international affairs, and its ability to threaten will be greatly reduced.

jhelb wrote:

GarryB wrote:
When the US implodes it is not going to disappear, but its power will be diminished in international affairs, and its ability to threaten will be greatly reduced.

US is unlikely to implode anytime soon. Maybe in another 50 years, but not now. No major reason/s.

PapaDragon wrote:USSR was loaded with people who despised the country they live in and despised themselves for being associated with that country in any way shape or form

PapaDragon wrote:USA is loaded with people who love their country and love themselves, they ain't going anywhere

Hole wrote:The shale oil producers are not flexible. They are more in debt then the housing market in 2008. If they go bust, what will happen sooner or later, a lot of "investment" will be lost plus a few million jobs = big headaches for the political class. The flying spaghetti monster alone knows how many trillions worth of bets were made with the shale shenanigans.

PapaDragon wrote:

JohninMK wrote:The drop in World demand for oil, due to a few reasons, was always going to give price pressure.

Then came the Russian move on Friday, probably intended as partial payback on the US for NordStream 2 shenanigans by hitting US shale revenues very hard...

A lot of people are missing the point here

Russia is not going after US shale production, they are just the added bonus (plus US shale is extremely flexible and is not crucial priority project for USA)

The real target is Saudi Arabia, oil crash of 2014 was not about wiping out US shale production but was done in agreement with USA in order to crash Russian economy

Saudis are now in a lurch and Russia feels more comfortable with making their move (big pile of cash accumulated in the meantime and more durable economy helps a lot)

Taking out Saudis will not only create huge profits down the road but will also cut off financing and support for assorted jihadi movements across the globe (and Russian backyard in particular which is what matters to them)

It will also lead to massive increase in workload for US military and reduction of capacity they will have available for hassling Russia

And let's not forget the good old payback for screwing them over several times before

Why Russia and Vladimir Putin are waging an oil war with America

New York (CNN Business)Vladimir Putin knows America's fragile oil industry is built on a mountain of debt. So when Saudi Arabia called for production cuts to mitigate oversupply, Putin decided to pounce.

Russia shocked the world last week by blowing up its shaky alliance with OPEC. Moscow's refusal join with the cartel is aimed in part at drowning US shale oil companies that rely on higher prices in a sea of cheap crude.
Putin's goal is to wrest market share back from American frackers, whose debt-fueled growth caused Russia to lose its title in 2018 as the world's largest oil producer.
"This is a response to try to cripple the US shale industry," said Matt Smith, director of commodity research at energy research firm ClipperData.
Oil prices crashed Monday after Saudi Arabia said it would slash oil prices, launching a ferocious response against Russia's move. US crude plummeted 26%, its worst day since 1991, to a four-year low of $31.13 a barrel.
Crude is now so cheap that many US shale companies will be forced to cut production. Bankruptcy fears are already rippling through the oil patch, sending the SPDR S&P Oil & Gas ETF (XOP) to its lowest price on record going back to 2006.
Shares of major oil companies like ExxonMobil (XOM) and Chevron (CVX), whose business models were built to withstand cheap crude, each plunged 12%. Exploration and production companies got clobbered, with Pioneer Natural Resources (PXD) down 37% and debt-ridden Occidental Petroleum (OXY)losing 52%.
The energy meltdown threatens to cause a repeat of the 2014-2016 oil crash that bankrupted dozens of American oil and gas companies and caused hundreds of thousands of layoffs. Although the industry survived, the experience proved to be very painful.
"Russia sees US shale as particularly vulnerable at the moment," said Ryan Fitzmaurice, energy strategist at Rabobank. "It is our view that Russia was targeting debt-laden US shale producers."
'Caught in the crossfire'
Saudi Arabia retaliated to Russia's gambit by launching a price war over the weekend. The kingdom slashed its April official selling prices by $6 to $8 and pledged to ramp up production, exactly the opposite of what's needed.
"There is a staring contest between the Russia and Saudis, and everybody else is getting caught in the crossfire," said Michael Tran, director of global energy strategy at RBC Capital Markets.
It's no secret that Russia and its oil companies have grown impatient with OPEC's efforts to rebalance the oil market. For years, Russia has joined OPEC in cutting production to put a floor beneath oil prices. Yet each production cut forced Russia to cede market share to America's booming energy industry -- much to the ire of Russian oil executives.
Rosneft, Russia's state-owned oil company, called the OPEC alliance "masochism" that allowed US shale oil to thrive.
"By yielding our own markets, we remove cheap Arab and Russian oil to clear a place for expensive US shale oil and ensure the effectiveness of its production," a spokesperson for Rosneft said on Sunday, according to state media.
Payback for sanctions?
Beyond the market share battle, analysts said that Russia could be retaliating for Washington's recent campaign of energy sanctions -- penalties made possible by the shale oil revolution.
For instance, just three weeks ago the Trump administration announced sanctions against a subsidiary of Rosneft in response for its support of the Maduro regime of Venezuela.
"Russia's strategy seems to be targeting not simply US shale companies -- but the coercive sanctions policy that American energy abundance has enabled," Helima Croft, head of global commodity strategy at RBC Capital Markets, wrote in a note to clients Monday.
Croft said that Igor Sechin, the CEO of Rosneft and a close Putin confidante, appears to have convinced Moscow to take on the US shale industry.
"Like Putin, Sechin hails from the Russian intelligence services and is a strong nationalist," Croft wrote. "Undercutting American energy dominance therefore most likely appeals not only to his bottom line but also to his ideological affinities."
Putin also has a big financial advantage over Saudi Arabia. Russia relies on oil revenue for only 37% of its budget, compared with 65% for the kingdom, according to Argus Global Markets. Analysts said Russia can balance its budget at just $42 a barrel oil, compared with around $80 for Saudi Arabia.
"Everybody will be hurt by this, including Russia," said Bjornar Tonhaugen, head of oil markets at Rystad Energy. "The extra benefit from this decision is that it will of course hurt others, including the US."
Officials in Washington have taken note of the chaos in the energy market.
The Energy Department said in a statement Monday evening that "state actors" are attempting to "manipulate and shock" oil markets. However, the administration expressed confidence that the United States "can and will withstand this volatility."
During a meeting on Monday with Russian ambassador Anatoly Antonov, US Treasury Secretary Steven Mnuchin "emphasized the importance of orderly energy markets."
'Horror movie' for America's oil industry
Whatever is fueling the motivation, the oil price war couldn't have come at a worse time for an industry already suffering from a bear market in crude.
Big Oil has been shunned by investors for years because of persistent supply gluts, excessive spending and rising climate change concerns. The energy sector was the biggest loser in the S&P 500 last year as well as for all of last decade. And the sector is leading the way lower during the recent market mayhem.
The coronavirus has posed an even deeper challenge to the oil industry. Countless flight cancellations, factory closures and a slowdown in commuting has seriously weakened the world's appetite for oil. Global oil demand is expected to drop this year for the first time since 2009, according to the International Energy Agency.
"The last two months have been a horror movie for energy investors," Stewart Glickman, energy analyst at CFRA Research, wrote in a note to clients Monday. "We have both a demand shock (coronavirus) and a supply shock (OPEC-Plus breakdown) happening at the same time. In other words, two boogeymen, not one."
Who will blink first?
That frightening backdrop explains why more than just oil companies are tumbling. Banks with heavy ties to the energy sector got punished Monday, too, as investors brace for an inevitable wave of loan defaults.
Dallas-based Comerica (CMA), Cullen/Frost Bankers (CFR) and Texas Capital Bancshares (TCBI) plunged around 20% apiece.
The shale oil companies with the weakest balance sheets will have to save cash by abandoning expensive drilling projects and furloughing their workers. Some of oil companies won't survive.
"These guys were already in pain. Now we are going to start to see bankruptcies, perhaps widespread," said ClipperData's Smith.
The big question is how long oil prices remain depressed -- and how much lower they go. And the answer could lie in Riyadh and Moscow.
If Saudi Arabia's price war forces Russia to agree to production cuts, the oil market could quickly rebound, bringing relief to teetering shale oil companies.
But Putin is not known for backing down, suggesting the American oil industry should brace for more pain ahead.
"Hope remains that this battle will be short," RBC's Croft wrote, "but preparations are seemingly being made for a protracted war of attrition that could have brutal economic consequences for all involved."