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Russian oil: Between a rock and a hard place

Russian oil: Between a rock and a hard place thumbnail
One of Russia’s most powerful men stood on stage at New York’s St Regis Hotel with a conciliatory message for America.

“The relationship between the US and Russia has been severely hampered by historical stereotypes,” said Igor Sechin, a former Soviet intelligence officer and now the dominant force in the Russian energy industry. “But we have long ceased to be adversaries. It is time for us to become strategic partners.”

It was April 2012. With those words, Mr Sechin signed a wide-ranging partnership between Rosneft, Russia’s state oil company, and ExxonMobil – in the process throwing open the doors of Russia’s vast oil wealth to the western energy industry.

Today, the partnership envisaged by Mr Sechin, Rosneft chief executive, is in tatters. Under pressure of western sanctions, Exxon has frozen all 10 of its joint ventures with Rosneft, and other western companies – from majors such as Shell and Total to smaller oil services and engineering groups – are stepping back from Russia.

The implications are far-reaching. Mr Sechin heralded an era of co-operation that would help Russia develop new frontiers in the oil industry – a “re-industrialisation of Russia”.

While his words were heavy with hyperbole, no one could doubt the urgency behind them: Russia’s oil industry was facing a creeping crisis of existential proportions. The enormous Siberian oilfields developed during Soviet times were ageing, and without the development of new resources – from the frozen Arctic in the far north to Siberian shale deposits – Russian oil production would soon fall dramatically.

Now, with western companies in retreat, the development of those resources will be at best delayed, if not scrapped altogether, according to numerous government officials, executives and analysts.

The US and Europe have imposed a string of sanctions on the Russian oil industry in response to Moscow’s actions in Ukraine, restricting access to western financial markets and limiting exports of equipment. The consequences for Russia are stark: next year, many believe, its oil production will fall – a first drop, excluding a dip in 2008, since 1998 and the start of what many expect will be a long-term decline.

“In the last few years production growth has stabilised,” says Leonid Fedun, vice-president of Lukoil, Russia’s largest private sector oil group. “But there will not be any more growth.”

IHS CERA, a leading oil consultancy, has slashed its outlook for Russian oil production, predicting in a recent research report that if western sanctions are maintained, the country’s oil production could fall from 10.5m barrels a day to about 7.6m b/d in 2025.

A fall in Russian production could reshape the country’s political future as well as world energy markets. Moscow relies on the energy industry for more than half of its revenues – Rbs7.3tn ($171bn) according to the state accounts chamber – and a fall in production, combined with the recent drop in oil prices, could threaten the Kremlin’s ability to maintain stability at home and project its power abroad.

On a global scale, a 3m b/d drop in Russian production could offset some of the growth in supply from the US shale boom, helping to reverse the current market surplus and keep oil prices high in the medium term.

Russia’s shale revolution

Two and a half years after his speech in New York, Igor Sechin stood aboard a drilling rig in the icy waters of the Arctic and declared victory. After months of suspense, Rosneft revealed it had struck oil in the Kara Sea, one of the last great untapped oil reservoirs that may contain as much crude as the Gulf of Mexico. The new field, he said, would be called Pobeda – victory.

Mr Sechin made a point of naming all the western companies that had worked on the project, down to the service companies and equipment manufacturers that usually remain behind the scenes. “This is our united victory,” he said.

But the victory was hollow. After the US and EU in September imposed sanctions blocking the export of a wide range of goods, services and technology to three types of Russian oil project – Arctic, deepwater and shale – western participation in such projects is all but impossible, lawyers and executives say.

Exxon has wound down its participation in the Kara Sea project, and will not be able to return until US sanctions are lifted. And it is not alone. Artur Chilingarov, a Russian senator who sits on Rosneft’s board, says that “under the circumstances of sanctions, further co-operation with international companies [in the Arctic] will be difficult”.

Rosneft – which yesterday revealed that its third-quarter profit was all but wiped out by the fall in the rouble and lower oil prices – insists it will continue exploring in the Kara Sea, with or without Exxon. But most in the industry are sceptical. “Offshore Arctic is closed for the foreseeable future,” says Duncan Milligan, a Russian oil specialist at consultancy Wood Mackenzie.

Exxon’s Arctic venture may be the highest profile casualty of western sanctions against Russia, but it is unlikely to be the most significant. “For all the attention given to Exxon and Rosneft, that’s the oil of a decade from now,” says Thane Gustafson, author of Wheel of Fortune, a history of the Russian oil industry. “The point of the spear, I think, is what people are now calling tight oil.”

Tight or shale oil, known in Russian by the looser term “hard-to-recover” oil, has been the target of a major push by Moscow as the Kremlin hopes to replicate the US shale revolution in Russia.

In theory, at least, that is not far-fetched: Russia is estimated by the US Department of Energy to have the largest reserves of shale oil on the planet at 75bn barrels, with the Bazhenov field, several times the size of the Bakken, the driver of the US shale revolution.

But western co-operation in Russian shale oil is also foundering. Exxon’s projects with Rosneft to explore the Bazhenov have been frozen; so has a Shell joint venture with Gazprom Neft, the oil division of gas giant Gazprom; so has a tie-up between Total and Lukoil.

Out of service

Executives and lawyers say the sanctions effectively prohibit western oil companies from any involvement in Russian shale projects – in particular by inhibiting the service companies whose expertise is essential to carrying out the complex drilling operations that characterise shale production. “You can’t touch Bazhenov any more. That’s dead,” says a western oil executive in Moscow.

Moscow’s hopes of 440,000 b/d of Russian shale oil production by 2020 now seem unlikely, analysts say.

Some Russian companies believe they will be able to develop shale resources without western assistance. But Russia lacks the nimble and entrepreneurial small oil companies that have driven the US boom, says Mr Gustafson.

“There was a very interesting experiment under way,” he says. “If the Russians don’t have small companies of the kind that did the magic in North Dakota, the bet was that big companies could come in and partner with even bigger companies and realise the same magic.”

But the impact of the sanctions goes further still, executives say, challenging the transfer of cutting-edge technology and expertise to Russia altogether.

Just as financial sanctions against certain companies have triggered a wider freeze in lending to Russia as a whole, so the energy sector sanctions have caused a ripple effect of “sympathy sanctions”, as western companies step back from the Russian market as a whole, regardless of the letter of the sanctions.

“It’s not just what the sanctions say, it’s the whole atmosphere it creates around the industry,” says Mr Milligan.

The move has the greatest potential impact in the services sector – the companies that actually drill the wells, manufacture specialist parts, and provide the expertise to analyse the result.

These functions are overwhelmingly provided by western companies – the likes of Schlumberger, Halliburton and Baker Hughes – at Russia’s most technically challenging projects. Western companies account for about half of the technology used in hard-to-recover oil projects and more than 80 per cent of the technology used offshore, according to Russia’s energy ministry.

While techniques such as fracking and horizontal drilling are associated with shale, they are also widely used to maximise production from more conventional oilfields, with pockets of oil held in harder-to-access rock formations. It makes a broader retreat by western service companies deeply concerning for Russia’s oil executives.

Fragile sector

Vagit Alekperov, chief executive of Lukoil, recently told Prime Minister Dmitry Medvedev that 25 per cent of Russian oil production involved fracking and relied on western service companies. “This is the most fragile part, that could be the first to cause damage to the oil industry,” he said.

Even though most western service companies have publicly affirmed their commitment to Russia, competitors and clients say there are clear signs that they are stepping back.

Some specialised pieces of equipment used for horizontal drilling and fracking, and offshore production, are now harder to come by in Russia, executives say. Among them are liner hanger systems, used to prepare wells for drilling; bottom-hole assemblies, the collection of parts around the drill bit; and high-pressure engines designed specifically for fracking.

That has raised concerns that even oilfields already in production might run into difficulties when equipment needs to be replaced.

“If you lose a big bottom-hole assembly then it’s hard to replace,” says a senior executive at a small Russian oil company. “So far the effect is subtle, but it’s going to get worse.”

Vladimir Shmatovich, head of strategy at Russian pipe manufacturer TMK, says western competitors have been dropping out of the market even in areas not directly targeted by sanctions, such as the Caspian Sea. “Western pipe manufacturers’ share of the Russian market has declined significantly and they are now almost completely out,” he says.

One western executive says his company was forced to freeze a project after the service companies withdrew.

Mr Gustafson says: “If the service companies are not able to work their magic then that really does do damage to the capacity of Russian oil companies to move from conventional to unconventional.”

In Moscow, the sense of urgency is palpable. “To maintain the current level of production, we will need to drill not 20 metres as we do now, but 30 metres,” says Mr Fedun of Lukoil. “Such a level requires an increase in the quantity of drilling teams by 60 per cent. But given the fact that western contractors are curtailing their work in Russia, such an increase is highly doubtful.”

The Kremlin is responding: the $83bn National Wealth Fund – designed to finance the country’s state pensions – is likely to be tapped by oil companies suffering from sanctions. Rosneft alone has asked for a 2 trillion ($48bn) rouble loan, although government officials indicate it is likely to receive substantially less than that.

Inevitably perhaps, some are beginning to look back to the Soviet oil industry with nostalgia. Mr Alekperov recalls that when he was deputy oil and minister of the Soviet Union in the late 1980s “100 per cent of the equipment was Soviet-manufactured”. Now, he warns, replacing western equipment and services will require “colossal funds”.

Just as in Soviet times, Russia is likely to throw resources at the problem, says Valery Nesterov, senior oil analyst at Sberbank. Among the options being considered is the creation of a giant state-owned oil services company to replace western companies.

“Russia has a tradition of focusing on priority projects and succeeding,” says Mr Nesterov, recalling the Soviet space programme. “Given the importance of the oil sector to the country, if production falls sharply all necessary measures will be taken to improve the situation.”

Oil services: How Stalin opened the door to western groups

It was Josef Stalin who first brought a western oil service company to Russia. In 1929, under pressure to meet the targets set out in the Soviet leader’s first five-year plan, oil managers hired Conrad and Marcel Schlumberger to use their pioneering technology to map oilfields in Chechnya and Baku.

Seven decades later it was a Schlumberger executive who was instrumental in bringing western technology to the Russian oil industry after the Soviet Union’s collapse. Joe Mach, with a mantra of “frack every well”, joined Yukos in 1999, helping to double its production in five years.

Today, Schlumberger accounts for a 10th of drilling and other services in the Russian oil industry, according to Dmitry Lebedev, head of Russia-focused consultancy REnergyCo. Other western peers, such as Weatherford, Baker Hughes and Halliburton, account for another 10 per cent, though that understates their importance in the most technically challenging projects.

The companies have responded to sanctions by stepping back from Russia. Schlumberger, for example, has withdrawn a significant number of its US and European executives from Russia, according to industry executives. The company declined to comment, saying only that it “continues to take all steps necessary to ensure compliance with applicable laws”.

Vladimir Salamatov, director of Moscow’s World Trade Centre, which promotes business, says the value of Russia’s imports of the oil equipment on the sanctions list has risen nearly sixfold since 2001. Countries that have imposed sanctions on Russia account for $1.2bn – 57 per cent – of those imports.

Some of that is easily replaceable. But other equipment and technology will be slower – if not impossible – to replace, Mr Salamatov says. He singles out rotary steerable systems, used to guide horizontal drills.

And even where Russian suppliers can replace western equipment, the quality is likely to be lower. “The Russian oil services industry is in a bad shape, it always was,” says Mr Lebedev. “It’s like having an old Russian Lada instead of a Mercedes.”

FT



40 Comments on "Russian oil: Between a rock and a hard place"

  1. Plantagenet on Fri, 31st Oct 2014 12:27 pm 

    Putin started a new cold war when he invaded Ukraine. Apparently he didn’t reaize Obama and the EU would respond with sanctions.

    The last cold war lasted decades, so this new one might last for quite a while longer.

  2. ghung on Fri, 31st Oct 2014 12:50 pm 

    Plant: ‘Putin started a new cold war when he invaded Ukraine.’

    Wrong, Plant. The West continued the old cold war when it began expanding NATO into eastern Europe; into countries smack up against Russia; something they agreed to not do. There were even talks with Gorbachev about dismantling NATO, since NATO was an artifact of the cold war. So who was it again who kept their cold war mentality?

    Ukraine was the last straw as far as Putin was concerned. Rewriting history doesn’t change it.

  3. radon1 on Fri, 31st Oct 2014 12:58 pm 

    Interesting that they whine about potential unavailability of the oil production equipment. They should rather be happy about it. This equipment is a natural target for import substitution that they cheer as a response to the sanctions.

  4. MKohnen on Fri, 31st Oct 2014 1:12 pm 

    You’re right, Plant. Putin should have just stood back and let the US annex all of the Ukraine. That would have been economically much better for Russia than the West’s rather meaningless sanctions. And when I say rather meaningless, I mean go back to financial projections for Russia done in 2013 – before anyone knew there would be any sanctions – and see what was being forecast. If you do, you’ll see that Russia is currently doing much better than they were forecast to. This article mainly consists of American dreaming. Russia will turn east to Asia to get the funding and expertise it needs, along with developing the required skills and equipment themselves. Heck, if the price of oil remains low, China will buy up most of the US’ fracking equipment when the bankruptcies hit the “shale oil boom.” They will ship that equipment to Russia, and the party will continue unabated. I would say that collapsing economies due to the high price of FF’s will be the more probable cause of Russia not exploiting FF riches. And that will hit everyone, including the American dreamers who authored this article.

    BTW, the American concept that only we are smart enough to develop technologies is patently ridiculous! Have you noticed that other countries have developed their own technologies? Have you noticed that presently only Russia can reliably reach the ISS? Have you noticed that NASA and the other private space companies presently buy outdated engines from Russia?

  5. JuanP on Fri, 31st Oct 2014 1:27 pm 

    Plant, How can you pass on the opportunity to blame Obama for something he is at least partially responsible for? Your hate for Putin is blinding you to the Putter in Chief’s misdeeds in Ukraine.
    As Ghung pointed up above, it is the USA that keeps pushing NATO East forcing Russia into defending itself. This has been going on for years.

  6. nemteck on Fri, 31st Oct 2014 1:47 pm 

    “On a global scale, a 3m b/d drop in Russian production …. helping to reverse the current market surplus and keep oil prices high in the medium term.

    We shot ourselves in the foot with the sanctions. Most articles I read in German and French newspapers discuss the impact on Russia but do not talk about the impact on EU countries. Germany, for example, has lost 28% of machinery and car export to Russia and 60,000 jobs are at stake. The EU says there is very little economic impact and the few sacrifices are alright to uphold democratic beliefs and values.

  7. Plantagenet on Fri, 31st Oct 2014 1:47 pm 

    @Ghung

    NATO expanded into eastern Europe decades ago. Blaming NATO expansion decades ago for Putin’s invasion of Ukraine this year doesn’t make any sense.

  8. Plantagenet on Fri, 31st Oct 2014 1:49 pm 

    @Nkohnen

    Your fantasy that the US was going to “annex” Ukraine is beyond bizarre. There is absolutely zero possibility that the US is gong to annex Ukraine. The thing that set off Putin was Ukraine’s wish to sign a trade treaty with the EU.

    Get it now?

  9. Davy on Fri, 31st Oct 2014 2:27 pm 

    Damn, Planter your having a rough day. You need to call it a day and get a cocktail. The boys here are not going let up on you.

  10. shortonoil on Fri, 31st Oct 2014 3:07 pm 

    Can Russian arctic, or shale production make money at $60 – $70 a barrel? US producers can’t, so why would we assume that the Russians can? If I were the CEO of EXXON, and was locked into billions of $ of contracts that I knew were going to loose money, I’d be lobbying the White House day, and night to tighten the sanctions. Declare force majeure, and walk away happier than a clam at the bottom of the Kara Sea.

  11. ghung on Fri, 31st Oct 2014 3:11 pm 

    Plant: “NATO expanded into eastern Europe decades ago. Blaming NATO expansion decades ago for Putin’s invasion of Ukraine this year doesn’t make any sense.”

    Again, either rewriting history or ignorant of it. Viktor Yushchenko came into power @2004-2005. In 2008 Bush 43 visited there and shortly after, Ukraine applied for membership:

    “President George W. Bush was a supporter of Yushchenko’s plan. “Your country has made a bold decision,” he said during a visit to Ukraine in April, “and the United States strongly supports your request.” Both Sens. Barack Obama and John McCain, who were candidates in the upcoming presidential election, announced their support.

    Russia, however, was openly hostile to Ukrainian membership in NATO. The Kremlin opposed any eastward expansion of the alliance, and Russian President Vladimir Putin warned that NATO membership would force Russia to treat Ukraine as an enemy.”
    h ttp://www.washingtonpost.com/blogs/worldviews/wp/2014/09/04/that-time-ukraine-tried-to-join-nato-and-nato-said-no/

    “Ukraine applied to join the NATO Membership Action Plan (MAP) in 2008.[2][3] On December 3, 2008 NATO decided it will work out an Annual National Programme of providing assistance to Ukraine to implement reforms required to accede the alliance without referring to MAP.[4] Plans for Ukrainian membership to NATO were shelved by Ukraine following the 2010 Ukrainian presidential election in which Viktor Yanukovych was elected President.[5] President Yanukovych opted to keep Ukraine a non-aligned state.[6] This materialized on June 3, 2010 when the Ukrainian parliament excluded, with 226 votes, the goal of “integration into Euro-Atlantic security and NATO membership” from the country’s national security strategy.[7] “European integration” is still part of Ukraine’s national security strategy and co-operation with NATO was not excluded.[7] Ukraine considers its relations with NATO as a partnership.[8][9] As of 2013, Ukraine and NATO still hold joint seminars and joint tactical and strategical exercises and operations.”
    https://en.wikipedia.org/wiki/Ukraine-NATO_relations

    Decades? Of course, there were other provocations, both from within Ukraine and from the West interfering in Ukraine’s politics (CIA involvement, etc.), but to put this squarely on Putin is clearly simplistic and biased. I guess some of us need their boogymen.

  12. JuanP on Fri, 31st Oct 2014 3:22 pm 

    While this piece is mostly anti Russian propaganda, it does contain useful info.

    I think Russia is probably at PO with or without the sanctions. The sanctions will accelerate the rate of decline of future Russian oil production. Both Russia’s economy and Russia’s oil production could be peaking this year, but we will only be certain in hindsight.

  13. rockman on Fri, 31st Oct 2014 3:35 pm 

    The practicalities of Russian oil development owing forward. First, the Arctic drilling season has ended. ExxonMobil can’t be doing anything on the ground in Russia until next summer with sanctions or not. We’ll see how the sanctions hold thru the winter.

    As far as Russia buying up frac equipment from bankrupt US shale drillers that won’t happen for a simple reason: the companies don’t own the equipment. The service companies, like Halliburton, own it. And it doesn’t matter if the various govts put sanctions in place against the service companies. The basic equipment design hasn’t changed in decades. The Chinese can easily manufacture ever component the Russians would need in the future. In fact, China has been producing some of it for a while. China can provide all the equipment, chemicals and boots on the ground the Russians will need.

    Of course, that’s if the Russians can pay for it. Which gets back to the banking sanctions. And again, if Russians make it worth while for them there’s no reason the Chinese won’t lend them some of the $tillions in foreign currency they now hold. And, of course, the Chinese will trade with the Russian on terms that go beyond the profit margin. Easy to imagine them leveraging their position to secure future oil/NG production acquisitions.

    I can imagine how pleased the Chinese are over all the sanctions put on every oil exporter: Russia, Iran, etc. It affords them a great negotiations portion with those countries.

  14. rockman on Fri, 31st Oct 2014 3:48 pm 

    Juan – Good point. But as far as Russia hitting PO sooner the later that’s not what’s really critical IMHO. The big issue will be Russia’s peak exports of oil and NG to consumers other the China. Let’s assume Russia doesn’t peak for another 15 years. That doesn’t mean they’ll be supplying to the EU or any of its other current customers with the same amount they currently import. Same goes for the KSA, Iran, Iraq, etc: how their exports are distributed is more important then how much they export IMHO.

    Today the US and EU are providing disincentives to have those exports shipped to them while the Chinese are bouncing all around the globe passing out incentives like they were Halloween treats. LOL.

  15. Northwest Resident on Fri, 31st Oct 2014 3:48 pm 

    I read that in most of the places where fracking might even be potentially viable in Russia, those areas are only accessible during periods of the year when everything is frozen hard as rock. To get trucks and rigs and any kind of ground vehicles in there, they have to do the ice-road trucker routine. Once the thaw starts, it becomes impassable. Same thing happened to the German army in WWII — they got stuck in the mud. That basically means a lot of debt/investment and major allocation of resources would be required to get started on fracking, but the majority of the best postential frack sites would be inaccessible for months at a time every year. I seriously doubt that Russia is stupid enough to go the fracking route — too much investment required for too little gain, and Russian oil companies aren’t under the control of Wall Street, therefore they are under no pressure to hype up fracking Russia just to churn the market and skim profits for Wall Street.

  16. antaris on Fri, 31st Oct 2014 4:34 pm 

    Ice road water trucking, I don’t think so. And where do you get the water when everything is frozen.

  17. James on Fri, 31st Oct 2014 4:54 pm 

    This is typical U.S. B.S. Russia and China have entered into agreements to buy Russian oil products. The only reason everyone is panicking is because the price of oil is TEMPORARILY at a low price for now, it won’t last. The oil companies have too much invested into the fracking process to let oil price remain lower than the costs of producing it. If they don’t make a profit. What is the use of producing it? It is against all economic theory to continue the way things are now. If the U.S. is producing so much of its own oil, then why is it concerned about other countries and their oil policies and prices? Why are we still fighting in other countries if we have so much oil? Wasn’t that the main reason we went to war in the first place, for access to oil in other countries?

  18. Plantagenet on Fri, 31st Oct 2014 5:07 pm 

    @Ghung

    Do you even read your own posts? The title of the WaPo article you quote is” Ukraine applied to join NATO and NATO said no”

    Again, the actions you claim incited Putolini to invade Ukraine happened SIX YEARS before Putin invaded. Maybe Putolini is very stupid and it took him SIX YEARS to figure out that Ukraine applied to join NATO? And even stupider, Putinoloini never figured out that NATO said no?

    You’ll have to find another excuse for the Russian invasion of Ukraine. How about Putin is a power-mad revanchist who dreams of recreating the USSR?

  19. Northwest Resident on Fri, 31st Oct 2014 5:13 pm 

    “How about Putin is a power-mad revanchist who dreams of recreating the USSR?”

    Not the way I see it, not even close. But that is the MSM propaganda theme, what they WANT us to believe. Some fall for, perhaps most, but not all.

  20. Plantagenet on Fri, 31st Oct 2014 5:30 pm 

    Putin himself has said the fall of the USSR was the greatest tragedy of the 20th century. Of course it didn’t seem that way to the millions of people who died in the soviet gulags or to the tens of millions of people trapped in soviet backed dictatorships in east Germany, Poland, Estonia, etc.

  21. Davy on Fri, 31st Oct 2014 5:32 pm 

    Oooh, Planter, I like it! “Putolini”.

  22. ghung on Fri, 31st Oct 2014 5:32 pm 

    Plant: I get really tired of dealing with binary thinkers who insist on taking things out of context. BTW, the link is “Ukraine applied to join NATO and NATO said no, this time” If you read the article, and just about anything else on the subject, you (most sensible folks anyway) would understand that NATO and Ukraine were still courting each other in various ways, that western interests were clearly pushing Putin into a corner regarding Ukraine, and that he called their bluff. Again, your simplistic take on things is tedious…. and six years? Seems like Putin is quite the patient chess player, but it’s not “decades” as you stated.

  23. Plantagenet on Fri, 31st Oct 2014 5:38 pm 

    @Daver

    Yes I think the comparisons of Putin to Hitler are too facile. Really, his behavior is more like Mussolini. Putin loves to be photographed with his shirt off —- just as Mussolini did. And Putolini likes to invade smaller and militarily weak countries that have absolutely no chance to defend themselves, just as Mussolini did with Ethiopia and Greece.

  24. J-Gav on Fri, 31st Oct 2014 6:02 pm 

    Plant – Come on… Invading smaller and weaker countries? – You mean like the US’s “Urgent Fury” invasion of Grenada in 1983? Russia did nothing of the kind in Crimea. Just backed a referendum – with over 90% support.

    Not that I have visions of Putin as some sort of saint – I know quite a lot about some very shady events there in recent times (which cost Russian civilian lives) and also about the mafia-like nature of the way the economy works.

    But do you really think that just because we hide it better in the
    West makes us purer? A million dead in Iraq and for you that’s just fine because … because what? Saddam’s gone?
    Get your priorities straight man.

  25. Apneaman on Fri, 31st Oct 2014 6:12 pm 

    Hey Plantagenet
    Remember this? Forget about Vicki’s dirty potty mouth. Just listen to the parts where she, on behalf of the United States of America, decides which Ukrainians the state department will allow to have positions of power within their own government in their own country. This is typical of an invading imperial power. You got any evidence, on tape, of the Russians deciding who their local puppets will be? You should not comment on these stories plant. Your inherent tribalism and patriotic upbringing reveal themselves too easy. If you like the vicarious power rush that comes with living in an empire why not, like the neo-cons, just say so. America has been an empire at least since WWII and was working her way toward it long before. Deal with it. Would you rather have been born in one of the victim countries? Don’t be too cocky about the Russians either. They can more than handle themselves.

    “Fuck the EU!” (original File) – Victoria Nuland phoning with Geoffrey Pyatt

    https://www.youtube.com/watch?annotation_id=annotation_2612647377&feature=iv&src_vid=CL_GShyGv3o&v=KIvRljAaNgg

  26. Davy on Fri, 31st Oct 2014 6:45 pm 

    Apnea, I think empires are liabilities anymore in a world of limits of growth and dimminishing returns. The problems with empires today is there is little flexibility in a crowded world and they tend to overextend.

    I feel the U.S. lost empire status in 03 compliments of Dubya. We shot our wad and it has been downhill since. Still a force to be respected but not able to move mountains anymore.

    Our military will pay off in the descent for a time. Security is like lawyers you hate them until you need them.

  27. redpill on Fri, 31st Oct 2014 6:52 pm 

    What the hell, Honey boo-boo has been cancelled? Noooooooooo!

  28. Apneaman on Fri, 31st Oct 2014 7:41 pm 

    Davy

    Military misadventures are a reoccurring feature of empire. Has there been any real benefit to the country in the last dozen years? Just a financial and moral drain and lots of suffering for everyone. Military misadventures are often the final blow.

  29. Makati1 on Fri, 31st Oct 2014 8:19 pm 

    Amazing how the mention of Russia or Putin causes an avalanche of mental garbage from the American flag wavers.

    Last time I checked, Russia had over $400 billion in foreign reserves it could tap if necessary. And as some mentioned, China will use this as an opportunity to not only stock up on ME oil at bargain prices, but to move even more into the Russian oil business and resources. I don’t see any real pain in Russia, but the US, Japan and the EU are sure hurting.

  30. rockman on Fri, 31st Oct 2014 8:40 pm 

    M – Exactly. So many get hyped up over short term dynamics and lose sight of the long game. I’m not sure where Putin exactly fits but the Chinese are so much better at the long game than the US IMHO.

  31. dissident on Fri, 31st Oct 2014 8:44 pm 

    Funny how people think that Russia’s economy will peak together with its oil production. Please exert a modicum and effort and look up some facts before spouting your opinions. The oil and gas sector accounts for 13% of Russia’s GDP. Not 50%. Russia produces 10 million barrels per day and exports about 7 million of them. Peak oil, as you should know, does not imply the end of production. Do you really think that 1 million barrels per day less exports would drag down Russia’s economy?

    You are confusing Russia with Saudi Arabia. Saudia Arabia is the banana republic economy dependent on oil exports.

  32. Davy on Fri, 31st Oct 2014 9:34 pm 

    Hissy Dissy, chill out man, life is not going to end for you and the Makster if someone makes a little Russian criticism. You guys are so uptight.

  33. rockman on Sat, 1st Nov 2014 8:00 am 

    Dissy does make a good point about Russia’s ENERGY SECURITY vs the export revenue. Russia produces about 3X as much oil as it needs to fuel its economy. OTOH the US doesn’t produce enough oil to fuel its economy and imports a significant portion of its oil consumption.

    But in a PO world security might outweigh export revenue for Russia. The obvious key would be to increase internal oil consumption utilizing it to produce finished items for exports to the EU and else where. Consider how strong the German economy is compared to the other EU countries even though they import a significant amount of their energy. Imagine if Germany had Russia’s oil/NG production. Germany and Russia already have strong economic ties. It could serve the Russia people well if Putin modeled his economy more like Germany’s. Saudi Arabism recognizes the same necessity but has neither the other resources nor the worker bees Russia needed to make such a transition. The US has what it needs except, of course, for the oil.

    The Russian economy benefits from exporting oil. The US economy benefits from importing oil. Who’s in a better position going down this PO path we’re on? Not the only critical factor but a significant component none the less IMHO.

  34. JuanP on Sat, 1st Nov 2014 8:40 am 

    Rock, I agree with your exports observation.
    Diss, I wonder how you think Russia’s economy can keep growing if its oil production declines. Do you understand that oil is the economy’s lubricant and we need it to grow?
    I am not anti Russian, my assesment is based on an objective analysis of facts. It is very likely that Russia’s oil production has peaked, and Russia will not grow its economy if its oil production is declining. I am quite certain that time will prove me right on this one.

  35. Davy on Sat, 1st Nov 2014 9:13 am 

    Rock, Dissy makes a very valid point. Russia is poised well with PO in the respect of what oil it produces to what it consumes. My thoughts are how the negatives will offset these positives. It is well known Russian infrastructure is in poor shape. The Russian economy lacks diversity to be self-sufficient. The Russian borders will be expensive to defend.

    I personally wish Russia was our ally. Russia is a vast and resource important country with a powerful military. They have an exceptional culture and a strong population. It will be BAU expensive for the West and Russia to be in a cold war. This expense should be devoted to mitigation of the systematic risks of the coming descent and AGW issues. Instead we will piss away valuable treasure on a useless conflict of pride and nationality.

    Rock, the US may have enough oil if lifestyle and attitude changes are forced upon the population. This again is a big if because the economic disruption of a contraction with its loss of economies of scale and industrial, distributive, and technical abilities could be large. I imagine we will have enough energy of all kinds at least initially if economic activity drops by half let’s say. Half is entirely possible considering the attitude and lifestyle changes that will occur in a less energy intense culture.

    I see a mixed bag for the west and Russia because of comparative advantages and disadvantages. Much will depend on luck and the countries reaction to events. We are not seeing any proactive activity on the part of any country at the moment so much will depend on when the BAU spell is broken and how the countries react.

    I am giving the doom point of view. A cornucopian view with a sound BAU global economy would of course be the initial environment of our scenario with the possibility of conflict with Russia and the West leading to a doomer scenario of systematic decline. This systematic decline could be enough to initiate a serious drop in economic activity, food supplies, energy supplies, and disrupted social fabric.

  36. dissident on Sat, 1st Nov 2014 9:19 am 

    The Russian GDP depends much more than oil exports. So the claim that it cannot grow if it reaches peak production is simply nonsense. That is exactly the same as saying that the US will stop growing when it reaches peak production.

    If your are talking about oil being essential to modern economies. That is an unrelated theme and a non sequitur to this thread.

  37. ulenspiegel on Sat, 1st Nov 2014 9:20 am 

    Rockman,

    Russia needs to change from her economy from a provider of oil, NG and future Nobel laureates to an provider of more valuable stuff.

    However, the last 10 years have shown that this change does not occur in Russia even under very positive conditions witgh a high rate, actually Russia has lost ground under Putin.

    Now we have the situation that Russia has a much more limited access to tools that are needed for the change, and which can not easily be replaced with Chinese stuff, and faces at the same time a low crude price.

    While the western sanctions do of course not lead to break-down of the Russian economy withion a few years, the minimum reesult is that Russia will lose very valuable time.

    Russian politicians and economists know this, western too.

  38. Makati1 on Sat, 1st Nov 2014 9:34 am 

    ulen, Russia has all it needs to be independent. That outranks 99% of the rest of the world.

    As for equipment to recover it’s resources, China has what it takes and will be happy to make deals. After all, China has all the drilling and refining know-how of any country today. And, don’t think that the Halliburtons of this world will turn down a profitable arrangement either.

    I would say that Russia is not losing any time. You need to read outside the Western propaganda news. This is benefiting Putin and Russia, not hurting them. However, it is killing Europe and the Euro. But then, that too is part of the Empire’s plan to weaken it’s allies also. The Euro is getting to be a real competitor to the USD these days. Cannot have that.

    I suspect by November 2015, this will be a whole different world. Maybe the crash of the US Market Casino, or at least another round of QE and printing Charmin, that the world no longer wants. Definitely the split of the EU or it’s end will be in sight. Or WW3 will turn into an explosive war. We shall see.

  39. Davy on Sat, 1st Nov 2014 9:54 am 

    It is amazing to follow the propagandist on our PO board and those who seek balance and fairness of analysis based on available science. A propagandist is consistently either/or and winner/looser. They have a combative attitude and seek blame. They are truly going to be the reason our species faces a severe bottleneck.

  40. rockman on Sat, 1st Nov 2014 2:45 pm 

    Davy/U – “It is well known Russian infrastructure is in poor shape”. Just a fantasy for sure: think if Russia brought in Germans to manage their gov’t. Which would also spill over into their corporate strategies given the close relationship between gov’t and “private” enterprise. German management probably could have developed some economic leverage to entice the Ukraine to give up Crimea willingly. LOL.

    And now that I think about it isn’t that part of China’s strength: a strong central “communist” gov’t pretty much calling all the shots combined with a long term goal-oriented attitude towards commercial business endeavors? And add that unlike Russia I doubt there will ever be meaningful sanctions against China for usurping the territories/resources of other nations.

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