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GeoStrategist
Joined: 29 Mar 2004
Posts: 1309
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 Posted: Thu Nov 11, 2004 6:13 pm Post subject: A New Russian-Saudi Oil Cartel in the Making? |
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This is something I have been forecasting for almost 5 years - that Russia would do an end-run around OPEC and by making side agreements with its most valuable members, like Iran and Saudi Arabia, it would form a new Russia-centric global oil cartel, in order to maximize its geopolitical clout, in a strategic plan to reacquire global influence.
Now, other than just wacko peon's like me, some really sane people are getting a clue about Russia's real intentions and its ability to make some darn serious geopolitical moves.
MOSCOW AND RIYADH: DO OIL, RELIGION, AND ANTI-TERRORISM MIX?
| Quote: | | Therefore if they are really to start exploring ideas about joint activities to protect their energy infrastructures, a partnership that goes beyond a cartel could eventually emerge out of it. |
| Quote: | | For the West, undoubtedly the potential collaboration in energy is the most critical element of this developing relationship, because it has the potential to create a new, and potentially even stronger cartel than OPEC with permanent capabilities for affecting and even dislocating the global economy. |
There are obstacles, of course, like Saudi support for terrorism. But it just may be that the common interests and goals between Russia and S.A., in the current geopolitical environment, outweigh their differences and the risks.
Four years ago on the old PrattFor forum I even gave the new cartel a name - RPEC - the Russian-centric Petrolium Exporting Cartel  (really, I did call it that)
As the analysis linked here warns, this bears very careful scrutiny - under-estimate Russia at your own risk.
P.S. By now, you've probably all guessed that GeoStrategist and Calamity Howler are one and the same. 
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G.S.
Speculation fuels intellectual progress, but fear excuses the stagnant mind |
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JLK
Joined: 17 Apr 2002
Posts: 4024
Location: East Coast USA
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| Posted: Thu Nov 11, 2004 7:56 pm Post subject: Re: A New Russian-Saudi Oil Cartel in the Making? |
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| GeoStrategist wrote: | | This is something I have been forecasting for almost 5 years - that Russia would do an end-run around OPEC and by making side agreements with its most valuable members, like Iran and Saudi Arabia, it would form a new Russia-centric global oil cartel, in order to maximize its geopolitical clout, in a strategic plan to reacquire global influence. |
OPEC has little relevance anymore, and it has little to do with Russia. The purpose of OPEC was to maintain oil within a desired price range. The mechanism used was a mutilateral agreement between the major oil exporting countries to limit production to predetermined quotas.
OPEC isn't necessary any more, and in fact has not been functioning as intended for at least a year. Every member country with the exception of Saudi Arabia has been exceeding its quota, pumping as much as it possibly can, and the price of oil has still been well above the target range.
We can expect the minor OPEC producers to keep pumping at full capacity without regard to their supposed quotas. Russia will pump as much as it can because it needs the cash. However, Russian production is in an advanced stage, with many of its big fields recovering more water than oil. Like the North Sea, Russian production will soon be declining.
Three wild cards will determine the long term price of oil: (1) Saudi production; Iraqi production; and (3) (of course) demand.
The Saudis will essentially do what the US tells them to do unless there is a sea change in the military balance of power in the region. That is why I don't see much of a chance that the Saudis will start colluding with Russia. They have a big American gun pointed at their heads. Accordingly, Saudi production will increase as much as it physically can in the next several years. How much that will turn out to be is the proverbial $64,000 question. The Saudis are claiming virtually limitless capacity for the next 50 years. Matt Simmons thinks they are about to peak. The truth is probably somewhere in between, and if you are under 50 the answer will have a big impact on the conditions under which you will live in your later years.
Iraq is the only country in the world that has underexploited proven reserves. When the dust settles, production could reach 7-9 million b/d, which is on a par with current Saudi and Russian production.
Demand can be expected to increase until higher oil prices slow the world economy- there is a negative feedback system working here, and we'll see it in action for the next several decades.
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GeoStrategist
Joined: 29 Mar 2004
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| Posted: Thu Nov 11, 2004 9:01 pm Post subject: |
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JLK,
Your estimation (or should I say your gross underestimation) of Russia's importance in the energy sphere is simply not backed up by the facts. You mis-characterize Russia's crude oil reserves as seriously on the wane - they surely are not. In fact, they may have been previously underestimated by a factor of 3, as the linked article notes. Russia does have crude oil infrastructure problems, and needs heavy investment there to modernize. But all the players on the Eurasian super continent, and beyond, are courting Russia, entering into strategic oil and gas agreements with it, specifically because Russia's importance in the field of energy has skyrocketed. Russia is second only to S.A. in oil exports, and its exports are growing - not shrinking - as you infer.
You state that Saudi Arabia is the key. While it certainly has enormous reserves, it also has enormous problems with internal stability - and the rapidly growing problem next door (Iraq). In fact, all of the Middle East has a rapidly growing stability problem with internal and external insurgents and terrorists. Another reason why nations are looking to Russia, whose problems with internal stability are much less serious by comparison, and which has massive means to ensure its own internal stability. Nations in the middle east do not. And the U.S. cannot insure their stability either - look at Iraq as an example.
Therefore, in the outworking of things, Saudi production may very soon run into some of the same problems as Iraqi production. How important will S.A. be then? And what if Iraq decends into complete chaos and fractures? Something very likely. That will cause the acute spread of insurgencies to neighboring countries, with a huge impact on oil exports. But Russia will take on even greater importance in that event. And there are many indications S.A. is in deep trouble in this regard, with home-bred terrorism intent on a Saudi "regime change".
Russia maintains, and is extending, its oil and gas export monopoly across Europe and Asia. Virtually all of the export infrastructure belongs to Russia. And the collusion between S.A. and Russia, which you say won't happen, is already in advanced stages. That's why the alarm is being sounded in articles such as the one I linked here.
Russia is very adroitly positioning itself to capitalize on the world's energy crisis. Wake up and smell the sweet crude, dude!
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G.S.
Speculation fuels intellectual progress, but fear excuses the stagnant mind |
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JLK
Joined: 17 Apr 2002
Posts: 4024
Location: East Coast USA
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| Posted: Thu Nov 11, 2004 9:43 pm Post subject: |
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From the horse's mouth:
Russia’s Oil Exports Reach Maximum, Decline to Start in 2 Years — Official
| Quote: | Russia has almost reached its maximum level of production, the head of the Russian Union of Oil and Gas Producers, Yuri Shafranik, said on Tuesday, Nov. 9.
Speaking at a press conference Shafranik, quoted by Interfax, said: “We are currently producing almost the maximum amount of oil possible. Further growth can happen only if the [world] prices continue to rise, but [since that is unlikely to happen for much longer] Russia’s production and subsequent export will be automatically limited in two years’ time.” |
EIA Country Profile: Russia
| Quote: | | Russia is important to world energy markets because it holds the world's largest natural gas reserves, the second largest coal reserves, and the eighth largest oil reserves. Russia is also the world's largest exporter of natural gas, the second largest oil exporter, and the third largest energy consumer. |
| Quote: | | Accordingly, in 2003, Russia was the world’s second largest producer of crude oil, behind only Saudi Arabia. |
Hmmmm... the eighth largest reserves and the second largest producer... what does that tell you about the sustainability of their output?
Russia is an economic basket case, and they are pumping oil as fast as they possibly can because it is the only thing they can produce that the rest of the world wants to purchase.
| Quote: | | Although estimates vary widely, the World Bank has suggested that the oil and gas sector may have accounted for up to 25% of GDP in 2003—while employing less than 1% of the population. |
Even the wild optimists at EIA (part of the US DOE) have their doubts whether this can continue.
| Quote: | | However, it is unclear whether production can continue to grow with the same remarkable quickness shown over the past few years. In what could prove to be a harbinger of what's to come, the Russian government's own forecasts for oil production in 2004 began to fluctuate significantly towards the end of 2003, following the investigation and incarceration of leading industry figures, parliamentary elections and policy statements from President Putin and members of his cabinet (see graph above). |
How much does Russia have left in the tank?
| Quote: | | Russia has proven oil reserves of 60 billion barrels, most of which are located in Western Siberia, between the Ural Mountains and the Central Siberian Plateau. |
Saudi Arabia has proven reserves of 260 billion barrels, and Iraq has 130 billion barrels. See where this is going?
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Johann Wolfgang von Goethe |
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FC Mellon
Joined: 15 Apr 2002
Posts: 4477
Location: SoCal
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| Posted: Thu Nov 11, 2004 11:16 pm Post subject: ...not bad for a rookie. 8?) |
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CH wrote: | Quote: | | Four years ago on the old PrattFor forum I even gave the new cartel a name - RPEC - the Russian-centric Petrolium Exporting Cartel (really, I did call it that) |
I remember your acronym(RPEC) on this particular thread that you were discussing at the time with Geoff Potter and Narmer..and I also remember mentioning that with Russia's new found oil discoveries in the northern Tundras and the melting of the Arctic and the access which would be available for Russia, and the upcoming problems in the middle-east which I thought would happen, that Russia would be in the driver's seat when it came to doing business with the European Countries due the the tremendous bad weather I was predicting for them over the next decade. I personally didn't include Russia and Saudi Arabia...and I am not so sure this will come about due to the upcoming power struggles. But I do remember your predictions Calamity....'Good Call'.
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GeoStrategist
Joined: 29 Mar 2004
Posts: 1309
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| Posted: Thu Nov 11, 2004 11:20 pm Post subject: |
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JLK,
From your linked reference:
| Quote: | | He did add that the IEA underestimates the fact that Russia has a number of unexplored oil deposits which can guarantee the growth of production for a while longer. |
Since there is a great deal of unexplored area in Russia, not including in Siberia, the reserves are undoubtedly significantly greater than the intentionally pessimistic view espoused by Russian experts looking for huge inflows of investment money.
Also, your own previous references on another thread (Peak Oil) indicate very strongly that Saudi reserves may be much overstated and that S.A. is much nearer peak oil than it (or the oil companies) want the world to know.
Your statement about the Russian economy being "a basket case" is entirely subjective. I can make the same case for the U.S. economy - which is plagued with gross imbalances, gigantic bubbles and inherent instability.
Perhaps you should ask the Saudis why they signed the 5-year strategic agreement on oil/gas with Russia in Sept. 2003, and why they are actively seeking to deepen that cooperation, if Russia is inconsequential as you believe. Could it be that the Saudis know how overstated their own reserves are, and how understated Russia's are? Hmmmm.
While you're at it, ask Japan, China, India, the EU, the U.S. and Turkey the same question. They all have signed major agreements or are actively seeking them for Russian oil and gas.
Speaking of gas - as oil reserves get nearer to peak and cannot keep up with demand, gas is rapidly sought as a replacement in many spheres. Guess who has the bulk of the world's gas reserves? Russia and Iran. And a big part of the Saudi's strategic agreement with Russia is to get help from Russia to exploit Saudi gas.
I think you should rethink your viewpoint of Russia's importance to global energy - your perspective is jilted unjustifiably toward S.A. and Iraq, both of which are part of the rapidly destabilizing Middle East.
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G.S.
Speculation fuels intellectual progress, but fear excuses the stagnant mind |
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GeoStrategist
Joined: 29 Mar 2004
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| Posted: Fri Nov 12, 2004 12:50 pm Post subject: |
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Well, this analysis puts matters in proper perspective with regard to Russia's global importance regarding energy:
Russia approaches historic moment as world energy superpower
| Quote: | Russia is approaching an historic moment of opportunity as a world energy superpower, according to speakers at a day-long workshop Oct. 25 at Rice University's James A. Baker III Institute for Public Policy. The Petroleum Energy Center of Japan (PECJ) cosponsored the event.
Among the topics discussed were Russia's energy supply and its influences on pricing, security, and oil geopolitics. Amy Myers Jaffe, an energy fellow at the Baker Institute, presented key findings of a new study compiled by the institute and PECJ entitled "The Energy Dimension in the Russian Global Strategy." |
The article goes on to detail how Russia is poised to capitalize geopolitically on the global energy situation, if it acts correctly with regard to modernizing its infrastructure to meet the opportunites. It also notes Russia can reacquire superpower status in the process.
If it acts in concert with Saudi Arabia and Iran, it can rapidly form the sort of oil and gas cartel that would be unbeatable. The money is there, the common interests are there, and it appears the will is there too.
JLK, you alluded to the 'big U.S. gun' pointed at S.A.'s head - I'd like to see the U.S. try to use it. If it thinks it has problems now in Iraq, just wait until it invades S.A. to grab its oil. All global Islamic 'hell' would be unleashed. In all likelihood, the Persian Gulf would be so destabilized by such an action that Middle East exports would plummet and/or rise to hairy heights for years. This would thrust Russia and its oil-rich neighbors forcefully right into the center, geopolitically.
Then there is also the possibility that the Saudis will 'get the bomb' from their Paki friends to forestall any U.S. action.
No matter which way you slice it, the Middle East comes up looking nastier and nastier over the next few years, with serious implications for oil exports from that region.
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G.S.
Speculation fuels intellectual progress, but fear excuses the stagnant mind |
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JLK
Joined: 17 Apr 2002
Posts: 4024
Location: East Coast USA
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| Posted: Thu Nov 18, 2004 10:45 pm Post subject: |
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Here is part of ASPO's country profile for Russia, extracted from the July 2003 Newsletter #31:
| ASPO Newsletter wrote: | It is difficult to summarise the geology of this huge territory, but we may identify the main provinces
• The Western basins between the Barents and Caspian Seas with their Silurian source rocks
• The West Siberian basins with the Jurassic source rocks
• The Arctic domain
• The locally productive Tertiary deltaic basin of Sakhalin on the Pacific margin
Exploration commenced in the 1840s in the vicinity of Baku on the Caspian, but lapsed during the early years of Communism, until it was revitalised after the Second World War. In fact, the Soviet explorers proved to be highly efficient being able to apply scientific methods, free of commercial constraints. Boreholes were drilled for geological information, and Russian explorers pioneered the geochemical breakthrough that identified the source rocks and generating belts. Accordingly, discovery at least in sub-Arctic Russia peaked around 1960, the corresponding peak of production following in 1987. Exactly how much was found is hard to know, because the Soviet classification of reserves ignored commercial constraints. Decline curve analysis shows that the reported reserves of most Russian fields have to be reduced by about 30% to obtain realistic estimates. Production crashed on the fall of the Soviets, but is now growing under the new capitalists, in part making good the production that would have already been secured but for the dislocations accompanying the fall of the Soviet regime. Accordingly, we may expect a second peak around 2010.
It is clear that the reserve estimates of around 50 Gb as reported by the Oil & Gas Journal were far too low. Exactly how far is difficult to know, but we tentatively favour an figure of about 60 Gb, still giving a fairly low depletion rate of 3%, which is one argument against higher estimates. We add to this 30 Gb of polar oil, together with substantial deposits of heavy oil in Eastern Siberia and NGL from gasfields, which are here excluded from Regular Oil by definition. The total therefore approaches the 100-120 Gb reported by Yukos. The jury is still out but we think that this assessment is reasonable in terms of order of magnitude.
Russia also has vast deposits of natural gas, which in turn will yield large amounts of NGL. It is evident therefore that Russia emerges in a new and important geopolitical role. For the present, she seems ready to export her surplus to earn foreign exchange, but as she becomes more aware that she has her hand on Europe’s light switch, given that so much electricity is now generated from natural gas, she may come to recognise that starving her industrial competitors of energy will give her domestic manufacturing base a decided advantage. As Europe’s principal energy supplier, she may come to embrace the euro as her natural currency, opening a new chapter in the postscript to the Cold War. |
The Saudi country profile was included in the September 2002 ASPO Newsletter #21:
| ASPO Newsletter wrote: | | Saudi reserves are themselves highly suspect, being a state secret. It is almost sure that the reported estimate of 259 Gb is far too high. A recent paper (O&GJ 17.6.02) suggests as little as 160 Gb is “Proved”. It is noteworthy that Saudi Arabia reported 167 Gb in 1989, before it had reason to inflate its reserves to protect itself in the “OPEC quota wars”. It may be assumed that these were Proved Reserves in a financial sense, being equivalent to about 75% of the actual amount, which would accordingly be about 220 Gb. Production since then has been 33 Gb, reducing the reserves to 184 Gb, to which may be added about 6 Gb for new discovery, giving a total of 194 Gb. |
So CH is correct that (at least in ASPO's estimation) the difference in total reserves between Saudi Arabia and Russia is probably not quite as large it first appears, although the Saudis still have a healthy edge. However, the projected Saudi peak of 2020 is a decade beyond the projected Russian peak of 2010. (Iraq would be expected to peak even after the Saudis.)
Russia will be a factor in the oil politics of the next decade, but their influence will begin to wane again after the projected 2010 peak. At that point, the Persian Gulf region becomes even more important than it is today.
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JLK
Joined: 17 Apr 2002
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| Posted: Tue Dec 07, 2004 8:38 pm Post subject: |
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Russia’s Oil Output to Level Off in Mid-Term — WSJ
| Quote: | But the expansion will come as the huge growth in Russian oil output of the past few years gradually levels off, the Wall Street Journal quoted government and industry officials as saying.
A slowdown could be bad news for energy consumers, as Russia’s increased production has been a major factor keeping global oil supply ahead of demand in recent years. |
| Quote: | | The newspaper also quoted a study to be released today by the Baker Institute at Rice University in Houston. It warns that Russian oil growth will continue at a slower pace, and that this is “unlikely to be sufficient to undercut current high world prices in the near to medium term.” |
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Johann Wolfgang von Goethe |
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JLK
Joined: 17 Apr 2002
Posts: 4024
Location: East Coast USA
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| Posted: Tue Dec 07, 2004 8:43 pm Post subject: |
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CH
Here is a great collection of material on the topic that I plan on reading when I have the time.
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Johann Wolfgang von Goethe |
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JLK
Joined: 17 Apr 2002
Posts: 4024
Location: East Coast USA
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| Posted: Thu Dec 23, 2004 11:40 am Post subject: |
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ESAI: IEA's Russian oil production forecast 'optimistic'
| Quote: | | After reaching an absolute post-Soviet peak of 9.49 million b/d in September, Russia's average daily production has been falling for 2 consecutive months, and November's drop was the largest single-month decline since January 1999," said Yulia Woodruff, ESAI's Russian analyst. |
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