Posted on 08/18/2022 7:26:42 PM PDT by dennisw
The End of Russian Oil
This newsletter is an adapted excerpt from Peter’s upcoming book, The End of the World is Just the Beginning.
Think the Europeans will need to get by without Russian crude? You are 100% correct. But you are not thinking anywhere near big enough.
Most of Russia’s oil fields are both old and extraordinarily remote from Russia’s customers. Fields in the North Caucasus are either tapped out or were never refurbished in the aftermath of the Chechen Wars, those of Russia’s Tatarstan and Bashkortostan provinces are well past their peak, and even western Siberian fields have been showing diminishing returns since the 2000s. With few exceptions, Russia’s oil discoveries of the last decade or three are deeper, smaller, more technically challenging, and even farther from population centers than the older fields they would be expected to replace. Russian output isn’t in danger of collapsing, but maintaining output will require more infrastructure, far higher up-front costs, and ongoing technical love and care to prevent steady output declines from becoming something far worse.
While the Russians are no slouches when it comes to oil field knowledge, they were out of circulation from roughly 1940 through 2000. Oil technology came a long way in those sixty years. Foreign firms—most notably supermajors BP and Shell, and services firms Halliburton and Schlumberger—have collectively done work that is probably responsible for half of Russia’s contemporary output.
The Western supermajors have left. All of them. Just as the Ukraine War began, Exxon and BP and Shell have walked away from projects they’ve sunk tens of billions of dollars into, knowing full well they won’t get a cent of compensation. Halliburton and Schlumberger’s operations today are a shadow of what they were before Russia’s previous invasion of Ukraine in 2014. Between future sanctions or the inability of the Russians to pay them with hard currency, those operations now risk winding down to zero. The result is as inevitable as it is damning: at least a 50% reduction in the ability of Russia to produce crude. (No. Chinese oilmen cannot hope to keep things flowing. The Chinese are worse in this space than the Russians.) The outstanding question is how soon?
Sooner than you think. It’s an issue of infrastructure and climate.
First, infrastructure. All of Russia’s oil flows first travel by pipe—in some cases for literally thousands of miles—before they reach either a customer or a discharge port. Pipes can’t . . . dodge. Anything that impedes a single inch of a pipe shuts the whole thing down. In the post-Cold War globalized Order when we all got along, this was something we could sing-song-skip right by. But with the Russians dropping cluster bombs on civilian targets – as they started doing on Feb 28 – not so much. Whether the Russians destroy the pipes with their indiscriminate use of ordinance (like they damaged a radiation containment vessel at Chernobyl!!!) or Ukrainian partisans target anything that brings the Russians income, much of this system is doomed. Second, climate. Siberia, despite getting cold enough to literally freeze your nose off in October, doesn’t get cold enough. Most Russian oil production is in the permafrost, and for most of the summer the permafrost is inaccessible because its top layer melts into a messy, horizon-spanning swamp. What the Russians do is wait for the land to freeze, and then build dike-roads and drill for crude in the long dark of the Siberian winter. Should something happen to consumption of Russian crude oil or any of the millions of feet of pipe that take that crude from wellhead to port or consumer, flows would back up through the literally thousands of miles of pipes right up to the drill site. There is no place to store the stuff. Russia would just need to shut everything down. Turning it back on would require manually checking everything, all the way from well to border.
The last time this happened was the Soviet collapse in 1989. It took millions of manhours of help from the likes of BP and Halliburton – and thirty-two years – for Russia to get back to its Cold War production levels. And now, with war on in Ukraine, insurance companies are cancelling policies for tankers carrying anything Russian on Seas Black and Baltic while the French seize Russian vessels, and the Russian Central Bank under the strictest financial sanctions ever, it is all falling apart. Again.
Even in the sunshine and unicorn scenario that Putin duct tapes himself to a lawn chair and throws himself into a pool, and a random band of kindly kindergarten teachers take over the Russian government, we should not expect the energy supply situation in Russia to begin to stabilize before 2028, and for us to return to what we think of as the status quo before 2045.
In the meantime, the debate of the moment is expanded energy sanctions. Once everyone concludes that Russian crude is going away regardless, there’s something to be said about pre-emptively sanctioning Russian energy before reality forces the same end result. Moral high road and all that. Bottom line: Uuuuugh! The disappearance of some four to five million Russian barrels of daily crude production will all by itself kick energy prices up to at least $170 a barrel. A global energy-induced depression is in the wind.
But probably not an American one. In the bad ol’ days before World War II there wasn’t a “global” oil price. Each major country or empire controlled its own production and maintained its own – sequestered – market. Courtesy of the American shale revolution and preexisting legislation, the U.S. president has the authority to end American oil exports on a whim and return us to that world. An American export ban would flood U.S. refiners with relatively cheap shale oil. Those refiners will certainly bitch – their facilities have a taste for crude grades different from what comes out of Texas and North Dakota – but having a functional price ceiling within the United States of roughly $70 a barrel will achieve precisely what Joe Biden is after: cheaper gasoline prices.
The rest of the world? They’ll have to grapple with losing Russian and American crude at the same time. If the “global” price stays below $200, I’d be shocked.
The first rule of geopolitics is place matters. To populations. To transport. To finance. To agriculture. To energy. To everything. The second rule is things can always get worse. The world is about to (re)learn both lessons, good and hard.
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While we still believe strongly in their mission, with recent events in Ukraine we are asking our subscribers to consider supporting a charity focused on relief efforts there. There are many good ones to choose from, but one in particular we are supporting is the Afya Foundation.
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Not here in the most liberal South Florida county. Winter heating is nothing.
I suspect that it's that way to tamp down complaints.
There are a couple of additional per-therm costs, but I'm not including them, because they're typically only a few cents.
Sunshine pumping IMHO.
The author’s March projections were as far from reality as possible.
Author projected a 50% drop in Russian oil production “Sooner than you think”.
Reality: Russian oil production increased each of the past 3 months.
Author projected Russia or Ukrainian partisans would totally wreck all pipelines in Ukraine.
Reality: Nope
Author projected oil delivery would crash so much that Russia would have to shut off production, which would be very hard to restart
Reality: No
Author says Russian crude is going away for good
Reality: Funny guy!
Of course losing foreign expertise will eventually hurt output, but that was the only accurate observation the author made.
Japan signs a huge contract for Russian oil tomorrow
It's a bad look for you to be admitting you have no skin in the heating costs game from the Ukraine-Russia conflict, while the rest of us up North are peeling off C-notes to indulge the warfap of your bloodthirsty neocon buddies, safe in Washington.
The EuroWeenies had to make concessions over oil to Hungary, just to get them on board with the newest sanctions packages.
I will confess that I read this last March and figured what he said would pan out. What he was oblivious to was Russian ways of selling oil and gas surreptitiously. Rus have gangster mentality that PZ does not.
The author is a propagandist for the current leftist regime.
You need better geopolitical analysts.
The guys at The Duran are doing a bang-up job these last few months.
Peter Zeihan is an American geopolitical analyst, author, and speaker. He analyzes data from geography, demographics, and global politics to understand economic trends and make predictions.
See how it is when you don’t have air conditioning. You are going to get hit with high electric fees going up and up.
Georgia produces no petroleum products or natural gas
and we have no refineries here.
We have to import all of that from elsewhere and pay the premium.
Everything in my house that can be gas, is gas.
Dryer, stove, and heat.
My electricity is at 13 cents/kw...
I need to do some math and see if I should change over...
“...or the inability of the Russians to pay them with hard currency”
So much for the credibility of this piece - unless I’m to believe that Russia doesn’t expect HARD CURRENCY when selling it’s resources to other countries.
Careful. Check your local power generating stations to see if they're phasing out the coal plants, and switching to natgas.
They did that around here, and all the local Greenies think it's great.
But the higher gas feed price shoe has yet to drop on the current consumer electrical contracts.
“Those same globalists will then kill Russian energy just like they’ve crippled western energy.”
Been saying the same regarding Ukrainian oil and gas - the Globalist were not about to let Ukraine develop it, but they wanted their puppet government in Ukraine to control it, just so it could be locked down.
Now Russia gets that oil, TONS OF IT, and they WILL develop it and sell it to the 85% of the world that is sick of having to deal with the Western Globalists.
We are a year or so from putting two new nukes on line here.
Already factored into the monthly bill.
Keep a natgas feed just in case.
I think that would be 15-20 bucks a month for "ready to serve". Cheap insurance?
I know something of oil.
He doesn’t.
I see other commenters noted March for the article. I recall the ballyhoo about Russia output collapsing from lack of customers and then some bizarre notion that the fields and equipment are somehow damaged if you leave the oil in place.
It is useful for laymen to understand one thing above all others — there is no more dangerous concept in the world of oil than “Let’s leave it in the ground for our grandchildren.” That concept leads to Apocalypse.
American shale oil is light on diesel. This is a crushing truth. All oil is not the same. American Gulf of Mexico oil, onshore conventional oil (not much of this left) and Alaskan oil has adequate diesel content.
Shale oil does not. In fact, shale oil in the Bakken is so thin (non dense) that it is shipped north to Canada as diluent for the hyper thick oil sands output.
The US burns 21 million bpd of oil. This is just the way it is. The alternative is food doesn’t travel to shelves. The US produces about 12 million bpd and quite a lot of that is diesel poor.
So oil imports emphasize diesel, and refineries are tooled to process those imports. Less so the thin shale output.
KSA produces far more oil than it burns. Russia produces far more oil than it burns. The grandchildren concept can apply to them. It cannot apply to the US. Every drop the US can produce must come out. Not so with Russia. They can produce food and transport it to mouths and still have enough oil left over to fight a war in Syria and a war in Ukraine.
You are right. A/C hits but we keep it on the non-self indulgent side.
Revise and post again. -— No sarcasm.
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