Russian Economy At Risk if Oil Prices Decline

The US shale boom has already hit Russia's Gazprom hard. Now, the rising boom in US oil production, along with other sources of new global crude production, are casting a shadow across Russia's grand plans for the future.

The Russian government requires an oil price of above $125 in order to achieve fiscal breakeven. That means that the Russian government is being forced to either postpone spending, or dip into cash reserves, as long as oil prices stay well below that level.

But now there is a very real risk that oil prices will dip from around $110 a barrel to below $90 a barrel. That would present a serious challenge -- perhaps a catastrophe -- to Putin's ambitious and free-spending government.

“If the [oil] price is $80 per barrel, the budget deficit will widen to 3 percent of GDP," Kudrin said.

"The figure of 3 percent is a critical boundary, beyond which we are likely to lose our country’s investment-grade rating,” he said.

Russia’s budget for 2013-2015 will run a deficit even with oil priced at $100 per barrel, he said. _Russia's Oil Risk

Another startling bit of news out of Russia, is the big push to shale oil & gas production in Siberia. After all the rude talk from Putin, Gazprom, and other Russian authorities -- telling the world how bad shale drilling and fracking is, and how pathetically irrelevant US shale production was -- now Russia's state oil company is taking the plunge into shale big-time:

ExxonMobil agreed to spend $300 million on advanced horizontal drilling and fracking at Russian state oil company Rosneft's Siberian fields in a project designed to help Russia realise its vast tight oil potential.

The two companies will form a joint venture, split 51-49 between Rosneft and Exxon, to carry out the pilot programme and launch commercial production if they find sufficient oil in the Bazhenov shale and the nearby Achimov formations of Western Siberia.

The Bazhenov is the world's largest source rock. However, Russia, still rich in conventional reserves, has yet to follow in the footsteps of the United States in deploying advanced horizontal drilling and hydraulic fracturing technologies, which is known as fracking, on a commercial scale.

With the core fields of Western Siberia in decline, however, the government of Russia, the world's largest crude producer, has offered tax breaks for companies who drill into "tight" formations where hydrocarbons are trapped in non-porous rock. _Siberian Shale

There is always the chance that US President Obama will let his buddy Putin off the hook, of course. Obama's EPA is chomping at the bit to shut down the US shale boom. Obama would make a lot of friends within the global faux environmental complex if he were to shut down the nascent US energy and economic boom. And such a move would make Putin a very happy man.

But Putin cannot count on that -- given Obama's ambivalent stance toward his own presidential legacy.

And so Russia sits in a type of limbo, trying to maintain world-class oil production utilising Soviet-era infrastructure -- in the face of a demographic collapse of ethnic Russians, a continuing capital flight overseas, and an enervating brain drain and "womb drain" to freer lands abroad.

Russia Speeds Development of 300 MWe Fast Reactors

Russia appears to be speeding development of its BREST 300 lead-cooled fast reactor design, rated at 300 MWe. State nuclear company Rosatom has moved up development plans for the reactor by 10 years -- up to 2020 for full operation, rather than 2030. A more rapid development of the new reactor will require a correspondingly larger investment in funding, personnel, and infrastructure. This is in keeping with PM Medvedev's ambitious plans to modernise Russia's industrial and technological sectors.

The head of Rosatom, Sergei Kiriyenko, told the meeting that plans foresee the figure for research and development reaching RUB42 billion ($1.3 billion) in 2020. This is about ten times its value in 2007 when the country began consolidating its nuclear activities within Rosatom.

...Kiriyenko said the federal target program up to 2020 had been intended to demonstrate incoming fast reactor technology and associated fuel-cycle infrastructure by that date so that it can come into use by 2030. Now, he said, the goal is to have 'not individual elements' being demonstrated, 'but a full range' in operation by 2020.

Two months ago Rosatom confirmed a plan to install the pilot BREST-300 lead-cooled fast reactor at the Siberian Chemical Combine (SCC) at Seversk in the Tomsk region. This would also mean the construction of the first plant to make the reactor's dense nitride fuel elements. Plans would see the construction of this 300 MWe reactor start in 2016 so that it could generate power from 2020. It would be the forerunner of a nationwide series of 1200 MWe versions.

...Rosatom's long-term strategy up to 2050 involves moving to inherently safe nuclear plants using fast reactors with a closed fuel cycle and MOX fuel. The country's federal target program envisages nuclear providing 45-50% at that time, with the share rising to 70-80% by the end of the century. _WNN_via_NBF

Along with the SVBR 100 SMR, the 300 MWe lead cooled fast reactor may be Russia's best design yet. A Gen IV reactor, it can produce electricity or hydrogen, and could be scaled to suit different tasks.

Both China and Russia appear to be moving toward an acceleration of their nuclear power development. This is in sharp contrast to the US Obama administration's NRC record of foot-dragging and obstructionism. And compared to much of Europe's anti-nuclear hysteria, Russia and China appear to be taking their energy futures very seriously.

A Shifting Geopolitics Comes With New Discoveries

This article was first published on Al Fin

Every modern industrial nation requires affordable energy to run its industry, commerce, and to keep its citizens comfortable within their homes. For the last few decades, energy consumers in the western world have lived under the threat of having their energy supplies cut off, by belligerent suppliers in OPEC, Russia, and other bullying dictatorships.

Preliminary Map of Global Shale Gas -- Much More to Come

With the coming of new energy technologies that are unlocking vast supplies of previously inaccessible oil & gas, Russia's and OPEC's stranglehold over more civilised and cultured parts of the world appears to be weakening.

The Gulf is not the only area where the established oil powers are in danger of crumbling. The biggest single loser of all will most likely be Vladimir Putin's Russia, a regime largely dependent on high energy prices and a captive market with no real alternative plan.

..."Russia has just seen its aspiration market disappear. The US is already a bigger gas producer than Russia," Redman said. _Guardian

As US energy production continues to shift away from OPEC toward domestic producers, US industries can once again plan their production schedules based upon a more reliable energy supply. So that as US and Canadian industries re-build based upon more reliable and cheaper supplies of fuels and energy, other countries that depend upon more expensive and less reliable forms of energy -- such as Germany -- will increasingly lose out to North America.

Thanks to new applications of drilling technology to unlock natural gas trapped in shale rock, the nation’s output has surged and energy experts almost unanimously forecast that prices will remain low or moderate for a generation.

...“It has become clear to me that the responsible development of our nation’s extensive recoverable oil and natural gas resources has the potential to be the once-in-a-lifetime economic engine that coal was nearly 200 years ago,” U.S. Steel Chairman John Surma said in a speech this year.

Industrial companies are betting that the surge in the domestic production of natural gas is much more than a blip. Cheap and plentiful supplies of natural gas are flooding the U.S. market, and prices in the United States are as low as a quarter of what they are in Europe or Asia.

“For the foreseeable future, thanks to the recovery of vast U.S. underground gas deposits of shale, natural gas is likely to remain 50 to 70 percent cheaper in the U.S. than in Europe and Japan,” said a recent report by the Boston Consulting Group. _WaPo

Whether these new technologies ultimately create a new "economic renaissance" depends upon whether government agencies are able to keep their corrupt and ideology-stained paws off the private enterprise boom.

A sudden surplus of previously rare high quality energy is likely to have unforeseen effects on several parts of the world.

"In the past, when OPEC was cutting production by half a million barrels, everyone was jumping up and down. Today no one cares as we have a real surplus of oil," said the head of Azeri state oil firm Socar's trading arm, Valery Golovushkin.

"There is already plenty of oil in the Mediterranean. We at Socar are relying on long-term supply contract to Asia. But quite honestly we don't feel any particular joy from taking it to Asia and wasting money on freight," said Golovushkin, a veteran of the Soviet oil export industry. _Reuters

The North American shale boom caught a lot of global oil market suppliers flat-footed.

As North American shale oil & gas continues to rise in production -- and as other shale producers in Europe, Asia, South America, Australia, and elsewhere come on line -- the problems for OPEC and Russia will only be compounded further.

It is likely that a number of regional wars will be fought over oil resources, as individual oil dictatorships find that their own production is not able to pay for their ambitions and their need to pacify their people. Many of these wars will be supported and encouraged by Russia -- in an attempt to ramp up the risk premium for oil, and overall oil & gas prices.

The consequences of these rapid shifts in new oil & gas supplies have only begun to shake out. Watch carefully, and be very cautious.

Brian Wang has followed the ramp up of North American hydrocarbon production very closely

China Threatens to Hit Russia Where it Hurts Most

China is threatening to hit Russia in the pocketbook, where it will hurt the dying bear the most.

China is to subsidize the development of shale gas in an effort to increase the share of unconventional energy sources in its economy. This comes as a part of a broader ‘shale revolution’.

...China is now considered to be home to the world’s biggest shale reserves in excess of 26trln cubic metres. To compare, the United States has an estimated 24trln cubic metres of underexplored recoverable resources of shale gas, according to Valery Nesterov, energy analyst at Sberbank Investment Research.

China may take third place in the world gas arena in another 25 year, as extraction of gas is forecast to skyrocket 5 fold during the period, the International Energy Agency said in May 2012. The US is set to top the ranking by 2035, with Russia dropping to second spot.

...A major move by the world’s economic powerhouses such as the US and Japan to develop shale reserves has worried the Russian Government. In late October President Vladimir Putin recognized the threat posed by alternative fuel sources to Russia’s economy, which is reliant on traditional energy sources. He urged Gazprom to revise its export policy, warning that a market reshape, where shale fuel and liquefied natural gas are increasing their weight, could hit Russia’s export revenues really hard. _Russia Today

China is also working hard to develop its domestic coal bed methane

Russia is being pressed to lower the cost of its natural gas, as a result of the increasingly vast resources of shale gas being developed from North America to Europe to China.

No wonder Russia's president and his crony oligarchs are hoping for US President Obama to win today's US election. Obama would preside over a continued weakening of the US, making Russia seem globally stronger in comparison. Obama's EPA and other agencies are already working to ramp up regulations against shale gas fracking, and to restrict other forms of energy such as coal, offshore oil, and nuclear power.

If a nation such as Russia can get its enemy to cut its own throat, what could be sweeter? As for China, Russia cannot expect such luck. But at least Russia understands the nature of China's corrupt kleptocracy, it being very close in nature to Russia's own.

China will be a tough customer for Russia to negotiate gas prices with, particularly as China gets closer to developing its own significant natural gas resource. And every dollar China saves in dealing with Russia, is a dollar that Russian cronies cannot use to build a new mansion, or stuff in a Swiss bank account. That's gotta hurt.

Russian Oil Production to Decline Despite Vast Resource

Russia has the largest land area of any nation. Its land is not only vast, but rich. Oil, gas, base minerals, diamonds, precious metals, high quality timber, vast freshwater resources -- Russia has it all.

But due to corruption and bad management, most of Russia's production infrastructure still dates to the Soviet era, old and decrepit. The same is true for most of Russia's vaunted military infrastructure. And worst of all, the core population of ethnic Russians is shrinking -- being replaced by Central Asian immigrants with divided loyalties.

And so Russia's oil production is doomed to go the way of Mexico's, if Russia refuses to spend the necessary amount to upgrade its production infrastructure.

While a decade of rising oil output and prices fueled the resurgence of the Russian economy and the Kremlin, a tougher future beckons. The International Energy Agency forecasts a slight decline in Russian oil output for the next two decades. _WSJ

The corrupt Putin oligarchy is indistinguishable from a third world dictatorship in the way that it is stripping the country's natural resources for the enrichment of top officials and their close crony connections.

Russia's western Siberian fields—60% of the country's current output—are a declining Soviet legacy. Offsetting this with new fields in areas like the Arctic offshore will be challenging and, hence, expensive.

Lower exports and rising costs point to smaller margins for oil companies—and a smaller take for a state whose dependence on energy revenue has increased. Unless Russia can crack modernization and diversification for its economy, this represents a crisis in the making. _WSJ

If oil production and oil income decline, there will be less booty to pass around the table of kleptocrats. That would likely shift the attention of the oligarchs to the scavenging of other parts of Russia's infrastructure -- the military in particular.

The comparison of Russia with Mexico is not as far fetched as one might think. The same loss of control of vast parts of the landscape to criminal organisations that one sees in Mexico, is taking place across large areas of Siberia -- extending even West of the Urals. Of course in Siberia, Chinese interests are also beginning to insinuate themselves in a large way. Moscow -- like Mexico City -- is losing its ability to control outlying areas.

One of the worst things that could happen is that the Russian government could intentionally or unintentionally lose control of its nuclear arsenal. Should that happen, Russia and the rest of the world would have much more to worry about than the price of oil.

Putin's Russia: Deep Cracks in the Facade

Russia's facade is of the nature of a Potemkin Village. Superficially vibrant and forward looking. But look deeper and you will see a deeper, more disturbing truth.

At a time when Russian oil production is falling and large-scale investment is badly needed to open up new fields, the Kremlin is instead spending $55 billion in cash and shares to acquire control of a major oil company from the private sector.

As the government splurges, Russia's oligarchs are shifting more money abroad because of the poor investment climate. Deputy Economy Minister Andrei Klepach estimates that $50-60 billion of private capital will flow out of Russia this year. Moscow bank Uralsib predicts the figure could hit $80 billion.

...Almost a third of city-dwellers would like to emigrate from Russia, according to a poll in September. Among young people the proportion rose to nearly half. The most favored destinations were Europe, the United States, Australia and New Zealand.

The reasons for this exodus of talent and money? A growing sense among educated Russians that their country is heading in the wrong direction, and that no change is likely._Reuters

Half of Russian men do not survive to the retirement age of 60. Russia's abysmal male mortality is due to alcoholism, suicide, murder, smoking related diseases, tuberculosis, HIV, drug abuse, and a general feeling of futility, hopelessness and despair.

This is why Russia's young are so desperate to get out. They see what is happening to their parents, uncles, aunts, and other middle aged Russians. They want no part of that dead end life.

Other than rich natural resources, Russia's main asset is the minds of its people. Too bad the corrupt Putin government is squandering that vast resource of human wealth.

Russia's Deadly Dependency on Oil & Gas Revenues

How dependent on oil & gas revenues is Russia's federal budget? Vladimir Putin recently claimed that his government is only 50% dependent on oil & gas revenues:

President Vladimir Putin said at the annual meeting of the Valdai Discussion Club.... “Fifty percent of our budget revenue comes from oil and gas sales. _Putin talks to Valdai Discussion Group

But Putin's claim is quite low in comparison with most estimates. In fact, even official numbers place Russia's oil & gas dependency at a higher level than Putin:

Russia’s federal budget is reliant on commodities revenues - according to official data, commodities contribute around 60 percent of the federal budget; in reality, that number is closer to 75–80 percent as much of the service sector depends on money from oil and gas. _Russia's Oil Luck or Curse

So, Putin claims a 50% dependency. Official data puts the number closer to 60%. And "in reality," the number may be as high as 80%. Or perhaps even more.

When discussing the impact of the North American shale revolution on the future of Russia, Russia Today puts the figure at 80%:

Should “a shale revolution” really take place, it’ll seriously reshape the world energy market, where traditional energy sources could be replaced by cheaper shale commodities. This will hit Russia’s budget hard, as oil and gas revenues provide for about 80% of the entire Russian budget. _Natural Gas Europe _ via RT.com

Regardless of its exact level of dependency on oil & gas revenues, Russia's government is extremely vulnerable to declines in international oil prices, to international competition for oil & gas sales, and to any threats to domestic oil & gas production and transport within Russia itself.

Russia's oil infrastructure, for example, is relatively old and degrading rapidly. When the Russian government finally makes a decision to divert oil & gas profits away from the federal budget and political cronies for necessary upgrades to production equipment, it may find itself competing internationally for access to limited quantities of state-of-the-art technology.

Russia is undergoing rapid change demographically. Its best young people are leaving:

Emigration jumped 22 percent in the spring of 2011, mainly fuelled by educated youth. Gudkov said that over the past decade, Russia has lost about a million and a half people from the middle class.

“These are the most educated, the most successful, the most enterprising people,” said Gudkov. “They did not leave the country because of insecurity or economic problems, but because of a lack of political possibilities. Those who have been successful in Russia understand that under current conditions, they may not be able to protect their assets or loved ones in the absence of political protection, especially judicial protection.” _Source

A nation's people are its most important infrastructure. And Russia's government is squandering its people through its corrupt and short-sighted diversion of Russia's oil & gas wealth into the bank accounts of the politically well-connected.

Of course, Russia is not unique among nations in that regard.

The pandemic of corrupt government has cursed nations from the US to the EU to Russia, China, Australia, and across the third world. That is not the question. The question is "at what level of corruption does a high quality of life become impossible for most citizens?" Because at that point, your best people are going to get out, if they can.

Can Shrinking Russia's Decrepit Oil Infrastructure Go It Alone?

“For foreign oil companies seeking to expand production and reserves, Russia is now off limits,” Robbert Van Batenburg, head of research at Louis Capital Markets LP in New York, said in a telephone interview yesterday. The BP accord “is probably scaring the others away.” ...

Since 2004, Putin has been tightening the government’s grip on the Russian oil sector, moves that made it increasingly difficult for foreign producers to establish or maintain footholds in the country, said William J. Andrews, a fund manager at C.S. McKee & Co. in Pittsburgh....

“The Russians are nationalistic and are going to keep the oil reserves for themselves,” said Andrews, who helps manage $14 billion. “They don’t really have a legal system or a political system. It’s a dictatorship.”

...“Ten years ago, Russia was a much more open place to do business,” Molchanov said. “But that is no longer the case, thanks to Vladimir Putin. The international oil companies are having to look elsewhere for opportunities at a time when the set of opportunities is growing more limited and costly.” _BW

But is Russia -- with its neolithic infrastructure and shrinking ethnic Russian population -- in a position to cut itself off from western expertise and the technological advances that are occurring at a rapid pace in the western world? Is this the same phenomenon of a hubris born of backwardness that brought down the Soviet Union?

Russia's Putin has been banking on rapidly rising oil prices. But more and more western analysts -- including Citi and Goldman -- believe that global oil prices will stabilise near present levels through 2020, and possibly beyond. To finance his ambitious military, nuclear, and technological goals, Putin needs for oil prices to approach $150 a barrel. As long as prices stay near $90 levels, Putin must either restrain his ambitions, or draw down his dwindling reserves.

If Putin refuses to open Russia to outside investment and infrastructure upgrades, he is limiting himself to more devious methods of supporting his grandiose goals for Russia. Methods which include starting proxy wars in and around the middle east to increase the geopolitical risk premium of oil -- driving up global oil prices.

It is a type of "painting oneself into a corner," which appears to be a common character failing of Russian leaders down through history.

Between Russia's core population collapse, its disintegrating public health infrastructure, a debilitating brain drain, and the steady drip, drip, drip of capital flight outside the country -- more intelligent and wise Russians must understand the desperate need for a change in direction.

With Putin at the helm, Russia sails perilously through hazardous straits.

More: A Weak Russia is A Dangerous Russia

Fiscal Breakeven: Why War Is Inevitable

Many people are confused between the concept of oil production costs and the concept of fiscal breakeven, for countries that rely on oil production to finance their government budgets. The graphic below looks at fiscal breakeven for a number of oil states belonging to OPEC.

Real Clear Energy

This is how much each nation must charge for a barrel of oil to support its government budget. For Russia -- not a member of OPEC -- estimates for fiscal breakeven vary between $125 and $150 per barrel.

The price of oil is currently around $85 per barrel, which means that all the countries to the right of Saudi Arabia are losing ground. This is where Hulbert sees the a pending instability. He writes:

"A key outcome of the Arab uprisings has been a significant increase in the prices needed by the producers to manage their fiscal position. This is a serious indictment of the producers' failure to diversify their economies away from a dependence on oil revenues over the past 20 years.

“If the oil price goes much lower, three scenarios could ensue sequentially: a price war forcing prices even lower, a period of internal repression as revenues fail to buy compliance among populations, and internal unrest among producers, which could lead to supply disruptions followed by prices bouncing back." _RCE

Contrast fiscal breakeven levels as pictured above, with upstream production costs for various regions: Costs for Producing Crude Oil and Natural Gas, 2007–2009
2009 Dollars per Barrel of Oil Equivalent¹

	Lifting Costs	Finding Costs	Total Upstream Costs
United States – Average	$12.18	$21.58	$33.76
On-shore	$12.73	$18.65	$31.38
Off-shore	$10.09	$41.51	$51.60
All Other Countries – Average	$9.95	$15.13	$25.08
Canada	$12.69	$12.07	$24.76
Africa	$10.31	$35.01	$45.32
Middle East	$9.89	$6.99	$16.88
Central & South America	$6.21	$20.43	$26.64

_USEIA
Keep in mind that for the US, Canada, most of Europe, etc. the concept of fiscal breakeven does not apply, since these nations do not depend upon oil sales to finance their governments. The concept of upstream production costs, of course, still applies.

The reason that war is inevitable, is that nations such as Iran, Venezuela, and perhaps Russia, are losing money at current oil prices. And yet, oil production is set to increase from North America to Iraq to Brazil to the far East.

Russia is struggling to produce as much oil as it can, using an infrastructure that should have been replaced over 20 years ago. Red Queen Russia is faced with the need to lure more competent international oil companies into the country to upgrade badly deteriorated oil & gas infrastructure. But Russia has a bad reputation of stealing foreign investment outright -- without apology. Getting insurance to do business in Russia can be difficult, for that reason, and due to rampant organised crime, violence, and extortion.

Is there any wonder why Russia is egging on Iran to build nuclear weapons, or supporting Syria's bloody suppression of a popular uprising? Russia thrives on the geopolitical risk premium built into the price of oil -- between $15 and $30 per barrel in some markets. Russia seeks to push that risk premium even higher, to avoid being forced to curtail its ambitious military and nuclear upgrades.

The same dynamic is at work in the thinking of the dictatorships of Iran, Venezuela, and other oil tyrannies. These despots may understand that wars often grow out of control and consume those who sought to gain from them. But some of them may see no other way out of their fiscal trap.

For Europe, North America, Oceania, and East Asia, the lesson is clear: Develop your own energy resources. Conventional and unconventional oil & gas, coal, nuclear, bitumens, kerogens, gas hydrates, biomass, geothermal . . . . Everything must be on the table -- except for the intermittent unreliables which are more destructive than constructive.

It is time for the more advanced nations to decouple themselves from the incredibly unstable OPEC / Russian oil & gas producers -- as much as possible. That is the only way to prevent the inevitable war from spreading out of control.

Is Russia Bankrolling Anti-Fracking Groups?

...industry watchers in Europe already believe Russia is bankrolling environmental groups that are loudly opposing plans for fracking in Europe, which could cut down on Russia's natural gas market.

"I've heard a lot of rumors that the Russians were funding this. I have no proof whatsoever," she said, noting that many critics give the rumors credence because Gazprom owns media companies throughout Russia and Europe that have run stories examining the environmental risks of fracking....

...Hill, of the Brookings think tank, heard President Vladimir Putin speak in late 2011 at a Moscow gathering of academics and media. She said in a blog post that "the only time I thought that he became truly engaged was when he wanted to explain to us how dangerous fracking was." _Newsvine

Fracking is very dangerous to the future of Gazprom profits, and the ability of Russia to fund its mafia-style, big-boss government. No wonder Putin gets so worked up about it.

But the scientific evidence overwhelmingly suggests that hydraulic fracking is both safe and environmentally sound.

So what are we left with? Once you get outside of Moscow and St. Petersburg, Russia is clearly a nation in decline -- due to its inability to get away from a Tsarist style of hyper-centralised top-down government. Even worse, this top-heavy government is both overly dependent upon one industry -- energy -- and utterly corrupt in the way that cash from the energy industry flows.

Gazprom is trying to reverse its stance 180 degrees, now claiming publicly that it will profit from the global spread of North American hydraulic fracking and horizontal drilling. But that seems to be Gazprom's version of "whistling past the graveyard," a very common activity in Russia these days.

The greatest danger from Russia's seemingly inevitable slow motion economic and demographic collapse, is the amount of devastation that Russia could cause around the world, should the declining bear go rogue in a genuinely loose cannon manner.

Wind Power is a Scam; Hydrocarbons Must Bridge the Gap to Advanced Nuclear

Germany is way ahead of us on the very path our politicians want us to follow – and the problems it has encountered as a result are big news there. In fact, Germany is being horribly caught out by precisely the same delusion about renewable energy that our own politicians have fallen for. Like all enthusiasts for “free, clean, renewable electricity”, they overlook the fatal implications of the fact that wind speeds and sunlight constantly vary. They are taken in by the wind industry’s trick of vastly exaggerating the usefulness of wind farms by talking in terms of their “capacity”, hiding the fact that their actual output will waver between 100 per cent of capacity and zero. In Britain it averages around 25 per cent; in Germany it is lower, just 17 per cent.

The more a country depends on such sources of energy, the more there will arise – as Germany is discovering – two massive technical problems. One is that it becomes incredibly difficult to maintain a consistent supply of power to the grid, when that wildly fluctuating renewable output has to be balanced by input from conventional power stations. The other is that, to keep that back-up constantly available can require fossil-fuel power plants to run much of the time very inefficiently and expensively (incidentally chucking out so much more “carbon” than normal that it negates any supposed CO2 savings from the wind).

Both these problems have come home to roost in Germany in a big way, because it has gone more aggressively down the renewables route than any other country in the world. Having poured hundreds of billions of euros in subsidies into wind and solar power, making its electricity bills almost the highest in Europe . . . . the problem for the German grid has become even worse. Thanks to a flood of subsidies unleashed by Angela Merkel’s government, renewable capacity has risen still further (solar, for instance, by 43 per cent). This makes it so difficult to keep the grid balanced that it is permanently at risk of power failures. (When the power to one Hamburg aluminium factory failed recently, for only a fraction of a second, it shut down the plant, causing serious damage.) Energy-intensive industries are having to install their own generators, or are looking to leave Germany altogether. _Christopher Booker -- Telegraph

More at link above (via thegwpf)

Modern industrial nations cannot count on the intermittent unreliable energy sources -- big wind and big solar. And they have been slow to support the development of new generations of safer, cleaner, cheaper, factory-produced, scalable nuclear power reactors. This means that they will be forced to use coal, natural gas, oil, bitumens, kerogens, gas hydrates, GTL, CTL, and every other energy resource they can find, to bridge the gap between the hydrocarbon economy and the nuclear economy.

Europe is mired particularly deeply in the green dysfunction, and is slow to recognise its self-made energy peril. It remains badly divided over shale gas, for example. This sluggishness to adopt necessary energy resources is particularly stupid, on the part of European governments.

Europe is making itself increasingly vulnerable to a predatory Russia, just at a time when Russia's energy infrastructure is so desperately in need of Eureopean, North American, and East Asian expertise.

But Russia never did learn to work and play well with others. It has always been the schoolyard bully, and has covered up its vulnerability with bluster and threats. This is a make or break time for Europe as a whole, and for western Europe in particular.

It is obvious that the "green dysfunction" -- the lefty-Luddite dieoff.orgiast mentality of carbon hysteria, anti-nuclear hysteria, and resource scarcity hysteria, holds European governments in its grip, and threatens to paralyse governments in the UK, North America, and Oceania. Anyone concerned about the human future, will do whatever is necessary to prevent that political activist movement from grabbing enough control to widely enact its quasi-genocidal agenda.

Besides learning to build resilient communities, we also need to learn to build formidable networks of influence. These are treacherous times, but remember: It is never too late to have a dangerous childhood.

Betting Against Shale Gas is a Dummy Play

We know that Russia's Gazprom and President Putin would like for the rest of the world to forget all about fracking for shale gas -- despite the fact that Russia is beginning to develop what is perhaps the most massive tight oil & gas play on the planet. France and Germany seem to be prohibiting fracking for oil & gas -- for now -- and Exxon has walked away from a chance to frack for shale gas in Poland.

But other big companies are moving into Poland and Eastern Europe almost faster than Exxon can remove itself.

Oil and gas investment is flooding into the region in amounts not seen since the fall of the Berlin Wall. Anglo-Dutch giant Royal Dutch Shell RDSB.LN -0.32% PLC, France's Total SA TOT -1.01% and ConocoPhillips COP +0.15% of the U.S. have acquired exploration rights in Poland, where current estimated reserves equal 35 to 65 years of the country's demand for natural gas, according to the Polish Geological Institute.

Ukraine is heating up as well. TNK-BP Holding, a joint venture of BP BP.LN +0.29% PLC and a group of Russian investors, plans to invest $1.8 billion in shale projects at a half-dozen sites around Ukraine. In June, Italy's Eni SpA E -1.37% paid an undisclosed amount for a stake in Ukraine-based LLC Westgasinvest, which holds about 1,500 square miles of land with potential shale-gas reserves. And Chevron Corp., CVX -0.09% which has acquired more than 6,250 square miles of potential shale gas leases in Central Europe since 2009, says it is working with Ukraine to negotiate a production-sharing agreement. _WSJ

It is rather clear that what happened with Exxon is that Russia offered it a piece of the huge Bazhenov fracking play if Exxon would abandon its Eastern European fracking -- at least the part of it that lies outside of Russia.

Gazprom is suffering some reverses due to mismanagement and a corrupt involvement with the Russian government. It will be more difficult for top Russian government functionaries to siphon profits from Gazprom as profit levels drop in response to more competitive gas prices offered to Europe from other suppliers. Gazprom's (and Putin's) hellfire sermons against fracking are being exposed as self-serving ways of trying to cover up a worsening balance sheet.

Germany is beginning to pay a price for its rejection of shale gas and nuclear power. German industry is falling behind in global competitiveness and is being forced to move more and more plants overseas as a result of its government's horrendous Energiewende policy.

South Africa first banned fracking, but is now rapidly back-stepping from its earlier stance. As noted before, Russia is now adopting fracking for its huge tight oil & gas resources after first condemning it. More and more nations are certain to follow suit.

North America was first out of the gate adopting newer, more efficient methods of getting at tight petroleum resources. But the technology is spreading rapidly, and is likely to significantly impact global energy markets for at least 2 to 3 decades.

By the end of that time, several new advanced nuclear fission reactors -- safer, cleaner, cheaper, scalable, factory - produced to order -- are likely to be coming onto the market internationally. These new sources of high quality industrial heat & power are likely to radically change the energy landscape, and push oil, gas, and coal to the margins -- more suited as chemical feedstocks for the future.

As for big wind and big solar? They were never a good match for modern industrial societies, and should probably be limited to third world villages and remote island locations.

Russa, Gazprom Finally Admit they Lied about Shale Gas

Cross-posted from Al Fin Blog

Gazprom's top managers have for years said that shale gas production would never threaten demand for Russian gas. Gazprom has recently started to change its view...

Russia's economy ministry sees "serious" risks posed by shale gas to the revenue of Gazprom (GAZP.RS) beginning in 2014, as higher supply from the nontraditional hydrocarbons may hurt prices and demand for Russia's pipeline gas.

"Gazprom had undervalued the importance of shale gas, but is starting to look at it seriously," Deputy Economy Minister Andrei Klepach said Tuesday as he presented a weaker outlook for the country in 2012 and beyond.

Russia satisfies about a quarter of Europe's demand for gas, which generates revenue for the budget.

Mr. Klepach added that the ministry also saw a lower outlook for gas prices in Europe, driven by both the euro-zone economic crisis and a higher supply of shale oil and gas from other sources. _WorldOil

After years of denial by Putin and Gazprom's top executives, Russia is finally acknowledging what Al Fin energy analysts have been saying all along. But political deception is nothing new for Russia or Putin. It is only those who still give the Russian government credibility who were fooled.

Meanwhile, Russia is jumping into shale fracking for oil & gas big-time, despite all that Putin has said about the evils of shale fracking. I suppose the shale oil & gas bonanza would look evil to a corrupt pol such as Putin, when it threatened his corrupt system.

Present recovery rates at various tight oil projects across Russia are between 2 to 8 percent. However, tight oil reserves could account for as high as 62 percent of Russia’s total reserves.

In the face of all this, Russia looks eagerly to the success experienced by North America in its shale revolution. The geology of the Bazhenov is quite similar to that of the Bakken shale here in the U.S., meaning fracking could be the solution to Russia’s oil situation.

The Russian oil producer Rosneft has already paired up with ExxonMobil (NYSE: XOM) to jointly work the Bazhenov formation. They will begin drilling in the Bazhenov and Achimov formations in 2013, following completion of an ongoing geological study. Rosneft has also reached an arrangement with Norwegian firm Statoil (NYSE: STO) to develop Russian oil assets in Southern Russia and West Siberia.

Other major oil companies like Lukoil (PINK: LUKOY) and Gazprom (MCX: GAZP) are also exploring ways of developing tight oil reserves.

The Russian unconventional oil and gas market could be heading for a time of profit and success. _Energy & Capital

This development points out some interesting things about Russia's economic future:

1. Russia's "prosperity" depends primarily on its energy production
2. For Russia to maintain its production, it must attract the expertise of foreign companies
3. Everything that Russia has said about the dangers and the inconsequential nature of shale oil & gas, was nothing but a politically expedient smoke screen
4. Russia needs to exploit its own vast shale oil & gas reserves

There are other interesting tidbits that can be read from between the lines, but that is enough for now.

Meanwhile, Europe's emerging recession is already having an effect on Russian gas profits:

Russia’s Economy Ministry is reportedly cutting its gas export forecast for this year due to sluggish demand from recession-mired Europe.

The forecast is said to be reduced to 193 billion cubic metres (bcm) from an earlier 212 bcm.

A government source has told Reuters that it will also reduce its average export price estimate.

State-controlled Gazprom has a monopoly on Russian gas exports.

Earlier this week the Deputy Economy Minister Andrei Klepach had said the gas export forecast would be reviewed, in the face of competition from US shale gas and liquefied natural gas. _Euronews

This tells us that Russia is reluctant to admit its earlier lies, when it claimed that US shale gas was no threat to future Gazprom profits.

It is important to understand that Russia's budget (official and unofficial) not only depends upon oil profits, but also depends upon gas profits. If Gazprom profits begin to fall because its customers in Europe and Asia begin to develop their own tight oil & gas resources, Russia's government will come under serious financial pressure.

Russia Reacts Against the Coming Global Gas Boom

This article was previously published on Al Fin blog

Multiple voices out of Russia have been condemning the global shale gas movement -- deriding unconventional gas as "unsafe," "uneconomical," and "irrelevant." In other words, Russia is running scared, hoping that irrational lefty-green influences over western governments will subdue Gazprom's unconventional competition, before Russia loses all of its lucrative, high priced natural gas contracts.

Economist

Poland is just one of many countries suffering under extortionate Russian natural gas prices, which would like to develop its own cheap shale gas resource:

If geologists are right, up to 768 billion cubic meters of natural gas sits trapped in shale deposits deep beneath the surface in Poland, enough to meet the country's needs for the next 50 years and more. The estimates have tantalized Poles with visions of ending their reliance on Russian gas, which warms them through harsh winters but puts them at the mercy of their former masters far more than they would like. _LA Times

Other of Russia's customers looking to slip the Gazprom chains from around their necks include the Ukraine, China, and a number of central and western European nations.

The unconventional-gas bonanza has roughly doubled the gas resource base, a measure of the total gas in the ground rather than what might be economically recoverable. In 2009 the IEA estimated the “long-term global recoverable gas resource base” at 850 trillion cubic metres (tcm), against 400tcm only a year earlier. The main reason for the rethink was shale gas and other unconventionals. Not just America but parts of Europe, China, Argentina, Brazil, Mexico, Canada and several African countries, among others, sit atop as yet unknown quantities of gas that could transform their energy outlook.

...Historical factors have led to another anomaly: much of the gas traded across borders is sold at prices linked to those of crude oil. When gas was first brought to market as a commercial fuel in the 1960s, as an alternative to home heating oil, it made sense to price it against a substitute. But there was also a more subtle reason. Oil was used as an independent price arbiter for Dutch gas in the 1960s and then for Algerian and Norwegian gas in the 1970s because neither side could influence the supply and demand for it. The system persisted as Russian gas came to Europe in the late 1970s. But the economics have changed, and valuing one commodity in terms of another now seems bizarre.

...A more competitive market the world over would doubtless make gas cheaper by breaking the link with oil, but that will be difficult to bring about. Gazprom, Russia’s huge state-run gas producer and supplier of 25% of Europe’s gas, is strongly opposed to dropping oil indexation. A tussle is under way between it and the continent’s big buyers. Some pundits say that gas must eventually become a global fungible product like oil, with regional price differences closing as more gas is shifted in the form of LNG, draining gluts and making up shortfalls in regional production in North America, Europe and Asia......

Gas producers are naturally happy with the high prices resulting from oil indexation, arguing that without them the economics of big gas projects would never work. But Rick Smead of Navigant, a consultancy, thinks there are good reasons for all concerned to want competitive gas prices. He points out that they would reduce regional price volatility and provide gas producers with a broad and flexible market instead of having to rely on a single consumer at the end of a pipeline. That should offer an incentive to make the huge investments required.

If the “shale gale” blowing through America can be replicated worldwide, the huge surpluses it would bring could hasten the advent of a global market. Just as the 20th century was the age of oil, the 21st could prove to be the century of gas. _Economist

In early 2009, at the height of winter, Gazprom withheld gas from Ukraine in a dispute over prices and payment, a shutoff lasting for days that also affected delivery to more than a dozen other shivering European nations. On at least one day in February of this year, Poland detected a sudden 7% drop in supply from Gazprom; some suspect Russia was holding back some of its gas for itself to combat a nasty cold spell. _LATimes

Russia not only stands to lose its ability to extort high gas prices from its customers -- it is in danger of losing many of its customers altogether. Since Russia's government depends upon Gazprom profits to finance many of its "unofficial" expenditures, the crony-ocracy at the highest levels of Russia's government is extremely concerned.

Losing China and Eastern Europe would be a significant blow to Gazprom. But the loss of western Europe might be the final straw, leading to revolutionary changes inside Russia.

These are basic, earth shaking trends which should be taught to every school boy and girl. Unfortunately, almost all school boys and girls are too busy being indoctrinated into climate hysteria and politically correct multicultural mind pablum, to have time to understand what makes the world go around.

Unconventional natural gas is just the beginning. Unconventional liquid fuels are closing in on economic production when oil sells for between $100 and $120 a barrel. As technologies continue to improve, that breakeven price is slowly but surely dropping.

If Russia is to benefit from its vast resources of energy wealth, it had best open itself to foreign investment and development as quickly and cleanly as possible -- cleaning out the destructive corruption and cronyism from top to bottom to make way for a better future for Russia's people.

For if Russia continues down its current path, it is certain to lose everything East of the Urals in a matter of decades, and perhaps everything else shortly thereafter.

Oil Dependency and the Russian Economy

Some say Russia's government requires oil prices of $120 a barrel to balance the budget, while others say the real figure is as high as $150 a barrel or more. Either way, Russia's economy is already feeling the pain of the recent global decline in oil prices. And there is no guarantee that the oil slump will end any time soon.

Financial Times

Oil dependency is seen as Russia’s biggest weakness.

This year’s budget needs an oil price of more than $120 a barrel to balance, lifting the non-oil deficit, the shortfall excluding oil and gas revenues, to 12.5 per cent of GDP. It was below 5 per cent before 2008.

...Oil prices would need to grow by $10 to $15 a year, he adds, otherwise the “budget will not be affordable”, forcing Russia to increase borrowing or reduce spending.

Economists have also warned that, with budgetary spending becoming a bigger contributor to growth, and that, in its turn, increasingly funded by oil and gas revenues, Russia is drawing too heavily on its energy wealth.

That drives up prices and costs, crowds out private sector investment and makes manufacturing uncompetitive, all classic symptoms of the so-called Dutch disease.

This hinders what should be its main policy aim: diversifying the economy away from reliance on extractive industries. _FT

Opinions are mixed over whether Russia's president Putin is serious about facing Russia's many structural problems. But opinions are like rectums: every athol has one.

What matters is whether wise and knowledgeable people are willing to place bets on Russia's future, under Mr. Putin, and whether the smart money inside Russia is staying inside Russia -- or is fleeing the country.

In fact, capital flight from Russia has recently been described as "torrential," and the brain drain of Russia's best and brightest to Europe, North America, and Israel continues.

Russia is desperate for foreign investment in order to maintain its role as an energy superpower. As noted in the chart above, China is a very big investor in Russia, but China lacks the state of the art energy technology which Russia needs. Which means that Russa -- under Putin -- will need to learn to "play nice" with some of the same large western energy companies which it has traditionally ripped off in the past by nationalising profitable energy assets, once developed.

There is a reason why large global insurers are reluctant to insure outside ventures and partnerships in Russia.

Putin is very ambitious, has made many promises, and aims to spend a lot of oil & gas money. Time will tell whether that money materialises in the quantities planned. If energy prices remain depressed for long, it will not take long for Russia to run through its cash reserves.

Oil Prices Fall Well Below Breakeven for Russia, Iraq, Bahrain . . .

Despite a fall of oil prices below break-even levels for several nations, Saudi Arabia shows no inclination of reducing its high rate of oil production.

 Following is a table of some OPEC producers' fiscal

breakeven oil prices: 
                $/bbl
 Algeria        105
 Iran           117
 Iraq           112
 Kuwait         44
 Libya          117
 Qatar          42
 Saudi Arabia   71
 UAE            84
 Sources: National authorities and International Monetary Fund

_Reuters

Above table as of 1 June 2012. Scan the graphs below for snapshots of break-even levels from May 2012 and December 2011. Notice that the estimated break-even levels tend to fluctuate. It is likely that most of those published levels are underestimates.

In Russia, for example, the most recent estimate for break-even price level is $117 per barrel. But Russian insiders estimate the true break-even level is closer to $150 a barrel -- particularly with Putin's ambitious new re-building schemes. May 21st 2012
1 December 2011

Citibank expects that Russia will have a very turbulent next five years, given their estimate that Brent crude prices will likely settle close to $85 over that time period.

Oil producers are beginning to feel the future threat of peak demand for oil caused by multiple factors -- including unconventional liquid fuels -- breathing down their necks. For oil to sell in the coming markets, producers will have to price their product to be competitive.

For some quasi oil dictatorships such as Iran, Venezuela, and Russia, the economic pressure on government spending could lead to intemperate, perhaps violent, actions, geared to force oil prices much higher. They will require a close watching.

Russia's Dysfunctional Economy Hurts Its Energy Sector

Russia is a difficult country to analyse. It is the largest nation on Earth, rich in natural resources and human resources. And yet it is burdened with dysfunctional government, a dysfunctional economic and legal system, and an atmosphere of vague despair that lingers despite multiple changes in leadership over the decades.

The Russian market this spring fell faster than other so-called BRIC countries of Brazil, Russia, India and China and since mid-March is down 18.8 percent. Global oil prices have slumped, reducing expected earnings.

But even taking earnings into account, investors take a dim view of Russian equities. The Russian stock exchange now trades at an average price to estimated earnings ratio of 4.28, compared with the MSCI Emerging-Markets Index average.

It is a glum statistic for Russia, particularly as President Vladimir V. Putin is planning a wide-ranging sale of state assets to raise money for increased military and social spending promised during his campaign. The price-to-earnings ratio comparison means that, statistically, a company that mines gold or pumps oil in Russia is worth less than half as much as a company that extracts the same amount of gold or oil just as efficiently in Brazil or Indonesia.

For all the value in the Russian economy, this wealthy industrial superpower cannot convince investors that it is safe place to put money — even an oil company is a hard sell. _NYT

No wonder. When wealthy Russia cannot convince insurance companies to insure joint projects inside Russia, of course it will not be able to convince most investors to take the huge risks of exposing valuable assets to the kleptocratic Russian bear. The Russian government treats all assets -- public or private -- as its own little treasure chest of goodies.

Sergei Aleksashenko, a former deputy finance minister, said in an interview that Russian energy companies are routinely subjected to this “system of unofficial requests,” from the Kremlin — for financing everything from presidential palaces to ski resorts to military installations.

“It doesn’t really matter what it is for,” Mr. Aleksashenko said. “You receive a request and you cannot refuse.” _NYT

Mr. Putin and his friends have their fingers in all the concentrations of wealth and power inside the country. The corruption takes place overtly and covertly, legally and quasi-illegally. It is organised crime on a massive scale, and shows no sign of being curtailed -- particularly as long as weak and inept clowns such as US President Obama are in charge of the western bloc.

Based in the Siberian city of the same name, Surgut is a private company but managed by a Soviet-era director who is close to Mr. Putin. It sells much of its oil, about $127 million a day based on average prices for Russia’s export blend oil, Ural Crude, last year, to a similarly opaque commodities firm called Gunvor based in the Netherlands and co-owned by Gennady Timchenko, another longtime acquaintance of Mr. Putin.

The company has emphasized other measures of success than stock price, including high salaries for employees and a favored statistic of Soviet oil ministers but not modern petroleum analysts: the number of meters of well bore drilled. Surgut has yet to publish its 2011 annual financial report on its Web site but, in a press statement, made public that it had drilled 4.75 million meters last year.

The owners of 70 percent of the company remain a mystery. In conference calls with analysts, the company has said its own executives own a majority of the shares... _NYT

More at link above.

Russia is undergoing a demographic collapse of its core population. The country is a public health disaster. Its military and military-industrial infrastructures are rusting and crumbling under the weight of corruption, neglect, and nepotistic incompetence. And Russia's energy infrastructure -- desperately in need of foreign capital and expertise -- is going the same way of slow motion collapse. Unless something of significance changes.

Stay tuned.

China Slows, Russia Hurts: Cause and Effect?

The New York Times finally stumbles on a relevant news story: China's economy begins to slow. To most of us who have been paying attention, this is not exactly news. And some of us have even suggested that when China's economy slowed, leading to a reduction in demand for commodities, that some of the commodities - supplying countries such as Russia might feel the pinch.

Russia's government requires very high pricing for both oil & gas in order to finance President Putin's ambitious quest to re-build the USSR in everything but name. But with global oil prices slumping -- and the prospects for a significant dive in gas prices over the next several years -- Russia is being slapped in the face with a cold and bracing bucketful of reality.

More on Russia's acute problem of capital flight:

"There is large-scale capital flight from Russia, despite the economic recovery," Dmitriev said. "And this capital is flying into the epicenter of the global financial crisis, which is in Europe. That is actually the same as creating a food supply in the center of an atomic explosion."

...Russia, which relies on oil and gas exports for half of its budget revenue and Europe as a market for more than 50 percent of its exports, may suffer a worse recession than in 2009 if energy prices plunge, according to Dmitriev.

..."If these trends continue, we will see the escalation of political violence and repression on one hand, and the worst economic crisis on the other," said Dmitriev, a deputy economy minister from 2000 to 2004. "This may lead to Putin losing control and a chaotic political transformation." _SFGate

Neither news story on Russia's problems points toward the China slowdown as one of the causes of Russia's downturn, but China's share of the global commodities markets makes it absolutely certain that a downturn in the great dragon's economy would send shocks through the economies of most large exporting nations -- including the giant bear of Russia.

As several of Russia's important energy customers begin learning how to "make their own energy," using newer oil and gas extraction technologies developed in North America, the pain felt by the wounded bear -- already suffering a potentially fatal demographic crisis -- can only worsen.

Sierra Club Working with Vladimir Putin to Shut Down Gazprom Competition?

 Sierra Club Aims to Shut Down North American Natural Gas Bonanza

Russia's Putin fears competition from shale gas. And suddenly, marching in lock-step with Russian propaganda efforts to block development of massive global shale gas -- Gazprom's biggest threat -- big-money western green organisations are stepping up their anti-gas rhetoric.

“As we push to retire coal plants, we’re going to work to make sure we’re not simultaneously switching to natural-gas infrastructure,” Sierra Club Executive Director Michael Brune told National Journal in an interview on Wednesday. “And we’re going to be preventing new gas plants from being built wherever we can.”

...Vast reserves of shale natural gas discovered in recent years have promised the country decades of a domestic energy supply that many experts—along with President Obama—consider a cleaner fossil-fuel alternative to coal and oil. Natural gas burns with 50 percent fewer emissions than coal and is 20 to 30 percent cleaner than oil.

...The Sierra Club had once embraced natural gas as a temporary, cleaner bridge fuel to renewable energy. Other environmental organizations also did, including the Natural Resources Defense Council and the Environmental Defense Fund.

But the Sierra Club, more than the other two influential organizations, has become increasingly outspoken against natural gas in the past year or two, especially since Brune took over as executive director from Carl Pope, who stepped down in 2010 after 18 years in the post.

Brune said his group is doubling down on its efforts against gas in reaction to proposals to export natural gas and the increasing shift from coal to gas in the electricity sector. That’s not all that’s changed in the past two years: The collapse of climate-change legislation and near record-low natural-gas prices have created a market landscape where natural gas is poised to win out over renewables and nuclear power. _National Journal

It will take time to follow the money connections between the Sierra Club's Brune and other functionaries, and the vested interests who have the most to lose from the global boom in unconventional natural gas. Corruption in big money organisations such as the Sierra Club or the WWF would be nothing new.

Lefty-Luddite green dieoff.orgy groups want to reduce the human population of Earth by 90% to 95%. Energy starvation of the advanced nations is one approach to achieving this die-off. If the industries and economies of advanced nations are squeezed and starved of energy, they will not be able to provide ample food, medicine, or infrastructure support to their own populations. But even worse in terms of human suffering, is what will happen in the third world, if the first world can no longer provide aid and support. The death toll in primitive lands -- as they revert to a pre-industrial state -- will be tremendous.

This is something that the Sierra Club, WWF, VHEMT.org, etc are counting on and working toward. It is up to voters and concerned citizens in the first world to see that their own governments are not unduly influenced by these doom seeking groups.

Vast Energy Bonanza Challenges Global Geopolitical Status Quo

The global shale boom is working its way into more and more parts of the world. Very few analysts have given voice to the true seismic threat of the shale revolution -- the earth-shaking effect it will have on global energy markets and the global geopolitical infrastructure once it truly kicks into gear.

Russia...will probably be forced into serious political and economic reforms or face decline. Its government spending is too high, its non-hydrocarbon economy too anemic, and now its oil and gas sectors under challenge.

...We already know, for example, that the heft of the U.S. shale gas boom has challenged Russia's natural gas grip on Europe. Saudi Arabia also fears shale gas, whose abundance could ultimately contribute to the erosion of U.S. oil demand, as Chris Weafer said last week on this blog (also see remarks below by oil scholar Philip Verleger.).

Saudi has valid reasons to worry, as it seems almost-certain that the fresh big oil finds on other continents will whittle away at the centrality of the mighty nations of OPEC, the bain of Western economies for 35 years. OPEC seems far less likely to call the shots in global oil and, according to Citigroup and other analysts, the per-barrel price its members earn could be much-reduced. The wild card will be demand, meaning China's future oil appetite, and the continued progress of energy efficiency. _FP

Not only Russia and KSA have reason to worry. All the corrupt, inefficient oil dictatorships who have come to rely on inflated oil bubble prices to power their economies are going to come under threat.

From the Persian Gulf to Venezuela to the Russian steppe to darkest Africa, oil dictatorships will begin to see their iron-clad grip on customers begin to loosen, one by one, as more and more countries develop their native shale resources, and some of them begin to export product on their own.