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15 November 2014

Press review 15-11-2014 - Ravished Ukraine

Petroleum prices resumed the dive this week, with Brent closing below 80 $/b for the first time in four years. For now these are still small news on the backdrop of the world Economy, gripped with recession and spreading price deflation. The nervousness of governments is palpable in many countries.

Ukraine is back to the front pages with further escalation of the conflict. Combat intensified and the western media is reporting a large scale invasion of the Donbass by Russian forces. The mere risk a full out war poses on gas infrastructure is disturbing by itself.

There is still no gas flowing from Russia to Ukraine. The European Commission is having second thoughts and is for now refusing to foot the bill. A mild Autumn is supporting this policy, but on the wake of the Russia vilification campaign, leaving the Ukrainian nationalists out in the cold is not really an option.

Reuters
RPT-Russia gas flows still frozen; Ukraine banks on mild weather to hold out
Vladimir Soldatkin and Pavel Polityuk, 13-11-2014

Ukraine signalled it may hold off from paying Russia's billion-dollar gas invoice - part of an EU-brokered agreement to restart supplies frozen since June - in the hope mild weather can help it last out longer as it grapples with near-bankruptcy.

EU officials worked out a deal two weeks ago under which Ukraine would pay Moscow $1.45 billion towards what it owed for gas supplies to ease a standoff over prices - and lift the threat to Europe, which relies on Ukraine as a key transit point for fuel.

But Russia has insisted that Ukraine must also pay for future supplies in advance: $760 million, according to gas export monopoly Gazprom, for the 2 billion cubic metres of gas due to be supplied this month.
Ukraine is effectively broke. It alienated much of its industrial capital and the largest part of its treasury disappeared. In the end the European Commission may end up with an humanitarian disaster in its hands if it refuses to pay the sums agreed with Russia weeks ago.
CNBC
Ukraine economy in 'free fall,' banking group says
Michelle Caruso-Cabrera, 12-11-2014

As the United Nations Security Council gets set to meet about an unstable situation in Ukraine, a leading banking organization said Wednesday that the country's financial situation is "really desperate" and its economy is "in free fall."

"Unless actions are taken pretty soon, the odds of Ukraine falling into financial and economic collapse are very, very large," said Lubo Mitov, chief economist of the Institute of International Finance.

Over the next six months, Ukraine needs $10 billion to $15 billion more than what has been promised by international organizations such as the International Monetary Fund, the IIF said. Without an injection of cash soon, "people will start freezing in the winter," because the country won't have the cash to pay for natural gas.
This week was also prone in negatives news for the European economy. It is important to remember that much of it is self inflected with the sanctions on Russia.
Reuters
Germany's E.ON hit by weak rouble, industry crisis
Christoph Steitz, 12-11-2014

Germany's top utility E.ON has posted a steep drop in profits at its business in Russia, its most important foreign market, where the rouble has slumped and the economy slowed due to the Ukraine conflict and falling oil prices.

Russia - where E.ON sells electricity, gets most of its gas supplies and owns a stake in a major gas field - has seen its currency fall by more than a quarter this year following Western economic sanctions over Ukraine.

"Of course I'm worried about the rouble," Chief Financial Officer Klaus Schaefer said on Wednesday, adding he could not predict when the downtrend would end. "We're not a bank, we don't speculate on currencies."
Somewhere in March of this year, photos and videos of American soldiers covertly deployed to Ukraine started circulating on the internet. I waited for a confirmation by the mainstream media to report it in this review. As far as I am aware, in the West only a few German media picked up this information. The past few weeks claims of ethnic cleansing and massive rapping of Russophone populations by Ukrainian nationalists have been circulating in alternative media. Below is a thorough account of this story; I'll leave to readers the exercise of squaring this information with the frenzy in the mainstream media this past week.
Washington's blog
Media Blackout as U.S. Sponsors Genocide in Southeastern Ukraine
Eric Zuesse, 13-11-2014

This is a photo of a Ukrainian soldier guiding a truck-full of prisoners toward a ditch, to which the prisoners are then dragged one-by-one, and thrown in, and shot — then covered over with dirt after all the corpses (and perhaps some living bleeding survivors) are piled in it. (Of course, any survivors then quickly choke to death, from the dirt):

And here’s an explanation of how this extraordinary video of a genocide being carried out, came to be found by the resistance-fighters against Ukraine’s war to exterminate the residents in Ukraine’s southeast, Ukraine’s region where the vast majority of the people are ethnic Russians, or commonly called “Moskals” by many people in northwestern Ukraine, which term employed by them is equivalent to the terms “nigger,” and “kike” that are used in some other countries: all psychological terms of de-humanization.

Though this video of a genocide-in-action is rare, the event itself is routinely happening in southeastern Ukraine, so that the Ukrainian Government can reduce the population in the area of Ukraine that had voted over 80% for the Ukrainian President whom the Obama Administration overthrew in a violent CIA-paid, U.S.-State-Department planned-and-run, coup, that climaxed on 22 February 2014. The new Government is trying to eliminate enough of the people who had voted for him so that the coup-imposed regime will be able to stay in power ‘democratically,’ with those Russia-friendly voters gone — enough of those voters gone so that America’s coup-regime can continue even as a democracy.
Important names are starting to emerge in the news when it comes to the impact of declining petroleum prices. Investors are fleeing the sector and exploratory activity is clearly contracting.
MarketWatch
Transocean delays earnings for large write-down
Dan Molinski, 08-11-2014

Transocean Ltd., one of the biggest offshore oil drilling companies in the world, said it would take $2.8 billion worth of charges when it reports its third-quarter results, as the company recognizes a drop in the value of its business.

The Switzerland-based company took the unusual step of delaying its earnings report to investors and regulators on Friday, saying executives need more time to calculate the new numbers.

[...] Transocean drills offshore oil and gas wells for energy companies and has one of the largest fleets of deep-water rigs in the industry.

Plummeting oil prices in recent months have many energy companies trimming budgets for new wells and dialing back the amount they spend on exploring for new oil and gas reserves.
Offshore operations are being particularly hard hit, exposing their uncomfortable position at the head of the supply curve. Reports like the one below have accumulated in recent days, with many referring to the North Sea.
OilPrice.com
Early Signs Of A Pullback In Drilling Activity
Nick Cunningham, 10-11-2014

With oil prices low and showing no sign of an immediate rebound, the industry is beginning to pull back on spending.

[...] The companies that service the oil producers are also on the frontlines, often feeling the brunt of a pullback in drilling activity quickly. Transocean, a major offshore oil drilling contractor, reported a nearly $2.8 billion impairment charge during the third quarter, which was “due primarily to the decline in the market valuation of the company's contract drilling services business.” In other words, lower oil prices hurt demand for Transocean’s drilling rigs.

Transocean’s 29 ultra-deepwater drilling rigs had accumulated 296 combined days of being out of service in the third quarter. That was an enormous increase over the previous two quarters – 110 days of out-of-service days in quarter two, and just 98 days in the first quarter. Even worse, the company expects the rigs to be inactive for a total of 435 days in the fourth quarter.
Signs of slowdown are also visible in the US. The press usually quotes a figure just north of 60 $/b for well-head prices in the so called "shale" formations. To this figure add taxes and transport costs, which relying on rail, are considerably higher than for other resources. For many of these wells present market prices may already be below full costs.
Bloomberg
Shale Drillers Idle Rigs From Texas to Utah Amid Oil Rout
Lynn Doan, 08-11-2014

Rigs targeting oil sank by 14 to 1,568 this week, the lowest since Aug. 22, Baker Hughes Inc. (BHI) said yesterday. The Eagle Ford shale formation in south Texas lost the most, dropping nine to 197. The nation’s oil rig count is down from a peak of 1,609 on Oct. 10.

Drillers are slowing down as crude prices tumbled 24 percent in the past four months. Transocean Ltd. (RIG) said yesterday that its earnings would take a hit by a drop in fees and demand for its rigs. The slide threatens to curb a production boom in U.S. shale formations that has helped bring prices at the pump below $3 a gallon for the first time since 2010 and shrink the nation’s dependence on foreign oil imports.

“We are officially seeing the slowdown in oil drilling,” James Williams, president of energy consulting company WTRG Economics, said by telephone from London, Arkansas, yesterday. “There’s no doubt about it now. We’re already down 49 rigs since the peak in October. It’ll have fallen by more than 100 rigs by the end of year.”
In face of this increasingly negative outlook, the mainstream is being forced to question the hype itself created. The question remains open on the ability of the US credit market to absorb the developing default surge without a spillover to the broader economy.
CNBC
'Small oil' could end up with a big debt problem
Tom DiChristopher, 07-11-2014

As U.S. oil prices have tumbled from their June highs, so too have the shares of many small and mid-sized players in the U.S. shale industry. Investors worry that if oil prices remain below $80—West Texas Intermediate was near $79 on Friday—some firms could see their debt loads rise and find it difficult to fund exploration and sustain production growth, analysts said.

[...] "A lot of these smaller companies, in particular the smaller frackers, they rely on debt, and the debt markets have been wide and open for them," Gregory Zuckerman, author of "The Frackers," told CNBC's "Power Lunch." "It not clear it's going to be (that way) going forward."

The question is whether companies can keep their balance sheets healthy and continue to grow in the face of falling prices. U.S. oil futures have fallen about 24 percent from a high of $103.66 in June.

[...] "They can either drill themselves into a much worse credit profile or make the right decision for the financial health of the company and take their foot off the accelerator, so to speak," Rowe said.
Petroleum extraction in Libya suffered another severe cut in the wake of the various armed conflicts raging in the region.
The Barrel
OPEC cuts its oil output, and then Libya cuts it more
11-11-2014

[...] Libyan oil production, having hit a recent high of 1 million b/d at the end of October, is now running at around 540,000 b/d, a source with close ties to state-owned NOC said Tuesday.

The major slump in output follows the closure of two of Libya’s biggest fields — the neighboring Sharara and Elephant (El Feel) fields. The western export terminals of Zawiya and Mellitah are said to be experiencing loading delays because of the closure of the fields, which feed crude to the ports, while the Zawiya refinery is also said to have suspended operations.

The 340,000 b/d capacity Sharara field, which was closed Wednesday after a security incident, had been producing close to 300,000 b/d. The 130,000 b/d Elephant field was shut in because it shares a power supply with Sharara.
The IEA released its yearly World Energy Outlook this week, meeting far less press attention than in previous years. What has been reported so far does not show much novelty: projections keep rising up to comply with the IPCC. As in previous reports, the agency warns to the increasing difficulties to expand worldwide petroleum extraction, but fails, yet again, to consider a scenario where it may actually fall.
Bloomberg
U.S. Shale Boom Masks Threats to World Oil Supply, IEA Says
Jillian Ward , 12-11-2014

[...] Replicating the U.S. shale oil boom outside of North America will also be a challenge, the report said. A lack of existing oil and gas infrastructure, environmental opposition to fracking, and uncertain geology are among the reasons unconventional drilling hasn’t spread.

Oil companies from Royal Dutch Shell Plc to ConocoPhillips said last month that they would cut capital spending to maintain profitability in the face of lower oil prices.

Threats to new investment stand alongside political risks to oil and gas production. Sanctions that restrict Russia’s access to technologies and capital markets have raised concerns about security of supply from the world’s largest energy exporter, the IEA said.

With Asian countries set to import two out of every three barrels of crude traded internationally by 2040, over-reliance on the Middle East for production growth is a concern, the IEA said. China is set to overtake the U.S. as the world’s biggest oil consumer within two decades, according to the report.
Russia seems invested in bringing Iran out of international isolation. New contracts were announced this week to expand Iran's Nuclear park under full compliance with the IAEA. Will the US allow these efforts to succeed?
OilPrice.com
Russia To Build As Many As Eight Nuclear Power Plants For Iran
Andy Tully, 12-11-2014

Moscow and Tehran have signed two contracts under which Russia will build as many as eight nuclear power plants in Iran.

One contract says two reactors will be built at the Bushehr nuclear power plant on Iran’s Persian Gulf coast, the Russian nuclear energy company Rosatom said. Under a second contract, two more units eventually may be built at Bushehr and perhaps four more at sites that haven’t yet been selected. All construction would be monitored by the UN’s International Atomic Energy Agency (IAEA).

Rosatom’s statement said all the plants would be under the same constraints as Bushehr is today. The IAEA has mandated that all nuclear fuel at the plant be produced in Russia and returned there for reprocessing after it is spent to ensure that the material can’t be diverted for a weapons program.
In India the Coal crisis prevails, leading the government to present a long term Electricity supply programme. It largely relies on the expansion of domestic Coal extraction, but there are also some ambitious targets on alternative energy. In spite of sitting on large thorium reserves, Nuclear power seems to remain in the back seat of the country's energy policy.
RenewEconomy
India’s plan to stop importing coal deals another blow to Australia
Tim Buckley , 13-11-2014

[...] Another key priority is to attract $US100 billion of new investment over the next four to five years into solar and wind power generation. Minister Goyal has articulated a target to drive a five-fold increase in installations of renewable energy to 16-18 gigawatts (GW) annually, relative to the 3-4 GW installed in 2013/14. Modi-solar-innner

The target is for 10 GW annually of solar, and 6-8 GW of new wind farms. The regulatory and policy framework for such a massive uplift is largely in place, and WEF panel discussion highlighted the urgency of India’s electricity system demands can be best addressed by renewables, given solar systems can be installed in months rather than the many years required for the planning and construction of thermal, hydro and nuclear power plants.

Minister Goyal articulated a target of 100GW of cumulative solar installs across India by 2022, 500 per cent more than the previous government target.
Ugo Bardi was at the European Parliament some days ago, briefing MEPs on resource depletion. His reflections on this experience are capital to explain the raison d'être of alternative media as Resource Crisis (and the humble AtTheEdgeOfTime). Common sense and consensus are not synonyms of truth.
Resource Crisis
Bringing the message about resource depletion to the European Parliament
Ugo Bardi, 08-11-2014

There are reasons for this "groupthink" syndrome that, probably, affects politicians more than most of us. It is because then main tool in the political struggle, today, is the demonization of adversaries. So, a politician is very careful to avoid to be singled out from the crowd of colleagues and subjected to the standard demonizing treatment. For a politician, there is safety in crowds; a traditional strategy well known also by sheep and fish. In practice, you may see a politician as having a built in opinion detector in his head. He/she will sense the position of the majority and try to avoid straying too far away from it. In general, the way for a politician to obtain power is to occupy the center; to be seen as a moderate. That this is the way to success has been known for a long time; even rigorously modeled (in economics, it is known as the "Hotelling's law"). Scientists are sometimes contrarians, politicians almost never are.

So, I think I can figure out the reaction of most of the MEPs to the hearing on energy security in Brussels. It was something like, "Well, that Italian guy who spoke about resource depletion might have a point about what the real problem is. I couldn't his slides so well, so high up near the ceiling, but he seemed to have some good data. But, on the other hand, the other speakers saw the problem differently. If most people in the parliament think that Russia is waging an economic war against us and that drilling more is a good idea, then there has to be something in it. For sure, I shouldn't take the risk of siding with a minority option."
More food for thought to finish this edition of the review. This video was on the telly this morning, it is now two years old, but I had never seen it before. I often wonder what sort of strategy may be behind the US policy towards North Africa and the Near East, in one country supporting Sunni, across the border bringing Shiites to power. This video puts it in different perspective: it might not be about the ends, rather the means.



Have a great weekend.