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24 October 2015

Press review 24-10-2015 - Redesigning the Middle East

Russia slowly settles in as the new sheriff in the Middle East. It is not entirely conclusive what the Russian air-force has achieved, by the Shiite military seem to have found a breeder, with the systematic bombing of high technology arsenals furnished by the US to the Sunni. In the meantime, Iraq is too approaching itself to Russia, seeking a deeper involvement in its war against Daesh.

Ironically, while Russia seeks to tame the threat it sees in the deepening ties between Daesh and the Chechen rebbels, Europe might end up benefiting with a return of some sort of normality to the region, bringing its petroleum assets again on the regular market. But for the moment Europe harvests the seeds of chaos in another neighbouring country with an uncontrollable refugee flow.

Wall Street Journal
A Path Out of the Middle East Collapse
Henry A. Kissinger, 16-10-2015

[...] The fate of Syria provides a vivid illustration: What started as a Sunni revolt against the Alawite (a Shiite offshoot) autocrat Bashar Assad fractured the state into its component religious and ethnic groups, with nonstate militias supporting each warring party, and outside powers pursuing their own strategic interests. Iran supports the Assad regime as the linchpin of an Iranian historic dominance stretching from Tehran to the Mediterranean. The Gulf States insist on the overthrow of Mr. Assad to thwart Shiite Iranian designs, which they fear more than Islamic State. They seek the defeat of ISIS while avoiding an Iranian victory. This ambivalence has been deepened by the nuclear deal, which in the Sunni Middle East is widely interpreted as tacit American acquiescence in Iranian hegemony.

These conflicting trends, compounded by America’s retreat from the region, have enabled Russia to engage in military operations deep in the Middle East, a deployment unprecedented in Russian history. Russia’s principal concern is that the Assad regime’s collapse could reproduce the chaos of Libya, bring ISIS into power in Damascus, and turn all of Syria into a haven for terrorist operations, reaching into Muslim regions inside Russia’s southern border in the Caucasus and elsewhere.

[...] So long as ISIS survives and remains in control of a geographically defined territory, it will compound all Middle East tensions. Threatening all sides and projecting its goals beyond the region, it freezes existing positions or tempts outside efforts to achieve imperial jihadist designs. The destruction of ISIS is more urgent than the overthrow of Bashar Assad, who has already lost over half of the area he once controlled. Making sure that this territory does not become a permanent terrorist haven must have precedence. The current inconclusive U.S. military effort risks serving as a recruitment vehicle for ISIS as having stood up to American might.
Since the beginning of this month, visitors to this blog are able to read articles published by the Financial Times linked here. Inaugurating this new feature is a very interesting article describing the Daesh Petroleum Company. When we start reading in the news the Russian lead coalition retaking these assets, we might be a bit closer to the demise of Daesh.
Financial Times
Isis Inc: how oil fuels the jihadi terrorists
Erika Solomon, Guy Chazan and Sam Jones, 14-10-2015

[...] Despite all these efforts, dozens of interviews with Syrian traders and oil engineers as well as western intelligence officials and oil experts reveal a sprawling operation almost akin to a state oil company that has grown in size and expertise despite international attempts to destroy it.

Minutely managed, Isis’ oil company actively recruits skilled workers, from engineers to trainers and managers.

Estimates by local traders and engineers put crude production in Isis-held territory at about 34,000-40,000 bpd. The oil is sold at the wellhead for between $20 and $45 a barrel, earning the militants an average of $1.5m a day.

“It’s a situation that makes you laugh and cry,” said one Syrian rebel commander in Aleppo, who buys diesel from Isis areas even as his forces fight the group on the front lines. “But we have no other choice, and we are a poor man’s revolution. Is anyone else offering to give us fuel?”
An interesting aspect to the way the western media has been reporting Russia's intervention in Syria is the disappearance of Al Qaeda in the region's maps. In its place we may see and read euphemisms such as "rebels" or "moderates", Sunni factions that if ever existed have long yielded to Al Nusra and the like.
Middle East Eye
Obama won’t admit the real targets of Russian airstrikes
Gareth Porter, 16-10-2015

The US response to Russia’s new Syrian military campaign in support of the Assad regime has struck a pose of moral superiority by arguing that the Russians have not been targeting the Islamic State but rather the non-ISIS Syrian opposition to the Assad regime.

That US response is superficially accurate but deliberately misleading. Although the Russians are not focusing on targets in ISIS-controlled territory, there is a very good reason: it is not ISIS but the forces aligned with al-Qaeda’s Syrian franchise, Jabhat al-Nusra or al-Nusra Front, that pose the most immediate threat to the very existence of the Assad regime.

[...] But this framing of the issue fundamentally mis-represents the situation in Syria by conjuring up a non-existent powerful US-backed “moderate” force while diverting attention from the real threat posed by al-Qaeda’s Syrian franchise. The Russians are not hitting some imaginary set of “moderate” Syrian armed groups opposing the Assad regime; they are overwhelmingly focused on targeting the military command in which al-Nusra Front is the central strategic force.

The maps pinpointing the locations of the Russian strikes since 30 September published in various newspapers and on the website of the Institute for Study of War - the original source for the other maps – all show very clearly that they are overwhelmingly concentrated in Idlib province, the adjoining Hama province, and areas of Latakia province near Idlib. But that fact does not take on significance unless it is recalled that the al-Nusra Front - al Qaeda’s franchise in Syria - and the “Army of Conquest” linked to it, unexpectedly took control of Idlib province in a major military offensive in March.
Coming now to the usual juice of this review, the US holds its breath as the much hyped "shale oil" is about to finally take in the 50 $/b price. Shale at the edge of its time.
Reuters
U.S. oil output slide looms as shale firms hit productivity wall
Anna Driver and Terry Wade, 21-10-2015

Stagnating rig productivity shows U.S. shale oil producers are running out of tricks to pump more with less in the face of crashing prices and points to a slide in output that should help rebalance global markets.

Over the 16 months of the crude price rout, production from new wells drilled by each rig has risen about 30 percent as companies refined their techniques, idled slower rigs and shifted crews and high-speed rigs to "sweet spots" with the most oil.

Such "high-grading" helped shale oil firms push U.S. output to the loftiest levels in decades even as oil tumbled by half to less than $50 a barrel and firms slashed rig fleets by 60 percent.

But recent government and private data show output per rig is now flatlining as the industry reaches the limits of what existing tools, technology and strategies can accomplish.
In a somewhat surprising way, news come out on Saudi Arabia stockpilling petroleum in its storage facilities. This news alone cut short a mini rally and sunk the price under 50 $/b again. Gloom swept the economic pundit community and now many expect the petroleum price to fall further.
Bloomberg
Saudi Crude Stocks at Record High Amid Quest to Keep Share
Wael Mahdi, 18-10-2015

Saudi Arabia, the world’s largest oil exporter, is storing record amounts of crude in its quest to maintain market share as it cut shipments.

Commercial crude stockpiles in August rose to 326.6 million barrels, the highest since at least 2002, from 320.2 million barrels in July, according to data posted on the website of the Riyadh-based Joint Organisations Data Initiative. Exports dropped to 7 million barrels a day from 7.28 million.

“The fall in Saudi crude exports reflects the market reality,” Mohammed Ramady, an independent London-based analyst, said Sunday by phone. “It’s normal to see this fall knowing that the market is becoming highly competitive, with many countries in OPEC selling at discounts and under-pricing the Saudi crude.”
Saudi Arabia's budget has been the focus of the economics specialised western press for quite a while. I suspect there is some overreaction, the country still holds huge foreign exchange reserves; however, some news bits show that not all is well in the kingdom.
Bloomberg
Saudi Arabia Said to Delay Contractor Payments as Oil Slumps
Matthew Martin, 19-10-2015

Companies working on infrastructure projects have been waiting for six months or more for payments as the government seeks to preserve cash, the people said, asking not to be identified because the information is private. Delays have increased this year and the government has also been seeking to cut prices on contracts, the people said.

Saudi Arabia is responding to the decline in crude, which accounts for about 80 percent of revenue, by tapping foreign reserves, cutting spending, delaying projects and selling bonds. Net foreign assets fell by about $82 billion at the end of August after reaching an all-time high last year. The country has raised 55 billion riyals ($15 billion) from debt issuance this year.

“It’s hard to hold back from boosting spending when oil is on the rise, but very hard to cut when oil prices fall,” Simon Williams, chief economist for central and eastern Europe, the Middle East and North Africa at HSBC Holdings Plc, said in e-mailed comments. “Cuts are coming -- the budget deficit is too large to ignore and pretend it’s business as usual.”
The following article is one of the most ironic things I have read this year. The increasing earthquake activity in the state of Okloama - in all likelihood inflicted by the petroleum industry - is now putting at cause the Cushing storage facility. This is the main strategic petroleum stock in the US.
OilPrice.com
Is Cushing Oil Storage Hub Safe With Increase in Earthquake Activity?
Andy Tully, 18-10-2015

A recent earthquake in north-central Oklahoma is raising concerns that seismic instability in the region could threaten a large nearby oil-storage complex.

The quake occurred on Oct. 10 about three miles from Cushing, the site of a tank farm called the Cushing Hub, one of the world’s largest oil-storage facilities. The temblor, though evidently frightening, was moderate in magnitude, measuring 4.5 on the Richter Scale.

The hub, which is operated by private energy companies, has been designated by the U.S. government as part of the country’s critical national infrastructure. The National Earthquake Information Center (NEIC) in Golden, Colo., reported in September that an earthquake could cause ruptures in the tanks, interrupting the flow of oil to refineries nationwide and wreaking serious environmental damage.
Doom and gloom is again the main dish for coal. The article below points to a 14% decline in coal carloads during the past year in the US. If this figure is significant of overall extraction, the the US could be for a deeper decline than China.
Platts
Weekly US coal carloads fall below 100,000 for 17th time this year: AAR
Andrew Moore, 21-10-2015

[...] For the week that ended October 17, coal carloads for the four largest US railroads, which includes originations and interchange movements, were mixed. BNSF Railway reported 43,659 weekly coal carloads, down 6.9% from the prior week and 4.9% from the year-ago week. For the year, the railroad's coal carloads total 1.8 million, up 3.4% from last year.

Union Pacific reported 27,445 weekly coal carloads, down 0.3% from the prior week and 17.5% from last year. Year-to-date coal carloads for UP total 1.1 million, down 16.2% from last year.

CSX reported 15,162 weekly coal carloads, flat with the prior week but down 30.1% from the year-ago week. Year-to-date coal carloads total 788,234, down 14.2% from the same period last year.
The past couple of months I have been postulating that this worldwide decline in coal extraction is actually due to the saturation of steel usage in China, as the need for large infrastructure abates. Another development apparently corroborating this thesis came up this week regarding the British sector.
Reuters
UK steel sector imploding, Tata Steel blames cheap Chinese imports
Maytaal Angel, 20-10-2015

The crisis in Britain’s steel sector escalated further on Tuesday as Tata Steel blamed its decision to cut 1,200 British jobs from its UK operations squarely on a flood of cheap imports, particularly from China.

This month alone, over 4,000 UK steel jobs have been lost or are now at risk, with the country’s steelmakers and unions pinning much of the blame on China. The timing couldn’t be worse as President Xi Jinping commences his long awaited state visit to Britain.

China makes nearly half the world’s 1.6 billion tonnes of steel. With its once stellar growth slowing, the country is expected to export a record 100 million tonnes of steel to world markets this year to help address its spare steelmaking capacity – estimated at a hefty 300 million tonnes.
Finishing off with a sober dive into less successful renewable energy technologies. Sometimes the success of some may spell an ill fate to others. But do not call the funeral just yet.
Environment 360
Will Tidal and Wave Energy Ever Live Up to Their Potential?
Sophia V. Schweitzer, 15-10-2015

In the Pentland Firth, a strait that separates the Orkney Islands from Northern Scotland, strong tidal currents have challenged sailors for centuries. But some of that marine energy is now being captured through a project known as MeyGen. This summer, the Atlantis group began construction on a submerged tidal turbine array consisting of four, three-bladed, seabed-mounted turbines, enough to deliver 6 megawatts to the grid by 2016 and power approximately 3,000 Scottish homes. By the early 2020s, Atlantis is planning to build 269 turbines in the firth, capable of generating 398 megawatts of electricity, enough to power roughly 200,000 homes.

On the other side of the world, off the coast of wave-rich Hawaii, Oregon-based Northwest Energy Innovations installed a wave energy conversion device in June that extracts power from the vertical and horizontal motions of waves using high-pressure hydraulics. Located at a test facility built for the U.S. Navy, the 45-ton apparatus, named Azura, bobs in waters off Kaneohe Bay on Oahu. A small, experimental device with a capacity of only 50 kilowatts, Azura is the U.S.’s first and only grid-connected wave energy system.

These are two of a growing number of advances in marine energy, which has lagged far behind solar and wind power because of the difficulties of operating in harsh ocean environments and the technical challenges of harnessing tidal and wave power. “The technology has kept moving forward, which is good news,” says Ted Brekken, an associate professor of energy systems at Oregon State University. “But the big issue is to get the cost down. Right now, there is the reality of surviving while we get there.”
That is it for this time regarding energy. In recent weeks I have been rather absorbed by the political situation in Portugal, where Parliamentary elections the 4th of October sparked a somewhat unexpected political polarisation. While Portugal is a small member state, these past weeks are likely providing a preview of events to come in other European democracies. If such thematic interests you, I invite you to read my latest account of events.

Have a good weekend.