Oil stowaway: how the United States changed the world’s energy

“Old OPEC” finally lost the ability to be a regulator of the market, transferring this role to the Americans.

For the global energy industry and Russia in particular, 2018 proved once again that we all continue to live in the us-centered world, and it has repeatedly promised imminent “disappearance,” so still never happened. It take in America solutions the American production and U.S. policy remain key factors, depending on the rest of the country. The American influence though large, but not unlimited, and in 2018 just showed the boundaries of this influence.

For example, now everyone will wait for the outcome of 2018 to the American company Tesla, which has no more than one year were not profitable. Yes, these results will not give a definite answer, what is the future for electric vehicles — and, consequently, world energy — in the near future. In fact, there are a lot of arguments, not only “for” and “against” the announced quality and it was a very quick transition in this area, and many of the politicians who decided to ride the fashion wave and started to make loud statements about the imminent banning of internal combustion engines, clearly came to the intellectual “trap enthusiast”. However, it still year for Tesla, especially if they will be able to interpret positive, give food to even more lively discussions on this topic and reflection in the spirit of “the imminent end of the oil era”.

And yet most clearly to the American role in the world is visible in the aspect of “the murder of oil as a commodity due to technological progress”, and in the aspect of domination in the still existing “world of oil”. The USA is showing a huge increase in production (increase of daily oil production in 2018 amounted to more than 1.5 million barrels), and the actions of those members of OPEC+ is only a reaction to what is happening in the United States.

Of liquid hydrocarbons, including condensate, America has long been in first place in the world for mining by the end of 2018, the country took the lead and directly on oil. Now the EIA and the International energy Agency, and various consulting and Analytics company compete in the projections of continuing rapid growth in U.S. production in the coming years. The numbers are different, but special doubt of the fact that further rapid production growth there. Actively there is a process of “russiane bottlenecks”, i.e. infrastructure and other similar restrictions hindering even faster to increase oil production. When the construction of additional pipelines in the United States to be completed, problems in the competition of American oil companies in the world, only added.

Full and strategic response to the challenge of the American oil industry from other manufacturers, the traditional players of the global market, is not there. “Old OPEC” finally lost the ability to be a regulator of the market, passing the role of the so-called “swing producer’and” the Americans. Now not from the decisions of OPEC, and the level and limits the variations that American production (fluctuations — “swing’a”) range and world prices, and changing the perception of the speculators of the current trends.

Can advanced OPEC (OPEC+) to intercept the Americans have the role of “swing producer’a” and the main regulator of the world oil market, and through him, of the world’s energy? Time will tell, but in the current approach to the case of OPEC members+ this is unlikely to happen. Very revealing story of the fall in oil prices later, just a week after the announcement in December 2018 on the agreement OPEC+ to update the deal to limit production. The market either does not believe in a sufficient level of discipline to the parties, or believes that it is a much larger production cuts. This step not only that it will be painful for mining companies in OPEC+, and such a measure will spur additional growth in US production, which in the end get the finest role of “legitimate free-rider”. That is OPEC+ is only a palliative, not a strategic solution to the problem of losing the competition with traditional producers of American oil companies.

However, a hypothetical refusal of OPEC+ in the framework of the “anti-American stowaway” promises to be extremely painful. You can go the route of removing all self-restraint, “dive in the pool with his head”, to maximize production and live according to the known principle of “pump and pray”(“swing & pray”). “Pray” first and foremost about their own survival and that competitor before you will not withstand the fall in oil prices and would go the distance due to unprofitability of production and/or inability to maintain social stability in the country due to inevitable budget cuts. This is the scenario of a full-fledged race to the bottom. And the Americans and in this case will be handicap — Yes, the cost of production of unconventional oil is higher, but the US oil industry will help the progress of production technologies and a strong American financial system with the possibility of refinancing old debts.

At the same time, American influence has its limits, and 2018, these limits are quite clearly highlighted. For all its power, the US can not afford confrontation on several fronts, it is too expensive. So, defying the global trend of strengthening of China, it is not possible to go on a sharp confrontation with Europe and to further increase the already existing level of confrontation with Russia. Therefore, the sanctions against Iran was softer than expected (many large customers, with which Washington cannot quarrel “here and now”, won the right to continue to purchase Iranian oil), and key Russian energy projects continue to be implemented.

Bright light project “Nord stream — 2”. Real sanctions against him there, as sanctions against Russia’s partners in the project, although many policy makers, market players and observers waited for them for the past year. Washington does not risk unnecessarily the pressure on the Europeans, working with Russia. It is appropriate to compare the experiences of hard of US sanctions against BNP Paribas (a multi-billion dollar fine) for the work with Iran, Sudan and Cuba and the lack of any sanctions against Siemens (made by German company turbine was in Crimea). Because it’s one thing to punish for the cooperation with Iran and Sudan, and quite another — to punish for the cooperation with the country of Russia.

As for the Europeans, that from them to wait for the (new) sanctions on Russian projects especially is not necessary. A reason was fascinated by the discussion of the resolution of the European Parliament with reference to the calls to stop the “Nord stream — 2”. But to discuss something quite different — the position of another institution, the more important this question of the EU Council, where the project is positive. Funny, but the lack of knowledge about EU institutions and decision-making mechanisms in the EU there is often the supporters and the opponents of SP-2, and at the same time and critics and sympathizers of the EU itself.

Did not happen for the year and the tightening of sanctions on Russian SPG — although variations of pressure seem to be many, ranging from theoretically possible inclusion of NOVATEK on the sanctions SDN list, blocking dollar transactions, etc., and ending further tightening of controls on the transfer of the Western countries, Russia has technologies for large scale gas liquefaction. These technologies are still no plans to create them has only recently been announced. However, tough sanctions strike against Russian LNG in 2018 followed, and the whole year was very successful for Russia from the point of view of the sharp increase in exports of liquefied natural gas (thanks to “NOVATEK”, launched by the end of 2018 for three lines “Yamal LNG”).

It will be interesting to see whether asked America trends and accepted in the United States key solution for the global energy industry and in 2019, and the actions of all other players — mostly purely reactive. My version is more likely than not.

Stanislav Mitrakhovich, “Forbes”

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