THE PARADIGM-SHATTERING IMPACTS OF CRIMEA’S LANDSLIDE VOTE

1-Andrew-McKillopAndrew McKillop
21st Century Wire

The ballots are in, and it’s a landslide, and no one is surprised, yet, western talking heads are predictably in denial.

If only we had these sort of democratic turnouts in the west: 83% voter turnout, with 97% of voters opting for a sovereign, independent Crimean state.

Even the arch-globalist and darling of Davos himself, Mikhail Gorbachev, has endorsed the result, stating that it ‘corrects a mistake made long ago by Soviet Union’. From the horse’s mouth:

“Earlier Crimea was merged with Ukraine under Soviet laws, to be more exact by the [Communist] party’s laws, without asking the people, and now the people have decided to correct that mistake. This should be welcomed instead of declaring sanctions”.

The Anglo-American Neoliberal ‘regime change’ paradigm so heavily relied upon by the US and its allies for corporate expansion - is in danger of becoming irrelevant. Everyone can can see it, unless you are in Washington, or working for a major media monster. Kiev’s initial extremist coup de tat was initiated and funded by the EU and Washington DC, but that game is over, and now Russia is dictating the pace of the geopolitical game, leaving the west in a dizzy game of catch-up, trying desperately to glue their new Neo-Nazi government in Kiev into place. In he end, Kiev gets good old home-grown Nazi-leaning fascists, while Crimea gets economic and political stability. Unfortunately for the bruisers in Kiev, sooner or later, they will have to talk to Moscow.

Now we’ve got all that freedom and democracy out of the way, it’s time to face up to the real play here – it’s all about energy. Whoever can carve out their share of this pie will have the cloud necessary to call the geopolitical economic shots in this all-important Eurasian heartland.

But are our leaders and media in the west telling us the truth about the very important energy play? How can they, when they do not even know themselves…


Putin’s ‘Energy Stranglehold’ on Europe


March 17th, world stock exchanges from Moscow to New York and Frankfurt to Shanghai, all gave a whoop of joy at the symbolic-only prospect of European and American “hard hitting sanctions” being set against Russia for its ‘Crimean action’. The wait was over, the panic wasn’t needed, at least not yet, so jobbers, croupier-traders and sociopath hedge fund managers got back to doing the thing they know best of all. However…

How long it takes for the outdated geopolitical theories and rationales that bolstered the panic to crumble and then disappear, is another question. Mainstream press and media, eager to recycle Cold War-era scare stories, always backtracks to Russia’s energy grip on the Old Continent.  Writing in the UK ‘Guardian’ (“Ukraine crisis is about Great Power Oil, Gas Pipeline Rivalry”), March 6th, mainstream analyst Nafeez Ahmed recycles the well-tried, well-worn theory of Putin acting against the Kiev self-proclaimed government, which was instantly recognized by Washington, London, Paris and other EU capitals, because Ukraine is a “critical energy transport corridor” that Russia wants to dominate by any means, including military invasion and an “illegal” referendum in Crimea.

This old theory says that Russia needs the Ukraine for its energy dominance, so the West and Russia have totally opposing goals, and this could mean war. So they say.

The first problem is the “Ukraine energy corridor theory” is a major exaggeration. Ukraine is a critical corridor country for gas supply to Europe, only. Oil has got almost nothing to do with it. Also, the gas pipeline transport role of Ukraine can only decline – and will decline, particularly as the Nord Stream (see image, left) and South Stream gas pipelines, which completely avoid Ukraine, are completed and ramped-up.

In addition LNG terminal financing and building, is now a fevered speculative boom spreading across Europe. Some countries including Poland and France intend to build enough LNG import capacity to cover their total gas needs, by or before 2017-2020. LNG supplies, almost by definition, will come from a large and increasing number of supplier countries, many of them “exotic” such as Mozambique and Australia (and Russia and the US, but in Russia’s case that is not so exotic).

Whether Crimea rejoins the Russian Federation – which it looks like it will (Russia has announced today its full recognition of the new Crimean Republic), or stays with Ukraine, has less and less real world leverage and hold on European energy.

The old geopolitical models and paradigms, which in any case were weak, are being superseded and replaced as we speak. Sadly, heirs Obama, Cameron, Kerry, Hague and the rest of the regime change sales team, will be the last to figure this out. Count on Germany to see the light first, because their mutual trade relationship with Russia is bigger and more substantial than any of the other big EU bully boys.

To be sure, Putin may have acted to force Ukraine to play the role of Russian energy subsidiary, but both the Ukraine and Russia have no other choice than to play those roles now, this is not the way western journalists want us to take it.

Long running gas price and gas debt disputes, unpaid bills between Russia and Ukraine – whatever its government, have been constant since Ukraine left the collapsed USSR in 1991. One key reason that ousted President Yanukovych was voted in by Ukrainians in 2010, and the blonde siren Yulia Tymoshenko was voted out, was her extreme radical – and probably corrupt attempt to pay Russia a much higher price for domestic gas consumed by the Ukraine, partly repay gas debts, and for trading Russian-sourced gas in other EU markets. Talk about corruption in government. Her attempt using her own murky off-shore Swiss-based commodity trading and finance company, created to those ends with a few hand-picked Ukrainian oligarchs – was a total disaster, and Yanukovych largely profited politically from it.

The Multiple and Basic Faults of Dominant Theory

Today’s arguments coming out of Washington and London claim that despite appearances, or even reality, that: ‘The Ukraine’s energy transport corridor role is poised to expand. The country will become more strategic, not less. Its role will expand. Ukraine will link oil and natural gas reserves and production in the Black Sea and Caspian basins, with Europe’. The exact opposite is at least as likely, not because of the new political uncertainty, but because European gas will be transported and sourced from and through a number of other different countries – and on a much more accelerating basis.

The Russian energy dominance theory, and its subset of Ukraine’s critical transport corridor role was  cobbled together during the Cold War era, and heavily used by Zbigniew Brzezkinski for his own political grandstanding. The theory seemed seductive to its writers, and Washington think tanks who were intoxicated by the sounds of their own speeches, but in reality, it is light years away from the real world situation and the powerful global energy trends happening today – which are really setting the future path.


WESTERN CORPORATE-FUNDED THINK TANKS: Where western politicians get all of their bright ideas these days.

In fact, if we take only gas pipelines serving Europe, the total quantity of lines from a few inches diameter (the industry uses inches for measuring) to 4 feet diameter, both public and private, both national and international is so huge it can only be estimated.  One guess would be about 400,000 kilometres. Only the much-larger area United States has more, at about 450 000 kilometres. And the oversupply problem also concerns oil pipelines, you can be sure. Renovating and replacing, and simply keeping the lines operating and filled, is a major task.

To date, projected new east-west oil pipelines serving the EU states are almost absent. One reason is that Europe’s oil demand, like its gas demand is on a downward track that all analysts agree “has no light at the tunnel’s end”. This could or might change, but by 2005 in some EU states, long before the 2008 financial economic crisis – and since 2009 for the rest, their national oil and gas demand has been declining, every year for the straight majority of countries. This trend is called structural, by more and more analysts. In some cases their oil and gas needs, today, are back to 2000-2003 levels, and declining, making their existing energy transport infrastructures more than sufficient. Politicians tend to ignore these kind of fact because they are not being told them by their army of corporate lobbyists and their platoons of pale, sweaty ‘twenty-something’ policy hacks who generate creative writing assignments in the basements of think tanks.

When we look at electricity demand in EU28 countries, the “decline paradigm” has been operating since the late 1990s in an increasing number of countries.

One immediate result for oil is that European refining and oil transport capacity are both heavily surplus to needs. Analysts and sector specialists suggest at least 15%, even 20% of refinery capacity will have to be cut, trimmed, out-placed or shut down by 2020. Linked and associated oil pipelines, mostly local, will also have to go. Oil refining, in Europe, is a sunset industry heavily dependent on state subsidies in most countries and mostly unprofitable. Its needs for new pipelines is very low.

Transport infrastructures for oil supplied to European refineries are in surplus for another simple reason. The intensely developed “legacy network” of oil shipping routes and maritime installations including mostly seaboard refineries, throughout Europe and across SE Europe and west Central Asia, makes oil pipelines unattractive – we mean unnecessary – so the financial investment rationale for new European oil pipelines very, very weak.

Europe’s combined oil transport and refining capacities must fall – not increase. Put another way, why build new oil transport capacities with oil pipelines costing $7.5 million-per-kilometre?

Only the many projected – but few financed and built – new gas pipelines in the wide area spanning the Caspian, south and east Europe, and the MENA region are potential but small scale game changers. Apart from the Nord Stream and South Stream gas pipelines, building progress with new gas lines is however slow or very slow, in part because of the existing high level of “legacy infrastructures”.

The essential point is that Ukraine’s role in European oil transport is close to zero, and its role in European gas transport, although still significant, is declining. Massaging this reality into a major geopolitical crisis is at worst political grandstanding, and simple ignorance at best.

The Image of Scarcity

Also massaged into the media and worked to death by grandstanding politicians eager to appear clever to voters and to pick a fight with Russia (perhaps confusing it with Mali or Iraq), is the image of gas and oil scarcity. Like climate change and global warming, this favourite character role always gets a major stand-in these days.  Some journalists have even claimed this scarcity was another reason former Ukraine leader Viktor Yanukovych rejected the EU association-partnership deal he was on the point of signing, in the days before he was overthrown by the Kiev Flash Mob.

Apart from Putin’s offer of a one-third (33%) cut in the extreme gas price that Yanukovych’s hapless predecessor Yulia Tymoshenko tried to force on Ukainians, and the $15 billion state debt repurchase offer by Moscow – his government also turned down US Chevron Corp’s and European Shell’s fuzzy-edge but claimed-as-enticing proposals to accelerate investment in shale gas and shale oil E&P (exploration & production) in Ukraine (now you can see who was really upset and could have stirred up this geopolitical brew).

The argument is that these proposals, if they ever became actual plans, could or might at some unspecified future date have included oil pipeline construction activity, with some of that in Ukraine, and able to bring new non-Russia gas and oil into “energy-starved” Europe. The proposals were backed by Washington and the EU, so when Yanukovych turned them down he was obviously acting to artificially maintain energy scarcity in Europe, to the benefit of Russia and Putin. That’s the narrative anyway.

In fact, hydrocarbons E&P is powering ahead in the region without any special needs for increased US or EU political support to energy corporate investment and activity.
Reported by media including the UK ‘Independent’ and energy sector ‘Offshore’ magazine, US Exxon and Russia’s Rosneft have made encouraging finds in Crimean and Russian offshore areas, while in the Romanian sector test drilling by Austria’s OMV found interesting deposits, so much so that the majors are bringing in the panoply of deepwater drilling technology. Other majors cited by the specialty press that are either already operating onshore and offshore in Ukraine and Crimea, or are considering near-term action, include Spanish, Chinese, French and Malaysian companies, among others. Canada’s Trans Euro Energy has already found commercial resources of natural gas on the Crimean mainland, underlining the distinct prospectivity and probable large gas and condensate potentials in Crimea.

Available public data only concerning Ukrainian and Crimean conventional onshore gas resources published by the IEA, EIA, CIA, European Commission, and energy majors indicate the country (or 2 countries) have around 1.25 trillion cubic metres of conventional gas – about 120 years of Ukraine’s national consumption. However, the country’s gas production peaked in 1975 and has declined ever since. Very basically, and impossible to be ignored (even by geopolitical “hawks”) this has nothing to do with resource scarcity or Ukraine “depending on Russian gas”. Ukraine profited from ultra-cheap Russian gas – and even forgot to pay for it!

Eastern Ukraine’s giant Donbas coal field is estimated by many analysts as holding very impressive quantities of coalbed methane, with published outline estimates from the US EIA and other sources extending well above 1 trillion cubic metres. The coal field is also deep, due to depletion, incurring high coal production costs and methane or coal dust explosion danger for miners, making coalbed methane extraction, instead of physical coal, the logical future path. Onshore shale gas potentials in the region, including Ukraine and Crimea are also probably large or very large. There is no shortage.

Scarcity is Off the Menu

Natural gas resource scarcity, therefore, does not apply in the Black Sea-Caspian Sea region. This is also shown by the massive gas discoveries, and start of production, from Azerbaijan’s gas and condensate fields. In the eastern and southern Mediterranean, gas E&P continues to make large new finds and extend previously-known offshore gas and condensate reserves, for example offshore Israel and Cyprus. Further away, in east Africa, truly gigantic offshore stranded gas resources have been discovered offshore Mozambique and Tanzania, since 2009.

The argument that Russia is making an “energy resource and transport corridor grab” in Crimea and perhaps subsequently in east Ukraine, driven by energy scarcity among other factors, is therefore impossible to take seriously. Another key reason includes the huge amount of cash already invested by Moscow, in oil and gas E&P in the region, helping accelerate discovery and development. This, in theory at least, would heavily play against Russia’s ability to get the whip hand on this large region’s large proven and potential reserves and so doing, dominate the energy importers of Europe. In other words, Russia is speeding hydrocarbons E&P – and is hard to portray as a geopolitical power trying to limit E&P with the sole intent of profiting from scarcity.

Especially in the Ukraine case, the scarcity theme has also been projected on gas and oil pipeline and transport capacities and oil and gas infrastructures in the region. While this applies to some extent in the east of the region, Caspian Sea and onshore, it is more possible to talk of overcapacity and oversupply in the west of the region. Ukraine, notably, is oversupplied with massive but outdated and badly maintained gas pipeline and gas storage infrastructures, while it is undersupplied with gas and oil E&P financing and technology.

In the Caspian, as Italy’s ENI and its consortium partners (Shell, Exxon, Total, Conoco, the Kazakh government and Impex) have found in their Kashagan project, extreme high costs and a harsh environment, plus a lack of infrastructures have heavily slowed down development of this giant oil and gas field. In the region’s west and Black Sea, these barriers are lower, and timelines for projects to reach export status will be shorter, making it even harder to portray Putin’s strategy as a resource grab. One clear bottom line is that Gazprom will soon have no other option than to cut gas prices, simply due to increase in total gas availability in the region.
This is hard to portray as a “resource grab” and profiting from scarcity!

Resource Scarcity Fears and Geopolitical Musings

From the right distance away,  from roughly 8000 kilometres in Washington that is, in the 1990s, both eastern and western Europe could look like an energy resource depleted region, in which Russia’s Vladimir Putin would later make a thinly-disguised energy resource grab. More than 15 years ago, Zbigniev Brzezinski was advising US political leaders that the “real meaning of the Cold War” was an attempt by Russia to make Europe dependent on Russian energy and cut off western Europe’s access to energy resources and energy transport routes of the Black Sea, Caspian Sea and Central Asia. We can note Brzezinksi in the 1990s did not include the Suez Canal, because that theory of Russian conspiracy to cripple Europe’s oil transport security, by supporting Egypt’s Nasser, was put to bed long ago. Today, his 1990s-vintage theories also need putting to bed – or in the document shredder.

US energy corporations… to be sure, are still interested in eastern Europe-Central Asia, but since the 1990s the often extreme high costs, lack of infrastructures, and unpredictable local political partners – usually recycled Soviet-era party bosses now calling themselves “democratic” – have tamed US and international energy corporate hopes and their willingness to spend in the region. To be sure, the western fringe of this large region, including Ukraine, is better served with energy infrastructures, but as present events show, political turmoil and unpredictability still runs high, and at least as important, Ukraine already has more gas infrastructures than it needs. More important for US energy corporations who were drawn to the region, their own shale gas and shale oil revolution is led by and focused on North America. Home is best - for now.

US Big Energy’s political masters in Washington may still be ensnared in Cold War-vintage geopolitics, and energy resource shortage themes, but these are not the reality on the ground. Since at latest the period from 2005 to date, outlooks for hydrocarbons reserve discovery, and output development and growth have radically increased on an almost worldwide basis – including SE Europe and Central Asia. At the same time, only taking Europe, its oil and gas demand trends are on a sustained downward track, meaning the continent has overcapacity of its existing energy transport and refining infrastructures. This is the real European energy problem, today.

Europe’s key trade surplus status with Russia is also a major factor heavily shading the Cold War geopolitical musings of Brzezinski. EU trade surplus with Russia basically means that Europe trades manufactured goods and services, for Russian energy. This commercial interdependence of Europe and Russia makes it unrealistic to imagine that Washingtonian paranoia has any rational basis, suggesting again that the EU, sooner rather than later, will shelve its brave talk about sanctions against Russia and giving support to the anti-Russian aggressivity of the Kiev “government”.

As we know, political shadowboxing and geopolitical musing can fly far over the cuckoo’s nest, tempting would-be Great Statesmen or women to raise their stupidity quotient, even further. To be sure, the financially overheated SE European and Central Asian “energy and pipeline play” will likely suffer from the recent and present turn of events in Ukraine and Crimea but this will have little effect, over time, on hydrocarbon E&P and infrastructure development in the region. Among other real world results, this certainly implies a downward trend for both oil and gas prices in Europe.

READ MORE UKRAINE NEWS AT: 21st Century Wire Ukraine Files


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