[Flash Walken]

Originally Posted by Flash Walken

Unfortunately for Alberta, that's already happened.

US shale oil extraction being a fundamental geopolitical security issue now has entrenched that future for Albertans and Canadians.

The ride is over, folks. Energy pricing is now an american security concern:

Al Walker, chief executive of Anadarko Petroleum Corp. , said Wall Street has become an enabler that pushes companies to grow production at any cost, while punishing those that try to live within their means. At an investor conference last month in San Francisco, he implored shareholders to stop rewarding growth and start rewarding capital efficiency.

“The biggest problem our industry faces today is you guys,” he said. “You guys can help us help ourselves. It’s kind of like going to AA. You know, we need a partner. We really need the investment community to show discipline.”

The willingness of investors to subsidize shale losses—as long as they come with production growth—echoes investments in technology companies such as Amazon.com Inc. that lost money for a time before becoming profitable. Investors are betting on who can best weather the storm of low prices, and once it subsides, swing toward profits or growth that will fuel a rally in shares.

Even while losing money, many shale producers’ stock prices jumped in the second half of 2016 as they laid out plans to drill again. They were buoyed by eager anticipation from Wall Street, including a record $34 billion in cash from new equity, according to Dealogic.

Compensation practices play a role in the behavior of the U.S. shale producers: Most of their management teams are paid based on growth or adding new oil and gas reserves—not turning a profit—according to Matt Portillo, an analyst at Tudor Pickering Holt & Co. in Houston. “Until that changes, growth may continue to prevail,” he said.

Surviving shale outfits say technology gains have helped them identify drilling opportunities that are economic at $40 oil—though similar claims in the recent past failed to pay off. Individual wells may make profits, but they often don’t translate into overall returns because of operating costs the producer exclude.

In 2016, when crude averaged $43 a barrel, about 30 of the biggest shale companies spent $1.58 in cash for every $1 they generated, according to FactSet. U.S. operators have lost a combined $130 billion since 2015.

Major global producers including Saudi Arabia have dialed down output in recent months to sop up the glut of crude sloshing around the market, only to watch shale companies step in to fill the void. By year’s end, U.S. output could set a record of 10 million barrels a day, according to government and bank projections.

https://www.wsj.com/articles/wall-st...19801?mod=e2tw

Foor months, American drivers have been greeted at gas stations with a pleasant surprise: Gas prices have fallen by half, dropping an average of more than $2 a gallon since their most recent peak in 2011. President Barack Obama took a moment to bask in the credit last week in his State of the Union speech: “Gas under two bucks a gallon ain’t bad,” he said.

Or maybe it is. Behind that drop is an even bigger collapse in the price of oil, from more than $100 a barrel in 2014 to under $27 this week. On Tuesday, the Dow fell 250 points amid fears about what will happen if the price of oil continues its slump, which will have effects far beyond consumers, beyond even the global market.

Oil prices drive not just economics, but geopolitics. Alliances rise and fall over petroleum. Expensive oil props up governments in Russia and Iran, provides stability in Middle Eastern countries and also offers a revenue stream to extremist groups in Nigeria and Iraq. Domestically, high-priced oil spurs innovation in alternative energy; it has also driven America’s shale boom. For all these reasons and more, the collapsing value of oil will have profound consequences around the world, with the potential to destabilize regimes, remake regions and alter the global economy in lasting and unforeseen ways.

So as the global markets process the uncertainty ahead, Politico Magazine asked a panel of leading experts on energy, economics and geopolitics to tell us: As we cheer for cheap gas, what aftershocks should we be bracing for?

http://www.politico.com/magazine/sto...quences-213550

The Rise of the Russian Petro-Gas State

From less than 50 percent in the mid-1990s,[14] the share of commodities in Russian exports has grown to 70 percent today, with oil accounting for more than half of the export income.[15] Representing up to 30 percent of the country’s GDP and half of its GDP growth since 2000,[16] hydrocarbons provided at least half of the state’s budget revenues last year.[17] Five years ago, Russia needed oil prices of $50 to $55 a barrel to balance its budget, but Alexei Kudrin, former first deputy prime minister and finance minister, estimated the breakeven price at $117 per barrel last year.[18]

Russia’s dependence on energy exports—and, consequently, its economy’s vulnerability to commodity price fluctuation—was highlighted by the 2009 world financial crisis. As oil plunged from $147 to $34 per barrel, the resource-based economy contracted by almost 8 percent—the largest drop among the G20 top industrial nations.

Russia has begun to exhibit the signs of what economists call the “Dutch disease,” when overreliance on commodity exports depresses other sectors of the economy by starving them of investments and modernization while the increasing value of the national currency makes exports of other goods and services more expensive and thus less competitive in world markets. Industrial stagnation has even spread to the military-industrial complex, which, like in Soviet times, continues to be the state’s favorite sector and enjoys its continuous and very generous support. Despite this, according to a recent survey, only 20 percent of the Russian defense enterprise qualified as “modern.”[19]

As in virtually every other petro-gas state, the rise of the Russian one has been attended by corruption likely unprecedented even in the country’s far-from-pristine history. Venality and extortion have come close to
subverting or even paralyzing governance, social institutions, justice, and entrepreneurial activity. In Transparency International’s 2012 Corruption Perception Index, Russia was 133rd among 176 countries, worse than Belarus, Vietnam, and Sierra Leone and on par with Honduras, Iran, and Kazakhstan.[20]

Yet the most dangerous political legacy of the Russian petro-gas state is the centrality of oil and gas revenues, which amounted to $215 billion last year,[21] to the loyalty of two groups that are essential for the regime’s survival: the lower-income and elite segments. Trillion-ruble transfers help to maintain social peace in what is known as “Russia-2”[22]—poorer regions, especially the volatile and increasingly violent Muslim North Caucasus, small towns and rural areas, and the rusting “monotowns” (one-company towns) of Stalinist industrialization.[23]

The sporadic raising of meager pensions and salaries for the millions of Russians on the government payroll, including doctors and teachers (usually in the run-up to the Duma or presidential elections) is part of the same strategy. At the same time, oil and gas rents are a vital component in elite management under Putin’s neopatrimonial regime: a tacit but ironclad agreement between the Kremlin and the bureaucracies from top to bottom that permits the latter to enrich themselves at the treasury’s expense in exchange for their loyalty.

So long as the regime continues to regard export revenues as a palliative, if not a panacea, for economic, social, and political problems, they will impede or even obviate the need for economic and political modernization. “The problem of being a petro-state is that the natural resources trend corrupts the institutions,” said Sergei Guriev, rector of the New Economic School in Moscow and a leading expert on Russian political economy. “This is what is called the ‘resource curse.’ This is a trap, where democratic political and economic institutions do not develop because rents coming from natural resources provide incentives to the elite not to develop institutions.”[24]

Challenges to the Status Quo: Oil

But this status quo may not be sustainable indefinitely. After two decades of essentially living off the Soviet Union’s “legacy fields,” the “brownfields” (exploited deposits, as opposed to newly discovered ones, or “greenfields”) of western Siberia are “entering a long-term decline.”[25] Although Russia is not running out of oil, a leading expert believes it may be running out of cheap oil.[26] Instead, oil will have to be pumped from places that are “colder, deeper and more remote,”[27] such as the continental shelf in the Arctic, the ever more remote regions of eastern Siberia, the “deeper horizons” of western Siberia, or the Black Sea.[28]

“Although Russia is not running out of oil, a leading expert believes it may be running out of cheap oil.”Yet the enormous upfront investments that such an effort would require are hard to come by when taxes on oil companies’ profits have greatly reduced the incentive to invest in new technology and greenfield exploration. After they pay the profit tax, value-added tax, mineral extraction tax, asset tax, charges for the use of subsoil resources, mandatory contribution to social funds, and export duties, Russian oil companies are effectively taxed at a 70 percent rate.[29] (By comparison, in 2011, Chevron and ExxonMobil were taxed at an effective rate of 42–43 percent in the United States.[30])

This policy leaves massive capital and technology transfers from Western multinational corporations as the key to sustaining the present levels of oil production. Among the more notable of such ventures was ExxonMobil’s agreement last year to invest, in a joint venture with Rosneft, $3.2 billion into the exploration and development of the Black Sea and the Kara Sea in the Arctic. In addition, with Rosneft’s acquisition of TNK-BP, BP ended up with almost a 20 percent stake in the Russian company.[31] (Rosneft promptly proceeded to “borrow” $10 billion from TNK-BP subsidiaries, in the process effectively robbing minority shareholders who held shares in these firms.[32])

Yet such deals fall far short of what is needed to ensure Russia’s continued status as an “energy superpower,” and the barriers to large-scale Western investments are formidable, if not prohibitive. Shale oil and environmentally “cleaner” liquefied natural gas (LNG) will likely push down oil prices, making greenfield investments less profitable. The worsening of relations between Russia and the West increases the risks as well. Then there is the 2008 law that restricts foreign control over companies operating in Russia’s “strategic industries” (certainly including oil and gas), in effect banning non-Russian energy firms from a majority ownership of any significant venture. (In the ExxonMobil-Rosneft deal, ExxonMobil owns only one-third of the venture.) Last but far from least, there is the memory of the Russian government’s forcing Royal Dutch Shell in 2006 to give up a controlling stake in its liquefied gas production project, known as Sakhalin-2, after Royal Dutch Shell and other members of the consortium had invested $9–11 billion in the venture over 12 years.

https://www.aei.org/publication/the-...n-oil-and-gas/

On September 3, President Obama proclaimed that “Russia is paying a price” due to sanctions imposed by the U.S., the European Union, and other partners. The president failed to acknowledge that booming U.S. oil production is underwriting those sanctions. “U.S. production growth, the main factor counterbalancing the supply disruptions on the global oil market, has contributed to a decrease in crude oil price volatility since 2011,” the Energy Information Administration reported on August 27. “Over the past 13 months, the monthly Brent price has moved within a narrow $5 per barrel range.” In May, Bloomberg Businessweek quoted one analyst saying, “North America’s shale boom has been a huge calming factor. Without it, we might be seeing $150 oil right now.”

EIA called this price stability “remarkable,” especially at a time when supply disruptions are at their highest levels since the 1990-91 Iraq-Kuwait war. This price stability strengthens the capacity of nations to pursue vigorous economic, diplomatic, and military measures because it mitigates their concerns about upsetting global oil markets and harming their own economies.

In 2013, energy policymakers and analysts noted that increasing U.S. oil production was playing a vital role in supporting the Iranian sanctions regime. According to an April 1, 2013, report by NBC News, increased U.S. oil production helped keep oil prices stable despite the loss of 1.5 million barrels a day of oil exports from Iran. Daniel Yergin, a prominent energy analyst was quoted saying: “People talk of the future impact. The increase in U.S. oil production has already had an impact. Sanctions wouldn’t have been effective without U.S. oil production.”

https://www.rpc.senate.gov/policy-pa...foreign-policy