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Page added on May 15, 2016
The Future of Geopolitics and Energy Markets
Energy prices and geopolitics have been interconnected since the beginning of the twentieth century, but expanded globalization, increased industrialization, and booming fossil fuel supplies have made this relationship increasingly brittle.
The political actions of energy-producing states such as Saudi Arabia, Russia, Iran, and the United States impact energy prices. Conversely, energy prices affect the geopolitical actions of energy-producing states, as well as global consumers like China and India. The dramatic fluctuations in the energy sector are rewriting the relationship between geopolitics and investments. A pragmatic understanding of these two separate components is essential to navigating national security and understanding financial markets related to fossil fuels. More than ever before, an understanding of geopolitics is critical to making profitable oil and gas investments.
For example, as a result of the Joint Comprehensive Plan of Action – the Iranian nuclear agreement spearheaded by the United States – Saudi Arabia has declared war on US oil and gas production. The shale revolution now directly affects how Saudi Arabia reacts to US policies regarding Iran, as the Saudi oil minister has repeatedly spoken about being at war with U.S. shale. The Saudi decision to liquefy oil prices was a conscious effort, as Saudi national and economic security was threatened by improved Iranian relations with the West, and the resulting influx of Iranian oil in the marketplace.
The remissive and reluctant attitude of European states towards Russian aggression in Ukraine, such as the 2014 invasion of Crimea, is a direct result of European – namely German – dependence on Russian oil and natural gas. As the decades-old ban on US natural gas exports has been lifted, Europe is more likely to be freed from Russian attempts to use oil and natural gas as a geopolitical weapon. Now, increased US energy exports could lead to Russia becoming more aggressive and resentful towards the West, specifically the United States. Furthermore, there is no reason to expect that OPEC, with Russian cooperation, will stabilize its production levels.
Historically the United States has balanced world affairs; yet as international US assistance wanes – political stability, economic markets, and energy production are now catastrophically volatile. For these reasons, geopolitical developments drastically influence energy production, economic markets, and investment decisions.
Countries across the globe are now linked in ways never imaged even two decades ago. Global energy markets will continue to change as a result of this stark reality. Newly tapped energy resources that the shale revolution has flamed into existence will now be used to support countries’ international objectives. Interfering with geopolitical energy markets will cause unintended consequences that can undermine the interests of domestic and international oil and natural gas investments. A firm must now have a better understanding of the changes in global energy markets, such as shifts in global energy demand, reducing supply through artificial means, and increased competition in global gas markets. Moreover, firms must grasp the interplay among nations – that geopolitical unrest in one part of the world triggers responses in other regions. Foreign policy and national security decisions are now as influential in driving energy investment trends as economic action and trade agreements.
Many believe that renewable energy sources will insulate markets and shield investors from the dramatic shifts in energy prices held hostage to the energy geopolitical paradox. Yet renewables only comprise 11% of worldwide energy sources, and it is estimated that by 2040 renewables will only provide 15% of global supply. These estimates highlight the three major challenges presented by renewables in their present state. First and second of these challenges are issues related to storage and transmission of the energy produced. Inadequate technology for harnessing the supply of natural sunlight and wind necessitates the use of fossil fuels as a substitute during periods of energy shortages and fluctuations. Furthermore, delivering energy to end users on a global scale would require grid modernization, the cost of which would escalate to the trillions of dollars. Most nations are not likely to spend that sum given the abundance of oil and natural gas that can be extracted and used at very low costs. Finally, these challenges underscore the heightened cost of renewables, which are more than double the cost of traditional fossil fuels.
Bad policies cause bad results. Mandates to generate an ever-increasing fraction of electrical power from renewable sources will raise the cost of electricity production, as it has done in places like California and Western Europe. This means that the cost of over six thousand every-day products will become more expensive to purchase because they are now more costly to produce. The fossil fuel industry will also suffer due to burdensome government interference. Carbon policies in Germany, Britain, and Spain, for example, have resulted in soaring electricity rates, tax-heavy subsidies, energy poverty, and industrial flight, yet they have missed their intended goal to meaningfully reduce carbon emissions. Germany now subsidizes dangerous, lignite coal-fired power plants as necessary back-ups for renewables. Britain now burns wood imported from the U.S. to generate electricity on a countrywide scale. Even the Paris climate agreement is flimsy at best. In the United States, renewables have succeeded solely as a result of heavy government subsidization. When renewable energy production becomes cost competitive, both consumers and energy suppliers will embrace the production methods, and renewable energy production will increase without forced consumption. When government subsidies leave renewables, your portfolio will suffer.
Ironically, despite the promise of green technologies, renewables actually negatively impact the environment. The production of ethanol fuels increases land degradation due to the heavy fertilizer used to amplify crops. Experts further believe that widespread ethanol production and consumption will lead to increased food prices, creating famine, and nutrition shortages for impoverished parts of the world. And while wind and solar may offer an unlimited power supply, both production methods are land-use intensive and must be backed-up by fossil fuel generators. In addition solar energy requires inordinate amounts of water to clean panels for optimal energy production, which could further burden water-impoverished nations.
While Western nations will likely continue implementation of renewable energy technologies, it cannot be expected that these trends will become popular globally. Oil and natural gas are widely used and abundant energy sources. States like Venezuela, Nigeria, Russia, Iran, and Saudi Arabia have affordable means in place to produce and distribute these resources. China and India have little incentive to abandon fossil fuels when they desperately need energy, and there are global suppliers willing to sell. The geopolitical importance of fossil fuels will not diminish, nor will the economic significance. Fossil fuels, particularly natural gas, are the best investments to achieve market stability and carbon reductions.
The International Energy Agency has said government intervention will be necessary for transitioning to a low-carbon economy, creating a market for renewables, funding gaps in research and development, paying for the transition from fossil fuels, and encouraging international collaboration. Although renewables are technically feasible, they do not yet constitute a complete substitute for oil and natural gas.
Energy markets are complex and factors such as production, regulations, consumption, and consumer behavior have to be assumed when developing modeling projections. Yet behavioral characteristics of nation-states give representations towards specific outcomes. Projecting energy markets are subject to randomness and uncertainty, but can be foreseen through the prism of behavioral economics using geopolitical threat analysis assumptions. In today’s uncertain markets, more has to be understood than financial modeling, budgets, and good accounting practices. Otherwise energy investors could be caught in a downward spiral the way they were in this latest unforeseen oil and natural gas crash.
23 Comments on "The Future of Geopolitics and Energy Markets"
makati1 on Sun, 15th May 2016 9:20 pm
The future for politics and oil? Failures for both. It is obvious to the open minded and intelligent few.
Truth Has A Liberal Bias on Sun, 15th May 2016 10:36 pm
You don’t seem the least bit intelligent to me. Actually you come across like a complete fucking retard.
GregT on Mon, 16th May 2016 12:03 am
“The remissive and reluctant attitude of European states towards Russian aggression in Ukraine, such as the 2014 invasion of Crimea, is a direct result of European – namely German – dependence on Russian oil and natural gas. As the decades-old ban on US natural gas exports has been lifted, Europe is more likely to be freed from Russian attempts to use oil and natural gas as a geopolitical weapon. Now, increased US energy exports could lead to Russia becoming more aggressive and resentful towards the West, specifically the United States.:”
I stopped reading after this. More US corporately controlled propaganda. Complete and utter BS.
Apneaman on Mon, 16th May 2016 12:18 am
OMG I love it when they talk dirty.
“Fuck the EU! – Exactly!” – Victoria Nuland & Geoffrey Pyatt
https://www.youtube.com/watch?v=CL_GShyGv3o
The Mess that Nuland Made
“Exclusive: Assistant Secretary of State Victoria Nuland engineered Ukraine’s “regime change” in early 2014 without weighing the likely chaos and consequences. Now, as neo-Nazis turn their guns on the government, it’s hard to see how anyone can clean up the mess that Nuland made, writes Robert Parry.”
https://consortiumnews.com/2015/07/13/the-mess-that-nuland-made/
joe on Mon, 16th May 2016 12:40 am
No serious analysis in the West takes into account that Russia acted legitimately in its national interest in Crimea. Its Sevastapol Fleet was under threat. Would America not act to secure Okinawa if ever a pro-Chinese government comes to power? The use and abuse of right wing-nationalists by western interests in Ukraine is sick. Ukraine cant even form a stable government because its heart is proRussian but its greed is proWestern. Are Americas efforts against Russia worth it? Capitalism and money are melting the ice and Russian permafrost, Canadian forests are ablaze, the world cant sustain itself. Yet we all seek higher gdp so that Elon Musk and Mark Zukerberg and elite Asian families can have a few more bucks for a few more years. What a pathetic joke. Oil is the vomit of a dying planet. The earth has had its time, we are its cancer.
Anonymous on Mon, 16th May 2016 6:46 am
Your right of course, but Okinawa is a bad analogy. Even the Japanese want the uS gone, and Okinawa, is not uS territory, though they seem to feel otherwise. The Crimea has been part of Russia longer than the uS has existed. It wouldn’t take a ‘pro-chinese’ govt to get rid of the american terrorist base @ Okinawa. Just a simple majority vote by the Japanese themselves, no ‘pro-chinese’ anything required. Nor would the uS have any recourse to ‘secure’ something that doesn’t belong to them in the first place.
Davy on Mon, 16th May 2016 7:30 am
We can be sure because of the “tragedy of the commons” and gaming the “prisoner dilemma” we are going to be in an incompatible state of cooperative competition. This is of course just another incongruous juxtaposition that points to more macro existential catch 22’s. Just like growing to degrowth we see competitive cooperation as not possible anymore with the pie shrinking and people at the dinner table increasing.
There is no way for any state of significance to the global ssytem today to decouple from the global system. Further any state with a policy of decoupling from the system will set in motion forces that will destroy the system. If the US goes isolationist many anti-Americans would be thrilled except the forces needed to take the US isolationist will disrupt global trade and derail globalism.
We cannot manage the status quo without globalism. If globalism is disrupted from its current state we will not be able to feed and shelter billions of people. Oil production disruptions will not allow global transport and distribution. The whole system breaks down.
We surely have a global crisis ahead for a variety of reasons any of which can become the limiting factor that throws the global system into crisis. It I unclear currently how we are going to manage a global crisis. We have multiple possibilities of a resulting landing from a global crisis. Energy is key to this.
Since we are all in this together and dependent on each other equitable energy allocation is a must to ensure we hold the ship together as it sinks. Yes it will sink and it is how fast do we want it to sink is the only question. We are going to have a hard quick collapse if we chose to break globalism apart for reasons of national self-interest. If we cooperate in self-interest knowing full and well the danger of not cooperating we likely have a better chance.
We are in a process of collapse so even if we chose the right course we are going to sink. This is necessary and assured because of natural law. All ecosystems are in dynamic change. Science is telling us we are in a destructive dynamic change now. This means of course our modern civilization will fail we just are not privy to the details.
Cloud9 on Mon, 16th May 2016 7:39 am
“We’re going to take out seven countries in 5 years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan and, finishing off, Iran”, General Wesley Clark.
One of the things I had not grasped before looking at the Oracle of Oil was the idea that the deep state had embraced peak oil and that our foreign and domestic policy are based on it. The debacles in the Ukraine and Syria, the invasions of Libya, Afghanistan and Iraq were all part of a grand scheme to lock up the last remaining reserves in an effort to stave off collapse a while longer.
The creation of a massive domestic army and domestic spy service were all part of a plan to maintain control during and after the collapse. The deep state even relocated its central nervous system out of Arlington into the heart of fly over country. The SWATification of local law enforcement and the tremendous influx of military equipment into various state and local agencies suggest that the deep state full well understands the coming social chaos resulting from systemic failure. The billions of rounds of 40 caliber hollow points are clearly intended to keep the dispossessed in check. The last gasp of a failed state will be an effort to determine who eats and who starves. Based on their move out of the eastern seaboard, we can pretty much conclude that they have deemed the east and west coasts as lost. They intend to run what is left of the country from Utah.
We have seen localized systemic failure in the past. After the 1906 San Francisco earth quake, Mayor E.E. Schmitz issued a shoot to kill order to restore order in his devastated city. After the assassination of Martin Luther King in 1968 a hundred U.S. cities went up in flames and Mayor Richard Daley of Chicago issued another shoot to kill order to quell the riots. When Katrina shut down New Orleans, local law enforcement largely disappeared and police from surrounding areas blocked the avenues of escape from the city. The chief of police, Eddie Compass, disarmed the local population and forced them to abandon their homes with no regards to their levels of preparedness or the realities of their safety in the shelters. People were forced to abandon their homes and animals and forced on to trucks and into shelters. Life under the dome deteriorated rather quickly.
http://ftw.usatoday.com/2015/08/refuge-of-last-resort-five-days-inside-the-superdome-for-hurricane-katrina
Imagine what the situation would have been when relief failed to arrive. I think we can conclude from this that people living in the large population centers are toast.
So, what does that mean for the rest of us? The first lesson is that if evacuation is necessary, leave early. This avoids the net before it is dropped and it avoids the inevitable traffic jams that result when the panicked take flight. The second lesson seems to be one of avoidance. If you intend to shelter in place, avoid the shelters. Avoid the imported peace keepers and avoid other people. This may mean not answering the door. It may mean hiding out in inhospitable terrain for a while. It does appear that localized efforts to control the population falls apart after a week or so if those who would seek to control are not reinforced and supplies do not come in.
shortonoil on Mon, 16th May 2016 7:46 am
As long as world policy makers regard oil production as a volume analysis, rather than an energy analysis they will continue to make “bad decisions”. Since this is analogous to not being able to tell the difference between one’s head, and one’s A-Hole, expect a continuation of “bad policies”.
http://www.thehillsgroup.org/
marmico on Mon, 16th May 2016 10:33 am
Starting to get nervous fuctard. $55.01 WTI “maximum consumer price” on January 1, 2017 is getting closer.
$12 WTI in 2020 says the quart shy of oil.
Boat on Mon, 16th May 2016 10:44 am
marmico,
Short went from oil could never rise to the oil rose to match my chart. What changes next?
marmico on Mon, 16th May 2016 11:23 am
Well ya, I guess the truck from the gasoline tank farm to the gasoline station went AWOL. Otherwise, the refiners forgot how to refine oil, or the pipeline operators from the well head gathering systems forgot how to pump the oil to the refinery or whatever.
It is just GIGO. WTI was gonna be $300 in 2020 until it was gonna be $12.
Davy on Mon, 16th May 2016 11:52 am
Good read concerning on the inevitability of a collapse.
http://www.zerohedge.com/news/2016-05-16/markets-have-no-purpose-any-more-mark-spitznagel-warns-biggest-collapse-history-inev
marmico on Mon, 16th May 2016 11:56 am
Davy WORD SALAD GIGO Greenacres shows up. Another fucking innumerate who can’t build a doomstead in 6 months.
GregT on Mon, 16th May 2016 12:05 pm
“What changes next?”
Nothing. The world’s economies will continue to stagnate, finite resources will continue to be depleted forever, the Earth’s natural ecosystems will continue to be decimated, and we will continue to pave the path to planetary extinction. Why change?
onlooker on Mon, 16th May 2016 12:13 pm
Too late for change via human agency even if we wanted too.
Davy on Mon, 16th May 2016 12:40 pm
Marmico, you are a disgraced cornucopian. What else is there to say for you. We hardly hear from you anymore because what is there to hear? All you do is spank people with nothing of value to contribute. I am guessing it won’t be long we will never hear from you again. I always told you this day is coming.
Boat on Mon, 16th May 2016 1:58 pm
marmico does a great job showing facts which flies in the face of the stock and trade doomer talking points. Disgraced? Lol. Davy, give it a rest.
Sissyfuss on Mon, 16th May 2016 4:10 pm
Smarmyco is not a troll in my estimation. He is one of those unfortunate creatures who was given a massive ego attached to a tiny little pea brain. They say Nature is cruel and Life is unfair. So be it.
GregT on Mon, 16th May 2016 4:46 pm
Marmico is either a paid shill, or an angry little troll lashing out at the prospects of it’s dire future.
Boat is dollar cost averaging in an attempt to regain what he’s already lost in the stock market. How’s that S&P 500 working out for you Boat? Down 2.64% YOY? I can think of much better ways to throw money away.
marmico on Mon, 16th May 2016 4:47 pm
Bend over sissypussy. Davy Greenacres needs a change of pace from sodomizing the nannies. He spends more time at that activity and cribbing zerodeadheads than he does building the doomstead.
Miguel on Tue, 17th May 2016 9:04 am
Hi Cloud9,
I am curious about where you got the information about the deep state and peak oil. Did it come from the book The Oracle of Oil? Or somewhere else?
Kenz300 on Wed, 18th May 2016 9:21 am
Paris Goes Car-Free First Sunday of Every Month
http://ecowatch.com/2016/05/17/paris-goes-car-free/
The transition to safer, cleaner and cheaper alternative energy sources continues…………
Germany Achieves Milestone – Renewables Supply Nearly 100 Percent Energy for a Day
http://www.renewableenergyworld.com/articles/2016/05/germany-achieves-milestone-renewables-supply-nearly-100-percent-energy-for-a-day.html
Portugal ran entirely on renewable energy for 4 consecutive days last week
http://electrek.co/2016/05/16/portugal-ran-entirely-on-renewable-energy-for-4-consecutive-days-last-week/