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This Week in Energy: A Turning Point in Ukraine?

This Week in Energy: A Turning Point in Ukraine?

The conflict between Russia and Ukraine was heightened this week when Malaysia Air flight 17 was shot down by a missile strike over Ukraine on Thursday about 30 miles from the Russian border, killing all 298 people on board. The flight, which may “prove to be a turning point in the conflict between the countries,” originated out of Amsterdam and was headed for Kuala Lumpur. Both Russia and Ukraine are blaming each other, but Ukraine’s state security service said that it intercepted phone records from pro-Russian militants discussing the missile strike that knocked the Boeing 777 out of the sky.

The crash comes amidst aggressive U.S. sanctions designed to “inflict pain” on President Putin’s inner circle for supporting pro-Russian separatists in Ukraine. Begun before Malaysian Air flight 17 was targeted, the new penalties include Russian banks and energy and military firms, but spare Gazprom. U.S. officials say that Putin and Russia have a “clear choice to make between increased costs and sanctions pressure, or de-escalating,” their interference in Ukraine.

A 1975 ban on U.S. crude oil exports is being chipped away by government rulings that are allowing more and more exceptions. The Commerce Department will allow Enterprise Products Partners LP (EPD) and Pioneer Natural Resources Co. (PXD) to ship ultra-light oil, known as condensate, abroad. These exceptions may allow as much as 1.2 million barrels a day to be eligible for export. The ban, passed in response to the Arab oil embargo, greatly increased crude prices and created gasoline shortages in the U.S. Now, with horizontal drilling and hydraulic fracturing creating a surplus of crude oil along the Gulf Coast, federal policy makers are feeling pressure to ease restrictions and increase U.S. exports.

Also on the U.S. oil front, imports were at a two-decade low for June according to the American Petroleum Institute. Thanks to a surge in domestic production, imports were below 10 million barrels a day for 10 consecutive months, marking the lowest level of imports since 1993. Almost all aspects of U.S. production have increased: crude oil output is up 16 percent to 8.36 million barrels a day, the highest for June since 1986, natural gas liquids were at a record 2.94 million and gasoline production topped over 10 million barrels a day, which is a “record for June and the second-highest level ever.”

In the Middle East, the geo-cultural region known as Kurdistan may stand to benefit from the recent turmoil in Iraq. With “plenty of oil to support its political ambitions for independence,” Kurdistan is increasingly rejecting Baghdad’s claims over its oil. More than 20 foreign companies are exploring for oil and gas in the Kurdish region. With tremendous oil-production potential, the Kurdish government estimates its untapped resources may amount to as much as 45 billion barrels.

In Israel, Prime Minister Benjamin Netanyahu has ordered the Israeli military to “prepare for a wider ground operation against Palestinian militants in the Gaza Strip.” 2,100 air strikes over the past week and a half have failed to keep the Hamas-controlled area from mounting a counter-attack at Israel, so Israeli soldiers “backed by tanks, heavy artillery, aircraft and warships,” moved into Gaza yesterday. At least 264 Palestinians have been killed in the conflict. Until recently, when two Israelis were killed, their death count had been zero.

What’s good for the U.S. may not be good for Europe, at least in terms of energy production. The American shale gas boom may be placing 30 million European jobs at risk. With U.S. prices lower than their European counterparts, many petrochemical companies are leaving central Europe to take advantage of “ booming U.S. production of natural gas from shale rock formations.” Thanks to hydraulic fracturing and horizontal drilling, the U.S. has become the world’s leading producer of oil and gas.  

By. James Stafford of Oilprice.com

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  • Arkadiy on July 20 2014 said:
    Dear James,

    it is my pleasure to be the reader of OilPrice! Every time I await for yr articles!

    In yr last article "This Week in Energy: A Turning Point in Ukraine?" you write about
    MH017 and "turning point".

    Would you mind if the real "turning point" in Ukraine history was the February
    coup?! You would not deny the West did supported the Maidan protesters. You would not deny the U.S. CIA consultants stay in Kiev and are rendering the consultant assistance to Kiev now.
    If the West does not provoke this coup, Russia would not support the "separatists",
    would not take Crimea, MH017 would not shooted down, Russia would supply the Kiev the gas with low price and would give to Kiev 18 bln USD loan.
    Why do you blame the Russia now?

    You know the provocations with the jet crash is the good tool for redivision of the world. Remember 9/11! Tell me please who became the Real beneficiary of this drama? Would you say it was Ben Laden ? No! The REAL BENEFICIARY of 9/11 is United States!

    What would you say about Afghanistan, Iraq, Libya?!

    I think somebody in US would like to provoke the new Third World War. Do not forget, at the time of Fourth World War people would be armed with bow and arrows!

    Best rgrds from Moscow,
    yr reader Arkadiy
  • Lee James on July 20 2014 said:
    Comrade Arkadiy,

    Thank you for sharing your view from Moscow. Your view seems highly consistent with the official Russian government position about the Ukraine.

    Meanwhile, I think we need to reduce world dependence on oil for a great many reasons. Perhaps the turmoil in the Ukraine will contribute.

    Best regards, and hopes for reduced fossil fuel dependency, from a different James
  • Arkadiy on July 21 2014 said:
    Dear James,

    thank you for yr answer! I can't but agree with you!
    For sure if Iraq produces potatoes and carrots nobody would invade
    there. And Saddam would not be killed and Iraq would not be totally
    destroyed by now!

    So it is great idea to reduce the dependency of foreign policy from fossil fuel!
    I think it must be the first step!

    Best rgrds from Moscow,
    yr reader Arkadiy
  • Lee James on July 21 2014 said:
    Hello again, Arkadiy

    Your support for reducing dependence on fossil fuels surprised me! Russia is a big exporter of fossil fuel. Your economy currently depends quite a bit on these exports.

    Good luck to us all! Best regards, Lee James
  • Andrey Palyura on July 22 2014 said:
    Every day in that area the ukrainian jets and military transport planes were destroyed by rebels. Before MN17 ukrainian miltary transport plane AN-26 was destroyed. It was more than 6000 m from the ground. Why authorities did not close the air routes through that area completely? Why did they decide that it is safe for 9000 m? ICAO closed Crimea for flights. But in our area no war. But ICAO did not close Ukraine where war is in its highest stage, where tens of planes destroyed by missiles for last weeks. The same did ukrainian air authorities. It means that ICAO is political organisation not safety air control. Why do you blame rebels? It is war. Ukraine jet killed them and local population massively. Rebels open fire in response. Moreover the investigation is not finished yet. We need to await official results.
  • Andrey Palyura on July 22 2014 said:
    Dear James!

    Dependence is mutual. EC is depended on oil and gas. We "depend" on Mersedeses and Rovers. We will not sell hydrocarbons, we do not buy your products. On the other hand, oil is not just fuel, it material for many products. So if we sell less now, we safe it for my children. So It is not so bad sell less now for us. It is better to invest in technology or buy some from Asia or others.

    Your reader,
    Andrey, Crimea.

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