The European Union (EU) and United States levied more sanctions on Russia today in an effort to hamper the country’s already struggling economy. The latest sanctions primarily target Russia’s oil industry and military equipment. Supermajors participating in projects with Russia’s oil giants like Transeft, Rosneft and Gazprom are barred from investing in any large scale projects. Its gas industry, however, was spared any sanctions due to the EU’s need for imported energy.
EU Pressing for U.S. Exports
The mutually beneficial gas trade between the EU and Russia is preventing the EU from inflicting immediate damage on Russia’s gas market. Roughly 30% of Europe’s energy needs are supplied by gas from Russia, including Germany, who receives roughly 35% of its energy via its eastern neighbor.
Europe’s need for a short term solution is apparent. Wintershall, the oil and gas arm of a German chemical company, made a big move on Friday by spending approximately $1.3 billion on Statoil (ticker: STO) properties in the North Sea. The acquisition will account for roughly 17% of Wintershall’s production in 2013.
Karel De Gucht, Trade Commissioner for the EU, commented outright on U.S. oil exports on Tuesday. “It is important that we come forward with a position on that (energy agreement) as soon as possible, because maybe you may have noticed that some things are going on in Europe,” he said. “I think everybody would agree that energy is a little bit more urgent for the time being, and also, very much geostrategic.”
Europe’s Energy Sources
According to EuroStat, the EU imported 88% of its natural gas and 65% of its crude oil in 2012. More than 50% of its overall energy dependency relies on imports. Europe, however, is not as dependent as the United States is on hydrocarbons. Rather, nuclear generation is the primary source of energy. The highest oil and gas producing member of the EU is Norway at roughly 1.9 MMBOPD, which ranks 14th in the world. The United Kingdom is the only other EU country to crack the top 30, placing 18th at just more than 1 MMBOPD.
Nuclear power is another story. The IEA’s 2013 Key World Energy Stats report four EU members rank in the top nine of nuclear producers, including France, ranking second. Nuclear accounts for nearly 80% of France’s electricity generation. Europe continues to increase its focus on renewable energy, prompting the EIA to project a diminishing need for hydrocarbon products in its International Energy Outlook 2014. The report says liquid fuels demand in Europe seems to have peaked, and “A long period of sustained high oil prices, improvements in conservation and efficiency have reduced or slowed the growth of liquid fuels use among mature oil consumers.”
The EIA forecasts liquid fuels consumption will decline due to improvements in motor vehicle efficiency, and do so rather quickly.
Source: Natural Gas Intelligence
Oil and gas production from OECD Europe is expected to drop to 3.3 MMBOPD in 2020 from 2011’s total of 4.3 MMBOPD (23% drop). In the meantime, liquids consumption is forecasted to decrease to 14.1 MMBOPD from 14.8 MMBOPD (roughly 5% decrease) and stabilize through the year 2040.
Studies Support Greenlighting U.S. Crude Oil Exports
Keep in mind, there is not a hard ban on U.S. oil exports. Refined products such as diesel and gasoline can be exported, but crude, unrefined oil cannot. The Obama administration loosened the grip on exports in June, stretching the market to allow exports of condensate (light) oil. Larry Summers, the President’s former economic advisor, called for an end to the export ban earlier this week.
A report from the Brookings Institution concluded a lifting of the U.S. crude oil export ban would result in “foreign policy benefits, increased U.S. gross domestic product and welfare and reduced unemployment.” Another incentive: domestic gas prices would drop by as much as 12 cents. The study estimates the U.S. could export 2.5 MMBOPD more by 2015 – a figure more than six times above its current rate.
U.S. Crude “Gridlock” Would Loosen, Production Would Increase to 11 MMBOPD
An IHS report determined the U.S.’ current oil system is nearing gridlock, and lifting the ban would increase the country’s production to 11.2 MMBOPD from the current level of 8.2 MMBOPD, add investment by $750 billion and cut the import bill by $76 billion per year. The extra oil hitting the market would, in turn, decrease gasoline prices and save U.S. motorists a combined $265 billion by the year 2030.
The U.S. Energy Information Administration plans on issuing two reports in September detailing the benefits and setbacks of crude exports.
[sam_ad id=”32″ codes=”true”]
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
