For those who believe the current sanctions imposed on Russia are stopping Russian President Vladimir Putin from moving forward, think again.
Putin has been planning all of this for the last 15 years…this is just the beginning.
The Real Battle
Russia is not the only nation guilty of messing around in Ukraine; both the United States and the European Union are as well.
Over the last 15 years, the West (U.S. and Nato) have not only interfered with former Soviet domains, but have actually taken them over and brought them into the North Atlantic alliance, placing NATO closer to Russia’s borders.
Knowing that Russia was no match for the West, both from a political and military standpoint, Putin decided to focus on what he could control: energy.
This rivalry between America and Russia is not about a difference in political philosophies, but over consumable resources, as I mentioned in both my Letter “The Truth About Ukraine,” and “The Real Reason for War in Syria.”
Like Syria, the control over Ukraine is about specific and strategically important energy corridors.
Russia currently controls more than 30% of the gas going into Europe and much of this gas travels through Ukraine.
Russia is also the largest supplier of gas in the world and controls nearly a fifth of the world’s gas reserves. This dominance over energy has given Russia renewed life in the battle to regain its world power.
America is the ultimate consumer – especially of energy. That’s why America has invaded gone into foreign nations in attempts to strike energy deals for natural resources. One can easily look to the Middle East for clues on American involvement in foreign disputes centered on prolific oil regions.
Russia’s stronghold on gas doesn’t sit well with America.
That’s because with energy comes revenue to fund Russia’s growth and more than 60% of Russia’s state revenue comes from oil export tax.
If America wants to prevent Russia from gaining ground as a world power, it must limit Russia’s control over gas in the East.
That’ why America has threatened to end Putin’s “energy blackmail.”
Following Russia’s annexation of Crimea (a very strategic and important move for Russia’s energy control), Congress announced that it is expanding America’s export of natural gas to challenge Russia’s energy dominance.
Via the Guardian:
“In the first of three hearings on natural gas exports this week, the Senate energy committee was told repeatedly that exporting US gas to Europe – or even Asia – would end Putin’s “energy blackmail” by lowering prices and providing an alternative to Russia as Europe’s big energy supplier.
“America should be an energy superpower,” Mary Landrieu, the Louisiana Democrat who chairs the Senate energy committee said. “The last thing Putin and his cronies want is competition from America in the energy race.”
But can America actually end Russia’s control of gas in the Eastern Hemisphere?
What do you think? Share your thoughts by CLICKING HERE.
Liquefied Natural Gas
Liquefied natural gas (LNG) is natural gas that has been converted to liquid form for ease of storage or transport. This allows gas to transport over long distances where pipelines do not exist.
Over the last year, Obama’s administration has been steadily granting permits for new facilities to liquefy and export natural gas.
Since Russia’s aggressive moves in Ukraine, Congress has introduced three bills to speed up gas exports. It just approved a seventh license for LNG exports this Monday, with around two-dozen more projects in the pipeline.
However, if Obama was to give an immediate green light to all of the export projects, none of them will likely be up and running and exporting LNG before the end of 2015.
Let’s keep that date in mind.
The Ukraine Bailout
The IMF has now agreed to loan $18 billion to Ukraine, but under strict conditions. The reforms demanded by the IMF include raising taxes, freezing the minimum wage and hiking energy prices to the point where Ukrainian citizens will have to pay 50% more for gas.
But $18 billion isn’t enough to cover Ukraine’s debt problem.
That’s why both the European Union and Japan have stepped up to the plate and already pledged further aid to Ukraine, conditional on the IMF bailout and reform package.
The total amount of international assistance will be about $27 billion. Coincidently, the bailout from the IMF will span over two years – just in time for LNG exports from America to hit Europe in 2015.
However, America has yet to pledge its contribution of international assistance – despite being in the headlines as a major supporter of Ukraine. In fact, it is debating a $1bn aid package for Ukraine that is expected to bring more demands for expanding exports of liquefied natural gas (LNG) before any money is loaned out.
“The bill, H.R. 4278, includes additional economic assistance for Ukraine and would signal U.S. plans to increase natural gas exports. Republicans have said such a move eventually would reduce Russia’s leverage over other European nations that depend on its gas exports.”
Can America Lower Costs for Europe?
While U.S. natural gas is cheap, can it be shipped to Europe cheap enough to displace Russian gas?
It costs around $3 per 1,000 cubic feet to liquefy natural gas, another $1 to ship it to Europe, and another $1 to turn the LNG back into a gas.
Earlier this month, Goldman Sachs estimated that U.S. LNG prices would be 35 percent to 40 percent higher than Russian prices if imported by Europe in large quantities.
So unless Russia decides to raise prices by 35 to 40 percent, it wouldn’t be economic for Europe to buy gas from America – not unless America can find a way to reduce costs.
Even if America is capable of reducing costs, it can still easily be undercut by Russia’s pipeline gas.
America has told the world that when it gets its LNG exports up and running, Europe will pay less for gas; thus, removing Russia’s “energy blackmail” on Europe.
But given today’s cost estimates, how will America be able to provide Europe with cheaper gas?
Do you think America will be able to supply Europe with cheaper gas, or do you think America just wants to revenue for itself?
CLICK HERE to share your thoughts.
America’s Real Intentions
The truth is America wants a piece of the energy revenue to pay for its extravagant spending spree over the last decade.
Just last year, America spent over $416 billion just in interest payments, while running a deficit of over $750 billion.
No nation can remain a dominant power if it continues to rack up debt.
America needs additional revenue now.
Crimea and The Black Sea
This is a topic that no one has talked about.
One of the primary reasons for Russia’s annexation of Crimea is access to the Black Sea.
While Crimea accounts for less than 4 percent of Ukraine’s GDP, the region is vital to developing the substantial Black Sea oil and gas that lies in its watershed.
According to Ukrainian government figures, the deep-water natural gas reserves in the region were estimated between 4 trillion and 13 trillion cubic meters. It was estimated that with a small investment of around $8-9 billion, production could reach nearly 10 billion cubic meters per year by the year 2030 – right around the time Russia’s oil production is expected to decline.
Putin’s annexation of Crimea now blocks Ukraine’s physical access to those resources, much of which foreign capital (from Western nations, including Exxon Mobil) was ready to deploy for development.
Both Russian and American intentions are clear in the battle for Ukraine and Syria.
But Russia’s potential upper hand doesn’t stop at the pipelines in Ukraine and Syria. If America is successful in supplying Europe with cheaper gas, Russia still has a potential wildcard.
China: The Next Biggest Consumer
Don’t think for one second that Russia has not thought about the potential loss of gas sales to the U.S. via LNG prospects.
LNG from America to Europe is inevitable. That’s why so many LNG gas stocks continue to hit new 52-week highs.
Eventually, America will be able to use LNG sales to not only help repay its massive debt, but also undermine Russian profits. I strongly believe this is America’s lifeline.
As I mentioned earlier, Putin has been planning this for a long time. He knows that America has incredible influence over Europe and could easily persuade Europe to purchase gas from America – even at a higher price.
That’s why Russia has already been negotiating with China – the world’s second biggest consumer of energy – to provide energy to the growing nation.
What was once a battle for territory between two nations has become an opportunity in the form of a new energy corridor.
Mongolia – The Corridor
Last year, via Reuters:
“Mongolia has agreed to establish a working group with China to oversee the construction of new road, rail and pipeline infrastructure connecting the two countries with Russia, a member of a Mongolian government delegation to Beijing said.
The official, speaking to Reuters on condition of anonymity, said landlocked Mongolia aimed to become a “transit corridor” to facilitate trade between its two giant neighbours and reduce the costs of delivering Russian commodities like oil and natural gas to energy-hungry Chinese markets.”
After many years of negotiation, Putin may be close to a natural gas supply deal with China.
State-owned Russian gas firm Gazprom hopes to pump 38 billion cubic meters (bcm) of natural gas per year to China in 2018 via the first pipeline between the world’s largest producer of conventional gas to the largest consumer.
Putin is visiting China in May and many sources, including those from Gazprom, believe that a deal will be struck.
If this deal can be inked when Putin visits China in May, it will show that global power doesn’t have to remain in the West.
China already overtook Germany as Russia’s biggest buyer of crude oil this year thanks to Rosneft securing deals to boost eastward oil supplies via the East Siberia-Pacific Ocean pipeline and another crossing Kazakhstan.
If Russia continues to be isolated by additional Western sanctions, we may see Russia attempt to step up further cooperation, such as an arms deal, with China.
America may claim to be in the process of providing cheaper gas to Europe, but this may actually result in higher overall gas prices – especially after 2015.
Mongolia is already setup to become one of the world’s biggest energy corridors. It’s only a matter of time before a deal is struck.
This will change the world.