3 Final Looming Global Dangers for Oil Prices
Dec 17th 2012 3:10PM
Updated Dec 17th 2012 3:22PM
In the first two parts of this series, we hopped across six countries, all with the capability to ignite a regional -- and potentially global -- conflagration with an accompanying leap in crude prices. All are located in the Middle East/North Africa producing region.
However, we can easily move further afield to find countries that we would hardly classify as tranquil purveyors of peaceful energy development. Let's look specifically at Russia, China, and Nigeria, although clearly there are other stops we could make where energy matters, but where all is not politically copacetic.
As I noted to Fools not long ago, Russia is now -- by a relatively wide margin -- the world's leading producer of crude oil, with a November output at 10.50 million barrels. Beyond that, the country is a bevy of energy activity, as the Putin-Medvedev regime attempts to expand and benefit from the country's oil and gas reserves. Given the lessons of history, however, it's also a place in which western operators are wise to remain guarded.
The big country's current oil and gas production occurs in hellish (Russian writer Anton Chekhov's characterization, not mine) Sakhalin Island, in Western Siberia, Central Siberia, the Volga Urals region, and west to the Caspian area. In most of those areas, worker's conditions are rarely balmy. For instance, TNK-BP, heretofore a joint venture between BP and a group of Russian billionaires, operates a Siberian field with the not-so-household name Verkhnechonsk, where temperatures frequently reach 70 degrees below zero, Fahrenheit.
The likes of Royal Dutch Shell and BP, among others, have been jabbed in recent years by the sharp elbows of Russian resource nationalism. Even ExxonMobil CEO Rex Tillerson told shareholders a few years ago that his company would avoid new projects in Russia until the probable treatment of foreign companies in the country became clearer. A new deal involving Exxon and Russia's Rosneft will have the biggest of member of Big Oil journeying to Russia to participate with the Russian company in joint exploration projects, while Rosneft will be lending a hand in the Gulf of Mexico, onshore the U.S., and in western Canada.
There's another possible hookup elsewhere between Exxon and Russia. Exxon appears to be peddling its 60% interest in Iraq's West Qurna-1 field, and its 8.6 billion-barrel project in which it is partnering with Royal Dutch Shell. Russia's Lukoil, the country's second largest oil producer, is a potential buyer. Lukoil is already overseeing operations on the huge 12.9 billion-barrel West Quarna-2 field. With news that Iraq appears to be acquiring weaponry from the Ruskies, I'm somewhat daunted by Russia's increasing role in the war-torn nation.
Forbes recently labeled Vladimir Putin "The New Global Shah of Oil." With the Russian president's demonstrated inability to "play nice" on the world stage, that's also not a comforting notion.
This stop will be brief, since in a pair of recent articles, I described China's somewhat marauding approach in both the East China and South China seas, along with its spread into the world of North American energy. In essence, I'm monitoring several issues relating to the giant, partly capitalistic and increasingly unpredictable nation:
- In addition to its attempts to strong-arm Japan in the East China Sea, China, largely through state-controlled CNOOC , has turned bully regarding other countries in the South China Sea, the possible locus of more than 200 billion barrels of crude and two quadrillion cubic feet of natural gas.
- Also through CNOOC and other state-controlled companies, China has acquired stakes in or relationships with the likes of Devon Energy and Chesapeake Energy .
- CNOOC appears to be headed toward spending more than $15 billion to buy Canada's Nexen The purchase would give China effective control of the more than 200,000 barrels-per-day Buzzard field, the U.K.'s biggest North Sea property.
- Another Obama administration turndown of TransCanada's request for permitting of the Keystone XL pipeline, which would link Alberta, Canada's oil sands with Gulf of Mexico refineries, could result in our neighbors to the north constructing an alternative line to their own West Coast, thereby facilitating increased shipments to China.
I've also written somewhat extensively about Nigeria, with its desirable light, sweet crude and undesirable terroristic tendencies. Fortunately, unlike the preceding eight countries we've considered, an upheaval in Nigeria, almost regardless of its magnitude, would be unlikely to infect the rest of the energy world.
Nevertheless, with Boko Haram, a militant Muslim group, wreaking havoc in the country's North and the lingering specter of the Movement for the Emancipation of the Niger Delta (MEND) still existing in the energy-producing south, the country bears watching. Nigeria remains the fifth largest supplier of crude to the U.S.
There are, of course, other countries that might have made our list of danger zones. Venezuela, for instance, is a member of OPEC, the fourth largest oil importer into the United States, and a country that, under Hugo Chavez, maintains a hand-in-glove relationship with Iran. And Brazil, the site of intense offshore activity, is being rocked by a graft and corruption scandal. The key lesson of this series is that the world of oil production includes numerous centers of instability, any one of which could at some point result in tremendous upward pressure on global crude oil prices.
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The article 3 Final Looming Global Dangers for Oil Prices originally appeared on Fool.com.David Lee Smith owns shares of BP. The Motley Fool owns shares of Devon Energy and ExxonMobil and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, long JAN 2014 $30.00 calls on Chesapeake Energy, and short JAN 2014 $15.00 puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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