212
Iran and Venezuela—surely true today but likely in the longer term too as Russia has more
domestic service and equipment manufacturing capability that Iran and Venezuela.
Sanctions have more to do with geopolitics than oil/gas. If Maduro was replaced by a
more democratic regime, I expect the US sanctions would be lifted regardless of the potential impact on oil prices. Likewise, if Iran regime changed that changed its nuclear and
regional military policies, the US would likely lift sanction (that is a big “if”). (Author’s
interview with Dr. Michael D. Maher, August 12, 2020)
Well, many experts perceive extra-territorial US sanctions against major producers as a means to promote their own LNG industry. While the sanctions may provide
a short-term advantage for US shale companies as they seek to substitute their gas
for those of other producers, it is not necessarily a good long-term strategy as
importing regions increasingly will feel that their energy sovereignty is being undermined when they are forced to purchase energy at a higher premium than would
otherwise be available. Over time, such a strategy can erode trust between partners
and allies, which also has the potential to spill-over to other political arenas
(Author’s interview with Dr. Friedbert Pflüger, May 12, 2020).
Covid-19 Pandemic and Energy Market
The Covid-19 pandemic could take its place in history as the largest destructive
event that has hit the global economy since the Great Depression of the 1930s.
There are indications that its adverse impact could be even bigger than the Great
Depression of the 1930s. 2020 started with positive projections that the global economy is set to grow at 3.3% with global oil demand adding 1.2 million barrels a day
(mbd) over 2019 (fortune.com 2020). The pandemic changed everything. Estimates
of the damage to the global oil demand vary, but there is wide agreement that the
glut in the market has mushroomed to an estimated 1.8 billion barrels between globally stored oil and excess supply in the market, and the global oil demand has
declined by an estimated 30 mbd with oil prices crashing to mid-$20s. If anything,
the coronavirus outbreak and its destructive power on the global economy and the
global oil market has proven irrevocably how inseparable oil and the global economy are by demonstrating that destroying one automatically destroys the other and
vice versa (Author’s interview with Dr. Mamdouh G. Salameh).
Since its inception in 2008, the US shale oil industry has never been a profitable
industry. If it were judged by the strict commercial criteria by which other successful companies are judged, it would have been declared bankrupt years ago. US shale
drillers have been encouraged by easy liquidity provided by Wall Street and other
investors to continue production even at a loss to pay some of their debts. In doing
so, their outstanding debts have mushroomed to almost $1 trillion, leading to many
bankruptcies. Moreover, with a breakeven price ranging from $48 to $68 a barrel
and a good depletion rate of 70–90% after the first-year production, most shale drillers cannot survive low oil prices. Still, President Trump’s administration is under
pressure to keep the industry alive even if on a life support machine not only because
6 Trump Energy Diplomacy
Iran and Venezuela—surely true today but likely in the longer term too as Russia has more
domestic service and equipment manufacturing capability that Iran and Venezuela.
Sanctions have more to do with geopolitics than oil/gas. If Maduro was replaced by a
more democratic regime, I expect the US sanctions would be lifted regardless of the potential impact on oil prices. Likewise, if Iran regime changed that changed its nuclear and
regional military policies, the US would likely lift sanction (that is a big “if”). (Author’s
interview with Dr. Michael D. Maher, August 12, 2020)
Well, many experts perceive extra-territorial US sanctions against major producers as a means to promote their own LNG industry. While the sanctions may provide
a short-term advantage for US shale companies as they seek to substitute their gas
for those of other producers, it is not necessarily a good long-term strategy as
importing regions increasingly will feel that their energy sovereignty is being undermined when they are forced to purchase energy at a higher premium than would
otherwise be available. Over time, such a strategy can erode trust between partners
and allies, which also has the potential to spill-over to other political arenas
(Author’s interview with Dr. Friedbert Pflüger, May 12, 2020).
Covid-19 Pandemic and Energy Market
The Covid-19 pandemic could take its place in history as the largest destructive
event that has hit the global economy since the Great Depression of the 1930s.
There are indications that its adverse impact could be even bigger than the Great
Depression of the 1930s. 2020 started with positive projections that the global economy is set to grow at 3.3% with global oil demand adding 1.2 million barrels a day
(mbd) over 2019 (fortune.com 2020). The pandemic changed everything. Estimates
of the damage to the global oil demand vary, but there is wide agreement that the
glut in the market has mushroomed to an estimated 1.8 billion barrels between globally stored oil and excess supply in the market, and the global oil demand has
declined by an estimated 30 mbd with oil prices crashing to mid-$20s. If anything,
the coronavirus outbreak and its destructive power on the global economy and the
global oil market has proven irrevocably how inseparable oil and the global economy are by demonstrating that destroying one automatically destroys the other and
vice versa (Author’s interview with Dr. Mamdouh G. Salameh).
Since its inception in 2008, the US shale oil industry has never been a profitable
industry. If it were judged by the strict commercial criteria by which other successful companies are judged, it would have been declared bankrupt years ago. US shale
drillers have been encouraged by easy liquidity provided by Wall Street and other
investors to continue production even at a loss to pay some of their debts. In doing
so, their outstanding debts have mushroomed to almost $1 trillion, leading to many
bankruptcies. Moreover, with a breakeven price ranging from $48 to $68 a barrel
and a good depletion rate of 70–90% after the first-year production, most shale drillers cannot survive low oil prices. Still, President Trump’s administration is under
pressure to keep the industry alive even if on a life support machine not only because
6 Trump Energy Diplomacy