As Europe sits in the worst energy crisis it has ever seen in modern history, the question looms; Will Putin invade, or is this a ploy to get the Nord Stream 2 pipeline approved? Last week in my article, we talked about giving Putin the title “Energy Czar” if he gets the Nord Stream 2 … Continue reading “What will the invasion of Ukraine mean for U.S. gas prices at the pump? And is the invasion happening in the next 10 days?”
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February 9, 2022
As Europe sits in the worst energy crisis it has ever seen in modern history, the question looms; Will Putin invade, or is this a ploy to get the Nord Stream 2 pipeline approved?
Last week in my article, we talked about giving Putin the title “Energy Czar” if he gets the Nord Stream 2 pipeline approved for natural gas transportation. As noted, this additional flow of gas will bump the stranglehold of their reliance on natural gas from Russia as a supplier to over 90%. Any country having this much control of a critical commodity is just an unthinkable powerful political leverage.
Now Russia has just signed a deal with China to also supply oil and gas at a massive scale. New pipelines and storage centers will be built to accommodate these new agreements. You can take it to the bank that there will not be any hold up on getting the pipelines approved or denied by political oversite.
Global Platts on February 4th, published; “Some analysts see the latest tension around Ukraine as likely to further stimulate Russia-China energy ties.
“Risks of Western sanctions on the Russian energy sector will only reinforce a desire to increase export optionality to Asia, in addition to a desire for Chinese investment in upstream development,” Paul Sheldon, chief geopolitical adviser at Platts Analytics said.
Gazprom is also developing Power of Siberia 2, with shipments via Mongolia, that will increase gas supply capacity to China to 50 Bcm/year.
China’s gas imports from Russia rose 50.5% year on year in 2021, with pipeline gas volume surging 154.2% year on year to 7.54 million mt while LNG imports fell 9.9% year on year to 4.58 million mt, according to the data released by China’s General Administration of Customs on Jan. 20.”
So now that we are in February, there is only a limited window for Russia to invade Ukraine. The U.S. is warning that there is an invitation potential “imminent”. There are several reasons that it must occur in the next 10 days. The weather will change and Russia’s tanks will not be as mobile through the Ukrainian countryside, and secondly, the fear of running out of energy is being reduced each day we get closer to spring.
What does this mean to world oil prices? Well, that is a good question. Oil is at $90 and natural gas is at $4.30, and there are several different sides to the pricing model.
If Russia invades, demand will decrease as people do not travel as much in a crisis. And people think that prices will go down.
If Russia does not invade and this is just saber-rattling, then there is the assumption that prices will remain on their current path of a bull run (We cover these reasons for the bull market in our follow-on article later this week).
Geopolitical Futures published today a very good article about the geopolitical crisis unfolding. “Over the past few days, the United States has warned that a Russian invasion of Ukraine may be imminent. The chairman of the Joint Chiefs of Staff said Russia could take Kyiv in as few as three days. Moscow, for its part, has insisted that it has no intention of invading Ukraine. But Moscow has every reason to lie. The truth behind Washington’s statements is harder to parse.
Obviously, U.S. intelligence might have information indicating that the Russian military will invade this week. If so, publicly saying as much might be meant to deter Russia. The problem is that it won’t. The U.S. has made clear that it would respond to an invasion with extreme economic sanctions rather than with military force. So if Moscow has made up its mind to invade in spite of the consequences, acknowledging the imminence of the attack isn’t much of a deterrent.”
While we may find out if Russia invades Ukraine in the next 10 days, all of the market indicators are showing that oil and gas prices are going to stay in the bull market expectations no matter if the invasion happens or not.
For the United States oil and gas companies, this global issue emphasizes their strong fiscal practices while delivering low-cost energy. We will see more rigs every week and production ramping to historical levels. But this will not lower the price of oil and gas. There is a huge supply chain shortage of materials and labor for the Oil Field Service companies to get the wells drilled. These additional and increased costs will be passed on to the consumers again.
In its latest report for the week to January 28, the EIA reported rising gasoline stocks in the U.S. and a drop in implied gasoline demand. “An increase in total stocks and a decrease in demand typically put downward pressure on pump prices, but rising crude prices continue to push prices higher instead,” AAA noted.
The Bottom Line
The consumers will pay a lot more at the pump, even higher than the 2014 levels, and on the flip side, there will be lots of great paying oil and gas jobs and money to be made for commodities investors.
As always check with your CPA if alternative investments are good for your portfolio Take the assessment and see if it is right for you HERE.
Please reach out to our team at any time for answers to your questions.
Jay R. Young, CEO, King Operating
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