Byron King in Energy and Oil looks at the reasons behind the TNK-BP dispute:

The Kremlin has invested heavily in Russia’s image as an energy superpower. During the recent Russian Victory Day celebrations on May 9, many commentators referred to Russia’s energy sector as one of the key elements of Russian power. Energy took a top billing, right along with Russia’s traditional military might and still-potent nuclear capabilities.

Russian leaders have pledged to continue increasing the country’s output to meet rising demand, especially in Asia. The first foreign trip by incoming Russian president Dimitri Medvedev was to China, where he made numerous announcements about energy cooperation between Russia and the Middle Kingdom.

But many experts have long pointed out that Russia’s petroleum industry is working under serious constraints:

Most Russian oil fields were discovered in the 1950s, 1960s and 1970s. During those energy-rich times, the then-Soviet developers skipped over all but the largest deposits. Later on, the smaller fields were developed, but these fields cannot make up for the fading giants of the past. New discoveries of any size are quite rare, even in the vastness of Russia.

Much of the equipment and technology in the Russian oil patch is outdated. In recent years, Russia has imported large amounts of Western equipment. Russia has also brought in Western personnel to help maintain oil output. Western oil service firms like Schlumberger and Baker Hughes have a large presence in Russia.

The private parties who acquired many energy Russian assets after the collapse of the Soviet Union made little in the way of long term investment. All along, there was serious doubt about the sanctity or security of the property rights these tycoons acquired in the wake of the collapse of the Soviet state. Hence there was a “boom” mentality that led to rapid exploitation of the easiest resources, with little thought for the long term.

The Russian government imposes confiscatory levels of taxation on the oil industry, with some marginal rates approaching 90%. Thus the high world prices for oil benefit the Russian treasury, but leave little in the hands of oil developers for new investment.

Despite all of this, Russian oil output has been growing at impressive rates for the past ten years or so — in the nature of 5% to 10% per year in some years. But in 2008 that growth has stopped abruptly. Output figures have actually reversed. In absolute erms, Russian oil output is down in the first four months of 2008. Russia may have reached its own “Peak Oil” point, much as the US did in 1970. This has grave implications for the growth of the Russian energy sector, and the larger Russian economy.

If Russian oil output has peaked, we can expect new kinds of both rhetoric and behavior from Russia in its domestic policies, as well as in its dealings with other nations. In all cases, you can expect to see Russia pursue its own security and national interests with a strong hand, if not with a vengeance.

So states a recent article in the Hundustan Times, another “go to” source for news about what is REALLY happening in the energy industry.

The Kremlin has invested heavily in Russia’s image as an energy superpower. During the recent Russian Victory Day celebrations on May 9, many commentators referred to Russia’s energy sector as one of the key elements of Russian power. Energy took a top billing, right along with Russia’s traditional military might and still-potent nuclear capabilities.

Russian leaders have pledged to continue increasing the country’s output to meet rising demand, especially in Asia. The first foreign trip by incoming Russian president Dimitri Medvedev was to China, where he made numerous announcements about energy cooperation between Russia and the Middle Kingdom.

But many experts have long pointed out that Russia’s petroleum industry is working under serious constraints:

Most Russian oil fields were discovered in the 1950s, 1960s and 1970s. During those energy-rich times, the then-Soviet developers skipped over all but the largest deposits. Later on, the smaller fields were developed, but these fields cannot make up for the fading giants of the past. New discoveries of any size are quite rare, even in the vastness of Russia.

Much of the equipment and technology in the Russian oil patch is outdated. In recent years, Russia has imported large amounts of Western equipment. Russia has also brought in Western personnel to help maintain oil output. Western oil service firms like Schlumberger and Baker Hughes have a large presence in Russia.

The private parties who acquired many energy Russian assets after the collapse of the Soviet Union made little in the way of long term investment. All along, there was serious doubt about the sanctity or security of the property rights these tycoons acquired in the wake of the collapse of the Soviet state. Hence there was a “boom” mentality that led to rapid exploitation of the easiest resources, with little thought for the long term.

The Russian government imposes confiscatory levels of taxation on the oil industry, with some marginal rates approaching 90%. Thus the high world prices for oil benefit the Russian treasury, but leave little in the hands of oil developers for new investment.

Despite all of this, Russian oil output has been growing at impressive rates for the past ten years or so — in the nature of 5% to 10% per year in some years. But in 2008 that growth has stopped abruptly. Output figures have actually reversed. In absolute erms, Russian oil output is down in the first four months of 2008. Russia may have reached its own “Peak Oil” point, much as the US did in 1970. This has grave implications for the growth of the Russian energy sector, and the larger Russian economy.

If Russian oil output has peaked, we can expect new kinds of both rhetoric and behavior from Russia in its domestic policies, as well as in its dealings with other nations. In all cases, you can expect to see Russia pursue its own security and national interests with a strong hand, if not with a vengeance.

Until we meet again,

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: Russian Oil, Under Serious Constraints

Well, I did some digging and found a couple articles that might help explain why…

The BBC reported late Thursday that Russia’s new president, Dmitry Medvedev, is headed to Kazakhstan. It’s his first stop on his first trip as the new president. And what’s first on the agenda? Oil.

K-stan exports most of its oil through Russian pipelines. That means a great deal of revenue for Medvedev and friends. We’ll see if K-stan signs a long-term deal with Russia or not, but you certainly can’t ignore Russia’s influence in the region.

Kazakhstan isn’t the only place Russia’s looking to boost revenue – and influence.

The Russian News and Information Agency, Novosti, announced, “Russian oil and gas companies are interested in developing the Mediterranean region.”

In fact, one Russian company has already bought a 50% stake in the El-Arish offshore concession agreement in Egypt.

Russia wants to consolidate its power over energy resources in Asia, and extend its influence in Western markets, too. I think these announcements are just the beginning, and you’ll start to hear more about investing in the Russian oil and gas industry.

Sara Nunnally

Source: Russia Up in a Sea of Red

In late fall of last year, he said flat-out and on the record, “I’m telling my readers to look for oil at $120 a barrel.” You don’t get much more spot on than that — especially considering what other pundits were saying at the time.

OPEC hogs the headlines, but Russia is truly the wild card in oil prices these days. As you can see in the chart, this wild card is set to push oil prices even higher in the future.

Russia was aggressively searching for new oil between 1930 and 1990. The fall of communism, however, brought the fall of oil exploration, too. As a result, Russia is not finding any new oil.

The situation is already pretty bad, and it’s only getting worse. At the current rate new oil discoveries are being made, total reserves of the world’s second-largest oil producer could be cut in half by 2030. Meanwhile, production could be slashed by 75%.

You can bet $120 oil is just the start for the long term. Russia’s position as the dominant non-OPEC oil producer, and the dreadful state of its oil future, is only going to help push oil prices to the next level.

Economic growth in China, India and Brazil has been unfazed by the downturn in the U.S. And their thirst for oil is as strong as ever. Vladimir Putin and Russia will only become bigger players on the world stage in the process.

It’s going to get very scary in the years ahead as the Russia factor grows strong. Prudent investors are already taking action. Learn how to turn Putin’s power grab and mismanagement of the Russian oil machine into profits.

Good investing,

Andrew Mickey
Editor in Chief, BreakAway Investor

International oil majors now control a mere 6% of oil and 20% of gas reserves, according to the report. The rest is in the hands of national oil companies.

The unpalatable reality is that national producers such as Venezuela or Russia today have less need of international oil majors to help them develop their untapped reserves.

“There’s an air of panic about the world’s energy-guzzling nations,” says Manraaj Singh

“Russian oil production, the world’s second biggest, has peaked. It may never return to current levels.

“Leonid Fedun, 52, vice-president of Lukoil, Russia’s largest independent oil company, told the FT he believed last year’s Russian oil production of about 10 million barrels per day was the highest he would see “in his lifetime”.

“It’s fueling concerns that the world’s biggest oil producers cannot keep up with rampant Asian demand.

Oil prices are going to keep on rising, says Black Bear of the Secret Order of Jurojin, regardless of who is in control of reserves.

“People have been asking me if it’s too late to buy oil. Heck no, not if you think oil is going to $140 or $150 per barrel this year — and I do. But there’s a better bargain in energy, which I recommended that Secret Order of Jurojin subscribers buy this week: natural gas.”

“You can play natural gas with one of the natural gas ETFs, or with an undervalued natural gas producer. Or, you can go for the leverage of futures and futures options on natural gas. Be sure that any trade fits your risk profile, and run ideas past your investment advisor.”

There’s an air of panic about the world’s energy-guzzling nations…

Russian oil production, the world’s second biggest, has peaked. It may never return to current levels.

Leonid Fedun, 52, vice-president of Lukoil, Russia’s largest independent oil company, told the FT he believed last year’s Russian oil production of about 10 million barrels per day was the highest he would see “in his lifetime”.

It’s fuelling concerns that the world’s biggest oil producers cannot keep up with rampant Asian demand.

China alone now imports more than 4 million barrels of crude oil every day. If Russia’s production capacity is in decline… where will China quench its thirst for crude?

Why peak oil in Russia should mean big profits in Africa

The Gulf of Guinea on the west coast of Africa is emerging as the new hotspot for the oil industry.

The United States is looking to the region to reduce its dependency on oil from the volatile Middle East. So are the Chinese. And they’re scouring the continent to secure the oil it needs to feeds its vast industrial machine.

Right now, Nigeria is sub-Saharan Africa’s biggest oil producer, and the Chinese have been so keen to gain access to its oil supplies that they’ve stumped-up $50 billion to develop the country’s infrastructure.

It’s obvious they’re desperate cement their relationship with Nigeria.

And there’s no wonder…

Yesterday’s FT reported the leaked details of an internal report prepared for Nigeria’s president, warning Nigeria’s oil production will fall by a third unless the government boosts investment.

To quote the report: “Indications are that, even if current funding levels are maintained, total oil and gas production will decline by 30 per cent from its current level by 2015.”

Such a decline would see Angola overtake Nigeria as sub-Saharan Africa’s leading oil producer and give western governments, who see west African oil and gas production as essential to global energy security, pause for thought.

Heavy investment in African oil is a near certainty

So, there is no question we’re going to have to see a huge increase in investment simply to keep production at current levels.

Trouble is, even the current levels alone not going to be enough to meet soaring future demand.

And that means one thing…

If Africa’s oil industry and infrastructure is going to have any hope of meeting the world’s growing energy needs, there will need to be an astronomical amount of investment into the continent.

As I keep stressing, the biggest winners from this process are going to be those companies with a big hand in the necessary activity that will need to take place.

£5 a gallon petrol by this summer

In the short-term, the inevitable result of the recent news has been a spike in the oil price. It hit a new record of $115.07 yesterday and some analysts now forecast it reaching $120 in the next couple of months.

If that happens, we’ll be looking at £5 per gallon petrol this summer.

But it isn’t just going to hurt us in the pocket, it is also going speed-up the massive transfer of wealth to the oil-exporting countries. That is one of the major themes underlying our investment strategy here at Profit Hunter.

Take the front page of the City A.M. newspaper this morning:

“But while consumers and oil-buying nations will suffer, oil producing nations will enjoy a windfall. Buoyant revenues will add to the reserves of many sovereign wealth funds and could herald another wave of takeovers of Western assets, analysts said yesterday.”

True enough. But what is still being overlooked is that the growing mountain of ‘petrodollars’ isn’t just controlled by sovereign wealth funds; a huge chunk of it is controlled by private investors and they’re also looking to profit from takeovers of assets at currently depressed prices.

But, as I have stressed repeatedly here at Profit Hunter, I believe that we are now firmly in the era of $100 oil and we will continue to look for additional ways to profit from this trend.

Regards,

Manraaj Singh
Editor Profit Hunter

Manraaj Singh is the chief editor of our ‘special situations’ investment alert service: Profit Hunter. It investigates under-the-radar opportunities barely reported in the Western media; situations that could lead to substantial profits for the investors who receive their recommendations. Click here to review their service with no obligation for 3 months!

Considering the lack of volume, Monday’s open interest numbers were a little larger than either I (or Ted Butler) expected. Gold o.i. was up 4,143 contracts and silver was up 1,193. There were probably a lot of spread trades buried in those numbers.

If you remember a couple of stories on the huge price increases in rice and other cereal grains that I’d posted in my remarks over the last couple of days, I said that things would get much worse before they got any better. Well, we’ve had our first casualty. According to an Ambrose Evans-Pritchard piece in London’s Financial Times, Haiti’s government fell over the weekend following rice and bean riots. Five died. It has begun.

I have a couple of stories today. Since it’s Wednesday, I have silver analyst Ted Butler’s regular contribution. In Saturday’s commentary, you may remember me waxing philosophic about the huge concentrated short positions in both gold and silver in the Commercial category of the COT. I said the following…”The ‘8 or less’ traders (bullion banks) completely control the prices in the both the gold and silver markets…that’s all there is to it.” Ted’s latest deals with exactly this issue. The essay is entitled “Super Concentration” and is linked here.

The other story is about oil…Russian oil. The VP of Russia’s Lukoil pretty much says that “the top is in” for Russia’s oil output. There aren’t too many shades of grey in this story which is from the Financial Times in London…and is entitled “Fears Emerge Over Russia’s Oil Output.” It’s linked here.

Once again, yesterday’s news was wall-to-wall bad. PPI up 1.1%. Home foreclosures jump 57%. Oil above $113, gasoline at a record… and auction-rate bond market “will cease to exist” says Citigroup. That must have meant that the Dow and the US$ were both up yesterday. They were.

Take the blue pill this morning…and I’ll meet you and Alice down the proverbial rabbit hole tomorrow morning…same time, same place.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.