Russia has a five year window, at best, to successfully enter the global LNG markets and even that window is closing fast. That sentiment was the major takeaway from the recent Russian LNG Congress in Moscow.
Turkey's relationship with Russia is changing significantly. A domestic economic crisis, low energy prices and European energy diversification efforts have weakened Russia.
On December 1 2014, during his official visit to Turkey, Russian President Vladimir Putin announced the suspension of South Stream, blaming the EU for its “unconstructive” position. In fact, the realization of pipeline had become untenable as a result of various legal, political and financial issues, such as the EU’s Third Energy Package, the Ukraine crisis and the ensuing sanctions over companies involved in South Stream (Stroytransgaz and Gazprombank).
Russia is the main supplier of crude oil and natural gas to the EU, and although diversifying away from Russian gas is not unrealistic in the medium term, several technical and political obstacles must be overcome.
A barrel of crude oil costs under $50, having more than halved in price since June. This means wells are pumping out smaller profits, if not losses. When oil prices plunge and billions of dollars are at stake, oil companies tend to respond quickly to curb production. The number of active rigs has fallen 50 percent since October, according to Baker Hughes, the oilfield services company. This has led to layoffs, tighter budgets and fewer orders for equipment, all which hurt growth.
With crude oil prices dropping near $40 a barrel in March, area industry leaders are reacting to the deflated market prices by cutting jobs and ramping down production.
U.S. companies remain nervous about oil prices. Spending has been cut as prices fail to rebound significantly, and further price drops could quickly lead to more shrinkage in the rig count.
Currently the project is moving forward, as Moscow and Ankara have signed the MoU, approved the new pipeline route and agreed upon the 10.25% gas discount for Turkey. On the EU side there are many questions, including the one on infrastructure that would have to be in place to transport gas from the Turkish-Greek border, envisaged as the new pipeline’s gas delivery point.
The decline in crude oil prices since last summer has had a direct impact on oil producers' sales revenue, but hedging strategies have lessened the effects of lower prices on some producers' total revenue. Oil producers who adopt hedging strategies can reduce their price risk and generate smoother financial outcomes in unstable markets. A common hedging practice is to sell futures and swaps to lock in desired prices for future production, a practice that can shield producers' revenue from decreasing prices.
Arctic exploration is worth the risk. Exxon has decades of experience working in that part of the world, including successful projects in Russia — but also a catastrophic oil spill in Alaska’s Prince William Sound when the Exxon Valdez oil tanker ran aground in 1989.