Massenbach-Letter. NEWS 23.6.17

Massenbach-Letter. News

  • Syria shows it’s time to take climate migration seriously
  • MODERNIZATION AMONG US PARTNERS – – The French Army at a Crossroads
  • Präsident Trump fordert Stärkung der Berufsausbildung
  • George Friedman:Shale Oil: Another Layer of US Power –
  • COLUMN-Saudi Arabia eases austerity just as oil prices decline: Kemp – Reuters News
  • Meine Empfehlung / my recommendation: TV.Berlin “Andruck”

From our Russian News Desk. (The views expressed are the author‘s own.)

  • The Impact of Tensions between the EU and Russia at the People-to-People Level
  • The Fifth Assault Corps. Back to Order in Syria?
  • Montenegro in the “Zone of Containment” for Russia
  • Second Qatar Crisis: Causes and Possible Solutions
  • Causes and Consequences of the Terrorist Attack on Kabul’s Diplomatic District
  • How Is Iran Capitalizing on the Recent Attacks in Tehran?
  • Tale of a Dagestani gay: amidst honour killing and recruitment to Syria

Massenbach*Syria shows it’s time to take climate migration seriously

June 1 2017 … Not many people know that extreme droughts and bad agricultural planning in Syria between 2006 and 2010 led to the collapse of the agricultural sector in the north-east of the country.

It forced 1.5 million unskilled farmers to migrate to the cities, and it is broadly seen as a contributing factor to the civil unrest. Six years since the conflict began, policymakers in the region and in the West urgently need to give the issue of climate-induced migration the attention it deserves …

Traditionally, the agricultural system in north-eastern Syria produces more than 65% of the country’s crop yield. The region is heavily dependent on rain: more than two-thirds of water for agriculture comes from a six-month rain period each year. The rest of the water comes from irrigation and groundwater. The variability of year-to-year rainfall adds to the importance of groundwater reserves …

During the presidency of Hafiz Assad (Bashar Assad’s father) from 1971 to 2000, the country increased its dependence on agricultural production and started to exploit land and water resources.

This led to depletion of the groundwater and made agricultural success even more reliant on weather conditions. When the country was hit by extreme drought in 2006, it had a huge impact on agriculture. The lack of rainfall and high temperatures caused the soil to dry out, and there was no groundwater to compensate this … the 2006 drought came relatively quickly after the 1998-2001 drought, from which the agricultural sector had only just recovered.

The 2006 drought also lasted longer than previous dry spells, causing the harvest to fail year-on-year … As market prices were heavily influenced by the drought, prices for livestock were low while prices for food and seed increased. This happened at a time when food subsidies for farmers were abolished due to a fall in Syria’s oil revenue and as part of Assad’s new liberal market policy.

In 2009, the United Nations Office for the Coordination of Human Affairs (OCHA) published a Syria Drought Response Plan, following remarks by the Syrian agriculture minister that the economic and social fallout from the drought was ‘beyond our capacity as a country to deal with’ … some 1.5 million Syrians from the north-eastern region migrated to Damascus, Aleppo and other urban areas … The new influx of people also placed a huge strain on urban water supplies, which added to existing political unrest …

In March 2015 climate scientist Colin Kelley published an article in which he compared models of greenhouse gas emissions from human interference with rising temperatures in the Fertile Crescent … what is more disturbing is that … this region will become drier in the future, as greenhouse gas concentrations continue

This terrifying prospect requires that the phenomenon of climate refugees is taken seriously. The Syrian case demonstrates how dangerous climate change can be when it affects vulnerable populations in countries that are not resilient to changing weather conditions and mass migration … The Syrian drought is one example of climate change as a threat multiplier … As temperatures continue to rise, more parts of the Middle East will become uninhabitable. More research is needed on the climatic drivers of civil unrest. But for now, it is crucial that countries most affected by climate change, as well as nations in the global North, take the phenomenon of climate refugees seriously and develop effective emergency plans for the migration of climate refugees.

http://europesworld.org/2017/06/01/syria-shows-its-time-to-take-climate-migration-seriously/#.WUKYx2ddCHs

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From our Russian News Desk. (The views expressed are the author‘s own.)

  • The Impact of Tensions between the EU and Russia at the People-to-People Level
  • The Fifth Assault Corps. Back to Order in Syria?
  • Montenegro in the “Zone of Containment” for Russia
  • Second Qatar Crisis: Causes and Possible Solutions
  • Causes and Consequences of the Terrorist Attack on Kabul’s Diplomatic District
  • How Is Iran Capitalizing on the Recent Attacks in Tehran?
  • Tale of a Dagestani gay: amidst honour killing and recruitment to Syria

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Policy= res publica

Freudenberg-Pilster* Präsident Trump fordert Stärkung der Berufsausbildung

Posted on 16/06/2017 by Amerika Dienst

In einem Werk in Ludwigsfelde (Deutschland) baut ein Auszubildender eine Gasturbine zu Wartungszwecken auseinander. Präsident Trump bezeichnet das deutsche Ausbildungssystem als Musterbeispiel. (Foto: AP Images)

Im folgenden ShareAmerica-Beitrag vom 16. Juni 2017 von Christopher Connell nennt US-Präsident Trump das deutsche Ausbildungssystem vorbildlich.

Auf der ganzen Welt beneidet man uns um unser Hochschulsystem, das Studierenden Abschlüsse ermöglicht, die ihnen die Tür zu unzähligen beruflichen Laufbahnen öffnen. Aber ein Hochschulabschluss ist nicht der einzige Weg zu guter Arbeit. Vielmehr bedauern viele Arbeitgeber, nicht genügend qualifizierte Mitarbeiter für gut bezahlte Stellen in der Hochtechnologie zu finden, die keinen Hochschulabschluss erfordern.

Genau an dieser Stelle kommen Ausbildungsplätze ins Spiel. Präsident Trump hat eine neue Kampagne gestartet, die Industrie und Schulen ermutigen soll, mehr Ausbildungsprogramme zu schaffen, in denen die Auszubildenden einen Lohn erhalten, während sie in der Schule und am Arbeitsplatz diese Fertigkeiten lernen.

Bei einem Treffen mit Bundeskanzlerin Angela Merkel im Weißen Haus im März lobte Präsident Trump das deutsche duale Ausbildungssystem, das weithin als das beste der Welt angesehen wird, und nannte es als Grund für die niedrige Jugendarbeitslosigkeit in Deutschland.

„Das deutsche Berufsausbildungssystem hat sich bei der Ausbildung hochqualifizierter Arbeitnehmer bewährt“, so der Präsident im März. „Deutschland leistet hier Erstaunliches“, sagte Trump, während er führenden deutschen und amerikanischen Wirtschaftsvertretern dankte, die kurz zuvor erfolgreiche Ausbildungsprogramme in den Vereinigten Staaten ins Leben gerufen hatten.

Präsident Trump begleitet von Bildungsministerin Betsy DeVos (2.v.l.) und Arbeitsminister Alexander Acosta (2.v.r.) auf einem Rundgang durch eine Fabrik in Wisconsin. (Foto: AP Images)

„Die Vereinigten Staaten müssen die Fachkräfte, die die großartigsten Maschinen, Gebäude, Produkte, Innovationen und die beste Infrastruktur auf der Welt herstellen und warten, die unsere Lebensqualität verbessern, unsere Sicherheit gewährleisten und in der Lage sind, uns zu erstaunen und zu verwundern, nicht nur ausbilden, sondern auch würdigen“, sagte Präsident Trump am 13. Juni bei einem Rundgang durch eine Muster-Werkhalle des Waukesha County Technical College in Pewaukee (Wisconsin).

Auch andere Länder wie Australien, Österreich, Dänemark, Frankreich, die Schweiz, die Türkei und das Vereinigte Königreich bieten jungen Menschen Ausbildungsplätze, die zu guten Arbeitsplätzen führen. Laut dem Bildungsnewsletter Hechinger-Bericht absolvieren 70 Prozent der Jugendlichen in der Schweiz eine Ausbildung.

Das Global Apprenticeship Network — ein Zusammenschluss, zu dem Unternehmen wie IBM, Microsoft, UBS, Accenture, Telefonica und internationale Organisationen sowie Arbeits- und Unternehmensverbände gehören — verfügt über Zweigstellen in beinahe zwölf Ländern, darunter Argentinien, Kolumbien, Indonesien, Malawi und Tansania.

US-Arbeitsminister Alexander Acosta sagte am 12. Juni vor Journalisten, dass sich die Initiative der Regierung an alle Industriezweige und Berufsgruppen richte und einen Schwerpunkt auf öffentlich-private Partnerschaften zwischen Industrie und Bildungseinrichtungen lege.

Originaltext: President Trump pushes for more apprenticeships

https://blogs.usembassy.gov/amerikadienst/2017/06/16/staerkung-der-berufsausbildung/#more-12649

***************************************************************************************************************** Politics: From Vision to Action

Barandat* The US Army War College Quarterly – Parameters 47, no. 1 (Spring 2017)

  • MODERNIZATION AMONG US PARTNERS –

– The French Army at a Crossroads –

Rémy Hémez

Major Rémy Hémez, French Army, is currently a military fellow at the Security Studies Center of the French Institute of International Relations.

ABSTRACT: The French Army strategy to protect the people from terrorism and to remain involved in international stabilization efforts comes at a cost. This article identifies steps to balance the complexities through technology and force structure.

Between 2010 and 2025, French Army equipment will have changed more than it did between 1970 and 2010. But, this shift is not limited to fielding matériel, the French Army is also undergoing a major reorganization—the Scorpion modernization program.

Since the Île-de-France attacks (January 7–9, 2015), the French Army’s overarching challenge has been to balance its interventions abroad, reassurance missions, and homeland security operations. Although a relatively stable equilibrium has been found, the model raises new questions regarding its long-term sustainability.

Choosing a priority between defending borders or projecting forces abroad has been a continuous struggle. Beginning with the French Revolutionary Wars (1792–99), France’s strategic culture has been predominantly defined by defending its northeastern border, which requires a large land force. This tendency was reinforced at the end of the Algerian War (1954–62), when colonial troops returned to France.

The proliferation of nuclear weapons in the early 1970s caused the French Army to join the West’s deterrence mission; however, despite the assigned priority to defend the homeland against a Soviet invasion, a small projection force maintained an expeditionary culture. This Cold War model defined by levée en masse (massive conscription) was applied until 1996, when the suspension of the practice was announced. Since then, strategic priorities have been inverted.

The French Army has turned toward its expeditionary force to create a more compact and better equipped army, one in which all units are capable of intervening abroad.1 This trend extended through 2013 with financial pressure causing a drastic reduction of the number of units and personnel.2 (for more see att.)

http://ssi.armywarcollege.edu/pubs/parameters/issues/Spring_2017/12_Hemez_FrenchArmyCrossroads.pdf

in: http://strategicstudiesinstitute.army.mil/pubs/parameters/

The US Army War College Quarterly – Parameters 47, no. 1 (Spring 2017) (UNCLASSIFIED)

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Middle East

COLUMN-Saudi Arabia eases austerity just as oil prices decline: Kemp – Reuters News

21-Jun-2017 15:12:23

John Kemp is a Reuters market analyst. The views expressed are his own

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By John Kemp

LONDON, June 21 (Reuters) – Saudi Arabia’s decision to reverse some of last year’s austerity measures coincides with a renewed decline in oil prices and complicates the financial and economic outlook for the kingdom.

All allowances, bonuses and financial benefits for civil servants and military personnel cancelled, amended or suspended in September 2016 have been restored and backdated by a royal decree issued by King Salman ("Saudi Arabia slashes ministers‘ pay, cuts public sector bonuses", Reuters, Sept. 26, 2016).

The decision coincides with the alteration of the succession in favour of the king’s son Mohammad bin Salman and relieves the previous crown prince of all his posts.

The distribution of largesse to coincide with changes in the succession is common in monarchical systems to cement loyalty to the ruler and the chosen heir.

Saudi successions have normally been accompanied by generous financial packages for employees on the government payroll and distributions have also been made at other times of political stress.

The government has been gradually relaxing some austerity measures in recent months and signalling it would go further.

The decision to pair the change in succession with a relaxation of austerity is not surprising but there are questions about its affordability in the medium term.

AUSTERITY

Austerity measures were introduced by the government in response to the sharp drop in oil prices and revenues ().

Saudi Arabia’s earnings from petroleum exports shrank to $134 billion in 2016, from $322 billion in 2013, the last full year before oil prices slumped (“Annual Statistical Bulletin”, OPEC, 2017).

As spending outstripped income, the country’s foreign reserves were depleted by $116 billion in 2015 and another $81 billion in 2016, according to statistics from the Saudi Arabian Monetary Agency.

Saudi Arabia’s official foreign assets have fallen by a third to $500 billion at the end of April 2017, from a peak of $746 billion in August 2014 (“Monthly Statistical Bulletin”, SAMA, April 2017).

The combination of spending controls, increases in taxes and utility fees, and higher oil prices at the end of 2016 and in early 2017 narrowed the budget deficit and stemmed the depletion of reserves.

But austerity has provoked complaints from Saudi citizens and a broad slowdown in the private-sector economy, which relies heavily on government spending and oil revenues as the ultimate source of almost all activity.

According to a statement carried by the official Saudi Press Agency, the decision on Wednesday to reverse cuts for civil servants and military personnel was necessary to ensure a decent life for the kingdom’s citizens.

SUSTAINABILITY

Foreign reserves declined by $35 billion in the first four months of the year; the reversal of austerity coupled with lower oil prices means the decline could accelerate in the rest of 2017.

Saudi Arabia still has room to manoeuvre. The kingdom’s remaining reserves stand at $500 billion. It has little foreign debt. And the eventual sale of shares in state oil firm Aramco should raise additional funds.

But reserves are depleting at an unsustainable rate of $100 billion per year, plus or minus $20 billion ( and ).

Saudi Arabia maintains a fixed exchange rate to the U.S. dollar, which means the country probably needs to keep minimum reserves of $200-300 billion to preserve confidence or risk a run on the peg.

In the meantime, the country is bogged down in an expensive armed conflict in Yemen which appears to have reached a stalemate.

Military and political competition with Iran, the kingdom’s traditional enemy, is escalating, and Saudi Arabia has promised to buy billions of dollars of extra armaments from the United States.

The government has outlined ambitious plans to move the economy away from dependence on oil and public-sector jobs to non-oil industries and the private sector.

The decision to restore public-sector salaries and bonuses is inconsistent with the policy of encouraging a shift to private-sector employment.

PACING REFORMS

So far the economic transformation plan has been long on rhetoric and short on substance. Tough decisions on spending lie ahead and will test the government’s resolve.

The recent Article IV consultation between the Saudi government and the International Monetary Fund concluded the kingdom could afford to take longer to balance its budget (“IMF staff completes 2017 Article IV mission to Saudi Arabia”, IMF, May 17).

“The government is adapting its fiscal policy to lower oil prices. The aim of bringing about a large, sustained, and well-paced fiscal adjustment to achieve a balanced budget is appropriate,” the IMF said in May.

“The target of balancing the budget, however, does not need to be met in 2019 … given Saudi Arabia’s strong financial asset position and its low debt.”

“A more gradual fiscal consolidation to achieve budget balance a few years later would reduce the effects on growth in the near term while still preserving fiscal buffers to help manage future risks.”

But given the government’s swift turnaround on austerity, it remains unclear how it will close the persistent budget and current account deficits.

If something cannot go on forever, it will stop, noted the late Herbert Stein, chief economic adviser to then-U.S. president Richard Nixon.

The kingdom has comfortable financial reserves but they cannot deplete forever.

(Editing by Dale Hudson)

John Kemp

Senior Market Analyst

Reuters

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*Massenbach’s Recommendation*

founded by George Friedman. – Shale Oil: Another Layer of US Power –

Summary

There’s scarcely a reason to point out how geopolitically important energy is. Energy, particularly oil, is a source of geopolitical power. Every country needs it, but only some countries have the resources to procure it themselves. Some countries have enough of it that they can profit from its export, and others have so much that they rely on it almost exclusively to fuel their economies.

Saudi Arabia and Russia are two such countries. They spend a lot of money on social services, and they can afford to do so as long as oil revenue keeps flowing in. In times of prosperity, they can, through OPEC, bully other countries into doing their bidding and even dictate the direction of markets. But when oil prices are low, as they are now, they simply don’t have as much money to pacify their populations or exert influence abroad. Pressure on their governments builds.

Simple supply and demand helps to explain why prices are low. When prices bottomed out a few years ago, most oil producers, including Saudi Arabia and Russia, were expected to cut production to normalize prices. Instead, they kept production high to increase their market share, thinking (incorrectly) that they would capitalize when prices rebounded. But perhaps a more important reason supply is so high, despite recent efforts by OPEC and Russia to cut production, is that the United States has exceeded expectations on how much oil it could bring to market. With the continued use of hydraulic fracturing and other related technologies, the United States is now believed to have more recoverable oil reserves than any other country in the world, and it is reaping the benefits of its newfound status.

Geopolitical Futures doesn’t forecast commodity prices, so we make no attempt to do so here. But the following report will outline a trend that has emerged over the past several years, one that will maintain downward pressure on prices and thus alter the global geopolitical landscape: affordable shale oil drilling in the United States.

Introduction

Saudi Arabia and Russia are geopolitically important countries. What happens to Saudi Arabia affects the regional balance of the Middle East, and what happens to Russia affects Europe, East Asia and beyond. Their importance is due in no small part to their vast energy reserves, which are their primary source of government revenue. They create a high standard of living to which their populations are accustomed, pay state employees and give the government gravity on the global stage.

Since so much depends on energy, oil prices are more than just financially important. In Saudi Arabia, oil revenue has enabled the government to create patronage networks public and private alike. It has also enabled Riyadh to be the de facto leader of the Middle East. Without oil revenue, the government could not fund its Sunni Arab proxy groups in the battle for regional control, finance the war in Yemen or even maintain social stability.

The story is much the same in Russia. Financial reserves have dwindled. Russia is considering cutting defense spending in the coming years (something it rarely does) and is struggling to finance state pensions. Now that its Reserve Fund is being depleted, Moscow will have to switch over to its National Wealth Fund, which has a little over $70 billion but which is, for various reasons, much more difficult to tap into.

OPEC, which Saudi Arabia essentially leads, has so much recoverable oil that it has been able to more or less control oil prices by adjusting production levels, sometimes in concert with Russia. But that is no longer the case. By some estimates, the United States has surpassed Saudi Arabia in recoverable oil reserves as advancements in hydraulic fracturing and horizontal drilling have enabled producers to access areas previously not thought possible.

A Deep History

Hydraulic fracturing, more commonly referred to as fracking, is a process by which oil deposits found in shale rock formations are extracted. Shale oil, also called tight oil, is enmeshed in shale rock, which is located thousands of feet beneath the Earth’s surface and is generally less permeable than other rock types, making deposits more difficult to access – difficult, but not impossible. Once producers drill down far enough to reach the shale deposits, they inject a solution made mostly of water (hence hydraulic) at high speeds to break apart the rock (hence fracturing), creating fissures through which oil can flow. Included in the solution are certain chemicals that assist in the extraction process and a kind of sand that keeps the fissures open once the fracturing is complete. (The process can also be used for natural gas, and its effect on natural gas prices is similar, but for the purposes of this report we will focus on oil.)

Though fracking has become more of a household term in recent years, it’s hardly a new technology. It dates back to the mid-19th century, when a man named Col. Edward Roberts devised a way to lower an explosive device through a pipe in an oil well that had already been drilled. Some of the wells in which this technique was used were thereafter 1,000 percent more productive (that’s not a typo).

Roberts’ explosive device was eventually replaced by another explosive, nitroglycerine. Even though nitroglycerine was used as late as the 1990s, companies began to experiment with using more inert materials as early as the 1930s. In 1949, Halliburton became the first company to fracture a well with water.

(click to enlarge)

It was also in the 1990s that producers began to combine fracking with a separate process known as horizontal drilling, which allows a well to be drilled vertically, then, when the drill hits the desired sedimentary layer, it is turned to drill parallel to the layer. In 1991, a well was successfully horizontally drilled and fractured for the first time, and in 1998 the first profitable horizontally fractured well was completed. The supply of U.S. shale gas, and later shale oil, has increased ever since.

The United States has benefited from the shale revolution more than any other country. Not only does it have extensive shale formations, but most of its wells are located entirely within its territory, so producers don’t have to compete for jurisdiction or share their profits. (Brazil and Paraguay, for example, have overlapping oil interests that have sparked debate over ownership and sovereignty.) Still, the shale revolution is not exclusively American. Canada has some shale plays in operation, and from 2020 to 2040, Russia and Argentina are expected to tap into their shale oil reserves.

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In the meantime, the United States is likely to become a net energy exporter in 2017, according to some estimates from the U.S. Energy Information Administration. This is no small development; energy independence has been a strategic objective of Washington’s for some time. Shale oil has given it the means to achieve its goal.

Peculiar Economics

Energy independence, however, depends on the peculiar economics of the shale industry. Drilling for shale oil costs less per project than, say, deep-water drilling. There are two general types of costs: capital costs and operating costs. Capital costs are the investment required to drill and complete the well and build the facilities onsite to manage it. Operating costs are the ongoing costs after the well has been drilled. These are measured either in dollar per thousand cubic feet or in dollar per barrel.

The total well cost – the entire amount of investment required to set up a new well, including land, permits, drilling and completion – varies by location but runs consistently in the low millions of dollars. A report by the EIA estimated that the average completion cost per well is around $5 million to $9 million, depending on the location of the deposits. Some companies, however, are able to drill and complete wells much more cheaply; Chesapeake Energy was able to complete wells in the Mississippi Lime in northern Oklahoma for $2.8 million per well in 2015.

According to the EIA, drilling accounts for 30-40 percent of all capital costs. Completion costs, which include the actual fracking process, account for 55-70 percent. Facilities costs, which include erecting onsite buildings as well as road construction to transport oil away from the site, account for 7-8 percent of well costs.

The same EIA report analyzed well completion costs across a number of companies and locations and determined that average costs, in terms of dollar per barrel of oil equivalent – an approximation of energy released by burning one barrel of oil – declined 7-22 percent from 2014 to 2015 and 25-30 percent from 2012 to 2015.

Importantly, some wells are drilled but not completed when funds dry up or when oil prices dictate that the well is no longer economically viable for the time being. In this scenario, the oil driller has effectively used the low permeability of the sedimentary layer to store oil until it’s ready to frack the deposits.

Once the oil starts to flow, operating costs tend to vary. Gathering, processing and transporting can range from $2.25 to $5 per barrel for oil or higher, depending on how far it needs to be transported. Water disposal can range from $1 to $8 per barrel. Other general and administrative expenses range from $1 to $4 per barrel.

New drilling techniques can expedite the completion process and thus drive costs down further. Several years ago, a new well might have taken 3-4 weeks to drill. Now it can take as few as 7-10 days. Not only does this cut down on the overall costs of producing a barrel of oil, it also gives producers flexibility to respond to higher prices and to expand their operations. In fact, now that so many shale plays are known to produce, exploration is less risky, so companies are more willing to operate there.

Since capital and operating costs are so varied, there is no single break-even price for shale oil. But if we average wells by location, we can get a sense of which prices generate profit and which do not.

(click to enlarge)

Wood Mackenzie, an energy research and consulting firm, estimates that 60 percent of all crude reserves that are economically viable at $60 per barrel or less are located in U.S. shale reserves. This figure is different for every well, of course – some are unprofitable even at $46.88 – but it is notably lower than the break-even price just a few years ago, around $80-$100 per barrel.

(click to enlarge)

In fact, break-even prices are down at most shale locations. This is partly because of lower costs and partly because of higher yield enabled by newer technologies. And while total rig count has declined significantly, production has remained stable.

(click to enlarge)

What complicates things is that technological innovation raised some absolute costs of drilling even as it yielded more oil from wells. Consider fracking sand. Producers eventually figured out that if they injected the wells with a hydraulic solution that contained more sand than the previous solutions did, their wells yielded more oil. The solution was then adopted throughout the industry. This increased the demand and therefore the price for sand.

The price of labor has risen too. When oil prices declined from mid-2014 to early 2016, many shale sites were left uncompleted and their crews laid off. When prices rebounded to the $40-$50 range, as many as 400,000 workers returned to complete the wells. But since the demand for labor was widespread, companies were forced to offer more competitive wages to attract skilled personnel back to their sites.

And then there are the vendors who provide goods to drilling companies. When prices bottomed out in 2015, vendors sold their wares at low margins – the only way companies could afford them. If the price of oil rises in the next 1-3 years, vendors will raise their prices in kind, knowing that their customers can foot the bill. These short-term gains, however, will be modest at best. Some analysts believe the inflation rate of input costs could reach 10-20 percent.

Drilling companies also have to pay for the land on which they operate. Some of the richer shale territories such as the Permian Basin charge a high price because they are in such high demand. The Trump administration has pledged to make it easier for companies to drill for oil, and if that is the case, it’s reasonable to assume there may be more land available for shale exploration in the future.

Costly though these factors may be, they are ultimately short-term risks for energy companies. The industry would continue to innovate even if, all things equal, oil prices increased. In fact, wells have been pretty productive independently of price trends. Higher prices will keep the drillers drilling until oversupply drives prices down again.

No Reason Not To

And therein lie the geopolitical consequences of the shale revolution. In Russia and Saudi Arabia, it’s still much cheaper to drill for conventional oil than for shale oil. Each can produce a barrel for about $10-$15. With oil priced at $50, the government in Riyadh will make more money off a single barrel than a shale oil driller will for the foreseeable future. This explains why, even when prices fell so dramatically from 2014 to 2016, OPEC could afford to maintain high levels of production. Its members (and Russia) thought that if they kept prices low and captured market share, they could outlast U.S. shale producers who could, in theory, no longer afford to operate.

It was a sensible strategy at the time. The problem is it didn’t work. OPEC didn’t expect shale oil drillers to lower their costs as much as they did, nor did it anticipate how quickly they could complete unfinished projects. A shale oil driller in the United States, moreover, doesn’t need to be more profitable than Saudi Arabia to drill new wells; the driller just needs to fetch a sufficient return on invested capital. When prices are low, drillers simply forgo exploration and concentrate on the completed wells that produce enough oil to justify their existence.

(click to enlarge)

The number of drilled but incomplete wells has grown over the past few months. When oil prices reach the upper end of the $40-$60 per barrel range, these wells will begin to produce, bringing even more oil onto the market. This is a foreboding prospect for countries like Saudi Arabia and Russia that depend so heavily on hydrocarbons. Sure, they can produce oil more cheaply than their U.S. counterparts, but rampant government expenditures make their fiscal break-even point – the price at which their budget is not running a deficit – much higher. The International Monetary Fund estimates that oil will need to cost $78-$80 per barrel in the next two years for the government in Riyadh to break even on its fiscal budget. Russia’s break-even point is lower at $68 per barrel, but it’s still higher than current prices. Short of that, the two countries will have to run budget deficits – which deplete their fiscal reserves – to continue the social spending programs that earn them the support of their people.

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For Russia, that means cutting state pension plans on which more than 90 percent of its retirees depend. For Saudi Arabia, that means cutting benefits for state employees who have grown accustomed to a comfortable lifestyle. It is in both cases a recipe for social discontent – something both governments are keenly aware of.

U.S. shale producers, meanwhile, are now profitable at levels below the fiscal break-even points of Russia and Saudi Arabia. They have no reason not to drill more. So even if prices climb high enough for Riyadh and Moscow to break even, it is unlikely that they will stay there for long, since high prices encourage shale producers to drill more.

In light of this dynamic, the United States is uniquely positioned to be energy independent – or at least less dependent on oil imports – something it has wanted to be for decades. Contemporary U.S. power is built on two layers: its military might and its relative independence on exports at a time of stagnant global demand. Energy independence would give it a third layer, making it only more powerful. The agility of its oil sector to respond to market forces is simply more than Russia and Saudi Arabia can bring to bear.

Conclusion

OPEC’s strategy – gaining market share to put shale drillers out of business – has failed. Shale oil producers have proved capable of reducing their per barrel costs and competing on the global market at price points that would have been unimaginable just a few years ago. If OPEC (or Russia) raised prices by cutting production, they would make shale producers only more profitable. If they kept prices low by raising production, they would only spur more innovation by shale oil producers.

Geopolitics is rarely a zero-sum game. But in the case of shale oil, what’s good for the U.S. is bad for its rivals.

https://geopoliticalfutures.com/shale-oil-another-layer-us-power/

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Meine Empfehlung / my recommendation.

TV.Berlin “Andruck” –

Andruck

· TV.Berlin – Der Hauptstadtsender

· 363 Videos

Die wöchentliche tv.berlin-Presserunde beschäftigt sich mit aktuellen Ereignissen rund um unsere Hauptstadt. Unter der wechselnden Moderation von Agnes Fischer und Peter Brinkmann diskutieren bekannte Berliner Journalisten über unterschiedliche Problematiken in Berlin. Kritische Analysen und Meinungsverschiedenheiten zeichnen „Andruck" aus. Hier wird offen, ehrlich und kritisch über Geschehnisse in Politik, Wirtschaft und allgemeine Themen, die Berlin bewegen diskutiert

https://www.youtube.com/playlist?list=PL7Ort_YZGjC4PIIy52lEvOdjaK7Cvg_-y

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see our letter on: http://www.massenbach-world.de/41259.html

*Herausgegeben von Udo von Massenbach, Bärbel Freudenberg-Pilster, Joerg Barandat*

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UdovonMassenbachMailJoergBarandat

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