TIME energy

Why King Coal Will Keep Its Crown

A coal plant looms behind a traditional house in Tianjin, China
A coal plant looms behind a traditional house in Tianjin, China Frederic J. Brown—AFP/Getty Images

The challenge of unseating the most polluting power source on the planet

This post originally appeared on OilPrice.com

For climate change activists and those hoping for an energy future dominated by renewables or even less-polluting natural gas, the death of coal cannot come quickly enough. But with coal still the dominant form of cheap electricity throughout the world, it is unlikely the bogeyman of climate change will disappear anytime soon.

That’s because the price of coal, compared to other fuels, is just too good to refuse. Just look at China, where the country’s double-digit economic growth has largely been fueled by coal, which fulfills 60 percent of its energy mix.

According to a chart showing the levelized cost of energy — the price at which electricity must be generated from a source to break even — coal is the second-cheapest form of energy behind hydropower, at $40 per megawatt hour.

Compare that to the cost of nuclear at $60, natural gas at $70, and solar — which at $280 per MWH, is seven times the cost of coal. Coal is also plentiful, relatively easy to extract — though admittedly dangerous if mined underground — and requires minimal processing. And it can be used for power generation (thermal coal) or steelmaking (metallurgical coal).

Of course, coal-fired plants have exacted an enormous price on air quality, and the Chinese government – which has declared war on pollution — recently banned the use of coal in smog-cloaked Beijing. Last week, it was announced that for the first time in over a decade, Chinese coal imports and coal consumption both dropped.

While that may seem like a dart in coal’s balloon, coal’s continued use elsewhere is more than making up for China’s restraint.

Germany doesn’t like to talk about it, but the world leader in the use of renewable energy, particularly solar, is also a big consumer of coal. As The Economist recently pointed out, Germany’s production of power from lignite coal is now at 162 billion kilowatts, the highest level since the smokestack-belching days of East Germany.

The same article notes that Japan, which has no natural energy resources of its own and is scrambling to meet electricity demand — most of its nuclear reactors have been offline since the 2011 Fukushima disaster — approved a new energy plan in April that includes coal as a long-term electricity source. The Japanese have also invested almost $20 billion in overseas coal projects in the past seven years, according to the Natural Resources Defense Council.

In the United States, even though a shale-gas supply boom has seen many utilities shift to cheaper natural gas, the country will still be generating a third of its energy from coal by 2040 (only 10 percent less than now), according to the U.S. Energy Information Administration (EIA). That’s despite a concerted effort by the Obama administration to force the nation’s coal-burning power plants to reduce their carbon emissions by a third over the next 15 years.

U.S. coal producers have responded to the trend of falling domestic consumption by exporting more coal overseas. A Wall Street Journal chart shows exports of U.S. coal grew from around 50 million metric tons in 2000 to 106.7 million MT in 2013. Most U.S. coal is destined for Europe, with Brazil, South Korea and China close behind.

All of this is not to suggest that coal producers haven’t had their problems. The price of benchmark thermal coal over the past three years has dropped from more than $130 a ton to around $80. Metallurgical coal is also at a six-year low.

Despite a huge cutback in production, the coal market continues to be oversupplied. As Oilprice.com pointed out recently, waning steel demand in China has forced mines in Australia to close. Australian producers are also threatened by Chinese plans to build more rail capacity for its domestic coal, which would undermine its coal imports.

In the United States, coal producers are finding it increasingly difficult to lock utilities into long-term contracts that provide stability and protection from price fluctuations. That’s because the utilities want the flexibility to have short-term contracts, or even buy coal on the spot market, since natural gas continues to be a competitive option.

Looking ahead, though, there doesn’t appear to be a declining demand curve for coal. Consider this: in Africa, some 60 percent of the continent’s population, or more than 600 million people, do not have access to electricity. The EIA predicts African coal consumption will rise by 70 percent by 2040. In India, another big consumer of coal, 300 million people remain disconnected to the electricity grid. The country plans to increase its use of renewable energy by 15 percent by 2020, but still faces the challenge of energy demand exceeding supply by 10 percent.

Coal is a likely contender to fill that gap. A recent article in Australian Mining states that by 2025, India’s electricity generation from coal will be reduced from 60 percent to “only 50 percent of installed generation – but that doesn’t necessarily mean less coal generation.”

In the end, it all comes down to price and government policies. If the economics of coal can be beaten by other electricity sources, the old-school fuel will face pressure, as it already has in the U.S. But as market forces continue to drive the various options available for utilities, coal use — particularly in developing nations — is almost certain to go up. Unless governments enact American-style laws to sharply curtail coal power plant emissions, expect King Coal to retain its crown.

Read more at OilPrice.com

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TIME energy

Oil: A Blessing And A Curse For The Middle East

Erbil refinery in Iraq, seen in June 2014.
Erbil refinery in Iraq, seen in June 2014. Onur Coban—Anadolu Agency/Getty Images

The region's supplies of crude have their downside

Originally appeared at OilPrice.com

What exactly is at stake in the battle for control of the Middle East, other than the obvious — the region’s abundant oil and natural gas? And why is it coming to a head now?

There are two aspects to what is currently transpiring in the Middle East: the battle for the region’s natural resources and the battle for the region’s human resources.

The region’s natural resource wealth has long been both a blessing and a curse. It has helped countries like the United Arab Emirates and Oman achieve amazing progress in a relatively short time and make the leap from societies that not long ago were comparable to medieval times into the 21st century.

But as one learns in the study of conflict resolution, change – any change – brings with it a certain amount of conflict. And the changes that oil and gas money brought to the Middle East were phenomenal. In turn, they upset more conservative elements of society who were unhappy to see the “natural order” of things – i.e., the old ways – disrupted and replaced with modern ways.

At the same time, the region’s resources have been a curse because it gave dictators like Iraq’s Saddam Hussein and Syria’s Bashar al-Assad the ability to squander billions of dollars on arms and weapons systems, to wage wars on its neighbors, and to threaten regional security. Syria, for example, with far less revenue from oil than Iraq, invested its modest revenues on increasing internal oppression rather than investing in the country’s future — its people.

Just how rewarding is it for Assad to look at his country today, utterly destroyed, more than 190,000 killed according to the United Nations, many more maimed both physically and psychologically, the infrastructure totally devastated? Yet he remains at the reins. He is now president of parcels of territory eroded by war.

Oil wealth has also allowed tiny counties, like Qatar, to assume an outsized role in the region and meddle in its neighbor’s politics, certain that its money can buy it anything, including influence. But what money cannot buy is critical thinking, which is what appears to be lacking most in the region.

Related: Oil Companies Turning Away From The Middle East

The second aspect of why the Middle East is going bonkers today is that the existing borders are based on Western colonial thinking. In many places, one country ends and another begins at a line in the sand drawn by a Frenchman and a Brit who divided up the spoils of the Ottoman Empire at the close of World War I.

This is why, for example, the Islamic State (IS) became so powerful in Syria and in Iraq — for them and the fighters who join them, there are no borders, no demarcation lines and no frontiers.

Why is IS so powerful, yet so little is known about who they are? From the little we know about them is that that the core of the officers corps comes from the remnants of Saddam Hussein’s army that went underground when the U.S. invaded in 2003.

Professor Amazia Baram, chair of Arab studies at Haifa University and an expert on Iraq under Hussein, explains that when the late dictator was still a lower echelon thug working for his cousin — who took power in a military coup – the family was overthrown but managed a comeback.

Once back in power, Saddam was given the task of setting up an underground system of operations from which the regime could recover in the event of a future coup. Saddam, according to Baram, excelled in securing back-up plans and in the process got rid of the top man and placed himself at the head of the state and party. Saddam never forgot the importance of maintaining the emergency fallback protocol and although he is now gone, his former generals have, by all appearances, taken over the network and placed it at the disposal of IS.

As the United States and its Western allies again get drawn into a Middle East war, this time it might be more constructive if they went in with something more than shock and awe.

Related: Does UAE Conscription Law Signal the End of the Dream?

Eliminating the IS threat militarily alone will not suffice. What is needed here is a viable “Marshall Plan” adapted for the Middle East where reforms are made in the education sector, where democratic principles are gradually introduced, and where the people are given voice in participating in the affairs of state and invited to join in governance, rather than being locked out of any decision making process.

As the map of the Middle East is being redrawn, so too must change be introduced into the very core of the region’s socio-political system.

Read more at OilPrice.com

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TIME Syria

This Time, U.S. Goes to War Against Oil, Not For It

U.S. and allied warplanes attacked a dozen ISIS refineries in eastern Syria on Wednesday. DoD

Attacks on ISIS refineries are designed to choke off funding for terror group

Some maintain that the Pentagon is a self-licking ice cream cone, dedicated to its own preservation. If that’s true, it’s also worth noting that an expanding terrorist state is an oxymoron—one that will eventually collapse from its own internal contradictions.

The fact that the U.S. and its allies attacked a financial hub of the Islamic State in Iraq and Greater Syria (ISIS) on Tuesday–the first day of strikes in Syria—and spent Wednesday and Thursday bombing its oil-production facilities, highlights ISIS’s predicament.

Unlike a smaller terrorist organization—al-Qaeda, for example—ISIS now occupies, and purports to govern, a wide swath of desert straddling the Syrian-Iraqi border. It needs the estimated $2 million a day it’s grossing by smuggling oil because many, if not most, of its 30,000 fighters are in it for the cash, not the ideology. But the refineries represent only a small slice of ISIS’s oil revenues. It makes most of its money from crude oil, and the U.S. has refrained so far from attacking oil fields in the region.

If the money eventually dries up, Pentagon officials believe, many ISIS fighters will head back home. The terrorists control about 60% of Syria’s total oil production, according to a Syrian opposition estimate.

“Substantial uncertainty pervades our understanding of the mechanics, volume, and revenue associated with the terrorist group’s black market petroleum operations,” the Senate Energy Committee said in a report released Wednesday. “Depriving ISIS of whatever dark revenue pool it generates from its sales of oil will put additional strain on an organization with little capacity to expand its oil field operations.”

The U.S. and its allies damaged a dozen small ISIS refineries in eastern Syria on Wednesday. DoD

Wednesday’s attacks by six U.S. and 10 Saudi and United Arab Emirate warplanes took all 12 targeted refineries offline, U.S. intelligence believes. “They’re not going to be using these refineries for some time,” Rear Admiral John Kirby, the Pentagon spokesman, said. “We’re trying to remove the means through which this organization sustains itself.”

Generating such revenue requires industrial-like facilities, which can go from money-makers to targets in the flash of GPS-guided bomb.

That highlights an edge the U.S. and its allies have on ISIS. Sure, the terror group’s recruits, armed with AK-47s and pickup trucks sporting machine guns, can take over small refineries sprinkled across eastern Syria. But once they have them, they can’t keep them running under aerial assault.

Pentagon officials acknowledge they don’t know how long it will take for the lack of oil money to begin having an effect. But they know what they are looking for. “We’ll know when they have to radically change their operations,” Kirby said. “We’ll know when we can see that they no longer are flowing quite as freely across that [Syrian-Iraq] border. We’ll know when we have evidence that it’s harder for them to recruit and train, or they just aren’t doing as much training and recruiting.”

That’s the conundrum ISIS faces as it tries to expand and become a functioning state: so long as the rest of the world isn’t willing to let that happen, ISIS eventually will have to revert to becoming a poorer and smaller—though still dangerous—group.

TIME energy

How College Kids Helped Divest $50 Billion From Fossil Fuels

Stephen Heintz, President of the Rockefeller Brothers Fund, Valerie Rockefeller Wayne, the chair of the fund, and Steven Rockefeller.
From left: Stephen Heintz, President of the Rockefeller Brothers Fund, Valerie Rockefeller Wayne, the chair of the fund, and Steven Rockefeller, a son of Nelson Rockefeller and a trustee of the fund, in New York, Sept. 16, 2014. Hiroko Masuike—The New York Times/Redux

The groundwork for an announcement by heirs to the Rockefeller fortune was years in the making

Environmentalists hope Monday will come to be viewed as an “economic tipping point” in the battle against climate change.

More than 700 investors pledged to divest their holdings from fossil fuel companies, just a day after an estimated 400,000 demonstrators marched through the streets of New York to demand that world leaders take action to stop climate change at a United Nations summit this week.

The divesting organization garnering all the headlines is the Rockefeller Brothers Fund, a respected charity that is run by the heirs of John D. Rockefeller, who built his fortune refining oil at Standard Oil Company. The Rockefeller Brothers Fund and about 50 other foundations have a combined $4.2 billion in assets total, which will no longer be invested in fossil fuel companies. Combined with individual investors and other institutions, such as colleges and faith groups, a total of $50 billion assets has been pledged to not be invested in fossil fuel companies. “It’s not huge, but its a very important signal to the market,” says Stephen Heintz, President of Rockefeller Brothers Fund.

For recent University of California, Berkeley graduate Katie Hoffman, the idea that the heirs of an oil tycoon would reroute billions of dollars away from fossil fuel companies was laughable when she began advocating that her school divest from those businesses in 2011. But it was she and other college activists who actually gave the divestment movement legs in its nascent days. “We’ve been integral in the process, and that’s been seen by folks who are actually driving and funding the movement,” Hoffman said at the event in New York where the Rockefellers announced their intentions Monday. “We have a stake in this. This is our future.”

The divestment movement began at Swarthmore College, a small Pennsylvania liberal arts school, in 2011. Students there, who could visibly see the impact that coal mining was having on the nearby Appalachian Mountains, began advocating that their school divest its billion-dollar endowment out of the largest companies that profit from drilling for and distributing fossil fuels. “In asking for divestment, we are implicitly stating that investment is a choice,” Mountain Justice, Swarthmore’s student-led divestment advocacy group, says on its website. “ It is a political choice with global consequences. Choosing to invest in an industry means financially endorsing that industry’s practices.”

Students at other schools, like Hoffman at UC Berkeley, quickly picked up the fight. Overall, 400 college campuses now have active divestment movements. The campaigns mirror previous efforts to deal with moral and political issues via economic means. In the 1980s, it was college students that first pushed their administrators to divest holdings from companies doing business in South Africa, where the racist regime of apartheid still reigned. More recently, prominent schools such as Harvard and Brown divested from companies operating in Sudan because of atrocities occurring in Darfur.

The calls for fossil fuel divestment had, until this point, been met with a more muted response. Despite birthing the movement, Swarthmore has continually maintained that divesting would hurt the school’s endowment, which it says it not meant to be used to advocate for social purposes. The UC system shot down a student-led divestment proposal last week. Other schools with large endowments, like Harvard and Brown, argue that divestment is a symbolic move that won’t affect energy companies’ bottom lines, or that more positive change can be made through shareholder activism.

Still, there has been some progress for advocates. A total of 15 colleges have divested from fossil fuels, according to Arabella Advisors, a consultancy firm for philanthropies. The most notable is Stanford University, which agreed in May to divert its $18.7 billion endowment away from coal companies. Activists hope that the big names associated with Monday’s divestment announcement, including the actor Mark Ruffalo, will encourage more schools and other organizations to divest. “This movement has gone beyond higher education,” says Jess Grady-Benson, a recent graduate of Pitzer College, which agreed to divest from fossil fuels in April.

Despite the movement’s growth, young people continue to play a central role. Divestment activism is likely to spread to many more campuses as the school year gets underway. “Youth have always gone to the conferences or the parties, but we’re always outside,” Hoffman says. “Divestment gets us in the board room, which is really exciting.”

TIME Environment

See the Worst Place to Breathe in America

It's not Los Angeles

If you think about smog, you’re probably picturing a major city like Los Angeles, where in the 1960s and ’70s the air was so bad that smog alerts telling people to avoid outdoor activity were regular occurrences. The air has improved in L.A. and other big cities in recent years, thanks to cleaner cars and air-pollution regulation.

But the real capital of air pollution in the U.S. is a farming city that sits to the northwest of L.A.: Bakersfield.

Bakersfield is in the San Joaquin Valley, a major agricultural area that stretches through much of California. The San Joaquin Valley contains some of the richest, most productive agricultural land in the country. But its geography — the valley is surrounded on all sides by mountains — creates a bowl that traps air pollution. Levels of soot and ozone — which in warm weather, which the valley has much of the year, can create smog — are some of the highest in the country. And while air in much of the U.S. has improved, in Bakersfield and other towns in the southern San Joaquin Valley, the air quality is as bad as ever — if not worse.

How bad? School officials in Bakersfield have used colored flags to indicate air quality: green for good, yellow for moderate, orange for unhealthy for sensitive groups and red for unhealthy for all groups. But this winter, the air became so bad that officials had to use a new color on the worst days: purple, even worse than red. Because of high levels of air pollution, asthma is prominent throughout the region, and the bad air can also raise levels of respiratory and cardiovascular disease.

Photographer Lexey Swall grew up in Bakersfield, and in this collection of photographs, she shows the human cost of living in one of the most polluted cities in the country. For Bakersfield residents, there’s simply no room to breathe.

MONEY The Economy

Alaska Gives Every Resident $1,900 Cash… Just for Being an Alaskan

One big, literal payoff of living in Alaska is the annual Permanent Fund Dividend given to each qualifying Alaskan. This year's check will be one of the largest ever.

TIME energy

ISIS’s Ultimate Goal: Saudi Arabia’s Oil Wells

Saudi Arabia oil
Saudi Arabia has the richest reserves of oil on the planet Marwan Naamani—AFP/Getty Images

The terror group has its sights set on the world's biggest oil reserves

Originally appeared on OilPrice.com

For the terrorist group known as the Islamic State, Syria and Iraq were a good place to start their campaign, but in order to survive and prosper it knew from the outset that it had no choice but to set its sights on the ultimate prize: the oil fields of Saudi Arabia.

It is in that direction that the battle for control of the world’s largest oil fields is currently heading.

Islamic State — which has its origins in al-Qaeda – knows fully well that in order to sustain itself as a viable and lasting religious, political, economic and military entity in the region, it has to follow the same objectives established by al-Qaeda when Osama bin Laden broke off his relations with the Saudi monarchy and vowed to bring down the House of Saud.

Bin Laden’s ire at the Saudi monarchy stemmed from the fact that Saudi King Fahd bin Abdulaziz Al Saud invited the American military to use Saudi Arabia as a staging area to build up forces to take on the then Iraqi leader Saddam Hussein after Iraqi troops occupied Kuwait in August of 1990. Bin Laden objected to the presence of “infidels” in the land of the two holy mosques, and asked the king to allow his outfit to tackle Saddam Hussein’s troops.

Similarly, IS knows that it will only feel secure once Saudi Arabia is part of the Caliphate, and its oil fields are under IS control — which is why the group has two logical next steps.

First, to capture and secure the most important country in the Muslim world: Saudi Arabia.

If the battle for Syria and Iraq attracted tens of hundreds, (some say tens of thousands) of young Muslims, the battle for control of Islam’s two holiest sites, Mecca and Medina, are very likely to attract many more fighters into the ranks of the Islamic State.

And second, to take on the United States — the one remaining superpower that could stop its march on the oilfields of Saudi Arabia, and ultimately the rest of the Gulf.

After much hesitation, it now appears that the Obama administration has come around to realizing the true danger posed by IS. Washington, along with some of its NATO allies, is now formulating a plan to defeat IS.

However, it may be wise to point out that Washington’s track record in dealing with Middle East problems has not been something to crow about. As a point of reference, one need only mention Iraq and Afghanistan — both prime examples of how not to do things.

Even if the U.S. can defeat IS militarily, any victory would only be temporary since eventually, U.S. troops will pull out and the remnants of IS would emerge from their respective hiding places, as they did after Saddam Hussein’s capture and death. Indeed, a U.S. intervention — through its massive air campaign — will foment even greater animosity toward the West in general, and the United States, in particular. It’s all déjà vu.

The one power that can effectively move against IS in a manner that would appear legitimate to other Muslims is Saudi Arabia, as Nawaf Obaid, a fellow at Harvard University’s Belfer Center for Science and International Affairs, and Saud al-Sarhan, research director at the King Faisal Center for Research and Islamic Studies pointed out in a joint opinion piece published Sept. 9 in the New York Times.

The authors dispute the widely believed notion that Saudi Arabia created IS and is funding it. “Saudi Arabia is not the source of ISIS — it’s the group’s primary target,” they write.

As Obaid and al-Sarhan put it, “The Saudi leadership has a unique form of religious credibility and legitimacy, which will make it far more effective than other governments at delegitimizing ISIS’s monstrous terrorist ideology.”

What makes IS powerful today is the fact that they laid out their military strategy based on where oil fields are located. The fact that they went after northeast Syria and northern Iraq is not coincidental by any means. Islamic State may be ruthless and brutal, but it is first and foremost a terrorist organization with an astute business plan.

The capture of oil wells in Syria and Iraq has made the group financially self-sufficient. Now it’s all or nothing.

Read more on OilPrice.com

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MONEY Gas

$3 Per Gallon Gas, Here We Come

Gas prices
MCCAIG—Getty Images

After peaking around $3.70 per gallon in June, gas prices dropped steadily for two months—and they're expected to keep declining for months to come.

Throughout the U.S., prices at the pump took the unusual step of declining steadily during the summer, resulting in the cheapest Labor Day gas prices in years. Now that we’ve reached summer’s end, which traditionally brings on cheaper gas prices, the downward trend on fuel costs is expected to keep on rolling.

Gas prices are hardly plummeting. As of Friday, the national average for a gallon of regular stood at $3.41, just a couple of pennies less than it was a week ago. But a year ago at this time, the average was $3.55 per gallon, and as recently as June 2014, it was $3.70. As AAA pointed out this week, drivers in several parts of the country are paying significantly less for gas than they were in early September 2013: Prices in Iowa, Kansas, Minnesota, and Nebraska are now 28¢ to 33¢ cheaper per gallon compared to a year ago.

Most importantly of all, the decline in prices is expected to stay on track well into the fall and early winter, largely because demand is down due to the end of summer, and because refineries switch to producing cheaper winter-blend gasoline starting in September. At the same time, the U.S. gasoline supply is up 1% compared to last year. So, barring any troubles with refinery production or geopolitics, the anticipation is that it will slowly but surely get cheaper and cheaper to fill up at the pump.

How cheap? “I’m expecting the national average to drop to $3.15 by Halloween, and $3 a gallon as a national average is certainly in the cards,” Andy Lipow, president of consulting firm Lipow Oil Associates, told the Wall Street Journal.

The averages in Alabama, Arkansas, Louisiana, Missouri, Mississippi, South Carolina, Tennessee, and Virginia are already under $3.20 per gallon. “Some states could see a monthly average pump price below $3 a gallon at the end of the year,” Adam Sieminski, head of the Energy Information Administration, said in a statement this week.

Prices under $3 per gallon have already begun popping up at gas stations in cities such as Baton Rouge. And drivers in metropolitan areas like Kansas City think they could be next to enjoy prices under the $3 mark.

TIME energy

Europe Needs A New Source of Oil and Gas, Fast

Poland fracking gas
Workers in Poland prepare a shale gas well Bartek Sadowski/Bloomberg via Getty Images

The Ukraine crisis underscores the need for a new European energy policy

This article originally appeared on OilPrice.com

Summer is over and many Europeans may have to keep warm this coming winter by thinking about their summer holidays while wrapped in blankets, praying for a short winter or for the world to come to its senses. It both cases, they may well be disappointed.

The never-ending conflicts in the Middle East, mayhem in Libya, uncertainty in the Gulf and a war in Ukraine are all going to take a toll on the energy supplies this winter.

Russia sold 86 billion cubic meters of gas last year, all of which passed through Ukraine. Given what’s happening there now, it is highly unlikely that the Russians would allow their gas to transit a country they are (unofficially) at war with. Just as it is unlikely that Ukrainians would allow Russian gas access through its territory.

Result? Many cold Europeans, many angry Europeans and many very pissed off Europeans. Many Europeans will have to make do without enough gas to heat homes, offices and factories. That’s a bad prospect in northern European countries, where winter is no laughing matter. Winter defeated the armies of both Napoleon and Hitler.

And what does history tell us about cold, angry, pissed-off Europeans? Well, whenever two opposing camps got cold, angry and pissed off enough at each other in the past, they typically went to war.

War in Europe? In our time?

It’s not impossible. If current trends continue, it is not at all impossible. Here’s why:

1. Mounting tension between Russia and the West over Ukraine — a situation that is very likely to worsen as the United States and European Union tighten sanctions on Moscow.

2. NATO forces edging dangerously close to Russian forces.

3. The spread of the violence and reach of the Islamic State. Besides the havoc they are creating in the region, there is the added threat of hundreds, if not thousands, of their supporters who have learned how to fight in Syria and Iraq returning to their home countries in Europe.

4. Turkey, which in recent years has played a stabilizing role in the region, is moving today in a different direction that could well lead to a new point of conflict. From jumping head first into the Middle East conundrum under former prime minister and now President Recep Tayyip Erdogan, the country’s new prime minister, Ahmet Davutoglu, started off by possibly igniting a new fight when he announced — much to the pleasure of Azerbaijan, and certainly to the dismay of Armenia — that “the liberation of occupied Azerbaijani lands would be a strategic goal for Turkey.”

These remarks refer to the conflict between Armenia and Azerbaijan over Nagorno-Karabakh and outlying areas that have been occupied by Armenia since a violent conflagration around the time of the break-up of the Soviet Union. Armenians and Azerbaijani troops have been engaging in exchanges of fire on a daily basis over the past few months.

5: Mounting tension between Iran and Israel, and between Iran and an unnamed former Soviet republic in the region that Iran says allowed Israel to launch a drone from its territory to spy on Iran. Tehran has promised a stern response. The country in question is thought to be Azerbaijan, Armenia or Turkmenistan.

6. Continued mayhem in Libya, where the political turmoil is affecting the flow of oil and gas to Europe.

7. The continued state of unrest in Israel/Gaza and the surrounding area.

All these points of conflict are complicating Europe’s search for more reliable sources of energy. Europe is hoping to solve its gas shortage problems by purchasing Azerbaijani gas, but it’s unrealistic to depend only on Azerbaijani gas, since Europeans would be at the mercy of interruptions to gas and oil flows from this South Caucasus country.

What Europe desperately needs is a source of energy that with not be interrupted by conflict or politics, that can be delivered via pipeline or by sea, but will not need to transit through sea lanes in areas of conflict.

And although EU Energy Commissioner Guenther Oettinger said last week that he is not worried about gas supplies from Russia via Ukraine, that show of confidence did not stop him from going to Moscow to plead Europe’s case with the Russians.

So where does that leave the Europeans other than out in the cold? Trend energy analyst Vagif Sharifov believes the new bonanza of natural gas lies in the Arctic, where more than 1,500 trillion cubic feet of natural gas can be found.

But polar drilling comes with a high cost and huge challenges. Europe might need to keep looking.

TIME energy

Dropping Oil Prices Threaten Moscow’s Budget

Oil refinery in Ufa, Russia, seen in April 2014.
Oil refinery in Ufa, Russia, seen in April 2014. Andrey Rudakov—Bloomberg/Getty Images

Russia has seen its economy boom with the price of oil. But if the cost of crude falls, Moscow could struggle to make ends meet

This article originally appeared on OilPrice.com

Oil and gas are at the heart of the Russian economy and are largely responsible for keeping Moscow’s government budget in balance. But the recent decline in the price of oil from the North Sea and Texas has now spread to Urals crude, giving President Vladimir Putin one more economic headache.

The price of Urals crude fell just below $100 per barrel on Aug. 18, an 18-month low. On Aug. 19, it dropped to less than $97 per barrel. These declines coincided with similar drops in the price of Brent crude from the North Sea and U.S. oil.

The reasons are fairly easy to recognize. First, the United States has been on a drilling tear, extracting oil at record levels to increase its supply at a time when demand is waning. Second, though more tentative, is that conflicts in North Africa and the Middle East are so far not interfering with oil production in these regions.

This oil production boom raises problems for Moscow. Two-thirds of Russia’s exports are oil and gas, accounting for fully half of the central government’s revenues. That means that so far this year, every dollar drop in the price of Russian oil means a cut of about $1.4 billion in revenues.

This comes as Russia’s oil industry joins its defense and finance sectors as targets of sanctions by the European Union and the United States over Moscow’s unilateral annexation of the Crimean peninsula in Ukraine and its suspected role in the fighting between Ukrainian forces and pro-Russian separatists.

Some analysts say the effects of the lower oil prices may not be lasting unless the drop in oil prices fall further in coming years. Vladimir Kolychev, the chief economist at VTB Capital, a global investment firm with headquarters in Moscow, says brief dips have less of an impact on Russia’s budget than the average cost of oil over an entire year.

“The first thing to remember is that the oil price projected by the finance ministry is … $104 average for the year – that still looks conservative,” Kolychev told Reuters. “Even if the oil price falls to $90, we’ll still have $105 average.”

As an example, Kolychev calculates that Russia’s budget would balance if oil’s average price fell to $103 per barrel.

Even if Moscow can tame its budget, it seems clear that Russia’s oil sector will feel the pain from the one-two punch of Western sanctions and lower prices. Vedomosti, a Russian financial journal, reported Aug. 14 that government-owned Rosneft, Russia’s largest oil company, has asked Moscow for more than $40 billion in debt relief because of the sanctions.

That’s a sharp reversal from just a month ago. Western sanctions were imposed on July 15, and three days later, Rosneft officials shrugged them off, saying the company would continue to pursue its plans and reap profits. In fact, a week after that statement, Rosneft CEO Igor Sechin boasted that the company’s revenues were soaring.

 

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