[LONDON] As you read this, Marina and I will be in London for the annual energy consultations at Windsor Castle.
Now, if it seems like I'm spending far too much time traveling these days, you're right. But the truth is our trip to England is just the beginning… more is yet to come.
You see, most of the major new developments are no longer taking place in North America. The global energy sector is intensifying, and its importance has never been more striking than it is right now.
The American unconventional oil and gas revolution has gone global. In fact, that is the prime topic of our discussions at Windsor.
However, there is another place in the world that has my attention on this flight. It's Ukraine.
Needless to say, the situation there hasn't exactly been encouraging.
Here's what's behind it all…
Six Facets of a Very Sticky Situation
There are at least six components here, and they complicate any easy receipt of the short-term, international financial support that is critical.
First, the country still remains dependent on natural gas from Russia. The chill in cross-border relations as a result of the ongoing political turmoil hardly improves this situation.
In fact, the Kremlin had advanced the prospect of offering discounted gas. But that was before the pro-Russian President Viktor Yanukovych was ousted and pro-Ukrainian nationalists took over the reins of government in Kiev.
Now, that gas will certainly revert to its earlier "cash on the barrel head," or COB arrangement.
There will be no Russian credit forthcoming, and Ukraine cannot pay. They had been playing their earlier contracts by accumulating volume in storage during the high summer at low prices to be used in the higher-priced winter months, but all of that reserve is now gone.
Second, the European Union (E.U.) had offered assistance pending reforms of the gas transit system in tandem with the E.U.'s Energy Charter Treaty (ECT).
The ECT requires that signatories separate production and distribution assets as well as provide third parties with access to domestic pipeline and other transit systems. Russia has rejected this all-too-obvious frontal attack on Gazprom's natural gas monopoly over the market pricing and home pipeline system. Ukraine has been (at least in theory) more flexible.
After the recent events, however, Kiev will now probably have to give up some administrative control over the pipeline system for significant energy assistance.
Yet it is unclear where outside interests such as the E.U. or the U.S. would be able to source gas for use inside Ukraine. Some financial assistance will be forthcoming, but when it comes to the large price tag demanded by the domestic pipeline upgrades, immediate help will require that whatever government emerges be amenable to relinquishing some control.
The Kremlin, and therefore Gazprom, had been pushing for the same concession.
Third, there is an element I happen to be working on currently.
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.