Europe Proposes Sanctioning Russian Oil...Maybe? // North American Oil Industry Labor Shortage // This Week In Utility History

Europe Proposes Sanctioning Russian Oil...Maybe?

The EU sits on the precipice of banning Russian oil. The consequences of this will be felt the world over.

Oilprice.com reports, "The EU gets a quarter of its crude oil from Russia. Analysts have suggested that if the EU instituted a full ban on crude oil, it would result in a significant financial hit and that Russia may be unable to find enough willing buyers to take the oil that normally heads to the EU. Such a financial hit could hamper Russian President Vladimir Putin’s ability to continue to fund the war in Ukraine."

Another consequence might be that Russia slashes production and finds itself unable to recover its ability to produce later on. 

But there's no language yet on exactly how the sanctions will go about banning the import of Russian oil. The other week, we covered the "Latvian blend," where Russian crude gets mixed with enough Latvian crude to skirt sanctions and keep Russia in the market. 

Restricting crude looks simple enough, but actually banning all Russian refined products will be a complex and difficult task. Julian Lee at Bloomberg has this to say on the matter: 

"The one area of uncertainty is CPC Blend crude, which is shipped from a terminal on Russia’s Black Sea coast — close to, but entirely separate from, the country’s main export port in the region at Novorossiysk. The blend contains some molecules of Russian origin, and purchasers have been named and shamed by organizations tracking shipments of 'Russian' crude.

But the situation isn’t that simple. At the export terminal, CPC Blend comprises approximately 90% crude from Kazakhstan and 10% that comes from fields in the Russian sector of the Caspian Sea, which are operated by the Russian oil company Lukoil PJSC."

In other words, no one should expect Russia to separate out their molecules from Kazakhstan's to make it easier for buyers to impose sanctions. The CPC pipeline moves 80% of Kazakhstan's oil products. That means, Lee writes, "the choice is clear: Ban CPC exports and cripple the economy of Kazakhstan while inflicting little pain on Russia. Or, accept that Moscow will continue to export a small amount of crude via the CPC system."

And that's the easy part.

Russia's begun to move a low of its refined products east, including diesel, which is in tight supply everywhere. Or what about Indian refiners who are now buying Russian crude and then selling their product to others?

This isn't to say that the sanctions will fail at their task of hurting the Russian economy. But sanctions are unlikely to halt Russia's ability to export full stop. 

Yet it also means that Europe and the rest of the world are going to be in a world of hurt if energy prices continue to rise. 

North American Oil Industry Labor Shortage

North America's oil and gas industry is going through a rough labor shortage as workers quit due to the "arduous conditions, remote locations, and insufficient compensation," or are "lured to the renewables sector as the world transitions to cleaner energy." (That last part, I'm a little skeptical of and Reuters provides no data to back it up.)

This couldn't come at a worse time with inflation on the rise and an energy crisis already underway. Oil's floating around $100 per barrel and governments are trying to spur the industry to increase its output. Yet, in America, the Biden administration has been sending mixed signals--on the one hand, demanding more from the industry; on the other, antagonizing it by restricting leasable land, lambasting them in the press, or hauling execs into the house for questioning.

"Employment in the U.S. oilfield services and equipment sector was nearly 609,000 in March, the highest since September 2021, but still below pre-pandemic levels of about 707,000, according to the Energy Workforce and Technology Council," Reuters reports.

Canada seems to be fairing better, but not by much. 

This part was of particular interest:

"...average hourly wages in the U.S. oil and gas extraction industry are still below pre-pandemic levels, currently estimated at $45.45 an hour for February 2022, versus $48.37 an hour in February 2020, according to the Bureau of Labor Statistics.

Patterson-UTI raised wages last year because of competition from retailers that historically paid less than the oil industry, Hendricks said.

'We're competing against Amazon hiring drivers, or Target with positions in air-conditioned warehouses. It's easier than a drilling rig in West Texas in the summer,' he said."

Oil and Gas work is grueling and necessary work for society. These labor issues are real and speak to difficulties within the industry beyond the typical scrapping with a Democratic president. 

This Week in Utility History: Deregulation, Enron and Portland

Here's what American utilities were thinking about the week of May 1, 1997 according to the trade publication Electrical World. 

This ad belies the industry's anxiety about the coming "deregulation" of the electricity business. This would the beginning of the system we live with now, where most of the US is carved up into different spot markets in which different generators bid to provide consumers with electricity. Read our Q&A with Meredith Angwin to learn more about that. 

The utilities, which had enjoyed regulated monopoly status since the beginning of the 1900s, saw deregulation as a real threat to their business model. The cover story from this issue details the fights rural utilities won against deregulation. According to the story, the major push for deregulation was coming from California and the Northeastern regions of the country. Deregulation posed difficult questions for the Federal Energy Regulatory Commission's power, the nature of the federal government, and the relationship between federal bureaucracies and the states. 

Another article in the issue, "The Energy/Telecom Convergence," details how utilities started to band together to diversify in the face of deregulation. "In the competitive era," says the article, "you can't be too lean, too rich, or have too much access--to customers. That could be the mantra of the new age of deregulation and free choice. Heeding its call, electric, gas, and telecom utilities are racing to ally with each other to get a leg up on the competition."

There's even a deep dive into Enron's acquisition of Portland General and the friction between the deal makers and regulators. And a short piece on how competition might improve nuclear's prospects. This issue shows a once-sleepy industry on the brink of rapid change. 

Conversation Starters

• California's Governor Gavin Newsom is reconsidering the closure of Diablo Canyon. No definite news of any change, but coming out against the decision and citing reliability as a concern is a big step in the right direction.

• Extreme heat won't let up in India. Temperatures may reach as high as 122 degrees fahrenheit (50 degrees celsius). The heat will batter crops and industrial productivity. This is the third month of the heatwave.

• Indonesia has instituted a ban on the export of palm oil. Palm oil factors in everything from food to soap to printing ink. The country exports a third of the world's edible oil. The government put the export ban in effect to punish errant refiners. It's not clear this will have the desired effect, but it will increase inflation across the globe.

Word of the Day

Run-of-river hydroelectric plant 

n.

A low-head plant using the flow of a stream as it occurs and having little or no reservoir capacity for storage. (source)

Crom's Blessing