Tags: Putin | energy | oil | US

Will a Trapped Putin Open the Clean Energy Box?

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Wednesday, 16 Apr 2014 07:45 AM Current | Bio | Archive

As expected, Russian President Vladimir Putin is still rattling cages in Ukraine. Also as expected, the United States and European Union can't do much to stop him. The Russian president's strategy is delivering exactly what he wanted: higher energy prices.

Like his OPEC competitors, Putin realizes price manipulation requires time and patience. If you create too much fear, you incentivize customers to explore alternate sources; too little fear you won't maximize profit. Your neighborhood convenience store uses the same logic to set prices for its gasoline pumps.

Putin's motivations are geopolitical as well as financial; he needs puppet states around his borders in order to restore Russia to its former glory. That's why economic sanctions won't deter him. Nevertheless, I still think the real game here is more about energy and money.

What Putin really fears is a world that no longer needs Russian oil and natural gas. We could have such a world in the next five years. Just look what is happening elsewhere.

U.S. and Canadian energy companies are extracting huge quantities of fuel from shale deposits and oil sands. North America is on track to be energy independent — and possibly a net exporter — within just a few years. If Congress and Obama would simply let U.S. companies export natural gas, Europe wouldn't have to depend on Putin.

The ever-wily Putin doesn't want to depend on Europe any more than Europe wants to depend on him. That's why he wants to build a $22 billion gas pipeline from Siberia to China. Gas-fired power stations would burn much cleaner than do the coal generators that now provide much of China's electricity and most of its smog, too. Putin hopes to close the deal when he visits Beijing next month.

Sadly for Putin, China has other options. They are working with U.S. coal industry leader Peabody Energy (BTU) to develop carbon-capture technology that stops coal emissions. A similar project is under construction in Alabama by Southern Company (SO). If this technology works, the global oil and gas industry will be in deep trouble.

Clean coal isn't Putin's only green threat. Solar energy is getting steadily more cost-effective, particularly in sunny tropical zones. In some places, it is cheaper than conventional energy is, even without government subsidies.

The only thing that can stop clean energy development is sharply lower oil and gas prices. For example, $60 a barrel crude oil would render solar and wind power uneconomical. It would also render Russia bankrupt, so don't expect Putin (or OPEC) to let it happen.

Putin plays the long game. He is trying to ensure Russia's survival in a different global economy — one not dominated by a few big energy exporters. His odds are not good, but he has no better options.

The wisest thing the West can do is give Putin a way to preserve Russia's independence in this new world. Failing that, he will fight for survival like a cornered rat. He will draw blood before he loses.

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PatrickWatson
As expected, Russian President Vladimir Putin is still rattling cages in Ukraine. Also as expected, the United States and European Union can't do much to stop him. The Russian president's strategy is delivering exactly what he wanted: higher energy prices.
Putin, energy, oil, US
499
2014-45-16
Wednesday, 16 Apr 2014 07:45 AM
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