I always love a great long-shot win, but this year the Kentucky Derby was a great 80 to 1 win by Rich Strike. What a great horse race to watch! Rich Strike was entered in the race 24 hours before due to a scratch. This was a great moment in the Kentucky Derby, but it was not the biggest comeback. That was a race in 1913 by Donrail at 91 to 1. Long shot wins are great, and our world energy and geopolitical crisis is just like one of these great races.
But who is the long shot? Russia, Germany, Europe, or the consumers?
We have been watching this energy crisis unfold for years, and the Russian invasion of Ukraine just accelerated the inevitable realization that the demonization of the fossil fuel industry was unfounded. Putin has gained the upper hand over the last 20 years, and Europe handed him the keys to the energy crisis and did not look back.
The Nord Stream 1 pipeline has been shut down for normal maintenance and was expected to come back online this next week. Well, let’s start the bets and let the bookies get the odds rolling. There is tremendous speculation that Russia will take this opportunity to not bring this critical gas pipeline back online.
Russia supplies 45% of the European market’s demand for natural gas. The top consumers are Germany, Italy, Belarus, Tukey, and the Netherlands. The chart below shows the path for both the Nord Stream 1 and 2 pipelines. The Nord Stream 2 line never came into production even though the Biden Administration lifted sanctions against Russia as they did not see the problem with Putin’s power grab.
Canada is repairing one of the turbines required for the Nord Stream 1 return to service. There was some question about the political ability of Canada to return the turbine. While Ukraine expressed their disappointment and lack of support from Canada, Germany is needing that gas from Russia for manufacturing in most manufacturing. VW and other auto manufacturers are facing shutting down due to the lack of natural gas. The ripple effect from all manufacturing being shut down due to the lack of natural gas to the economy is going to be devastating to Germany’s GDP and economy.
To help the bookies out a bit on making odds. Let’s look at the newest ploy as the Energy Czar of the world. A Russian Judge last Tuesday ordered the Caspian Pipeline Consortium to halt shipments for 30 days. The oil produced in Kazakhstan is put into pipelines and shipped across Russia to other European markets. The total oil being pulled out of the market will be well over 1.5 million barrels a day.
There is an appeal for the court order to shut down the pipeline that has been filed, but it is not likely to be rushed through. So, the precedent is set, and we know that the threats made by the G7 to cap Russian prices did not fall on deaf ears.
Putin’s ears work just fine. He heard their challenges just fine and is set to pull a few triggers this week. The first display of power will be the length of time for the appeal to be processed in the oil pipeline from Kazakhstan. This will be a good litmus test, and the second will be looking for signaling on the timeline for the Nord Stream 1 pipeline to come back online.
If the Nord Stream 1 does not come back online in the next 30 to 45 days, Germany’s economy will be devastated. It is hard to put a number on the loss of manufacturing capabilities about to happen. That ripple effect of the largest economy in Europe shutting down will be felt around the world.
So, are you a betting person? Do you think it will be a 91 to 1 chance the Nord Stream 1 will come back online in less than 30 days? Get some popcorn and watch the next few weeks.
Now one bet I might take is that Putin will not bring the Nord Stream 1 back online until he gets the Nord Stream 2 approved and running. Now is the perfect time to get the pipeline approval forced through the German legislation process. Using the maintenance issues for an energy hostage play is brilliant.
I for one do not plan on placing any bets on this race, as Putin has been one step ahead of the players for over 20 years.
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Please reach out to our team at any time for answers to your questions. Jay R. Young, CEO, King Operating
ForbesBooks Author of “The Upside of Investing in Oil and Gas
Stuart Turley is President and CEO of Sandstone Group, a top energy data, and finance consultancy working with companies all throughout the energy value chain. Sandstone helps both small and large-cap energy companies to develop customized applications and manage data workflows/integration throughout the entire business. With experience in implementing enterprise networks, supercomputers, and cellular tower solutions, Sandstone has become a trusted source and advisor in this space. Stuart has led the “Total Corporate Digital Integration” platform at Sandstone and works with Sandstone clients to help integrate all aspects of modern digital business. He is also the Executive Publisher of www.energynewsbeat.com, the best source for 24/7 energy news coverage and is the Co-Host of the energy news video and Podcast Energy News Beat.
Stuart is on Board Member of ASN Productions, DI Communities
Stuart is guided by over 30 years of business management experience, having successfully built and help sell multiple small and medium businesses while consulting for numerous Fortune 500 companies. He holds a B.A in Business Administration from Oklahoma State and an MBA from Oklahoma City University.