The Shifting Geopolitics of Oil & Gas: Risks and Opportunities

The final panel of the 2015 Fletcher Conference on Managing Political Risk honed the discussion on a specific, and notoriously volatile, industry.  See how our panelists explain the madness of the Oil & Gas sector, as well as describe what methods of astute and patient political risk are most apt to effectively evaluate such variance.  

Do you agree on their predictions for the year end price of oil?

The Shifting Geopolitics of Oil & Gas: Risks & Opportunities

The IEA reports that global oil consumption will rise from 90 million barrels per day in 2013 to 104 million barrels per day in 2040, and estimates that $900 billion of investment annually will be necessary to meet that growth. Amidst this increasing global demand for energy, driven in large part by the developing world, the American shale revolution and technological advancements in the extraction and storage of liquefied natural gas has altered the international energy market and resulted in dropping gas prices. Meanwhile, tensions over Ukraine and related economic sanctions against Russia have pushed the energy giant to increase ties with China, and an increasingly unstable Middle East poses questions for global energy security. The patterns of energy supply and demand that have long defined the global economy are in flux. What is the future of the global energy landscape? This panel will address the risks and opportunities that investors face as a result of these economic and geopolitical shifts.

Moderated by Professor Barbara (Bobbi) Kates-Garnick


Sarah Emerson, President of Energy Security Analysis, Inc (ESAI)

  • There is no easy way to forecast the future but companies need a view for the future
  • ESAI Energy takes a multidimensional view towards forecasting by looking at all variables that effect petroleum like economic growth, access to capital, policies, industrial policy etc.
  • Two types of risks in projecting data fall into two categories: 1) policy change risk  and 2) geopolitical risk: are there things going on that will lead to conflict and regime change.
    • Policy change risk: How do you deal with those two uncertainties especially when you cannot see change coming?  Other times policies are announced but not implemented.
    • Geopolitical risk can be determined by rigorous analysis by experts in the field: Measuring the fragility index of a country, and how components contribute to the fragility, can help in anticipate how supply and demand might change.
  • For example, in spring of 2014 Saudi Arabia did not want to cut oil prices. Study of Saudi Arabia would indicate that Shale posed a threat, and Saudi Arabia would want to defend market.
  • Therefore, monitoring trends can be extremely valuable since companies don’t need perfect forecast, but a threshold.
  • Large oil and gas private businesses are more adept at dealing with “Black Swan” situations.


Paulina Mirenkova, IHS CERA Associate Director, Russia and Caspian Energy

  • Sanctions imposed on Russia by United States and European Union and drop in oil prices has had dramatic effect on Russia.
  • Sanctions were imposed first in response to annexation of Crimea and later expanded with the evolution of the Ukraine conflict
  • Features of sanctions: targeted specific companies and individuals. At the same time these sanctions were deliberately left ambiguous, resulting in in business confusion.
  • These sanctions will have long-term impact, but immediate impact has been the cutting Russia out of international credit market and devaluing of ruble.
  • Long-term impact on oil production comes from prohibition on technology transfers to Russian companies (particularly in Artic and Shale production)
  • Russian Companies must cut investment programs and foreign companies are reluctant to invest in Russia.
  • Oil price drop has not has as much as an impact in Russia as the sanctions.
    • Oil price drop stems from the oversupply in market from U.S. oil. However, demand and consumption expected to rise. Relative high cost production must come online to meet demand. IHS CERA expects that the rebalancing will occur and after 2021 prices will come up to approx. $99/barrel
  • There is great attention being paid to Russian oil and Gas sector. Putin is not the only decision maker in Russia and therefore must listen to Russian power apparatus (Silovikis) must keep balance with them. Putin is very popular in Russia, but economic woes may prove to be a challenge.


Kevin Book Managing Director, Research, at ClearView Energy Partners, LLC

  • Clearview’s clients are primarily Financial investors (institutional assets) and strategic planers at large oil and industrial companies
  • Both those client groups care about long-term expectations and they take a wide range of reports in order to diversify information for risk management.
  • Oil company portfolios are constrained by geology.
  • Oil company managers are engineers,  investment bankers, and others are diplomats. 
  • Companies can apply quant analysis or just pick a low oil price number to assess internal rate of return and break even prices.
  • If you do have realistic expectation on break-even price, next thing to manage risk is good relations with host country.
  • Expansion of shale has introduced US as a risky market as well.
  • Top 5 questions from clients:
    • 1) Iran deal. +/- 1.5million barrels a day depending on deal
    • 2) Russian sanctions, long-term impact on supply.
    • 3) Crude oil export policy in US
    • 4) questions regarding trains carrying crude from unconventional regions
    • 5) Climate change unknowns, including management of methane as byproduct of oil production.
  • Companies can use two strategies to minimize risk: by diversify risk in geographies, and syndicating risk sharing with other partners.



  • Did OPEC make a mistake with decision 6 months ago by failing to protect the price of oil?
    • OPEC is 12 states and therefore not uniform as a body. There is a discrepancy between wealthy countries and production-dependent countries in the organizations. Therefore  countries like Saudi Arabia and Kuwait could stomach the oil price decline while countries like Venezuela would hurt more.
  •  How do sanctions affect domestic policyholders in mid and long term in Russia?
    • aulina: There is a lot of emphasis on import substitution and preparing for tough times. However, this may not sustainable long term. Putin’s popularity dependent on oil revenues but there is also a nationalistic element emerging and people are prepared to suffer for Russia.
  •  What is impact of low oil prices on renewable energy? What will it mean to have a Republican Congress?
    • Kevin: The need for fuel diversification as well as the desire for lower carbon footprint boosted Ethanol production in 2007. This, however, was prior to increase of oil production in the US and therefore ethanol may not have enjoyed the same status today. That mandate is likely to enjoy continued support from Republican politicians.
    • Sarah: Gasoline demands will probably decline in the future, especially in the fleet fuel economy in the next 10 years. Diesel may decline but not as sharply.
      • The ethanol mandate had set the percentage mix of ethanol in gasoline consumption assuming an increase in the demand for gas consumption.  In reality that projected demand was never reached and we may witness some negotiations to reduce the ethanol content requirement.
      • While renewables are on a rise in the World we will have to eliminate coal first and foremost due to the carbon content. Alternate energy sources like coal to liquids or gas to liquids are not affordable at current prices in comparison to oil. Therefore, it will require governments to mandate the use of those fuels in the energy mix. However, in the low oil price environment it will be difficult to see dramatic changes.
    • Paulina: The use LNG for trucking in China has been widespread. LNG has displaced dielsel since dielsel prices were tied to oil prices. The gap between oil and gas has been decreasing due to low oil prices but the Chinese government has introduced taxes on oil to maintain that price differential.
  •  Would a Global climate pact in 2015 have any effect in the near future?
    • Kevin: There is an increased you can’t extract a certain amount of carbon without exceeding threshold of safe emissions. Therefore, a climate chance pact can impact such projects currently in place that have decades of operational life.
      • here are currently disparate national plans Intended Nationally Determined Contribution (INDCs) but those targets are different from commitments. Therefore harmonization of those differences may be needed and may take a longer time.
    • Sarah: A comprehensive global climate change treaty will be very difficult to achieve because environment is local. Therefore we should generate national efforts instead to tackle local issues.
  •  Will the Artic be a source of tension or basis of cooperation for energy exploration?
    • Kevin: Artic will not be a source of cooperation. There are a lot of environmental risks associated with the Arctic and the technical expertise is there yet. U.S. not well positioned to take advantage of Artic.
    • Paulina: For Russia, Artic is a major priority for next 20 years and Russia will be aggressive in its claims and explorations in the Arctic.  The lack of access to capital markets and technology will slow Russia down, so Russia will turn to other sources for capital like China or other partners.
  •  What is your best Oil forecast for the next 12 months?
    • Kevin: End of year price could be between $52-$62 unless an OPEC production cut happens.
    • Sarah: Prices should probably be lower based on supply and demand currently. The price will probably stick around $50’s with some volatility, perhaps down to $40’s in the event of disruptive events.  In 2016 price could be in $60’s and probably to $70 in 2017: 70’s. Return to $100 is far down the road.
    • Paulina: HIS CERA projects similar forecasts. Expect a lot of volatility, U.S. is now a swing producer and continues to increase production that will only level off this year. In 2015 prices will remain in low $50s. Prices will be volatile for next few years. Saudi Arabia allowed for volatility by not adjusting output, but in the long term they will need to balance oil prices. U.S. has too many disjointed producers and will not be take that role.