Trump, Putin and Russian Vodka. Interview with Rhod Mackenzie
Mark: Hey, folks let’s learn something new about the oil and gas industry.
All right. Here’s our monthly show where we have Rhod MacKenzie with Rusmininfo on.
How are you doing today, Rhod?
Rhod: I’m good, Mark. I’m good. It’s -28 outside, the snow is thick on the ground, but I’m warm and in my apartment.
Mark: And, it looks like you got a new camera?
Rhod: Yeah. I got a new HD camera. I just thought you’d like to see more of me.
Mark: Actually, the picture looks really good, so you know thanks for a trudging through the snow fall to get the HD camera, so our audience can see you better.
Rhod: You’re right. Now, Mark we always start off the show since we basically got talking together over 18 months ago about the oil price. When we were talking back then it was $33 and we’ve been talking it to $50 and sometimes it’s been that, but looks like at the end of this year it’s going to be well over $50. It’s $54 for Brent and $51 for WTI.
Mark: Yeah. And so, we’re right in the sweet spot that you and I talked about. I, you know we still think that we’re going to stay between that $50 and $60 range depending what goes on geopolitically. But, there is in the last month there’s been a lot of speaking of oil and gas and geopolitically that has changed. Do you want to talk a little bit about that?
Rhod: Yeah. I mean Russia has not been part of OPEC ever and it’s never really cooperated, but over the last few months where various countries have been suffering economic problems with their low oil price, Russia took the lead with Vladimir Putin and Alexander Novak who’s the energy minister. And they actually rallied eleven countries that were not part of OPEC, actually convinced them that are less is more.
Rhod: Russia this year increased its daily output from 10.8 to 11.3 million barrels a day and it’s agreed to cut 300,000, so it’s effectively cutting 3% of its output, but actually increased its output by 5% this year.
Mark: You know what’s interesting about that when those announcements are made you watch the market respond to it immediately even though the reality was it didn’t actually affect supply yet. It just shows you how much perception plays a part in the price of crude.
Rhod: You’re absolutely right. I mean as soon as announcement was made last Saturday, it shot up 6%.
Mark: Yeah. And so, it’s, you know, when people try to look at this and forecast because we do it as well, it’s not just the supply and demand, there’s a bunch of other factors that you have to figure in such as market perception and trying to get a handle on that it’s not an exact science.
Rhod: Oh, I think anybody who attempts to gamble on the oil price is going to be in the [pool house] sooner that you think.
Mark: Yeah. You know the people that are really good at it, they make money but it’s over a long period of time. They don’t micromanage like what’s the price could be today or tomorrow, it’s like this year or next three years and that’s how they do it because it mitigate some of that risk when you look at over a bigger piece of time.
Rhod: Right. But that’s the basis behind it, it was purely and simply economics. If you’re getting $40 a barrel and you’re shipping out 10 million barrels and you cut 10%, and the price goes up by 50%, then you’re getting more money for producing less.
Mark: Yeah. And then – and actually you’re also not spending too much time pumping oil out of your existing reservoirs, right? So you end up making the same amount of money, but your reservoirs will last you longer because you’re not doing the low price high volume type of movement.
Rhod: That’s correct. Well, obviously we’ll have to see because OPEC before the deal that Putin put together where they’re letting non-OPEC countries [that almost cheated]. So, let’s see whether the deal holds, but I think that the basis of the deal is it’s in everybody’s interests.
Mark: Right. Yeah, I agree. It’s – we sort of suspect that some of the really struggling OPEC members are going to have a hard time actually sticking to it even though they agreed to it. And so, the problem with that is if one or two those guys ramp up production they’re not supposed to, everybody else’s to do the same thing and this deal is just going to fall apart.
Rhod: I think you’re actually wrong. You may get one or two rogues attempting to do that, but the major agreement is between the two biggest producers apart from the USA which is Saudi Arabia and Russia.
Mark: Russia, right.
Rhod: And, if they actually stick to it and their volumes are much higher. Obviously, Iraq and Iran were given – well, particularly Iran was given a level of exemption simply because it’s had series of problems and it’s…
Rhod: Production is nowhere near what it used to be. Again, Russia has a relationship with Iran that the U.S. obviously doesn’t.
Rhod: And has a level of influence because in a load of deals going on in the various sectors — energy sector from nuclear through to gas, LNG, etc are taking place.
Mark: Yeah. So, a lot of people here in the U.S. don’t really understand what that longer-term play is there. They have the reservoirs they have the oil, the problem is the infrastructures have been destroyed they can’t bring that oil to market.
Mark: Because they can’t bring that oil to market, a bunch of tribes have the country sliced up into little political fiefdoms and they fight amongst themselves. If the government, if the existing government can somehow get everybody to agree and get that infrastructure built, then the government starts making money which you can turn and pump back into the population and help the people which then remove the strength of the tribes which then make eventually down the road the country a better country for everybody for the Western relations and for the people that live there.
Rhod: That’s correct. I mean the other bonus for Russia is gas. The price of gas is pretty much tied to the price of oil. And, despite all the protestations about the EU about energy to diversifying away from Russia, Russia has actually increased its export of gas by over 11% this year.
Mark: Yeah. And so, Russia supplies Europe basically, I mean there’s — there’s no if, they can wish all they want, but that’s where the gas comes from.
Rhod: Yeah. I mean the pipeline gas, 34% of their gas comes from Russia via these pipelines, Nord stream, etc.
Mark: Yeah. You know what’s interesting…
Rhod: That’s a bonus financially if the gas price goes up along with the oil price, Russia gets the bonus.
Mark: Yeah. It’s interesting, so we did our predictions for 2017 one of our predictions is that unconventionals like fracking goes global, right? And so, Russia has been fracking for awhile now, but the funny thing is that same geology actually is in Europe and it’s going to be interesting to see if the people buy into the anti-fracking rhetoric and keep it from happening though it would benefit them or will the economics make them see, hey, we can produce our own gas, right? So, it’s going to be interesting to see what happens politically in Europe with that.
Rhod: Well, I think it’s unlikely to happen in Germany and that’s because in Merkel’s coalition who are very anti-Russian by the way and firm supporters of sanctions, they make up one-third of the coalition. And they are vehemently opposed to practically any form of energy. They opposed nuclear which is why Germany is shutting down its nuclear plant. They don’t like coal and they don’t like gas.
And, yeah, I mean it doesn’t leave you a lot of options when it comes to energy.
Mark: Well, you and I know the truth, right? So, they’ve — they went down this road and the price of electricity has risen six times in Germany and they actually increased their CO2 emissions because they had to build all these small coal fire plants that when the renewables couldn’t keep up.
And so, it’s actually from a factual point of view the opposite of what they were trying to do. The problem is once again we talked about perception, the perception especially the media in Germany show their ever wind project as being successful and it’s not been successful.
Rhod: No, I mean renewables have a place, but they are still not cost effective, not any without subsidies. And, what is the point subsidizing when you can get energy much cheaper without subsidy?
Mark: And cleaner from natural gas. Renewables have their place in our mix.
Mark: One of the things that a lot of people understand there’s a big difference in energy density needed to run of Western and European civilization versus the energy you need to run civilization in like Vietnam and emerging economy. In Vietnam, they just need a few watts, right? When you light a lightbulb, a laptop, power cellphone, maybe a small refrigerator.
Whereas, here in the U.S. and Europe I mean I’m sitting in a 3,500 sq ft house, I probably need 15-kilowatts a day just to run the house. And it’s hard to get that from renewables now in some type of long term abundant cheap manner, but they do play a part in mix. I’m very pro-renewable. I think wind and solar have a great place in our energy mix and the cost have come down so much.
Certain parts of renewables here in the US though I’m very against. We have something called the renewable fuel standard which forces us to grow corn and turn it into grain alcohol, but you and I can’t drink it. And it’s forced to mix with gasoline. It’s all done by laws, so it’s all subsidized. That needs to disappear, that’s a drain on our country that makes no sense. And that ethanol absorbs water out the air, so they can’t ship in pipelines and it sits in the storage for too long, it’s actually bad for your engine.
So, it’s part of the renewable structure need to respond to the free market and if they can’t work in the free market, they should disappear.
Rhod: That’s correct. Let’s move on a little because since November the 9th, obviously things have been sort of moving forward particularly from a Russian perspective. I mean we’re about one week ago, a guy turned up in Moscow called Carter Page. Now, he’s not a novice in Moscow, he actually worked for Merrill Lynch Bank of America in the early part of 2000.
And he was a Trump adviser on his campaign. He turned up and he met with quite a few business leaders and a few politicians, etc just sorting out you know the situation here and he was well-received because at the end of the day, Russia wants a good relationship with USA.
Mark: And Americans — I talk to people all the time. Our media portrays us thinking one way, it’s not how we believe. We want a good relationship with Russia too. The people of the U.S., it’s a mutually beneficial thing.
Mark: Yeah. And – but our media portrays it as something totally different. One of the things that Trump brought out whether you like the guy or not, he showed the bias in the U.S. media and actually in the global media as well that they really do try to influence things like elections.
Mark: You know I come from a statistical background, out pollsters all got it wrong. Statistically, half of them should have said Trump would have won and half of them Hilary would have won if the error was not intentional. They all voted — they all said Hillary is going to win which means the error was intentional which means they introduced the bias of their findings.
And so, it’s just you know you and I have talked about this before, you just can’t trust the main media anymore to report factually.
Rhod: Absolutely not. This is why I love the opportunity to talk with you about what’s happening in the oil and gas industry particularly his choice – Trump’s choice for Secretary of State, Rex Tillerson.
Mark: [Laughs] It is literally everybody in my oil and gas world, we don’t know what to do with ourselves, were so happy. We actually have business leaders from the industry in those political positions, not politicians. And we’re all looking so forward to 2017.
Rhod: We are too particularly as Rex Tillerson has shall we say a track record here. He’s been here for — coming here for the last twenty years since before he was CEO.
Mark: Let me stop you there. Some of our listeners may not know who he is. He’s actually the CEO of Exxon Mobil.
Rhod: He just resigned.
Mark: He just resigned, right. Yes.
Rhod: Yeah. So, Rex has been coming to Russia and Exxon had invested billions of dollars and employed thousands of people here in Russia and have very successful investment. And who are planning to do a number of joint ventures with our leading Russian oil company called Rosneft in the Arctic region. They had provided the technology, Rosneft had the fields, etc. And they were going to do a profit-sharing joint venture. That was stopped by sanctions.
Rhod: To be honest, Mr. Tillerson was not the happiest guy about that particular decision because as he said it cost his company a lot of money.
Mark: Yeah. And so, we actually think the sanctions are going to be lifted during this administration and they need to be lifted.
People that are listening to this may automatically say, oh, well, Rex has a bias towards Russia because he has investments in there. What people understand is Exxon Mobil is a global supermajor. Anywhere in the world that there is oil reserves that they can recover they have an interest then.
Russia just happens to be some of the largest reserves in the world, so it just makes sense for them to be there. And the fact that they — they bring their engineers and their technology means it helps the Russian companies get that oil out on the ground safer and more efficiently than if they were to would try to do it by themselves which in my mind that’s a win-win for everybody.
Rhod: That’s correct. But, also I mean Chevron – so Exxon themselves employ large numbers of Russian people. He has Russian management within Exxon Mobil. So, he’s got quality people he knows the country he knows the politicians he knows the business leaders.
Rhod: And he knows he’s not going to be pushed around. He’s got just as much clout here because of the investment levels, so he’s actually dealing on equal level and the way that the political appointee would never had because he’s got the knowledge of these people. He’s been doing business with these people negotiate with these people for the past 20 years. So, that’s why we see as a positive.
Mark: Yeah. And we see it as positive too for budget reasons. One is he ran Exxon Mobil. You know they are $450 billion-a-year-company. He is qualified to be Secretary of State better than anybody else. Anybody that can run Exxon Mobil understands business, negotiations, different cultures, things like cash repatriation, threat, risk management.
And so, once again he’s a business leader that’s going to be put in this position and I feel sorry for all the long-term career politicians in the State Department because he’s going to get rid of them, right? He’s going to build a team there that’s going to get stuff done and I can’t wait.
Rhod: Yeah. I mean the press portrays Vladimir Putin as some sort of autocrat, but he’s actually very good for business. He’s actually streamlined business. Russia’s gone from 97th to 32nd in ease of doing business in the global world. I think that USA is 27th.
Mark: Yeah. And we’ve actually slipped. We used to be much higher ranked which is not the direction I want my country to go in. I want my country going the other way.
Rhod: Correct. So, in that sense, I look forward to with the Trump administration, Rex Tillerson. So, I have much more positive outlook on the relationship and particularly for the oil and gas industry because I see that being a big boost for the US oil and gas industry because it’s going to bring opportunities.
Mark: It’s the lower cost, right? And in this low crude price margin, low crude price market lower the cost increases companies margins, so they can hire more people do more work even as low crude price.
The other thing that Trump has done is he actually pointed Rick Perry, the former governor of Texas as Secretary of Energy.
Mark: What a lot of people don’t know is Rick Perry grew our wind energy output 437%, plus he’s an oil and gas guy. So, once again the perfect person to have as Secretary of Energy is someone that’s done it from a business point of view.
Rhod: Yeah. I mean I think this is part of the thing that Trump has been doing is he’s obviously draining the swamp of career politicians and bringing in people who actually have knowledge experience of how to do business and how to improve situations.
Mark: Yeah. He’s building an A team. It’s not a political team, it’s an A team of business leaders. You know I did four years in the Marine Corps and I –there’s Mad Dog Mattis — General Mattis, he’s bringing in as Secretary Defense. There’s nobody on this planet even at 51 years old and 30 pounds overweight, I’d still follow that general in the battle. There’s nobody better to have in that place. Once again, he’s a soldier, he’s done this before. He knows he’s not a politician.
And so, you know I agree Trump is building an A-list team of people in Washington not a political organization.
Rhod: And that can only be positive for the world.
Rhod: Because the biggest problem we’ve had over the years and we see it in with the EU we see it with the Angela Merkel, these people have never had a proper job, right?
Putin, before he became president was actually head of board investment in St. Petersburg so he was there and he made a big difference to St. Petersburg.
Mark: Yeah. I have a special place for Putin, he’s a practitioner sambo.
Mark: And I’ve played – I’ve played judo since I was 17 years old and judo and sambo are like almost identical. So, you know any world leader that actually gets out in the mat and rolls around with other guys, I like that guy.
Rhod: Well, he actually thinks about his people. He’s not in it for personal enrichment. He’s actually has turned Russia over the last 16 years into a much better place.
Rhod: Which is why his popularity ratings are in the 80’s.
Mark: Through the roofs. No matter what’s going on even with the sanctions first hit and there was a dip in Russia’s ability to export things like agricultural products and it really affected the economy for a while, his ratings never didn’t waiver at all.
Rhod: That’s because he goes on television every other day with a press conference as does Lavrov as does Novak and they tell the truth, right? They don’t hide behind sort of platitudes and, you know, bullshit basically. They say this is what’s happening and this is what the situation is.
Mark: Yeah. As opposed to the politicians here and in Europe who I think intentionally try to build this us versus them mentality, so that the people in here and Europe don’t think about the real issues.
Mark: They think about the other side trying to do stuff they don’t like versus like France and they had the whole Paris Climate Court. France has one of the highest unemployment rates in the developing world. I think if I would live in France I’d be more worried about that than the Paris Climate Accord you know. But the politicians were able to make that such a big deal that people get caught up in that and not realize what’s going on day-to-day in their country.
Rhod: Yeah. They say it’s all about issue the tackling issues. And Trump’s team which we’ve talked about, I’m very confident that they’ll be an uptake in what’s going to be happening.
Mark: Yeah. I think they’re going to get work done. It’s no longer be this this this, it’s get out of the way let’s get it done which we need for a long time. We haven’t had that since Ronald Reagan which was what? ‘82, ‘84 something like that.
Rhod: 1982 to 1990.
Mark: Yeah. So, let’s talk a little about what you think the future is going to bring in the oil and gas industry in Russia.
Rhod: Well, should the optimism be justified which you know is looking reasonable. I mean EU have just extended sanctions, but you what does – EU’s sanctions against Russia are negligible to be honest.
Rhod: But all it means is my wife can’t get her favorite French cheese and I can’t get my favorite English mature cheddar. Pretty much everything else as you’ve seen from malt whisky to fine wines, etc I can get.
I may be looking at a few different bits and pieces online before coming on the show and I’m confident that oil will be back around $70 by July and will be hanging given that if OPEC plus eleven deal holds. So, we’ll be looking at that.
Mark: And so, that’s the increase in our exploration of reduction work that’s going on in Russia?
Rhod: Well, that’s never come.
Mark: Yeah. The whole point I’m trying to make is as these prices keep up the business of oil and gas is going to benefit it’s going to prosper in oil – in Russia and globally as well. And in case this is the first time people have ever tune into you and I talking, what does Rusmininfo do?
Rhod: We provide news, information, and analysis on what’s really going on from finding it to refining it. So, if you — basically our company is involved in geophysical exploration or you are involved in refining plants or you’re a drilling company and you are not in the Russian market which is the largest oil and gas market in the world outside of the USA, you should be looking to make some money.
Mark: Yeah. So, next year I think that we agree that the Russian oil and gas market is going to grow. If you’re a company you want to take advantage of that company anywhere in the world, you need some help. Rhod has the information. He knows all the projects, he knows that project managers, he knows the budget, he knows start dates stop dates.
So reach out to him, great guy. You can tell we have this great chemistry to us, he’s like that when he does business. And if he can help you, he will, but it’s one of the ways you can quickly get your company in Russia doing business to capitalize on this growth that’s going to happen in the future.
Rhod: Thanks, Mark. That’s correct.
Mark: Yeah. And so, we’re going to put the link to your website in the show notes, so people can click on it. What’s your website again?
Mark: Yeah, tons of useful information. And if you’re – this is the first time you’ve tuned in, you ought to go back and listen to some of our other episodes that we’ve done because there’s a difference in what is really going on in the Russian business market.
And that’s what Rhod and I talk about versus what our media reports. And if you want to do business there, you need to know what’s really going on, not what the media is reporting.
So, Rhod it’s – what – it’s late Friday after – evening for you, right? Friday night?
Rhod: It’s 8:25 in the evening which is why I’m enjoying a little vodka.
Mark: Yeah. It’s not quite time for me to – to pour one, it’s going to be a few hours away. But you know Russia is known for its vodka. And one of the things I didn’t know until just recently is you can make vodka from things other than potatoes. I always thought it was just made from potatoes, but it’s actually you can make me from any grain.
Rhod: Oh, yeah. Basically, the local one here it is made from the Kurai flower.
Mark: I don’t even know what that is.
Rhod: It’s all right. I’ll send you this. Basically, it’s a wild flower that is the emblem of Bashkiria and they use it to make the vodka here. In fact, I just happen to have a bottle, Zoloto (золото) which means gold.
Mark: It’s goal it’s a pretty bottle, the frosted glass.
Rhod: Yeah, and not so expensive. But, every region in Russia has its own vodka distilleries and the average supermarket of any reasonable size will have about a hundred and fifty different vodkas.
Mark: Holy sh… That’s a lot of vodka. Is there a difference in the way they taste between the regions or is the difference in the quality regardless of the region?
Rhod: The difference is in the taste obviously and then obviously in the quality. The more expensive one for example, this looks like a fake nice book, doesn’t it?
Rhod: Until you open it up.
Mark: That’s cool. [Laughs]
Rhod: This is called Legends of the Kremlin. Can you read the label?
Rhod: So, that’s – it comes in a very nice decanter-style bottle.
Mark: You know it’s interesting is the main label is in Russia, but if you but if you look at the ring around the neck, it’s in English.
Rhod: Yes. Well, that’s because this — some of these stuff does get exported. Now, as we were talking about Vladimir Vladimirovich.
Mark: Oh, that’s cool. Now, is – was that made before Putin came in office?
Rhod: No, it’s — they just decided that they were going to name a premium Russian vodka after him.
Rhod: So, obviously there are some vodkas that you are familiar with, I think this sells quite well in America.
Mark: Yeah. I’ve seen that quite often.
Rhod: Yeah. Yeah. But, I mean for those people who are ecologically-friendly.
Rhod: Ecological vodka.
Mark: Now, what’s the firewood on it?
Rhod: It’s filtered through charcoal.
Mark: Okay. Okay. Jack Daniel’s does with their Tennessee Whiskey
Rhod: Yeah, exactly, so something like that. Now, here is another vodka from my local area which has got various herbs, etc in it. So, if you have a bit of flu and you don’t fancy some lemon sip, try some of this.
Rhod: It’s got, again, a very unusual bottle.
Rhod: I don’t know if you guys get this one, but it goes perfectly with caviar.
Mark: Caviar, I would guess so. And speaking of caviar, what country produces more caviar than anybody?
Mark: Russia. [Laughs]
Rhod: We probably – Iran and Russia because it’s Caspian, so they both have a bigger share of the Caspian than anybody else.
Mark: But, if I’m not mistaken, Russia actually figured out — I may be wrong with this. Russia actually figured out how to warm rivers and to actually farm sturgeon commercially for caviar.
Mark: Which is something nobody else has figured out how to do.
Rhod: Yeah. So, that’s kind of work.
Mark: Yeah. Well, the thing I think is cool is they – it makes physical sense to spend the energy to warm a river during the winter so that you could grow these sturgeons so you can harvest the caviar. I mean it can’t be cheap to warm a river.
Rhod: No. But, I’m sitting here in a polo shirt, in my apartment and my heating went on on October the 1st and it will be switched off on April the 30th. Now, it’s -30 outside, right? I have the double glazed windows, etc, but I don’t have a thermostat.
Mark: So, how does your heater keep the right temperature?
Rhod: It doesn’t. If it gets too hot, I’ll open the window.
Mark: [Laughs] You know where else they do that is Norway. And in my first couple of trips nobody told me that. I was staying in a hotel and we got – and I was actually sweating which is silly because it’s frozen outside. And eventually somebody says, no, you just open the window to regulate the temperature. I was like, I wish you would have told me that when I first flew into the country.
Rhod: Yeah. It’s basically we have a communal heating system that’s switched on which means that unlike in the UK or in parts of Western Europe where they put huge green subsidies onto electricity bills where in the UK for example people have to choose to either eat or heat.
Rhod: Everybody is warm as toast in the winter.
Mark: So, what’s the heat – what – is it actually is it hot water is it steam?
Rhod: The radiators are filled with boiling hot water. I can dry a pair of denim jeans in fifteen minutes straight from the washing machine on my radiators.
Mark: So, the city actually provides the hot water to the communal heating system then?
Mark: And that’s some efficiencies there because it’s only heating water in one place and then all you have to do is distribute it around.
Rhod: Yeah. We basically — my heating bills for a year in Russia with my heating and electricity bills were for a month in England.
Mark: Big difference.
Rhod: Yeah, very big difference. But, again, if gas – basically use the gas system for the benefit of the people.
Mark: Yeah. That’s pretty cool.
All right, Rhod we are getting close to our end time. Look at the clock there. Anything else you want to do before we get out of here?
Rhod: No, but we should do a little bit of a quick chat.
Mark: Okay. All right. Folks, so hope this helped. We will see you next time.