BREXIT, Gazprom and Gin. Interview with Rhod Mackenzie

Mark: Hey, folks let’s learn a little bit more about the oil and gas industry.

All right. We have back our special guest. We do — we try to do this every month, but I’ve been busy, we skipped a little bit of time.

So, we have Rhod Mackenzie with Rusmininfo. How are you doing, Rhod?

Rhod: I’m good, Mark. I’m good. How are you?

Mark: Busy. Hot here. It’s – Houston is a – has hit over 100 F for the last week in a row and we haven’t even hit August yet.

Rhod: Wow. We’re on 32 C, I think that’s only about 87, 88.

Mark: Yeah. Yeah. So, much cooler temperature. We’re doing this via Skype because Rhod, where are you?

Rhod: Yeah. Basically, I’m in Ufa in Southern Russia just below of the Ural Mountains.

Mark: Yeah. And, but you don’t sound like you have a Russian accent?

Rhod: That’s because I’m not from Ufa, I’m not Russian. I’m actually from Scotland.

Mark: Yeah. And you’ve lived and traveled all over the world. Now, you’re running a successful business there in Russia.

Rhod: Basically focused on the commodities mainly oil and gas, but also covering gold and the other major commodities that Russia has such an abundance of.

Mark: So, let’s talk a little bit – we’re talking off the mic  a second ago, but we’re talking about Brexit and a lot of people in the US especially don’t really understand the history what the European Union is and what’s – how the Brexit is going to affect especially the oil and gas industry?

Rhod: Yeah. I mean basically President Obama came and the president of the IMF, Christine Lagarde said the same, Britain should remain as part of the European Union and their pleas along with others were ignored.

And I think that was mainly because what started out in 1953 as the iron and coal and steel confederation of countries morphed into what was the European Economic Commission which was a trading block which then became the European Union.

Now, everybody even in the UK is not aware there’s actually four presidents. Do you know there’s four presidents of the…?

Mark: No, I didn’t know there were four presidents. No.

Rhod: Okay. Firstly, the Jean-Claude Juncker is president of the EU Commission which is their overall governing body. Then, you have the European Parliament which is elected by these members that are elected by the different countries. It has 670 I think at the last count and they come from the various countries.

Then you have the chairman of the European Council who basically heads up the council the prime minister of the member states, all 28 of them and then, you have the president of the Council of Europe and that is actually a rotating presidency where each country takes six months of being president of.

Mark: Well, that’s nuts.

Rhod: Yeah. Well, no, it’s very interesting. Well, because we talk about democracy in America and various countries, but the EU is actually one of the most undemocratic institutions. Jean-Claude Juncker is actually appointed and voted on as president by the Council of Ministers which is the prime ministers of the 28 countries. And you can imagine how strict it goes on there.

Mark: Right.

Rhod: Donald Tusk is also was elected by the Council of Ministers. Now, the main executive is called EU Commissioner. Now, each country put forward a commissioner and they go from every portfolio from economic to environmental to energy, etc.

Now, these are voted for by guess what? The prime ministers and then they’re rubber stamped by the European Parliament. So, far from being a democracy, it’s actually a [state job].

Mark: Yeah. Yeah.  And, I didn’t know any of t his.

Rhod: Right. So, that’s one of the reasons I think that the UK decided that having laws on how much of the curvature can be on cucumber and the waters that you can have on your hair dryer and all of these directives were put down by the 28 commissioners in committee rooms with the members of the European Parliament.

Now, it’s interesting because we’re talking now energy which is what we are particularly interested in. And, gas was one of the few things that sanctions were not applied onto Russia.

Mark: Yeah. Let me stop you there. For my US audience, he’s talking about natural gas not gasoline, natural gas.

Rhod: Yeah. I’m talking not about petroleum as you call it gasoline, but natural gas. Russia is the largest individual supplier of gas to the European Union. It supplies something – it varies between 32 and 37%.

Now, they attempted to introduce what they call the third energy package which meant they wanted each European Commission to basically negotiate on behalf of all the countries of the European  Union on the delivery of gas.

Now, there are three pipelines currently. One is the friendship pipeline that goes through the UK, the other one is the Yamal-Europe, and the third one is Nord Stream and they’re about to build Nord Stream 2.

Are you familiar with those, Mark?

Mark: Yes, I am. Yeah.

Rhod: All right. Nord Stream are actually a major client of mine. Their company is 50% owned by Gazprom. It’s based in Switzerland. Its head is a German. Its finance director is a Brit and is based in Zug in Switzerland.

Mark: Yeah.

Rhod: Also, it ships gas from the Russian course straight through the Baltic and into Germany. Also, one is a pipeline called Opal pipeline that cuts straight through Germany and links up with the other pipelines in Europe that can distribute gas to almost any part of it. However, Maros Sefcovic who is our career diplomat, yeah, I said diplomat. He’s now head of the EU Energy Policy.

Now, you’re aware that there has been a situation in the UK over the past couple of years?

Mark: There’s been a bunch of situation. Which situation?

Rhod: Just the fact that Russia and the European Union [0:06:43 Indiscernible] are not very happy with each other over the situation.

Mark: Yeah. It’s progressively gotten worse over the last couple of years.

Rhod: Yeah, exactly. Whereas, between 2007 and 2017, it had its moments because what used to be called the friendship pipeline when – it was the first pipeline built between the Soviet Union in Europe for the supply of gas.

Now, the Ukraine were crying a number of years in fact, since its independence from the Soviet Union and when Russia became independent, economic progress has been lethargic to say the least, sloth-like some people would say.

Mark: It’s actually went backwards I think.

Rhod: Backwards by about twenty years.

Mark: Yeah.

Rhod: Okay. So, whenever there was a problem economically, they would steal gas from the underground storages and the pipelines.

Mark: Right.

Rhod: So, Gazprom had decided firstly to build the Nord Stream pipeline which is what they’ve done. And also, the infrastructure of the Ukraine pipeline system is – hasn’t been maintained and were not continued…

Mark: It’s old and it has fallen apart, yeah.

Rhod: Yeah. So, Gazprom obviously are looking to solve two problems; one, the ageing infrastructure and the fact there’ll be no investment in it with how can we provide a safe and secure system of deliver with the minimum of disruption, so Nord Stream 2 straight through the Baltic Sea. No countries to argue with apart from within their sea waters.

Mark: Right.

Rhod: And that’s what’s currently happening. Now, the EU are controlled freaks. They do not want Russia to control 30% of the gas on their own terms.

Mark: Right.

Rhod: Keep claiming that Russia is unreliable energy partner, but there has been no interruption of the gas supplies since the 1970’s. The price negotiations have changed dramatically since LNG started to come to the market, etc.

Mark: Right.

Rhod: It’s political. And that’s the main reason for the British leaving and the conflict between Russia and the EU it’s all about political construct.

Mark: Yeah. So, that makes a lot of sense now sine you kind of laid out how that works. So, what is the – how is the Brexit going to affect that situation?

Rhod: Ah, well, first, in the past couple of weeks there’s been also threats, but when the world’s  fifth biggest economy and the second biggest economy in the EU decides to go, obviously those people who’ve got this privilege to lead position are going to try an defend their position as much as they possibly can.

Mark: Right. They want to keep their political base keep the money coming in the power all that stuff.

Rhod: And the expansion. I mean they are now looking to add farther countries into the EU. What most people in America don’t realize is 40% of the budget of the EU was on the common agricultural policy.

Mark: Yeah, I knew that. That’s a huge number. Yeah.

Rhod: Yeah. And, that’s basically to buy our food. So, it’s nothing to do with free trade, in fact, it discriminates and foremost in the US, in Canada, in Africa, in Asia. Imported rice from Asia or grain from Russia or whatever it’s a totally discriminated policy.

And on energy, trying to control it. As we said it’s a bit like nailing down Jell-O, it’s a nice concept, but it’s not really going to work particularly with energy sources. We discussed LNG which is you know liquefied natural gas multiple sources multiple ways of doing it. I mean the whole of the American economy was transformed by a cheap energy fracking for gas and for oil.

Mark: The whole world is transformed, right? Whenever you bring cheaper reliable energy to part of the world, you start having progress you start the prosperity. Yeah.

Rhod: Unfortunately, Mark, in the EU you don’t because they’ve got the farm on renewables.

Mark: Yeah. And, we have a little bit about that here. It’s actually we talked of this earlier. One of our states, New England has a terminal where they bring in LNG from the Caribbean to New England to supply their gas because they don’t – they think it’s environmentally unresponsible to tap into the frack gas. And so, they’re paying $8 for billion cubic foot from the Caribbean natural gas. They can get the frack gas for $2 for billion cubic.

But, once again they think they’re doing the right thing, they just don’t understand how it really works.

Rhod: Yeah. That’s exactly the thing. I mean from a petrochemical’s perspective, many European petrochemicals can sense that are actually global companies had their head office in Europe moved a large number of their facilities because the production of petrochemicals is very energy-intensive.

Mark: Right.

Rhod: So, they moved the production over to the US.

Mark: Right. Less expensive.

Rhod: And Russia has quite a large number of projects being planned and will continue the plans simply because its gas – natural gas in Russia is much, much cheaper, energy cost are much, much lower. And, Russia is looking forward to producing a much more balance in budget and not being just simple fossil fuel exporter.

Mark: Yeah. It’s interesting. So, people here – and there are smart people all over the world, but there’s a lot of work right now capture a lot of petrochemical business in the developing countries; India, China, Africa. And one of the things, the things like ethylene crackers, it convert natural gas to plastic.

We’re in the race with Russia because the US and Russia both have cheap natural gas. US and Russia have both have the technology to build these ethylene crackers. And that US and Russia both have cheap transportation to the rest of the world. We have , so we’re in a race with Russia see who can get these ethylene crackers build first and grab that market share. And I think that’s great. I think it’s great for us and Russia.

Rhod: I think it’s great for both countries and also, for the exchange of technologies and doing business.

Mark: Yeah.

Rhod: I mean many, many Russians – American companies have been active in Russia for many, many years and will continue to do so. I mean is a very, very frequent visitor to Moscow.

Mark: Yeah. Let me pause here. This is a good place to talk about what you do. So, if you’re listening to this and you’re interested about doing business in Russia, what Rhod does, he gathers all these project data from all these projects going on in oil and gas and mining and other things and he can give you access to that so you can see where the projects are, what’s going on, who are the key players.

Did I do a decent job of explaining what you do?

Rhod: Yeah. I’m actually about to launch a new product and it’s going to take about another six weeks to finalize. It’s called [Petropolyplas] which is going to be looking at the petrochemicals polymers and plastics sector in Russia.

Mark: Yeah. So, if you’re interested in doing business in Russia in any of those sectors, reach out to Rhod. We’ll put a link to his website in the show notes.

But, you know, it’s just a wealth of information of what’s going on in Russia and that’s – I’m not quite sure how we even met originally, but I love these dialogues because I learned – one of the things if you’re here in the US you have to careful of, what you see in the media is not always what the reality is. And this is a perfect example where we’re hearing from somebody in Russia about what’s going on and it’s different story from what our media is telling us.

Rhod: I think that Mark is why you have so many fans because the alternative media has more respect than the mainstream media.

Mark: Which is sad.

Rhod: Because 80% of the world’s media is owned by six major corporations.

Mark: Yeah. And, they’re no longer worried about doing good honest journalism, they’re worried about making money, right? And so, the more people they can get to watch, the more they can charge for the commercials and whether they’re talking the truth about, they don’t care anymore  which is said.

Rhod: Absolutely. Well, you know, people like ourselves we want to educate, we want to inform, and we want to help people do business.

Mark: Yeah. So, going back to Brexit, how do you think that’s going to affect the actual the business in Russia?

Rhod: I think that prior to Brexit because the British actually were buying the sanctions and really strongly because of the relationship between the US and the UK. Whereas, France and various other countries, Italy for example were really suffering, I mean even the IH. The IH were exploring something like £300 million pounds which is about $440 million worth of pigs like pig meat.

Mark: Right.

Rhod: Agricultural produce has gone like these were markets something like 60 billion over the last two years or agriculture and food produce has been lost by the EU. Now, that can only change with sanctions being dropped. However, I went to my local supermarket and my bananas come from Ecuador, you know, my apples now come from South Africa rather than Poland. These markets are gone and they’re not going to come back again.

Mark: You know that’s a good point. So, when you think about that when the sanctions happen and we cut off different supplies, Russian people still needed those – those products, right?

Rhod: Yeah.

Mark: And so, they come to other markets, so when the sanctions are dropped, did that decision destroyed those native markets like will ever go back do you think?

Rhod: I think very much so. I mean even on holiday resorts, I mean when the Turks shot down the British – the Russian airliner, immediately five million Russians stopped hauling in Turkey.

Mark: Right.

Rhod: Now, it just take five million people to stop going for vacation in one particular country, that’s going to cost a huge drop in its tourist industry. I mean the Russians were actually the largest single individual tourist, I mean twice as many as the Germans or the British or whoever.

Mark: Yeah. So, there’s an economic impact that people probably didn’t foresee.

Rhod: Oil and gas is different because that’s always been a global business and most of the companies involved in oil and gas tend to have offices in various parts of the world. I know people within the Australian government for example and representatives in Russia. Gas as I mentioned earlier was never considered part of the sanctions, so if a product had a due purpose as an oil or gas, the commercial attaché said, “It’s gas.”

So, I think that a lot of the companies; Americans, Australian and whatever is business as usual. I mean the politicians do things their way, business will always succeed.

Mark: Yeah. And it’s unfortunate here, I’m sure this applies to a lot of  other parts of the world, but here, our politicians don’t understand the business of oil and gas and yet they want to regulate it and make rules around it. And it’s to the point now where it’s starting to get ridiculous, you know, it’s increasing the cost of operations here where the raw feed stock is dirt cheap.

And, I, you know, it makes me wonder is – and I know this industry. You know Chevron started to increase the cost in California, they quit drilling in California because of taxes. If they have increased cost in the US as a whole, they’ll go to North Africa or Australia wherever, you know, wherever it is. So, you know, it’s a good lesson learned and our politicians need to understand the business before they try to enact any type of legislation.

Rhod: The biggest problem is most politicians think government is the solution. I seem to remember because I’m old enough that Ronal Reagan said, “Government is the problem.”

Mark: Yeah. Yeah. I was – Ronald Reagan is one of the best US presidents ever at least in my lifetime because he understood the boundary, he understood that more government is the problem and that accountability is at the people level not the government level. I mean he was great.

Rhod: And the business has to be called to account, but business also must be allowed to create jobs, create prosperity, and that’s what businesses do.

Mark: Yeah. That’s what businesses do that’s for sure.

So, Rhod, usually it’s about time for us to close the show out and we usually talk about alcohol. What are we going to talk about today?

Rhod: Well, it’s a hot and it’s a sweaty day, etc and when I’ve done my day, I just love to relax with a glassful of ice and four fingers of Bombay Sapphire.

Mark: Bombay gin brings back memories.

Rhod: Yeah. Well, it’s a lovely aromatic top top with tonic and it’s that little bit of England.

Mark: Yeah. Yeah. So, it’s – the English do love their gin. I actually has spend a lot of – not lots but a good bit of time in the UK especially London and they get a little upset with me because I don’t know the differences in the different gins, it’s like this is not a big deal here.

Rhod: Yeah. Well, you actually produce some reasonable ones. I’ve actually purchased and I’ve consumed them, but for the next one I’ll show you a couple of US gins I can actually get here in Russia.

Mark: And you know it’s going to be interesting we do that let’s see if you get it cheaper, that’s just not fair. It’s not fair.

All right, Rhod, I appreciate your time. Like I said folks you need to check him out if you’re looking to do business in Russia. And then, we will see you again in another month.

Rhod: Excellent, Mark. Thank you.

Mark: Yeah. Folks, I hope this helped. We will see you next time.

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