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311 comments on DrumBeat: January 12, 2008

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stevelevine on January 12, 2008 - 10:57am Permalink | Subthread | Parent | Comments top

As with the Ukraine dispute of two years ago, all of this started with Turkmenistan's attempt to get higher prices from Iran for its natural gas. One wonders about the relative roles in this "shortage" of the cold winter and some of the countries using the situation to their advantage. Russia, for instance, is happy to take that gas that would normally be delivered to Greece and Turkey on long-ago negotiated contracts, and sell for a higher price.

Steve LeVine, author
The Oil and the Glory
http://www.oilandglory.com

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westexas on January 12, 2008 - 11:03am Permalink | Subthread | Parent | Comments top

An economist would expect to see available natural gas supplies auctioned off to the highest bidders. Regardless of the reason for the supply/demand imbalance, that is not what happened. There was pretty much an instantaneous middle finger response to the importers. The exporters literally elected to keep the home fires burning.

A year or two ago, we saw the same thing in Europe when countries on the Continent declined to export all of the natural gas to UK that the UK wanted, leading to vastly higher prices in UK than on the Continent, which again violated economists' delicate sensibilities.

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PaulS on January 12, 2008 - 4:50pm Permalink | Subthread | Parent | Comments top

"An economist would expect to see..."

Hmmm...I thought most economists expect to see, on occasion, what they would call market failures caused by politics. History would include, for example, the 1973 Nixon soybean embargo, the 1975 Ford grain embargo, the 1980 Carter grain embargo, another embargo when bread was hitting $1 a loaf or maybe it was one of those, and countless other such events in many places. I can't imagine why anyone is shocked...

Of course, if an economist is thinking prescriptively, he or she might be right about Europe. By embargoing, Continental countries kept their prices artificially low, reducing both supply and efficiency incentives within their borders. This was not just a mere violation of delicate sensibilities - since EU countries incessantly preach from the very highest of high horses about burning less hydrocarbons, it was more than a tad hypocritical. Not that it was any more hypocritical than jetting tens of thousands of tourists and hangers-on to world jamborees to tell everyone else to stop consuming. Not that hypocrisy is the least bit unusual in this wicked world. Not at all...

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westexas on January 12, 2008 - 9:35pm Permalink | Subthread | Parent | Comments top

My favorite forward looking statement, by the Economist Magazine, in August, 2006:

Saudi Aramco's proved reserves alone could keep the world supplied for several decades. But it is only exploiting ten of its 80 or so fields, so will be able to pump at the present rate for about 70 years even if it never discovers another drop of oil.

It was remarkable that the Economist would make a 70 year projection without even considering the effect on net exports of increasing domestic Saudi consumption. Based on EIA data, Saudi Arabia showed a +5.7%/year increase in consumption from 2005 to 2006. At this rate, the long term net export decline rate (2005 to 2030) would be about -10%/year--assuming flat production at 11 mbpd (total liquids), with no decline. The year to year net export decline rate would start out slowly and accelerate with time. For what it's worth, at +5.7%year, the Saudis would be consuming 108 mbpd in 2075, which seems “somewhat” unlikely, since this is about 40% more than current total world liquids production.

In any case, what is interesting about the Turkey, Russia, Iran situation is that Turkey--a richer country (based on most recent Nationmaster data)--is being forced to reduce consumption by two poorer countries, Russia and Iran.

I wonder how this will play out for the US versus poorer oil exporters.

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ThatsItImout on January 13, 2008 - 5:45am Permalink | Subthread | Parent | Comments top

WT said,
"Based on EIA data, Saudi Arabia showed a +5.7%/year increase in consumption from 2005 to 2006. At this rate, the long term net export decline rate (2005 to 2030) would be about -10%/year--assuming flat production at 11 mbpd (total liquids), with no decline. The year to year net export decline rate would start out slowly and accelerate with time. For what it's worth, at +5.7%year, the Saudis would be consuming 108 mbpd in 2075, which seems “somewhat” unlikely, since this is about 40% more than current total world liquids production.

"somewhat unlikely" is an understatement. Has there ever been a case of a nation increasing it's oil consumption 5.7% per year compounded for 70 years running? I think it would be exceptional indeed!

Look a the long view of U.S. growth in petroleum consumption:
http://www.eia.doe.gov/emeu/25opec/sld007.htm

And we are supposedly one of the worst of the "oil hogs" in the world.

The other issue is how do we define Saudi consumption? If they retain crude oil for their growing home petrochemical industry and sell the finished goods to the world deriving from that industry, they are still meeting global petroleum demand.

It is also to be remembered that Saudi consumption is starting from a relatively low base of consumption compared to the largest consuming economies (the United States, China, Japan and the EU)

The more shocking part of the Economist quote to me was "Saudi Aramco's proved reserves alone could keep the world supplied for several decades. But it is only exploiting ten of its 80 or so fields..."

Do they have the statistics to back that up? Where and how large are these 70 other fields that are supposedly lying in wait to be exploited?

More proof to me that we know almost nothing about Saudi Arabian oil reserves.

RC

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westexas on January 13, 2008 - 9:57am Permalink | Subthread | Parent | Comments top

If memory serves, US consumption increased at about +4%/year from 1949 to 1979.

As I have previously noted, in addition to being at about the same mathematical stage of depletion at which Texas started declining, Saudi Arabia now, like Texas in the Seventies, is responding to higher oil prices with a sharp increase in drilling activity--and lower crude oil production (relative to 2005).

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BobCousins on January 13, 2008 - 6:22am Permalink | Subthread | Parent | Comments top

It's convenient for some to paint this as a UK vs Europe politics thing, but there is more to it than that.

Typically continental utilities have different operating regulations to UK companies, the continental ones must guarantee supply for longer and keep so many days supply in reserve, unlike the UK. Since UK utilities were deregulated and thrown open to "free market", our reserves are run down while the utilities make more profit. Naturally when our utilities ask the Europeans to provide gas from reserves which we failed to keep, we get a firm non.

The UK is at the end of a long supply chain, and the primary issue of availability of supply which should be addressed by government gets buried by cheap politics.

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notintodenial on January 12, 2008 - 2:29pm Permalink | Subthread | Parent | Comments top

steve, I appreciate your 'on the ground' experience added to TOD. Thank you.

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dissident on January 13, 2008 - 12:44pm Permalink | Subthread | Parent | Comments top

Your claim is simply hilarious. Evil Russians shipping gas to Greece and Turkey under emergency conditions, what a crime! When you show that the current export disruption is engineered by Russia then come back and act like some sort of expert rather than a professional russophobe. The current export crisis affecting Turkey and Greece is created by unusually cold temperatures and hence increased consumption in *Iran* which lacks the slack to offset the 5 mcm/day cut in imports from Turkmenistan (note the small amount of gas involved). In addition, Turkmenistan exported 50 bcm to Russia in 2007 and of this 42.5 bcm was directed to Ukraine and not merely resold by Russia to the EU as you implicitly assert every chance you get.

The common thread in your claims is that Russia takes cheap Turkmen gas and resells it for a profit. This is pure unadultarated drivel. Why would Russia pay for gas it can export from its own production? Clearly the profit on its own exports is much higher. That it choses to ship Turkmen gas to Ukraine and other subsidized markets is quite legitimate, nothing morally or legally is forcing it to subsidize these markets all by itself. It is also fully appropriate for Turkmenistan to keep raising its prices until they reach Russian export to the EU levels and higher.

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dissident on January 13, 2008 - 1:00pm Permalink | Subthread | Parent | Comments top

According to

http://www.iranmania.com/News/ArticleView/Default.asp?NewsCode=56904&New...

the Turkmen exports were fully severed and 23 mcm/day is involved and not 5 mcm/day as claimed by

http://www.presstv.ir/detail.aspx?id=36926&sectionid=351020103

Anyway, Uzbekistan also cut its exports due to weather. But I suppose Russia is responsible for the weather since the cold comes from Siberia!

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311 comments on DrumBeat: January 12, 2008

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