Confidence in Russian deliveries of energy
Posted by Heading Out on November 8, 2006 - 11:41am
It was just last week that Leanan pointed to the Bloomberg piece which was already noting a slight fall in both oil output and exports, from this country which is, currently, the world's largest crude oil producer.
Average daily oil output during the month was at 9.711 million barrels a day, or 41.07 million tons, down 0.4 percent from 9.751 million barrels a day in September, according to the Energy and Industry Ministry's CDU-TEK unit. Exports dropped 9.4 percent to 4.94 million barrels a day as the government raised export duties to a record. . . . . . Exports to countries outside the Commonwealth of Independent States fell 6.5 percent to 4.2 million barrels a day. Russia raised export duties to oil to a record $237.60 a ton ($32.41 a barrel) from Oct. 1, up 9.8 percent from the previous duty of $216.40 a ton.And yet, today the Russian Deputy Prime Minister said that they would not cut production, but would rather boost production at the same rate as at the beginning of the century. However, there are questions about what is going to happen with the planned export of LNG to Japan and Korea from the Sakhalin 2 development, given the problems that Shell is having with that project. At present most of the production is supposed to be heading to meet those two countries needs.
Consider the situation in Georgia, where Gazprom intends to raise the price of gas to world prices - effectively doubling the price, while at the same time running a new gas pipeline to the breakaway region of Georgia, South Ossetia. It appears that the politics of the region are increasingly going to be played out with the bludgeon of energy supply as a very visible weapon. Given the threat to cut supplies this could get uglier, before it gets better. Slovakia has obviously seen the writing on the wall.
Similarly there is a concern for gas supplies from Russia to Poland and Blearus.
This lesson is not one just for the FSU states, just recently development of the Shtokman field was set back to 2013. With the earlier delays in the development of the Yamal fields that may not appear until 2011 or 2012, there is a possibility that Russian domestic supply might not be immediately able to meet demand. One wonders if the Gazprom plan is therefore to buy and sell gas from Turkmenistan and Uzbekistan first, and run down their supply, while maintaining their own until later. The Turkmen already had large deposits, and have just discovered another very large field. It is interesting to note, however, who their projected partners are planning to be.
A huge natural gas field has been discovered in Turkmenistan, President Saparmurat Niyazov said.Perhaps Gazprom may not have it quite as easily their own way as they expect - although perhaps that is one of the things that the Russian PM will be talking about.A field containing an estimated 7 billion cubic meters has been struck in the southeastern town of Iolotan, Niyazov said in televised remarks Sunday.
"A mighty fountain (of gas) caught fire," Niyazov said. "It took us three days to put it out."
He said a Chinese energy company, which he did not further identify, had shown interest in developing the field with help from a company from the United Arab Emirates.
Turkmenistan is the second-biggest natural gas producer in the former Soviet Union after Russia. The country's proven commercial reserves amount to 2.8 trillion cubic meters. The Russian gas giant Gazprom controls the only transit route for Turkmen gas exports to other ex-Soviet republics and Europe.As the Russian Institute of Energy Policy reports, however, China is concerned about the security of the energy supply. (And watching what is going on in Georgia who can blame them?)Niyazov reiterated his intention to export natural gas to India, China and the United Arab Emirates through pipelines that are still under construction.
"Our goal is to lay pipelines to several countries," he said. "We have also pledged to supply 200 billion cubic meters to the world market."
In April, Turkmenistan concluded an agreement to build a gas pipeline to China. Beginning in 2007, it will also export 14 billion cubic meters of gas annually to Iran.
One of the essential principles of the Chinese Communist Party"s energy policy is reliance on national energy resources for "security" considerations. For example, China has just implemented a 4,000-km gas pipeline project ("West-East") from the Tarim and Changqing gas fields in the Xinjiang Province, with proven gas reserves in the region at a mere 700 bln cu m, to the country"s main gas consuming areas. At the same time, China refused to sign a contract with Russia to import gas from the Kovykta deposit in the Irkutsk Region, arguing that the gas reserves there are purportedly insufficient (Kovykta"s proven gas reserves are 1.2 trillion cu m). . . . . . Traditionally, Russia"s gas and power imports to China have been impeded by price disputes. One key project (Kovykta), which has the potential to become a main channel for the export of natural gas from Russia to China, has been effectively frozen due to price disagreements. The Chinese side has long time refused to buy Russian gas for more than $30-$35 per 1,000 cu m at point of delivery on the Russian-Chinese border, although the break-even level for the Kovykta project is $75 to $120 per 1,000 cu m. China said it was unreasonable for it to buy gas at prices above $40: at this level, it would be cheaper to use its own coal as fuel at electric power stations.Georgia is now being asked to pay $230 per 1,000 cu.m., to put these numbers in perspective. The Russian Institute looks at this situation and concludes that the Chinese will not end up as customers for Russia.
The surge in energy demand is mainly observed in the industrially developed southeastern parts of China where deliveries of Russian energy via network infrastructure (pipelines, power transmission lines) are hindered by large distances and high costs. These regions will meet their gas demand mainly through the construction of liquefied natural gas (LNG) terminals, while this gas will not come from Russia.So if the Chinese market is not going to develop, then this will change the way in which the Russian energy distribution unfolds.
I post much of this information more to illustrate the way the current situation is developing, rather than to draw any clear conclusions at this time. I suspect that we will be able to see the situation a little more clearly, with the longer term implications, as the winter draws its influence into the picture.
Contact
- Content: editors at theoildrum dot com
- Tech support: support at theoildrum dot com
License
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.
It increasingly appears that the supply of LNG is questionable, and that development on the river is unlikely.
Does anyone on TOD have data that would favor importation of LNG from Russia, Qatar, Indonesia or elsewhere to the Pacific Northwest?
Long term investment in fossil fuel infrastructure is a fool's paradise.
From a recent NYT Story:
http://www.nytimes.com/2006/11/07/business/worldbusiness/07pollute.html
I am pretty sanguine about climate change. As far as I can tell, all scenarios predict increased oil and supplies, which is unlikely, and the extreme scenarios are simply not possible.
We are lucky that two big problems facing humanity cancel each other out.
We need everyone to sign up to a CO2 reduction program (via carbon tax, tradeable quotas or whatever). Business as usual will make things worse, even in the face of declining oil and gas.
All we will ever get is probably below 2 degC (see http://www.junkscience.com/Greenhouse/What_Watt.htm ) and it will be probably increased Solar activity than CO2 that will eventually get us there.
However CO2 itself is the best fertilizer as most of the world's plants growth is limited by dismal CO2 concentration rather than lack of water or light. Doubling CO2 will in average result in 30% increase in dry biomass growth, although some plants (e.g. watercrest) grow 200% faster. See http://www.co2science.org/scripts/CO2ScienceB2C/Index.jsp .
Petrus
Coal is a far, far worse contributor to climate change than oil. The post above is right, peak oil is a massive threat to the climate.
I can't emphasize this enough: Coal is the number one climate problem, oil is a semi-distant second.
In regard to the longer term supply needs of the country Dave has posted on this before, as have I, and since the supplies from Canada are limited, the only realistic increase in supply may well have to come as LNG. There are some contracts already in place - a couple of trains from Qatar, for eg, but some of the trade has been via the spot market, and this is where the US has lost out, for example to Spain, in the past.
http://www.aspo-usa.com/fall2006/presentations/pdf/
I've kept up with the Astoria LNG issue, and I would say agitate against it at home, and then head down to Coos Bay and agitate for it.
They seem to have the inside track for the initial terminal. Citizen opposition is helping up on the Columbia.
Can it be prevented altogether? I don't know, but what I predict is that terminals will be built to service the large number of tankers being built to carry this high quality, highly desired commodity.
The doomer in me says that coal is our future, with LNG and oil providing all they can, until more nukes are built.
That and a long emergency.
LNG obviously makes sense in some places for some uses -- but it is very short term, according to the data that is being presented.
NIMBY is real, when it comes to siting LNG receiving terminals. This has to do with perceived destruction of existing values while creating new ones -- it's all a matter of whose ox gets gored.
I'm trying to assemble all the info I can about LNG, because it doesn't look to me like developing it in the Columbia River makes economic sense, and it certainly promises to do major damage to the river. And the major beneficiaries would seem to be far away -- Seattle, Portland, even California if you believe some of the wild ideas about NG pipelines. I don't need to bore you with my biases and conclusions; I thank you all for your data.
Gazprom's forecasted budget is still up on the Russian version of the Moscow-based Institute of Energy Policy's website site. The budget is included on page 22 of the December 7, 2005 presentation here: (in Russian): http://www.energypolicy.ru/pv.php?id=1002396 (the English version of this presentation is not available)
There are three highlighted lines towards the bottom of the page, first (towards the top) reads: (translated from Russian): Total Revenues,
Second highlighted line reads: Total Spendings (ie costs), third reads: total debt. All numbers are in US dollar billons.
Summary: In 2012, Gazprom will have revenues of $US46.14 billion and spendings (costs) of $US 74.37Bn, leaving debt to increase from $21.0Bn in 2005 to $119.05Bn in 2012.
Assumptions of forecasted budget: 1. constant price domestically and in Europe and CIS of Gas (maybe reasonable, although likely the price will rise a bit), 2. slower internal Gazprom cost growth than historical, 3. Capex includes Yamal, NEP, Shtokman, but does not count oil, petrochemical, power capex at Gazprom 4. interest rate = 5.6%. 5. lower Russian gas production offset by higher Central Asian production (in which Gazprom collects a tariff) 6. Gas transportation tarrif increases from USD 0.82 per tcm to USD 2 per tcm by 2008 (likely to happen).
Summary: there is low/no free cash flow at Gazprom to finance large projects, if the assumptions above are reasonable. So Gazprom will be dependent on external financing for most of its big projects -- which will likely lead to more delays.
The EU export gas price and the CIS export gas price appear low in the forecast -- I may make my own excel spreadsheet and fiddle with the numbers and put in higher numbers to see what difference it makes.
Oil is forecasted at $US30 per barrel, which is too low for export but too high for domestic Russian prices (which are now about $US25 a barrel after taxes).
Quote "Gazprom's forecasted budget is still up on the Russian version of the Moscow-based Institute of Energy Policy's website..."
Is the "forecasted budget" done by the Institute using whatever data it selects?
Or is "the budget" the ACTUAL gazprom budget copied and embedded within a report by this institute?
Needless to say Gazprom sees another future for itself.
It is going to be sensitive because if European banks start to question Gazprom's finances they will be less willing to fund large projects. I am sure the Russian government won't like it. But then again an independent researcher will view both sides of an argument and make their own independent decision.
As for the 400,000 workers that Gazprom allegedly has on its payroll: they don't get paid on the same scale as the Exxon workers and managers. Here again, where is the evidence that this workforce is an unupportable burden on Gazprom?
The demands in the west are for Gazprom to be a charity for the west's benefit. All the yammering about too little investment and not enough fields being brought on line are obviously a desire for over-production and lower gas price. At the same time Gazprom gets criticized for having too many workers. Perhaps its time to join the reality based community and stop the inanity.
I don't think we should put too much confidence in Russia as an energysupplier for a very long time.
If not for geological reason, then for logistical reasons as totoneila shows
Which countries, over the next decade, are going to be reliable, never ending, ever growing sources of significant amounts of oil and gas?
This is an honest question. I don't know the answer, but I hope somebody else does.
Thank.
The answer to your question will be "none" .
But Norway, I presume, will be a reasonably reliable supplier of less and less energy.
This is really a fine article by HO. I myself wonder if there will be once, or at occasion, a priority for producing countries to export valuable energy instead of satisfying local demand first. It's normal to asume that producing countries serve their populace first. Is it? I don't know. I do know that Iran imports finish products.
I agree that most countries will probably satisfy enough of their internal demand first to keep their people happy and their internal economies growing. We certainly see that in Saudi Arabia. But even in countries like Indonesia where gas is sold at a rate somewhat below market rate it is not a bargain any more. And compared to average income it is a luxury (but people compensate by driving 100mpg choppers). And I remember Iran was adjusting its gas prices, too. Whatever happened to that?
Interesting how the behavior of Ukraine in siphoning gas destined to paying customers has been totally forgotten by the western media and politicians. If these clowns think that spewing hate at Russia is going to get them cheap energy then they should buy a clue and start learning how to live with less. Given the rapidly declining gas reserves, Russia should look out for its own needs first.
Should Russia supply Natural gas to China at 10% of world prices?
Should Russia supply Natural gas to Ukraine at 25% of world prices? - ?
Should Russia supply Natural gas to Georgia at 50% of world prices ?
--
When you guys keep pushing drivel like this, whoever your masters may be it keeps the average Joe anti-Russian but it is probably not going to get you Russian hydrocarbon reserves at Below market prices. For that you will have to assasinate all members of the Russian government and all those governments that follow. Or manipulate their election and install your own puppet. -- No doubt a work in progress.
Peace, brother.
I do concur with your post.
Peace.
The Russian economy minister sees a "sharp reduction" in petroleum exports over the next 3 years as a challenge for the Russsian economy. The government's "moderately optimistic' scenario has increased investment in oil drilling, production, and development result in an increase in production to 507 million tons by 2009. Russia has produced nearly 400 million tons of crude and condensate in the year to date.
Exports of crude outside the CIS may be down, but they have already indicated fuel oil is being stocked up in anticipation of winter.
And, from memory, the exports of petroleum products (value added) are up slightly. Ot is better to take the margins all down the process than to leave it to someone else (if you can). And that strategy is not unfamiliar, no?
It could be as soon as this winter. Read this Moscow Times link where some Russian power plants are burning whatever they get:
-------------------------------
Winter Energy Crunch Looming
SHATURA, Moscow Region -- The roar inside the 86-year-old power plant at Shatura is so loud that workers have to shout to be heard. The plant's rusty metal walkways tremble as the turbines whir near top capacity.
"The likelihood of a breakdown will increase with every year, and if we don't do anything, sooner or later that breakdown will happen," said Andrei Kitashev, general director of OGK-4, which runs the power station. "It's only a matter of time."
Built on Lenin's order in 1920, the Shatura station survives -- like the rest of the electricity sector -- on aging turbines that suffer from a severe lack of investment. And, like most of the country's power stations, Shatura runs on gas -- a precious commodity that state-run Gazprom is increasingly supplying abroad even as customers at home again face the threat of shortfalls this winter.
"One can compare the state of our generators last winter to a car driving for two months at full speed," Kitashev said. High demand and low gas supplies prompted the Shatura station, which provides 10 percent of Moscow's power, to reach for alternative sources of fuel to create electricity.
"We switched to peat, coal -- whatever we had, we burned, just to keep the station running," said Elmira Bobryakova, a spokeswoman for OGK-4, a subsidiary of Unified Energy Systems, or UES.Last winter,
shortages struck three regions, including Moscow, and 1,945 Moscow enterprises were warned that they might be cut off. Electricity limits were eventually imposed on 604 of them.This winter, 16 regions, including Moscow, are likely to face shortages, and 2,632 Moscow enterprises have been warned about cuts once the temperature drops to minus 15 degrees Celsius, said Sergei Kozlovsky, a spokesman for Mosenergo, Moscow's electricity provider.With the world's largest gas reserves by far, Russia should be the last country to suffer from what may become regular shortages at home. Yet vast inefficiencies at Gazprom and UES -- as well as government reluctance to implement much-needed reforms -- mean the country is once again facing the chilling prospect of power cuts this winter. Demand for electricity has jumped by nearly 5 percent this year already.
Gazprom currently supplies two-thirds of its product to domestic customers, the bulk of which -- 38 percent -- goes to UES.In the meantime, UES is having to resort to using more expensive alternative sources of fuel, such as coal, diesel and, in the case of the inefficient Shatura station, peat.
"The peat saved us last winter," said Bobryakova, the OGK-4 spokeswoman.
Last year, with their gas supply depleted and months of winter still ahead, diesel, by far the most expensive type of fuel, had to be pumped into the Shatura's turbines.
"We might as well have been burning gold," Bobryakova said.This fall, Russia is resorting to stopgap measures such as importing electricity from Ukraine, which began sending energy east, against the grain of Russia's history, as of Nov. 1.
-----------------------
Yikes!!!!
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Russia launches € 43 billion nuclear power program.
The Russian energy Minister actually referred to fuel being stocked up in anticipation of an "energy crisis" this winter. Given Russias gas supply, this comment seemed to me to be overblown.
But recall http://tinyurl.com/9r4sv that it was january 21st this year that saw Moscow hit a record peak for electricity use - 15,760 megawatts. What has changed to secure Moscows supply since then?
From a euro-world perspective, it is more significant that Russia had also set a record for national electricity use in mid Jan - 146,000 megawatts. The result was that extra gas was allocated away from European customers to domestic customers.
Another repeat close-to record cold snap this winter could curb Russias ability to be seen as a reliable supplier of gas (for the moment), and if infrastructure fails, create irresistable domestic demand for massive spending on infrastructure reliability.
While investing in anything-energy seems a good idea, it is only a good idea if there is a return on investment. IIRC much of Russia's domestic gas consumption is poorly metered, or unmetered. How much money the electricity supply sector draws from its customer base, I don't know.
No wonder Russia is twisting the arms of foreign Oil CEOs in the far east. Ultra-fast catch up is a big game, and I guess you have to look at your strategic degrees of freedom to move now versus move later. Cash is king.
My sense is that Matt sees Russia as the key variable in world oil supply and pricing of crude. Clearly Russia, as the largest exporter, has one interest: higher prices. It is also clear, as others here have noted, that the rapid growth of the Russian middle class in the now-strong Russian economy means much more rapid growth of domestic demand for whatever oil Russia does decide to produce.
However, based on Khebab's HL work, Russia's existing oil basins are hugely depleted, something like 85%. The phrase "Perfect Storm" is overused, but that is what is shaping up for next year.