Russian Gas Supplies next winter for Europe ?
Posted by Heading Out on September 7, 2006 - 3:49pm
Gazprom you may recall has been buying into, or acquiring more control of, pipelines that carry their gas from Russia to the West. In the process, last year, it had a bit of a row with Ukraine, over the price that should be paid for the gas Ukraine was using. By offsetting the cheaper price that was to be paid for gas from Turkmenistan, the deal that was cut gave Ukraine the promise of gas at a price that would allow it to continue to function. Well, unfortunately for that agreement, Gazprom has just agreed to pay more for Turkmen gas. At a price of $100 per thousand cubic meters this is already $5 above the price that Ukraine was going to pay for a blend that also contained $230 Gazprom gas.
Observers have suggested that the ministry's attention to Sakhalin-2 is aimed at pressuring Shell to offer state-controlled gas monopoly OAO Gazprom better terms as it jostles to join what will be the world's biggest liquefied natural gas development.And just to show that Gazprom has many fingers, it is also involved in the newly agreed pipeline between Greece and Bulgaria. With the intent of bypassing the Bosphorous, the pipeline will carry Russian oil to the Greek harbor of Alexandroupolis.
Gazprom is offering Shell access to the far northern Zapolyarnoye-Neocomian field, the world's fifth-largest gas deposit, in exchange for a 25 percent-plus-one-share stake in Sakhalin-2.
Last July, Shell said the expected cost of developing Sakhalin-2 -- which is overwhelmingly dedicated to producing liquefied natural gas -- had doubled to around $20 billion. The company blamed the increase on currency swings and rising prices of commodities such as steel.
Gazprom argues the cost increase has diminished the value of the stake it wants to take and wants to reduce the assets it is offering in the swap deal.
And now Leanan has pointed us toward disquieting reports that this year could be worse. Moscow's mayor is concerned that their energy deficit might reach 20%. One of the immediate solutions being proposed is to replace lightbulbs which if comprehensively carried out (2.2 million bulbs) would save 88.5 megawatts (their calculation) out of the record 16,200 megawatts used last Jan 20th. Possible forced blackouts between 3 pm and 9 pm are already being bruited.
Bear in mind that if Russia, that is now supplying greater percentages of Western European fuel, feels the bite, then it is likely that this will be transferred and get worse as the fuel flows out along the pipelines to other countries. Thus the prediction of lower prices in the UK later this year
However, industry watchers, including Sir John Mogg, chairman of the energy regulator Ofgem, believe energy prices will start to drop back later this year or early next.are likely to, again, be proved over-optimistic. Storage is recognized as being potentially inadequate and there is some concern that increasing demand will not be met. The control that Gazprom now holds over supply cannot help but raise concern
However problems with supply from Europe drove prices higher last winter and fears remain that gas could be withheld from the UK again this winter, despite calls from the European Commission and UK regulator Ofgem for a more open market.The Germans and French are already on board with Gazprom. Already Gazprom are threatening Bosnia .
Russian gas giant OAO Gazprom threatened to cut natural gas exports to Bosnia on Oct. 1 unless Bosnia begins to pay its debt, Bosnian state-controlled gas importer Energoinvest said in a statement. Bosnia, which receives all its gas from Russia, owes Gazprom nearly $105 million from 1992-95. Representatives of Energoinvest and BH-Gas, Bosnia's state gas transportation company, met with Gazprom in Moscow on Aug. 22.Can one doubt that the Russian company will have more success with Centrica soon, as the cost of doing otherwise gets heavier. It has been suggested that UK demand for natural gas has already grown, this year, beyond the increased capacity of the pipelines from Europe to supply. And lest the US get too complacent, it should be remembered that some of our longer term plans for LNG supplies will also come from Russia. Provided, of course, that we are a satisfactory customer.
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This does not bode well for LNG capacity going forward (for US anyways)
Which is not exactly comparing apples-with-apples as there is a significant transportation tarriff involved. For example where Novatek was able to sell directly to the end-user it was averaging $42/mcm.
The official transport rate being approximately $1/mcm/100km.
Over the years this Russian gas thing will get more ugly, especially since all is piped through Ukraine, which is not a reliable customer. If their share is cut off because they don't or can't pay the desired price, they'll take a slice of the gas destined for Europe.
However, I really do not see any correlation between Moscows' ELECTRIC energy deficit, which mainly comes down to poor electric infrastructure(not a lack of gas), and gas supplies to Europe
If the posters (I see Leanan and WesTexas as the greatest offenders) would try to show how the problem they link to supports the point they are trying to make, I think even they would see it does not exist.
I call these stories "A light bulb went out in Bangladesh, which proves peak oil is here" stories.
In almost all cases, the cause is poor infrastructure or rising energy prices. The world knows that energy prices are rising and would expect this to impact demand, particularly among the those that can least afford increased costs. infrastructure failures in developing countries have been happening for decades. I would guess less happen now because infrastructure has improved, but we se more now because we have access to more information and people are actively looking for these stories.
The fact that Bangladesh has poor infrastructure just makes them more fragile to high prices. But higher prices do mean people will have to do with less oil, starting with the poorest ones.
BTW, I think that the point with the Moscow shortage is not to show that gas is peaking, but that Russian politicians will try to divert some gas previously destined for exports to local consumption, making things more difficult for importers as some TODers have predicted.
I think you see an agenda that does not exist. If you have an issue with a post and an opinion discuss it with them. They are posting stories about energy, kind of what a discussion about energy and our future is about, eh?
If he saw an agenda that did or did not exist, he had every right to do so. I happen to agree with him. Sometimes I don't. Do you have an agenda? Are you trying to shut down debate?
I'm looking at oil today at five-month lows. $63 for Brent. Maybe you or somebody else would like to tackle that. I've just scrolled through over 500 comments on several recent threads and see barely any mention of this story. So please remind me what exactly is the agenda "that doesn't exist?"
If you have something to say for or against the points he was making, then say them. Don't shoot the messenger.
Too many people focus on high prices, which may come from watching too much TV and believing this is an education in economics and markets.
But if the price of oil is in a serious decline, let's say because of a soon to be impossible to ignore collapse in the world's largest debtor nation, then where are the funds for replacing some fairly worn out infrastructure to come from? Will the price essentially porpoise repeatedly, leading to even more massive disruptions? A fairly typical scenario from just a while ago, I recall.
I hate getting into the logistic/geologic peak oil side of the debate, but this is the sort of subtle exchange of opinions which has also tended to be in shorter supply over the last period. Price is just one measure, while what comes out of the pipeline another. And what comes out of the pipeline trumps everything else - just ask the British or Italians about their experiences last winter. The former Italian prime minister talking on TV about covering pots when cooking was something told to me by an Italian co-worker - and some people thought Carter was silly for wearing a sweater. But I think Berlusconi lost for different reasons then lecturing about energy conservation - his involvement in Iraq was not a plus in a country which could turn out millions of anti-war protesters, for example. Along with massive crony capitalism - except his only crony turned out to be himself in the end, an unpardonable sin.
I am as guilty as any of getting off topic, of course. Tempus culpa, or something - the dead hand of entropy is never far in a complex system. And yes, Leanan talks about more than simply energy issues - it makes her interesting.
Where does the information on UK house price falling come from?
Average price rise in the UK over 12 months to Aug 7.7 %. That is comfortably above the rate of inflation, and all areas with high volume of sales show increases.
http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/houses.stm
Apart from that, I entirely agree that the breadth of perspective given by the links to various stories from around the world is an enormous plus to the site - Leanan does an excellent job here.
'House prices in Britain rose 0.2% in July after two months of declines, to an average of $333,992 according to the Halifax Index, kept by mortgage lender HBOS.'
http://news.moneycentral.msn.com/provider/providerarticle.asp?Feed=BWK&Date=20060823&ID=5966 295
It seems as if the consensus opinion is that as long as the Bank of England leaves interest rates untouched, the price rises will continue or at least not decline. Which was certainly the case during late 2005, when the hissing from the bubble started to get a bit deafening.
Of course, the British experience in the early 1990s remains a wonderfully documented cautionary tale of how a real estate market can rise and fall in a natural rhythm.
Shut down debate? Not sure where that comes from. I am just saying that if you have problem with a story, say it. Don't infer an agenda from the posters, unless they actually say that the story proves peak oil.
If you have something to say for or against the points he was making, then say them? I am not sure I would call it a point, it was a broad statement about posters conduct without any underlying examples of why it was true.
Don't shoot the messenger? I was defending the messengers.
I don't follow oil prices closely, so someone else could probably answer your question better.
LOL! I love it. That sentiment has sort of been bouncing around in my head for a while. Data that doesn't fit the model is often ignored. We can't operate in that way and hope to maintain credibility.
Blair, to hide the apparent unprepared for decline of North Sea production.
The French government is happy to play along to help justify its GDF-Suez merger.
Last year's problems were due to extremely unusual and longlasting -30° temperatures in Russia which caused them to use a lot more gas than usual at a critical time. Even then, the delivery shortages were less than what's allowed under the contracts - simply it's not usually a time (winter) when the deliveries to the West are less than the physical maximum (don't forget that gas demand is basically triple in winter than in summer.
Ukraine is not a problem, has not been and will not be. Deliveries via Ukraine have been a lot more reliable than via Poland. Any press declaration with respect to Ukraine or Central Asian gas should be taken with the utmost doubt as they hide the main source of cash for Gazprom managers.
Moscow electricity is an electricity issue, not a gas issue.
And let's not mix up oil pipelines (the Bulgarian story) with gas.
Gazprom has enough gas to provide all the requisite deliveries, and will do so.
See here:
Russian-Ukrainian gas deal - what's behind it? (Jan. 4)
Russian gas cuts - why there is no need to worry (Jan. 2)
Ukraine vs Russia: Tales of pipelines and dependence (Dec. 30)
A pipeline is like a marriage with kids (Dec. 16)
The marketistas want to break Gazprom
European energy liberalisation forbids gas deliveries to the UK!
UK protectionism threatens European gas supplies
Blair misses the protectionism meme
The new gas war
Who's dangerous? Russia or Europe's incoherent "reformers"?
and earlier texts:
Russia, Ukraine, Oil, US Diplomacy - All in One (21 January 2005)
GAZPROM'S GOT WEST EUROPEANS OVER A BARREL (WSJ, 8 November 2002)
Fix Gazprom's Fatal Leak (WSJ, 31 May 2002) (item 11 in link)
Some thoughts on Gazprom (30 March 2002)
It couldn't be the Russians, could it ?
http://en.rian.ru/russia/20060906/53580644.html
German Gref said last fall Russia was facing energy problems.
"I do not want to frighten anyone, but I think a similar problem may emerge with gas in a couple of years," he said today addressing a government council on competitiveness and entrepreneurship.
You (Jerome) ?
http://www.artukraine.com/buildukraine/gazprom.htm
"it really is closer to highway robbery. But the Western companies can't do much about it. The share of Russian gas is bound to increase inexorably in Europe in the coming 20 years as demand grows and all buyers need to renew their contracts and safeguard their supplies"
Lack of new investment ?
http://www.cdi.org/russia/johnson/6163-12.cfm
The last paragraph suggets this as a possibility.
Heading Outs follow up post indicates this is the intended direction of the article.
UK: Nowhere to hide ?
http://business.guardian.co.uk/story/0,,1855941,00.html
"The energy minister, Malcolm Wicks, said rising demand and plunging output from North Sea fields cancelled out the benefits of new gas pipelines from Norway and the Netherlands." (22nd Aug 2006)
http://business.timesonline.co.uk/article/0,,9558-2342226,00.html
"However, industry watchers, including Sir John Mogg, chairman of the energy regulator Ofgem, believe energy prices will start to drop back later this year or early next." (4th Sept 2006)
I thought the thrust of the original article was that Gazprom has Western Europe over a barrel. A point you have made.
Some of the comments, refered to the Ukraine, but blame was attributed to the Ukrainians, not Gazprom. Capacity to the UK is constrained, but Gazprom is not been blamed.
No-one has made a bogeyman of Gazprom, other than to suggest
it aggresively pursues control of the market and it's own (or the Russian state) interests, may have conflicts between domestic and export demand, and may lack investment in the future due to competing demands on export income.
Jerome, you appear to have covered most of this ground in your older posts (even the conflict over internal/export demand and competition for export income vs investment).
I seem to be missing the point of your argument ? :(
Jerome:
"Even then, the delivery shortages were less than what's allowed under the contracts - simply it's not usually a time (winter) when the deliveries to the West are less than the physical maximum (don't forget that gas demand is basically triple in winter than in summer."
Jerome:
http://www.eurotrib.com/story/2006/4/30/85022/0161
"The first sentence is something I disagree profoundly with. Gazprom has no shortage of gas; it is not producing more because it has no market for more gas today. Any additional gas it produces today would be delivered at cheap fixed tariffs on the domestic market because Gazprom already exports all the Europe will take. It is busy building new export routes (the pipeline under the Baltic Sea to Germany) to increase capacity and future deliveries, and it will increase production then to fulfill its commitments. Similarly, it needs to develop contracts with China to build the pipeline before it makes sense for it to increase production."
Your point is that these are just temporary or fictional imbalances between export demand and export supply and not related to internal demand ?
(This is the argument you have made in the past (see above)).
You can be sure that GAZP will meet its commitments to "old Europe" without fail. As it did throughout last winter; the gas just did not make it to western Europe as the wonderfully democratic Ukraine stole it on route. Now that Ukraine is back under control of the Russian-loving Yanukovich et al they have done a deal with Russia and Turkmenistan whereby they will buy their gas at around $135/mcm. Which probably equates to $200/mcm in Germany. So Ukraine is not the story here.
Where I believe the commentators are wrong relates to Russia. Gref (economics minister) and Luzhkov (Mayor of Moscow) are correct. There is a domestic gas supply crisis. Under-reported in the Turkmen/Ukraine story was the fact that it was committing to 50BCM annually 2007-2009 and an additional 12BCM in 2006 to fill the storage facilities in Ukraine for winter. That has taken 30BCM p.a. out of the domestic/near abroad supply equation; there is no replacement for it. GAZP has turned down Moscow's request for an additional 10BCM p.a. at $120/mcm (western europe equivalent $170/mcm) because it has no more gas to give. Now consider that the regulated gas price in Moscow is about $37/mcm and Luzhkov is offering $120/mcm. Sooner rather than later the netback price in the quasi-traded market is going to approach western prices.
Then you might want to feel sorry for Ukraine and Poland. But lets be clear; Berlin, Paris and London will be as warm as toast, as will Moscow (provided you are inside.)
Whether Russia has an energy (electricty) problem or a gas supply problem is semantic sophistry. It takes a while to build or upgrade a power plant (TES) and restructure factories to be more energy efficient. About as long as it takes to find and develop major gas fields in the Arctic. In the meantime watch inflation in Russia spike. I have written about this here. http://russtech.blogspot.com/2006/09/inflation-russia-currency-russia-gas.html
Creating drama over the Central Asian negotiations and coming back with inflated prices and volumes from there is part of that game. These volumes go to the grey market where the opportunities for kickbacks to Gazprom managers (of the distribution or transport subsidiaries) are endless in the presence of a dual market.
The other is that Gazprom has the capacity (at least on a yearly basis) to fulfill all its commitments in the short and medium term, and enough plans to do so in the long term.
The project that have been postponed were so simply because they were not needed.
There is no reason to worry about Russian supplies, but some like to make it so for domestic political purposes. In the West, to hide their lack of a decent energy policy; in Russia, there are many turf wars in addition to the "great power aspirations" described above.
Care to give any info to back this? I haven't heard about any major problems with Yamal-Europe pipeline except for the dispute with Belarus in February 2004.
see Wiki
"Last year's problems were due to extremely unusual and longlasting -30° temperatures in Russia which caused them to use a lot more gas than usual at a critical time."
Cold weather in a Russian Winter. Who'd a ever thunk it ?
Ian Whitchurch
PS If you believe Gazprom's actions are unrelated to the strategic interests of the Russian state, then I have a bridge to sell you.
If you think that Gazprom's interests are perfectly aligned with those of the Kremlin, - and that the interests of Gazprom's top managers (and the same goes for the top people at the Kremlin) are perfectly aligned with those of either Gazprom or the Kremlin - there's another bridge, etc...
This article puts into the context what reducing energy supplies mean to household expenditure. As usual, it is those living on tight budgets who are worst affected.
11:02 | 05/ 09/ 2006
MOSCOW, September 5 (RIA Novosti)-Moscow's mayor warned Tuesday that the capital could face an energy deficit of 20% this winter, sparking concerns that temporary business closures seen in January could be repeated.
http://en.rian.ru/russia/20060905/53517839.html
Westexas's declining import scenario
(link in Russian)
"At the Moscow City Government meeting, Mayor Yury Luzhkov threatened with disconnections electric customers who are not using energy efficiently and are not following the city's energy conservation plan."
Sounds good to me!