The Oil Drum

This was the week that the History Channel aired the “Mega-disasters – Oil” program, which, in the best part of an hour could only briefly skirt all the different arguments that we discuss here, leading, in their case, to the conclusion that we are possibly heading towards the Mega-disaster of the title. But, given the speed of the story, and a little artistic license in dealing with a possible future, it left me wondering over a question. Tom Engelhardt in his Tom Dispatch of November 15, raises a similar question over the question of the current droughts that are developing about the country. In its simplest form the question is “What happens when it doesn’t get better?”

Well the situation East of Georgia continues to evolve. I thought to begin there since, as mentioned in an earlier post, there are a number of small countries in the strip that runs south of Russia and over into China where oil and gas issues will make the nations a bit more internationally prominent. Consider, for example, Azerbaijan. It was only a couple of days ago that, in the face of Russia doubling the gas price that Azerbaijan cut off its oil flow to Russia. It shut down its oil exports in order to fuel some of the power stations that would no longer be supplied with the Russian gas. The original plan was to do this until the gas from the Shakh Deniz field becomes available in April (though that may now have slipped to June).

Interestingly gas from Shakh Deniz was also scheduled to be supplied to Georgia at a price of $120 per thousand cubic meters (tcm). This is just over half the price that the Russians have been asking. However, since Georgia needs about 2 billion cu m per year it will still need to buy 1.1 bcm from Russia at the higher price. Azerbaijan has been supplying around 80,000 bd of oil to Russia through the Baku-Novorossiysk oil pipeline which belongs to the Russian pipeline company Transneft. Part of the intent of the increase in price to Azerbaijan was, apparently, to reduce their ability to supply Georgia. Azerbaijan bought 4.5 bcm of natural gas from Russia last year at a cost of $500 million. Apparently the thought was that, at the higher price, Azerbaijan would have to cut back on imports, and thus have less to make available to Georgia. However, by switching their power stations to oil-burning, they appear to have thwarted this idea.

Natural gas from Shakh Deniz will be fed into the Baku-Tbilisi-Erzerum pipeline, which is almost ready to receive and deliver the gas. Note that this is a different pipeline to the recently completed Baku-Tbilisi-Ceyhan pipeline, which carries oil and which, between January and October carried some 4.8 million (though it does not say if this is tonnes or barrels).

Well, while polling and results are being debated elsewhere, let me instead turn back to Russia, and try the possibly less accurate entrail-reading on what the signs portend for their production of oil and gas in the near term.

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.

The situation in regard to who has enough gas to supply whom, is getting just a little hard to follow in the area around Georgia.  The other day I had noted that Iran was supplying gas to Georgia to make up for the losses due to the pipeline explosion.  Now I read that Iran is having problems with meeting it's own demands for gas, due to the winter, and has cut supplies to Turkey.

Iran had raised the gas it pumps to Turkey to 10 million cubic metres, still well short of the 26 million cubic metres a day previously agreed between the two neighbours.

Last week Iran cut the flow to 5 million cubic metres a day, but the supply subsequently rose to 8-10 million cubic metres before falling again to 5.48 million on Wednesday.

Iran says it had to reduce its exports because harsh winter weather has raised consumption at home.

And so who is helping Turkey out (since it has reached the point that it is starting to close factories and redirect supplies). Remembering that Russia has had to reduce supplies to Europe, now for the eighth day, because of the severity of the temperature drops in Moscow and points East, guess who?

Russia, the biggest supplier of natural gas to Turkey, has stepped in to help cover the shortfall.

And, recognizing the threat to supply, Hungary and Croatia have signed agreements to install an LNG terminal on the Adriatic, and Poland is giving serious thought to the idea.  (Which, apropos yesterday's post, will require even more tankers be built.) In the meanwhile Ukraine continues to take gas from the pipeline transiting gas to Europe, in quantities above the levels agreed.

Grin! Given the nature of much of the discussion here, dare I mention that I was up in Indianapolis at an event that has a relation to NASCAR vehicles (duck!) Thought not!

More seriously as I traveled, I noted that the USA Today is reporting that the bad weather in Central Europe is continuing. As a result for the sixth day Gazprom was unable to meet its international market commitments.  And, with sabotage to the pipelines, supplies to Georgia and Armenia remain cut-off. The Turkmenistan President is in Moscow possibly to talk about Gazprom taking over Turkmen gas. The BBC reports that:

some experts doubt that Turkmenistan has the gas, or the pumping capacity, to cope with what is expected to be a 30% increase in demand for its gas from Ukraine.

In fact some think that Turkmen gas may be at peak levels.

For the short term Gazprom is sending some gas to Georgia via Azerbaijan but if the cold weather persists, as is anticipated, it may get more complicated.  Iran, for example, is also willing to supply Georgia.  This may be needed since the Russian supply is providing only 35% of that which is needed.