Streetwise Professor

January 15, 2015

Alexei Miller Blows More Gas

Filed under: Commodities,Economics,Politics,Regulation — The Professor @ 8:07 pm

As is its wont when desperate, Russia is throwing around threats. And Gazprom and its CEO Alexei Miller are the usual heavies in this role, like mouth-breathers that mafiosi send around to talk to you about how you have such a nice family and it would be a shame if something happened to it.

Yesterday, Miller told Europe it better support Gazprom’s initiative to circumvent Ukraine by shipping gas through Turkey by building a connector between Turkey and Greece, or else:

“Our European partners have been informed of this and now their task is to create the necessary gas transport infrastructure from the Greek and Turkish border,” said Miller, according to a Gazprom statement. [Can the Russians please give this “partners” thing a rest? With partners like them, who needs Ebola?]

“They have a couple of years at most to do this. It’s a very, very tight deadline. In order to meet the deadline, the work on building new trunk gas pipelines in European Union countries must start immediately today,” Miller warned.

Or else what, Alexei?:

“Otherwise, these volumes of gas could end up in other markets.”


Like where? And don’t tell me China. Heard that one. Over and over and over again.

Look, if you make threats, you need to make them credible. Miller is basically saying that if gas can’t move to Europe via Turkey, Gazprom won’t ship it via Ukraine. If it comes to that, and if Europe is the most valuable destination for Russian gas, Gazprom will sell it there, and ship it via Ukrainian pipes. It can’t afford not to.

This is  a bluff that even the Euroweenies will have no problem calling. This is particularly true if market conditions are like at present, where LNG prices have cratered in Asia, and gas imports are now viable. When the big Australian and US projects come on line later this year, there is a real possibility of an LNG glut which would undercut Russian leverage, not just in Europe, but in China too. (And you know that the Chinese will squeeze Putin’s kiwis like a hungry python.)

What’s more, the whole Turkish route looks like a stitch up job done at the last moment when Bulgaria toed the European line and rejected South Stream. There are so many problems.

First, even ignoring the Turkey-Greece link (and yeah, they always play so well together), it is by no means clear that Turkey has the domestic infrastructure to get the gas from the Black Sea shore to the Aegean. From an Oxford Institute for Energy Studies report (h/t Number One Daughter):

The BOTS [the Turkish national gas company] transport system’s throughput capacity is not sufficiently developed to accept and ship all the contracted gas volume from the eastern suppliers due to the limited installed capacity of the existing compressor stations. BOTAS is able to take some 90% of the gas from the Trans-Balkan Gas Pipeline (the Western Line) and the Blue Stream pipeline from Russia, but has struggled to cope with volumes contracted from Azerbaijan and Iran. Therefore, the company has had to pay billions of dollars for ‘untaken’ gas.

That’s given current flows: it will obviously take a substantial investment in Turkey to handle large additional flows via the new pipeline.

Second, just who is going to pay for this? It ain’t like Gazprom is rollin’ in the dough. To the contrary, like all Russian corporations, Gazprom is in desperate straits. It’s not sanctioned now, but that could change with one wrong move in Ukraine. Moreover, its hard currency revenue picture is dire. Gazprom shipments to Europe were down more than 9 percent last year, no gas is yet flowing to China, and the best part is still to come: Gazprom prices-at its own insistence!-are tied to lagged oil prices. So it is looking at a potential revenue decline from European sales in the 60 percent ballpark.

Schadenfreude doesn’t even come close to describing my feelings at contemplating Gazprom getting what it asked for-nay, insisted on: an oil price link. It made this link a matter of principle, and marshaled one inane argument after another to justify it.

How’s that working out for y’all? Be careful what you ask for!

Third, there’s the little matter of price. Isn’t there always? Immediately after the ballyhooed announcement of the Turkish project, it became known that the Russians and Turks were far apart on price. Look at the history of Vapor Pipe (analogous to vaporware) deals announced with China going back to 2006: they didn’t materialize because of an inability to come to agreement on price. (Even the deal signed when Putin was under the gun has not fully resolved price issues.) This “deal” has every prospect of having the same issues, especially since the Turks realize Russia’s weak bargaining hand here.

Hell, the Russians and Turks can’t even agree on the gas price for this year. They are going to magically lock in a long term price/pricing formula? As if.

So this Turkey route looks like . . . a turkey. Miller is blowing gas. Yet again. I’d be astounded if 1 percent of what that guy says in public turns out to be true.

One last thing. There was a report in the Daily Mail yesterday claiming that shipments of Russian gas via Ukraine to 6 southern European countries had been cut off. This was duly repeated breathlessly by the usual Kremlin echo chambers like Zero Hedge and Infowars. But I have yet to see confirmation in any other source, and I pinged an industry contact who can’t find confirmation either.

It sounds like this is another way of delivering a threat, directed at the most vulnerable parts of the EU, including a country (Greece) that is in political turmoil and which could cause no end of headaches to the Euros-and the Euro. This happens at a time when the wets in Europe are making noises about easing off on sanctions. So I’m getting the impression that this is a story planted in the Daily Mail with the same purpose that Don Corleone places a horse’s head in someone’s bed.

Update. Do I feel like an idiot. Apparently ZH linked to a Daily Mail story from 6 years ago and made it sound like it was from yesterday. When you click through the link, the current date appears at the top of the story. That’s beyond bizarre even for ZH. Shame on me. [The story is that someone emailed asking if I’d seen that ZH story. I hadn’t, but clicked through the link. Like I say, shame on me.]


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  1. Youd think that was the weirdest zh but then youd be ignoring their promise that ‘Russia is breaking the petrodolar’ …by choosing to spend another 88 billion or so of their foreign reserves to prop up rubles. But hey, when the first 100 failed, another 88 will definitely help.

    Comment by d — January 15, 2015 @ 11:23 pm

  2. @d-I know! Was that crazy or what? I laughed out loud when I read that.

    The ProfessorComment by The Professor — January 15, 2015 @ 11:35 pm

  3. Leaving the date issue aside, wasn’t the whole rationale behind Russia’s annexation of Crimea the fear that Ukraine would become a NATO county and threaten/invade/frighten Russia? And here we have a plan to ship all of Russia’s gas through a NATO country (albeit an unreliable one). Not very consistent these Russian strategies, are they?

    Comment by Tim Newmam — January 16, 2015 @ 12:39 am

  4. To use a Russian saying, Miller’s threats are like scaring a hedgehog with a bare butt. A pipeline to nowhere. We’re getting used to that CEO’s daydreaming – what amazes me is the Kremlin does not seem to be panicking when there is every reason to despair.

    Comment by Alex K. — January 16, 2015 @ 2:43 am

  5. 🙂

    Comment by Dixi — January 16, 2015 @ 3:00 am

  6. what amazes me is the Kremlin does not seem to be panicking when there is every reason to despair.

    Why should they? *Their* Swiss bank accounts are protected, their larders are full and their security guards well-paid, and the private jets sat on the tarmac ready to leave at a moment’s notice. What amazes me is the percentage of the population that seems content for this disparity to continue.

    Comment by Tim Newman — January 16, 2015 @ 5:03 am

  7. @Tim – I take your points, with one proviso.

    Word is that the sanctions that have been imposed prevent Gulfstream and others from providing maintenance services – hence, without maintenance, the Gulfstream jets will continue to sit on the tarmac.

    Sure, maybe Russian oligarchs are willing to fly in a jet that is not up to snuff, and maybe they can find “others” besides Gulfstream to maintain the jets.


    Comment by elmer — January 16, 2015 @ 8:54 am

  8. More “Murica stong!” neocon wishful thinking. Just like the expectations that Russia will bow down its head when the West staged a coup in Ukraine and started orchestrating ethnic cleansing of russian minority in Ukraine.

    1. “America and Canada will supply LNG”. Nope, there is not enough quantities, and there is no infrastucture which is needed on BOTH sides for it to work.
    2. “America and Canada supplying Europe” will make Ukrainian pipeline obsolete as well, won’t it? So Russians are right when they say that ukrainian gas transport has no future.
    3. Turkish part of infrastructure is to be built yet. You have no idea what you’re talking about.
    4. “It ain’t like Gazprom is rollin’ in the dough” Yes it is, considering it is state owned and the state of Russia pretty much is still rolling in the dough. Central bank reserves, reserve fund, budget surplus, foreign trade surplus…
    5. Turkey jumped on the opportunity to have EU by the balls, it tells me price for Turkey will be of secondary importance

    Comment by maxmax — January 17, 2015 @ 3:33 am

  9. SWP et al:

    Don’t forget the alternatives & possible opportunity costs:

    Not sure how they rank internationally among charter carries, but when you gotta go, you gotta go!

    VP VVP

    Comment by Vlad — January 17, 2015 @ 11:10 am

  10. @maxmax-Does that refer to your crap content?

    The ProfessorComment by The Professor — January 17, 2015 @ 12:43 pm

  11. Looks like the gas is largely nitrous oxide intended to numb the economic pain in Russia as the New Year alcohol narcosis is evaporating. According to Boris Nemtsov, Russian propaganda in the recent days has been all over the place with stories about the bankruptsy of WBH Energy and how it is, of course, a harbinger of US shale collapse (funny thing: the first reference that Google gives on the company name is from ZH, surely just a coincidence).

    Comment by Ivan — January 17, 2015 @ 6:12 pm

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