Streetwise Professor

December 8, 2011

More Fingers Needed, Eastern Front Edition

Filed under: Economics,Energy,Politics,Russia — The Professor @ 12:42 pm

Two stories about how proliferating supplies of nat gas are undermining Gazprom.

Remember how Gazprom would always attempt to bring Europe to heel by threatening to sell gas to China?  That’s not gonna work so good anymore.

Why not?

First, Turkmen gas:

China will become a major gas importer in the near future but is unlikely to sign a deal with Russia’s Gazprom and is instead looking to Turkmenistan and perhaps even the United States to cover its needs, a report said on Thursday.

China plans to increase gas in its energy mix from 3 percent to 10 percent by 2020 and has secured its gas import needs until around 2018, but after that needs to strike new supply deals to feed a rising appetite for natural gas.

“Judging by the apparent lack of any progress on the gas pricing issue, it seems Beijing is in no particular hurry to sign any gas contracts with Gazprom,” French bank Societe Generale said in a research note on Thursday.

An agreement on Russia’s gas deliveries to China, the world’s largest energy consumer according to the International Energy Agency, would boost Moscow’s efforts to reduce its export dependency on the European market, which currently provides around 80 percent of Russia’s gas export revenues.

But Moscow and Beijing have haggled for five years over the commercial terms for any deal.

“The various measures China has taken to secure its imports reinforce our view that China would first look into any potential U.S. LNG (liquefied natural gas) deal before reverting to Gazprom,” SocGen said.

In November, China signed a deal with Turkmenistan to increase its planned supply of gas to China by 25 billion cubic metres (bcm) of natural gas, to a total of 65 bcm.

SocGen said China’s apparent policy meant that Gazprom’s exports were likely to remain focused on Europe, and that this “leaves Europe well supplied until 2016 at least.”

But I’m sure that contract with China will be signed any day now!  Lucy Sechin said so!

There is more irony here given how Gazprom has done everything to keep Turkmen gas from going to Europe.  Where “everything” includes blowing up piplelines and threatening war over the Trans-Caspian pipeline.  (Nice little country you have here.  Pity if it ended up like Georgia.  A threat, by the way, that gives the lie to the Russian justification for the 2008 war.  Just one of many recent revelations and statements that belie the official narrative.)

Second, favorable prospects for shale gas production in China:

PetroChina has discovered shale gas in China’s Sichuan province, confirming that the energy-hungry country is sitting on vast reserves of this unconventional fuel source.

PetroChina, the listed subsidiary of Chinese oil and gas producer CNPC, told the Financial Times it had drilled about 20 wells in its shale gas acreage in southern Sichuan province and that initial results had been positive. “The wells are producing more than 10,000 cu m of gas per well per day,” said Mao Zefeng, PetroChina senior assistant secretary to the board. “We are still assessing the exact size of the potential reserves.”

China does not yet have any shale gas wells producing commercially, but several companies have exploratory projects underway, including Sinopec, PetroChina, Royal Dutch Shell, BP and Chevron. China has more shale gas reserves than any other country in the world, with 1,275tr cu ft of recoverable shale gas reserves, according to estimates from the US Energy Information Administration. That is enough to supply China for more than 300 years, based on current consumption levels.

The dam is cracking.  The water is rising.  On all sides.

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  1. I think I meant have put my last comment on the previous article here. Sorry.

    Comment by Sotos — December 8, 2011 @ 1:23 pm

  2. Ditto Ukraine

    Comment by Gordon — December 8, 2011 @ 2:40 pm

  3. This shale stuff is world historical. The Russians should appreciate that in a dialectical-materialistic sense. They also should appreciate they’re not at the vanguard of this one.

    Comment by markets.aurelius — December 9, 2011 @ 5:07 am

  4. Russian gas could still have a very bright future, only it won’t if Gazprom retains its export monopoly. The Russians should have nothing to fear from shale gas, no other major producer is particularly bothered by recent developments. I suspect – and this is pure guesswork on my part – that it is an expectation of Gazprom losing its export monopoly which is encouraging Total to invest so heavily in Novatek. With Gazprom and associated Soviet-minded idiots out the way, Russians crooks and politicians can still cream off billions to fund their chalets in Meribel whilst being a reliable energy provider. It should be a win-win for everyone, but Russians don’t just play a good hand badly: they react to a straight flush by throwing down a card and shouting “Snap!”

    Comment by Tim Newman — December 9, 2011 @ 10:17 am

  5. Oh, I’m not sure it will go like this.

    1. Shale gas with fracking causes lots of agitation from green groups, and rightly so if it poisons the water table. We might see the Kremlin get back in the business of funding opposition movements abroad, big-time, if cracking those big slates of shale in my native upstate New York gets going. It’s not a given that shale gas is such a threat to Caspian gas business. More information is needed.

    2. The Turkmen-Chinese deal doesn’t really undercut Gazprom. Gazprom was already selling less to Turkmenistan than Iran, i.e. 10 bcm, down from 50 bcm. And it’s own deal with China has been stalling and stalling for reasons not directly related to Turkmenistan.

    3. It also remains to be seen if China will have to invest more to get Turkmenistan’s gas up out of the ground, and clean. And China would be happy to have the Trans Caspian Pipeline stall so as not to have any European-style gas prices impact its own dealings with Turkmenistan or for that matter Russia, and so China and Russia are on the same page here.

    Some articles here:

    Comment by Catherine A. Fitzpatrick — December 10, 2011 @ 12:30 am

  6. @Catherine–I wrote in an earlier post that it was highly likely that Gazprom would be–and perhaps already is–funding antifracking groups or publicity. Given the administration’s hostility to energy development, these efforts may pay off for the octopus.

    I don’t think that shale is a threat to Caspian gas. But the proliferation of supplies is a huge threat to Gazprom.

    I understand that the China deal has been stalled for a long time, over pricing issues, particularly the oil-price link which I’ve also written about extensively. But again the existence of alternative supplies gives the Chinese substantial leverage over Gazprom. It’s also clear that the TC pipeline is not in China’s interest. But again the key point is that the gas in Turkmenistan undercuts Gazprom’s leverage in Europe regardless of whether it gets built or not, because it undermines Gazprom’s constant threat to divert gas to China if the Euros don’t play ball.

    Basic point–the proliferation of supplies, shale, LNG, Turkmenistan, whatever–undermine Gazprom. Gazprom doesn’t have enough fingers to plug all the holes.

    The ProfessorComment by The Professor — December 10, 2011 @ 10:30 am

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