Streetwise Professor

February 12, 2010

The Horizontal Bop Goes to Europe (or, More Headaches for Vladimir and Gazprom)

Filed under: Economics,Energy,Politics,Russia — The Professor @ 2:24 pm

Perhaps taking a cue from last night’s post “Telerconnections” 🙂 Bloomberg today reports on a shale gas rush in Europe:

Exxon Mobil Corp. and explorers including Chevron Corp. are securing land in Europe to exploit shale gas, a hard-to-extract deposit that could reduce global demand for liquefied natural gas, JPMorgan Chase & Co. said.

Exxon has shale areas in Germany, Hungary and had applied for permits in Poland while ConocoPhillips and Chevron are in Poland and Royal Dutch Shell Plc in southern Sweden to exploit gas trapped in rock formations and impervious to conventional drilling techniques, JPMorgan said in a Feb. 9 report.

“A land-grab has occurred in Europe over the last two years with majors such as Exxon, Conoco, Chevron and Statoil ASA all participating, not willing to miss out as they did in the U.S.,” said Mark Greenwood, a Sydney-based analyst with JPMorgan. “While it’s still early days for European and Chinese shale gas plays, its potential is yet another threat for the LNG supply-demand balance.”

Note to Putin: its potential is yet another threat to the pipeline supply-demand balance too:

The International Energy Agency said in November the world may have an “acute glut” of gas in the next few years because production of so-called unconventional fuel, which includes shale gas, is set to rise 71 percent between 2007 and 2030. Shale is a rock comprising layers of sediment from which oil and gas can be extracted.

The success of shale gas extraction in Europe and China may sap global LNG demand, reduce Europe’s dependence on Russian natural gas and force new Russian gas projects and Qatari LNG to compete with Australian LNG projects for Asian customers, Greenwood said.

. . . .

Qatar had earmarked 25 million tons a year of LNG for the U.S., which doesn’t “appear” to need the gas, according to the JPMorgan report.

Where’s that gas going to go?  Europe and Asia, most likely–in direct competition with Russian gas.  Combine this with the prospect for slow growth in North America and Europe (especially if the sovereign debt crisis continues, or turns for the worse), and it is likely that supply and demand will conspire to put a huge dent in Gazprom’s prospects.

My, how the worm is turning.  Which all goes to show the danger of putting all your chips on one number.

This shouldn’t be news.  The historical experience in commodity markets has been of shocks making a complete shambles of confident predictions.  In the 70s and early 80s, it was widely believed that oil prices would escalate inexorably, reshaping geopolitics as a result.  The exact opposite happened.  Geopolitics were indeed reshaped, but in a very different way.

Indeed, the USSR was the most prominent casualty of this shift.  (See Gaidar’s book for a blow-by-blow account of how the USSR’s fortunes waxed and waned with the upward spiral and subsequent collapse in oil prices.)  How soon some people forget.

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  1. I stand by my plateau / slight rise over next decade forecast. 1) The IEA is a politicized organization whose oil forecasts haven’t been reliable, 2) non-conventional fuels will rise a lot but a) from a low base and b) they will have to first compensate for high decline rates elsewhere before they can add to overall production.

    Comment by Sublime Oblivion — February 12, 2010 @ 6:33 pm

  2. Yes to shale gas, no to Gazprom. Truly, great news. Eat it ,SO.

    Comment by voroBey — February 13, 2010 @ 1:55 pm

  3. What book are you talking about SWP? I’d love to pick it up. I was saying this when XOM bought XTO, it’s not so much for the domestic production, but for taking the technical know how to other fields XOM already owns, those appear to be in Europe. Bad for Putin, bad for gazprom, good for XOM.

    Comment by Jack — February 15, 2010 @ 4:16 pm

  4. Exxon Mobil has big ambitions for their company, and while the economy is pretty rough right now, they are constantly working to better improve its’ customers standards of living and trying to find the newest and best technology that is cleaner and safer for our environment.

    Comment by exxon mobil — February 20, 2010 @ 3:13 pm

  5. Gaidar’s book is: Collapse of an Empire: Lessons for Modern Russia. I reviewed it here.

    The ProfessorComment by The Professor — February 21, 2010 @ 10:47 am

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