Gazprom is Still At It, Oh Yes They Are (or, "Gas Pressure")

As the production from Saudi Arabia continues to lag, even if transiently, Russian production and exports become more critical to world supply. And so we exchange the problems of getting oil from the sandy wastes of the Empty Quarter, with those of production from the icy wastes of Siberia. There are a couple of small issues, that I thought could be discussed, relative to this.

The first of these relates to gas supplies from that part of the world. It was interesting to note, in light of a number of comments made on this site about Gazprom’s acquisition of Western European pipeline company shares, that they now appear to be similarly interested in those of Portugal, as their strategy to control gas flows throughout Europe continues to succeed. The benefits, to them, of this policy are clear, for example in the negotiations over Kovykta, a field with 2 tcf of natural gas and over half a billion barrels of condensate. The plans were to sell some 2 bcf, largely locally, and then to expand deliveries through pipeline networks.

Unfortunately BP has noted:

TNK-BP cannot sell gas from its vast east Siberian Kovykta field or its smaller Rospan unit in western Siberia without Gazprom because of the Russian gas giant's monopoly control over Russia's pipeline network.

And here it has a problem, since the local market is not large enough to absorb the gas that the field can produce...

Russia raised the pressure over the issue last month by declaring TNK-BP to be in violation of its licence to develop Kovykta. Russia's natural resources ministry has given TNK-BP until April to start producing 9 billion cubic metres of gas, as the operating licence stipulates, or face having it revoked. TNK-BP said the target was impossible to meet.

In the meanwhile Gazprom and BO are talking about developing a partnership for LNG. And in case BP does not get the message

“A promise is a guarantee in any country,” Mitvol said by telephone. “If you don’t fulfill your license, then the license must be taken away.” . . . . . . . . Mitvol’s statements came a day after TNK-BP said Gazprom had nearly halved the amount of gas it would allow TNK-BP to ship through its pipelines from the Achimov field in west Siberia. Gazprom allotted TNK-BP subsidiary Rospan 2.5 bcm last year, but just 1.7 bcm this year, Dracheva said.

This sort of attitude is not lost on others, further east Azerbaijan is trying to get talks started with Turkmenistan about energy, and particularly gas supplies. The interest is in the Trans Caspian pipeline (TCP) which would carry natural gas from Kazakhstan and Turkmenistan (on the east of the Capian) to Azerbaijan on the west, where it could feed into pipelines to Turkey that would bypass Russia. So needless to say, the Russians are not in favor. Others are:

The European Union and the United States, both strong backers of TCP, are likely to encourage Azerbaijan's overtures to Turkmenistan, commented Ilham Shaban, editor of the Turan-Energy daily news bulletin. The EU is especially interested in lining up gas suppliers other than Russia. Since Niyazov’s death, Brussels has allocated 1.7 million euros (over $2.24 million) to conduct a feasibility study concerning Turkmenistan's participation in TCP, Shaban said. A four-company consortium made up of the British engineering consultants MottMcDonald Ltd, Greek firms Kantor Management Consultants and KLC Law Firm, and the Azerbaijani ASPI Consulting Engineers company is expected to complete the evaluation by mid-2008.

(Source - Encarta)
Of course, if they get the pipelines all built and by that time Gazprom has control of all Western gas distribution, then it might become an exercise in futility. At which point it may be that they spend more effort sending gas East to China rather than West, leaving Russia in control of the supply of oil and gas to Western Europe. Current Turkmen plans are to ship 30 bcm/year to China each year, starting in 2008, as well as supplying Russia with 80-85 bcm/year.

You can fight an economic war without ever having to declare it. The domination is just as real. Give us control of half of everything you have and we will not cut you off. Be a stupid carpetbagging westerner who thought you would be fleecing us and we will take everything you brought or did in our country.

Forget ye not the reddit and the digg buttons!

Are there LNG terminals in the works in Turkiye?

Good article, Heading Out

This once more demonstrates the extreme importance of a fundamental but "vaporous" (pun intended) element in the natural gas business:

The United States continues to lag badly on the needed action regarding LNG, as local opposition, financial glitches and technical problems have all stood in the path of the badly needed development of this option.

It seems that the U.S. thinks that when it decides at the very last possible moment to jump into the LNG market, the gas will be there waiting for us. We now think that everything can be done JIT.

This may be a very great error. Many nations who are not as terrified of elements of central planning when it concerns strategic resources, are already looking for the contracts and making long term arrangements. Every relationship goes through the normal phases of storming, norming, and then performing, as the terms are worked out. Other nations are already storming and attempting the norming of the long term natural gas relationships that will be needed for modern national survival in the world. They hope to be performing while the U.S. and other slow nations waste time in analysis paralysis.

As we see, however, the power of "contract" and the trust between the contracting parties are central to the success of the projects and ventures, since billions of dollars are on the table, and times are long before one can hope for the needed Return On Investment.

Russia is entering a sellers market, literally surrounded by big money customers (Europe, China and India)

The OPEC and Persian Gulf nations seem to be putting the LNG option on the back burner, and instead spending money on petrochemical facilities to convert natural gas to finished products such as fertilizer, chemicals, and possibly GTL syn fuels, thus end running the whole need for the extremely expensive and time sensitive LNG industry. This will for the first time, make them truely modern international players in world commerce and industry. They will become more than raw materials only powers in the world.

Thus, the U.S. need for gas in raw form and not as a finished product is declining in importance to those whom we would hope to be our suppliers.

The list is short: Canada by pipeline of course, and our old stand by suppliers in Trinidad and Tobago. We have a long history of trust with Algeria as a supplier, but European competitive pressure will surely become a larger factor there, as the Europeans try to rescue themselves from complete dependence/obedience to Russia.

There is of course our staunch allies in Qatar, but they are one of the nations rapidly developing the finished products industries discussed above, and they are a long way from the U.S.. The timing and logistical issues are difficult.
The increased demand for natural gas throughout the Middle East will also have an effect.

The truth is, we are already late. We are not running out of time, we are out of it.

The United States must begin a "natural gas consumption restraint" program immediately, but of course, we will not. The natural gas industry has long promised there will be no problem, they know what they are doing and have the situation well in hand. They have been exceptional at gaining customers, promising that natural gas will be available for all things for all people and almost for all time. We are now boot strapping other energy production upon natural gas, including the tar sand projects, ethanol production, Ultra Low Sulfur Diesel fuel (ULSD), as well as the so called "hydrogen highway" and the fuel cell. Even Distributed Generation (DG) is becoming dangerously addicted to the easy clean natural gas now available (extreme caution is to be advised here).

There is only one thing I know of about energy in which you could hope for agreement between such disparate parties as Matthew Simmons, T. Boone Pickens, Colin Campbell and ASPO, former Fed Chairman Alan Greenspan, CERA's Danial Yergin, President G.W. Bush, Congressman Roscoe Bartlett, the National Petroleum Council (NPC) the National Chemical Council industry group, the Corn Growers Association, and the ethanol producers of the United States:

North America, and the United States in particular are facing a natural gas crisis of great magnitude and is refusing to make the sacrifices needed to address it.

Our allies and friends in the United Kingdom will get there first of course, followed by the Europeans unless they accept Russia's terms and all they imply. The United States lives in the fantasy that it is excepted, that somehow, we will find that giant gas field, build that giant pipeline just in time, and talk about when we were once afraid of a gas crisis.

It may happen. But we are taking a fantastic and unneeded gamble with the future of a great nation and with the livelihood of millions of people in placing our hopes in such a reckless way.

Thank you

Roger Conner Jr.
Remember, we are only one cubic mile from freedom.

Nice post.

I see the only upside to this is that the complacency, and inevitable panic over gas and foreign dependence thereof, will lead to a choice to construct major nuclear, wind, and solar installations.

I worry very greatly that the path of least resistance is massive, dirty coal.

Off-topic but a significant article on NYT for tomorrow:

As it may disappear behind a pay-wall, I reproduced it here:

There is still a minority view, held largely by a small band of retired petroleum geologists and some members of Congress, that oil production has peaked, but the theory has been fading. Equally contentious for the oil companies is the growing voice of environmentalists, who do not think that pumping and consuming an ever-increasing amount of fossil fuel is in any way desirable.

The despicable Matt Drudge is playing it up which guarantees that it will get placed into the rethug talking points memos.

Thanks for drawing attention to this, which I hadn't seen yet. The steam injection that they talk about is not new, it is being used up in Canada, among other places, to get some of the oil from the sands up there. The process is called Steam Assisted Gravity Drainage (SAGD) and we talked about it here and here , to name but two places. Dave Cohen has talked about the new technologies on several occasions including here and in detail here .

As several of us have noted, the claims for large investments in the personnel to develop these new technologies further, and the technologies themselves are not held up by the actual numbers to date.

The article discusses how technology and higher prices will make more oil in existing oil formations recoverable. I find this ironic - that the article starts by dismissing the peak oil community, but then comfirms what "retired geologists" are saying - Cheap Energy is over.

Incredible, Saudi Arabia can produce more oil than it has on the ground.

Incredible, as in 'Lacking Credibility' is the right word.
Downright lying is a better description.

toilforoil on March 5, 2007 - 2:30am
Are Jad Mouawad and his editors at the New York Times lazy?
Perhaps, they are simply a few cards shy of a full deck.

They appear to confused by the difference between funds (oil in the ground) and flows (oil production rate).

The article finishes with this line: "“That’s why peak oil is a moving target,” Mr. Hatlen said. “Oil is always a function of price and technology.”"

Mouawad cites the Kern River field in California and a project in Indonesia to provide evidence of the power of technology.

It took me five minutes to establish that the Kern River field saw its production peak in 1985, about 20 years after steam injection was introduced. Production peaked in 1985 at 141,000 b/d. It has since declined by 40%, or just under 2% per year. California's production peaked in 1983. It dropped by 23% from 1996 to 2005. Isn't technology wonderful?

In another five minutes, I discovered that Indonesian oil production peaked in 1977 and is now down over 37%, and continues to fall, despite all the tricks of the oil companies.

All the real issues around peak oil are missed in the article. It is a piece that might have been lobbied onto the pages of the New York Times during dinner at the club. It certainly is the type of propaganda that oil corporations seeking to keep government away from the economic (quasi) rent would approve.

This, editor-approved, Jad Mouawad article should be framed and hung in a gallery alongside artifacts of the period of Soviet Realism and Nazi Heroic Realism.

I especially like the bit about hundreds of billions of barrels of oil yet to come from Saudi Arabia. It's kinda like the big tits on the heroic blonde Russian worker: something to go to sleep with.

Are Jad Mouawad and his editors at the New York Times lazy?

Looks more like they are working overtime.

I like this quote:

"Ironically, most of the oil we will discover is from oil we've already found," said Lawrence Goldstein, an energy analyst at the Energy Policy Research Foundation, an industry-financed group.

Ironically, we can't find any new locations with oil.

I was just going to comment that steam seemed far to old and simple to be "new" technology and you beat me to it. I guess modern news writers think steam is something "new".
I'm now waiting for them to start washing out oil wells with WD-40 or some such solvent. Water and oil do not mix but WD-40 is a great cutter.

That's what CO2 injection is about; supercritical CO2 is a pretty good non-polar solvent.

any predictions from anyone on Natuarl gas prices by the end of the year? With inventories being so high, i don't see a high increase. YET!

Hi HO, interesting stuff.

I’ve been following those Gazprom news since last year. Like noted on the Forbes article there are no direct negotiations with Galp, Gazprom was invited to invest in the Amorim group, that holds 1/3 of the company. Up to now the business has not materialized.

It all seems media hype (benefiting some clever shareholders), for right now it doesn’t seem possible for Gazprom to take over ENI as the major shareholder of Galp.

Back to the basics

(5 page PDF, possibly useful to some folks here)

Wash clothes in cold water, examine the possibility of solar hot water, and take a look at sunroom greenouse entries on the sun side....and of course insulation on the north side. On new construction, geo-thermal heat pumps, and use of energy star appliences throughout the home.

These are the fastest payback and most enjoyable ways to reduce natural gas consumption for home/heating and air conditioning.

Remember, we are only one cubic mile from freedom


When talking about conservation, there are many, many things you can do. And some of them are very easy.

I believe that you can cut back your fossil fuel usage with ~30% without any significant impact on your lifestyle. (Use a bike, buy a smaller car, turn down the thermostat, insulate your home, carpool, etc) And another ~30% with some hardship (Ditch the car, eat partly vegetarian, install solar power & warm water, turn down the termostat some more, ditch the airco, etc).

But the issue is not that we can do this: the issue is that by doing so, the economy will take a big hit. And that will put people out of a job and cause all kinds of mayham.

Who will pay for your social security when the economy is shrinking with ~1-2 % per year? Or your pension? Or who will pay the federal debt? Or the military? Or all those other governmental things that we have that make our society tick?

Just a note - Der Spiegel front cover story this week is about Gazprom - saw it at the train station coming to work. As I have a subscription, should be interesting enough reading this evening.

I am also assuming a typically multi-faceted approach - considering that East Germany used to be part of the Soviet energy network, some of the information is likely to be better sourced than what you would normally find in the American/British press, assuming the article is worth reading to begin with.

The German political system is very aware of Gazprom, in the same sense they are very aware of Exxonmobil - there are some constellations of power in the world which transcend the normal boundaries which most journalism exists in - in part, because those constellations are able to influence public information channels, whether directly or indirectly. (As a bet - at least a sidebar in the Gazprom article details how dangerous investigative reporting is in Putin's Russia, but little mention will be made of how much money Der Spiegel makes from energy company advertising.) This awareness is one reason the Germans are attempting to use conversation/efficiency/renewables to remain somewhat independent - though without attempting to ruin anybody's investment, of course - Schröder is still sitting on the Baltic gas pipeline board, I believe.

And to be honest - Putin is feeling a bit threatened these days, after the U.S. cancelled the ABM treaty, and is planning on setting up radars in Russia's former protectorates.

An expert on Russian intelligence was critically injured in a shooting in front of his suburban Washington home, authorities said.

The shooting of Paul Joyal, 53, came days after he accused the Russian government of involvement in the poisoning of former KGB agent Alexander Litvinenko. The FBI was assisting in the investigation.

might be a coincidence

Interesting - and I am certain it was as coincidental and unconnected to the Russian government as the polonium - not that anyone will mention that in polite company. The problem with this strategy, if that is what is going on, is that it tends to confirm the truth - but then, the KGB was never much concerned about anything but projecting infallible brutality, a truth they could be certain of always controlling.

However, he was not an American government employee - when one of them gets shot (as compared to being fired) for saying such things, you will know that the game has entered a new dimension.

Dear readers,
to monitor changes and developments in the Russian Subsoil Usage as well as last developments and plans of the Rusian leading companies such as Gazprom, LUKoil, Yukos, TNK-BP visit this URL
You also find information about volumes of deposits in the biggest plots, for instance, Kovytka, Yamal and others.


Thank you for the information. Visiting the site I see that it is available by subscription, but that a price has not been set. Do you know what this will be?


Actually the access is free for all info published before December 25, 2006.
Subscription fee is here


Thanks HO for all this information.

My hair becomes grayer every day when I see how we fail in Europe to bring about a real weight in negociations with Gazprom et al. Since a family member of mine works in eastern europe, I know how difficult it can be to deal with the every day changing of the rules.

Since the failure of the merger Suez - GDF which would really have made sense, Gazprom hammers on the french gas market, as it already does in Italy, Germany and Spain.

This morning we were informed that Yara (sorry link in French), a group specialized in the fabrication of fertilizers (in fact nitrogen compounds), will get its natural gas directly from gazprom. The gas if sold from GDF would have brought the group to its knees and yara stopped its activities in France since July 2006. But the deal with gazprom brought back the nitrogen synthesis.

Yara is an european group and uses 3 billion cubic meters of natural gas per year (!).