Turkmenistan learns a lesson

There has been the occasional story popping up in Drumbeat over this past week or so about the severe winter and gas shortages in Iran, and their resulting cut in supplies to Turkey. The Iranian domestic shortage was supposed to be made up from Turkmenistan. Unfortunately the shortfall from Iran to Turkey was supposed to be made up by increased supplies from Russia, but those also are falling short. About a year ago we saw some of the same discussion about supplies from Turkmenistan, through Russia, to Europe, with shortfalls and price increases – particularly relating to the gas supplies to Ukraine, through which the pipelines flow. At the end of that discussion the Turkmen got an increase in the price of their gas. It is therefore not surprising to see that Turkmenistan is seeking to double the price it gets from Iran.

All of this does not leave a warm and fuzzy feeling about future gas supplies that rely on Russian and Turkmen sources. The concern gets a little deeper when one notes that Kazakhstan wants to raise transit prices and that Uzbekistan also wants a raise, perhaps similar to the 30% increase that the Turkmen just got from Gazprom.

This is all happening as the Chinese get ready to invest another $2.2 billion in a pipeline from Turkmenistan to China. The line will carry 30 billion cubic meters per year, and start flowing next year.

Time was, when suppliers got a little uppity that armies would march – Persians, Turks, Russians, Chinese – even the odd gunboat has been known to show up. That is unlikely to happen in this particular case, changes are likely to occur more behind closed doors. But that will not change the impact of the consequences. And I think back on a conversation that I had at ASPO in Cork, where one of the Irish politicians at the conference commented on their vulnerability at the end of the long, and leaky supply line that starts in either Russia or Turkmenistan.

Fuel supplies become most necessary when the weather is bad. But when the weather is bad, then increased demand occurs all along the supply pipeline. Supply itself can be restricted, as we saw with well-head problems in Colorado last year. But even when it is not, producing nations, such as Russia, will satisfy their own needs first. Westexas has accurately foreseen the problems that arise as domestic demand rises in the face of stagnant supply. It is a condition that argues for nations to have a significant capacity to store gas for such a “rainy day.” Yet, as the Guardian notes

The UK, for instance, has limited facilities to store gas. While Germany and France can store 20 per cent of the gas they consume, Britain can set aside just 5 per cent. One wonders how much Ireland can store?

Russia has considered increasing the amount of coal used for power, in order to free up gas exports.

Roughly one-quarter of Russia's electricity is produced in coal-fired power stations. Total coal reserves are estimated at three trillion tons, the second-largest coal reserves in the world, with some four-fifths of coal deposits located in Siberia.

Russia's total coal production has increased from 240 million tons in 1998 up to more than 300 million tons of coal last year. In 2006 Russia exported 91.4 million tons of coal, up 15% over 2005, according to the Russian Federal Customs Service. In January-March, Russia exported 24 million tons of coal, an increase of about 21%, out of its total quarterly production of 80 million tons.

Russia exports its coal to 45 countries. Some 37% of coal exports went to Western Europe, 10% to Eastern Europe, 12% to former Soviet republics, 24% to the Middle East, and 17% to the Asia-Pacific.

The Russian government has repeatedly pledged to reduce natural gas consumption in power generation and increase coal use, in order to maximize gas exports. Earlier this year, Russian President Vladimir Putin also suggested that coal be given a greater role. But this goal would require large-scale construction of coal-fired power generation facilities, totaling some 40 gigawatts by 2020.

Current plans see coal-fired power stations producing some 40% of Russia's electricity between now and 2020. Russia's domestic coal demand in the power generation sector is expected to rise from the current 121 million tons a year to 300 million tons by 2020 (RBK Daily, May 22).

It is a reminder that the crisis that we all talk about is a real one, with consequences, rather than just an academic exercise. Nevertheless it is no wonder that Gazprom is the favored stock in Russia at this time. That favored position, however, requires that it retain the capacity to meet both domestic needs and also foreign supplies (since that supplies the cash that helps with popularity).

We are, I suspect, entering a time of sobering reality, where transient breaks in gas supplies will transition from the odd week without for remote villages in Iran, to larger outages in more visible parts of the world. Turkey’s current scramble to find alternate supplies will, in time, be matched by others across Europe. Needs for natural gas can only be expected to increase.

Which is why, in part, I suspect, that while the number of rigs drilling for oil in Saudi Arabia in recent times has stabilized at around 50, the number drilling for natural gas has been increasing.

But meeting American natural gas needs will not be solvable with just running pipelines. So, all in all, I am glad I just got my tile stove repaired. (Too many years of burning at too high a temperature had cracked the back wall - which we replaced, and put in a new control knob.)

Thanks for doing a good job of tying all of the pieces of this story together. It seems like a story we will be hearing repeated in slightly different variations, getting worse and worse, as time goes on.

But never any apparent concern for Dangerous Climate Change - the only proposed solution to these problems seems to be burn even more coal, gas and oil!

I don't know what latitude you are at, but here in the UK - without heat in winter, I would guess 50% of people are stuffed. If not fatally, then we are talking life turned upside down emergency type thing. I am very warm blooded, but a house with no heat would be a real challenge even for me. This is something the UK has not had to endure in ~1500 years. They will burn EVERYTHING. No one will remember CO2 conc anymore.

When was the last time we had a real winter here in the UK? My son is 17 and literally only a handful of times in his life have we had snow. Yet I remember winters between 1980-90 when we had day time temperatures for weeks at a time below zero.

Tracking Bloomberg daily only last Wednesday (weather quite warm) UK gas supply fell short of demand as it did in a colder snap back in December. Goodness know what would happen if we had a 'real' winter here in the UK again. I suspect we would be in real trouble.

Agreed. The real issue is that the end users cannot stockpile energy for winter with gas and electric. We are hostages to fortune and mismanagement. Open coal fires fed by horse drawn coal wagons were as far removed from just in time inventory as it gets. There was enough in reserve at every point to cope with any UK season.

I had remembered seeing an old WWI Punch cartoon showing someone freezing in front of a coal fire in winter clothing and wanted to post a link but oculd not find it. I did find some hstorical article saying in WWI the distribution of coal was nationlized in UK and following article:

Link is a bit long I must say...

In 1918, the Labor Party had adopted a constitution containing what became the famousClause IV, which, in language written by Sidney Webb, called for "common ownership of themeans of production, distribution, and exchange." But what were these words to mean inpractical terms? The answer came during World War II. One evening in 1944, a retired railwayworker named Will Cannon, drawn back into the workforce to help in the marshaling yard,happened to drop by a local union meeting in Reading, not far from London. In the course ofthe meeting he decided to propose a motion calling for "nationalization," which was approvedby the local. The motion won national attention, and the Labor Party ended up adopting it inDecember 1944. Will Cannon's motion would have a powerful global echo.In July 1945, Labor came into power totally committed to nationalization and determined toconquer the "commanding heights" of the economy, having borrowed the term from Lenin bythe mid-1930s. In their quest for control of the commanding heights after World War II, theLaborites nationalized the fragmented coal industry, which provided 90 percent of Britain'senergy at the time. They did the same to iron and steel, railroads, utilities, and internationaltelecommunications. There was some precedent for this even in the British system; after all, itwas Winston Churchill himself who, as first lord of the Admiralty in 1911, had purchased acontrolling government stake in what became British Petroleum in order to ensure oil supplyfor the Royal Navy. Churchill's rationale had been security, military power, and the Anglo-German naval race.The premise of nationalization in the 1940s was quite different—that as private businesses,these industries had underinvested, been inefficient, and lacked scale. As nationalized firms,they would mobilize resources and adapt new technologies, they would be far more efficient,and they would ensure the achievement of the national objectives of economic developmentand growth, full employment, and justice and equality. They would be the engine of theoverall economy, drawing it toward modernization and greater redistribution of income.

I think that Greece is the country that really learned a lesson (about being at the end of a supply line).

Turkmenistan cut gas exports to Iran.

Iran cut gas exports to Turkey.

Turkey cut gas exports to Greece.

Greece cut gas exports to?

As I have noted over the past several days, this has been a prime example of the ELM in action--price and import markets be damned, exporters are literally going to keep the home fires burning.

And of course, we have the quote from Iran that I am nominating as quote of the year.

"We don't want oil money. Supply gas!"

Thanks, I missed that connection. For those that want the link to a story there is one here , which notes that the Greeks are anticipating that the Russians will make up the difference. But one wonders where they will get the supply - from Turkmenistan perhaps? Well the prices through that route are scheduled to go higher also.

Interesting how Turkey gets to cut off Azeri gas destined for Greece and there is not a single peep about wrong doing. But Russia gets accused of engineering the shortages and making a killing on them. There will be a price for this abuse. Putin's desire to please the west is not sitting well at home.

I suspect, but don't know for sure, that the only reason Greece did not cut gas exports is that they don't export meaningful amounts of gas. The bottom line, as I pointed out above, is that these various countries are literally more interested in keeping the home fires burning than in exporting energy.

Apologies for being off topic - General Motors has released a statement today accepting Peak Oil has occurred, thats if the Sydney Morning Herald can be believed.


Its been noted in the last two drumbeats - confirmation pending..

Hi Heading Out. A nice summation of events. I've got a quibble, and that's that I don't see Turkmenistan as a villain in the events. On the contrary, Turkmenistan is kind of the long-abused step-brother, forever eating the scraps from the dinner table while its relatives gorge on the holiday meal.

Turkmenistan has taken advantage of unusual market leverage -- courted by Russia, China, the U.S. and Europe -- that it has not previously enjoyed. It's receiving $100-$130 a thousand cubic meters, while Russia plans to raise its prices in Europe to about $350. Gazprom will raised its prices to the Central Asian country to $150 later this year, I believe, and Turkmenistan probably wants a comparable increase from Iran (as does Kazakhstan from Russia).

That's not an exorbitant demand. And it's not resource nationalism.

Steve LeVine, author
The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea

I wouldn't argue that - sometime in the past we did a post on Turkmen gas which pointed out that they had been taken to the cleaners a couple of times by the Russians in the past, though I don't have time to dig back and find that just now. There was a move last year also to become more independent, but that was curtailed when Turkmenbashi had his heart attack.

Am I math challenged this morning or did I read that Russia has three trillion tons (3x10e12)of coal reserves and is producing 300 million tons a year (3x10e8)? A ten thousand year supply at the current production rate?

I've been following these stories highlighted above on the gas supply lines through Central Asia/Middle East with great interest since they pooped up at the New Year.

Does anyone else find it difficult to believe that Iran TRULY has the world's second largest nat gas reserves?

1) Iran imports 5% of its gas.

2) Iran claims to possess the world's second largest natural gas reserves, which it has not developed. The "Trade" (markets analysts) believe that claim.

3) Iran is pursuing nuclear technology, they claim those eforts are to make up for a short fall in domestic energy supplies.

One of these things does not go together...

Much of the gas is offshore. Some of it is in fields shared with Qatar.

Obviously, the Iranians are very badly organized. However, all the various sanctions and wars have not helped.

If I were Iranian, I would think twice about investing offshore in the Persian Gulf. Take a look at this alternative look at the recent incident in the Straits of Hormuz and tell me if the MSM is taking us for a ride Legal mist stokes US-Iran tensions in strait

Thanks for that link - it was very interesting!

If you wait 5-10 years how much do you think gas is going to be worth. Here in the UK we are looking at some pretty serious shortages which we will probably have to pay our way out of. Iran can charge top dollar while everyone else is reining in exports for domestic use.

Interesting article. I never thought the nat gas situation would be a problem in Asia/Europe. There are two main reasons for this. One, Russia's population is declining significantly which would in theory reduce or at least dampen increases in domestic demand. Two, with global warming the number and frequency of severe cold spells would be expected to decline and surpluses would build during times of unseasonably warm weather. It will be interesting to see how the rest of the winter pans out.

PNM is selling its gas business.

We are on a first name basis with Don Brown who is PNM spokesman.

We have a meeting in Santa Fe tomorrow.

We're attending for visibility reasons ... and interest too.

We may POSSIBLY be entering settlement negotations with the US government?

Never get into a verbal confrontation with lawyers: you will lose.

We were sent a link to another spiking sting.


Navy Times and Nimitz museum were emailed on Sunday January 13, 2008, just in case, of course.

Let's see if we can get these unfortunate matters settled in a "timely manner" ... after 16 years.


In legal negotiations be reasonable.

The more money, the more reasonable.