Wednesday, June 20, 2007

China-Russia Gas Deal... Off!

Back in March it looked as though Russia would provide natural gas to China as a stride toward creating a global gas market. However, that policy seems to have been rescinded. Alexander Ananenkov, the deputy chief executive of Gazprom, said that plans to deliver an annual eighty billion cubic metres of gas to China would leave Russia short. Accordingly, the Russian energy Giant has asked President Putin to cancel this earlier arrangement made between the two countries. Now, I am reading a greater point of issue here, of how much gas exactly does Russia have? The whole of Europe are relying on gas from Russia which was thought to be in proverbial supply. Maybe it isn't? The UK peaked in production of oil from the North Sea in 1999, and gas supplies are no longer sufficient to provide for our needs.

In the early 1970's my father worked as a salesman/fitter for the South Eastern Gas Board, when the "new" North Sea gas supplies were introduced to supplant the conventional "town-gas" made by heating coal in massive retorts. The burners on gas appliances had to be "converted"to ones with finer jets, otherwise the new gas (methane) burned like an inferno from the old town-gas units (a mixture principally of carbon monoxide, methane and hydrogen). The presence of carbon monoxide in town-gas made it possible to "do oneself in" in the gas-oven, a procedure that was impossible with natural gas.

The Russian gas was due to be exported from the Exxon Mobil Sakhalin-1 project on the Pacific coast of Russia. Mr Ananenkov said: "We consider it necessary for a directive to be issued on the Sakhalin-1 gas to be sold to Gazprom so we could supply gas to Russia's regions, and for the gas not to be exported as proposed by Exxon Mobil." These were his words on speaking at a meeting of a regional social and economic development council. He further stated that Russia's four far eastern regions alone require above fifteen billion cubic metres of gas each year. Now that is a lot of gas.

Should the Russian government accede to the proposal by Gazprom and intervene in the export of the commodity to China, the latter will be left bereft of any access to Russian gas at all, despite its overwhelming need for supplies of gas and it would appear all other forms of energy necessary to fuel its burgeoning and unprecedented phase of industrialisation. This putative action would also heighten concerns about the increasing control of the state-run concern, Gazprom, and the Kremlin's handle on its domestic gas industry. As noted above, gas supplied from Russia accounts for around 25% of all used in Europe. So, if China is going to go-without, when will it be the turn of the European nations, especially Germany?

According to some analysts, gas-shortages in Russia are more pressing than is being made explicit. The gas/oil giant, Shell, was made to sell its share in the Sakhalin-2 project to Gazprom in response to pressure from Russian regulators. Similarly, BP is awaiting a decision on whether its license for the Kovytka gas field in East Siberia will be cancelled. It is suggested that Gazprom might face a challenge in winning control of Sakhalin-1 from the rival, Rosneft, which is the state-controlled oil company and a shareholder in the project, along with Sadeco (Japanese) and Videsh (Indian).

My overall impression is that Russia needs its gas and oil for its own supply, and the rest of the world should not rely on its resources to fuel our own purposes. As I noted recently, Russia has only the same amount of estimated recoverable oil resources as Venezuela, and Peak Oil has already happened there, albeit that the "peak" in a Hubbert type analysis is rather obfuscated by the collapse of the Soviet Union; the force-down in what the rest of the world was prepared to pay for Russian oil did indeed contribute to that demise of the major Communist empire.

The Oil (and gas) Dearth era is at hand, and the future of the world will be underpinned by less of both. It would be an immediate conclusion, therefore, that the economic miracle in China (and India) is a flash in the pan. I would not wish this for either nation, nor for those expanding EU nations such as Slovakia, Poland and the Czech Republic, but I imagine all of us are headed back toward an agrarian economy based around localised communities.

Related Reading.


Anonymous said...

Only a week earlier, China was angling for a better price:

And from this article in Russian, we read that Gazprom's response is to be the sole purveyor -

i.e. there is enough gas, as I understand, according to Gazprom.

Professor Chris Rhodes said...

Hi Sustain_ability,

interesting this! So I wonder what the anxiety was about, really? If Gazprom doesn't have enough gas then we are all in trouble, so I hope they do!

Cheers! Chris.