Tuesday, January 22, 2008

Who's pipes will be running on empty?

Last week, during Putin and Medvedev's visit to Bulgaria, the South Stream gas pipeline project under the Black sea got the green light. When complete, it will enable transportation of Russian and Central Asian gas to southern Europe, bypassing Ukraine.

From what I have seen and read, the significance of this pipeline has not registered in a major way in the Ukrainian media, but this EDM article has certainly picked up on it. Here's a quote:

"The South Stream pipeline is a hugely...complicated project in technical terms, but the most obvious question about it is where the gas would come from. Neither Russia nor Central Asia has the 30 billion cubic meters a year that would be needed in the next 5-7 years, so the only logical answer is that Moscow plans to reduce its gas transit through Ukraine. The same logic applies to the Nord Stream line to be built across the Baltic Sea, and these two pipelines would leave Ukraine with transporting only about a quarter of Russia’s export to Europe compared with the three-quarters flowing before the gas war of early 2006. The Ukrainian leadership is acutely aware that its leverage is going to shrink, so the government of Yulia Tymoshenko is now desperately trying to negotiate a better deal by cutting out the ignoble intermediary RosUkrEnergo."

Everybody knows that Gazprom are struggling to maintain current gas production rates, and they need all the cash they can get their hands on to do this.

Here's a quote from Nadejda Victor's superbly detailed January 2008 Stanford University paper "Gazprom: Gas Giant Under Strain":

"Huge investments are needed to replace Russia’s dwindling supply of natural gas, and all the options for new production will prove costly and difficult. New fields in the far north and east of the country are distant from most of the Russian people and from export markets, requiring wholly new transport systems such as pipelines. Moreover, most of these new fields are located in extremely harsh environments where it is technically and financially difficult to operate. Gazprom controls neither the capital nor the technology needed for the task. The state-controlled company is already highly indebted and faces many expensive obligations that drain its coffers, such as supplying Russia and its friends with cheap gas."

The paper also gives details of the dreadful wastage of gas in Russia due to grossly inefficient electric generation plants, flaring off of billions of cu.m. of gas at oil fields, and absence of what most would consider normal housekeeping measures by domestic suppliers and consumers.

Constructing the two massive South and North Stream underwater pipelines means even less cash will be available to Gazprom to develop new Siberian and Arctic shelf gas fields and to improve efficiency. And someone's gas transit system will be running half empty. It's all quite depressing really.


Anonymous said...

Congrats to Reuters for mentioning "Uncertain central Asian gas supplies have emerged as the largest threat to an EU scheme to provide an alternative to Russian gas following a month-long stand-off between Turkmenistan and Iran, analysts say."

hans said...

Gazprom's production dropped a couple % this year, but they claimed exploration discoveries outpaced the extraction rate again.


I agree that the Sakhalin and Kovykta projects will not be suitable for connection to the UGSS and can't be counted to provide for increased export volumes. But new Yamal fields will utilize the in-place pipeline network and are expected to come online around the time Nord and South Stream projects finish up (2012). Also, Shtokman is right now earmarked for supplying the Nordstream line (but Shtokman is 10 years off), with the newly-opened Yuzhnoe Russkoe field planned to serve as a Nordstream source until then.

Given all that, Gazprom's production has remained essentially the same for the past few years, and they only expect an increase of about 12 bcm by 2010, another 20-30 bcm by 2020, and another 30-50 by 2030 (610-630 bcm total by then).

However, Gazprom expects independent producers to pick up much of the slack. Gazprom predicts them to boost production by about 50 bcm from 2006-2010, and then by another 100 bcm by 2030. Presumably, this increase would take pressure off Gazprom's supply of the domestic market and allow it to shift some of its volumes to export. This would also boost their profits, ideally then re-invested in production capabilities / technical refurbishment. (and not used by Gazprom-Media to buy rutube.ru ...)

Refurbishing UGSS compressor stations could save about 10 bcm per year, and plugging leaks would add another 11 bcm. Making use of the maybe 60 bcm being flared per year would also be a good start...

I'll take a look at Nadejda Victor's paper -- thanks for pointing it out.

PS, Ukraine can still boast its storage capabilities, not likely to be replaced anytime soon -- for that reason alone, I think Ukraine will remain a key (though not as inordinately important) transit figure.

Anonymous said...

What is going to get Tym a better deal from Putin than POR got out of them at the end of last year - her angelic face and pleading eyes? What else has she got to "persuade" him with?