EDITORIAL: Much ado about Gazprom


Much Ado about Gazprom

Is Gazprom a tempest in a Russian teapot?

Is Gazprom a tempest in a Russian teapot?

Blogger Robert Amsterdam points to a recent post on the EU Energy Policy Blog that shows Russia’s power in Europe is far less than some like to imagine.  According to the article, natural gas only accounts for 25% of Europe’s energy consumption, and Russia’s share of Europe’s imports of gas, as shown in the table above, has been precipitously declining as Europe’s energy usage has increased.  Indeed, in the past two decades Europe has slashed its reliance on Russian energy by half.  The report states:  “Since 1990, 80% of the growth in European gas imports has originated from countries other than Russia, especially Norway, Algeria, Nigeria and middle eastern countries. Accordingly, Russia’s share of EU gas imports has declined sharply, from 75% in 1990 to just over 40% today.”  The author’s stark conclusion:  “Europe’s gas supply is not dominated by Russia.  93.5% of the energy consumed in Europe is covered by sources other than Russian gas.”

What’s more, even if Europe did depend on Russian gas, it’s far from likely that any intention action by Russia would turn off the spigot. 

The report states:

There may be no problem of European overdependence on Russian gas, but this is not to say that all is well on the supply front. Over the next 15-20 years, Gazprom faces serious supply challenges, and the international gas market is likely to experience considerable tightening. Despite controlling the world’s largest gas reserves, Gazprom will find it difficult to maintain its current supply levels. Production from the three “super-giant” west Siberian gas fields, which account for the bulk of Gazprom’s output, is now in steep decline. The company’s ability to maintain, let alone increase, production in the coming decades depends on the development of a new generation of fields on the Yamal Peninsula in northwest Siberia. Gazprom’s official line is that Yamal will come on stream in 2010. But independent analysts and most of the European gas industry think this is highly unlikely. Some mention 2015 as a more realistic date for Yamal’s completion.

In fact, Gazprom’s production is already insufficient to meet all the company’s commitments. It depends on two other sources of gas – “independent” Russian producers and imports from Central Asia, especially Turkmenistan – to make up the shortfall. This “bridge” is supposed to supply Gazprom’s needs until the Yamal fields come online. But there is uncertainty over whether Gazprom will be able to source sufficient volumes from Turkmenistan, while independent Russian producers have little incentive to increase their production in the absence of access to Gazprom’s transmission network, which would enable them to reach consumers directly. Moreover, domestic gas consumption in Russia is growing, driven by economic expansion and a gas-intensive electricity mix. So there is at least a risk that Gazprom’s “bridge” to Yamal could collapse. Industry assessments vary from a tight but manageable supply situation to an impending crisis.

So it’s not that Russia is threatening to cut off Europe, it’s that Russia is threatened by being unable to supply Europe — or indeed even Russia’s own domestic demand, a point Boris Nemtsov has already made emphatically in his White Paper on the gas monopoly.

Once again, we see a Russian propaganda bubble, this time gas-filled, burst like a childish illusion.  Russian dictator Vladimir Putin has a strangehold on information in Russia, which means that his own people are blissfully ignorant of these basic facts, but the outside world is not fooled.  Russia does not have the same sort of draconian power over the outside world’s abilitity to monitor information as the USSR did, and regardless it certainly cannot influence our own data, which leaves Russia standing naked and alone before a gaping, slackjawed world.

10 responses to “EDITORIAL: Much ado about Gazprom

  1. Using averages masks the potential impact of a Russian gas curtailment to individual countries. According to the Center for Foreign Studies (2006) here are the countries that are most vunerable, with the share of Russian gas shown:

    Germany 30-39%
    Poland 62%
    Bulgaria 97%
    Czech Republic 79%

    Click to access Jerome_Davis_Presentation.pdf

    Unlike liquid fuels, it is very difficult to transport gas to these countries in the event of a cutoff. Generally gas pipelines can’t be reversed. It can’t be transported by rail or barge and there are no LNG port facilities in most of these countries.

    Instead of burying their heads in the sand and pretending Russia doesn’t pose a threat, they should recognize Putin’s grand strategy is to dominate the west with the club of energy dependence. He has been cultivating his allies in Iran and Venezuela for just that purpose.

    While prices are cheap, the EU should emulate the US and develop a stretegic gas reserve. The idea is that they could outlast any short term cutoff and put the hurt on the Russians who need the foreign exchange. But Europe will never face up to reality until it’s too late.


    A good point, but at the same time it’s necessary to understand the limits of Russia’s ability to harm Europe in order to motivate people to realize that action can be taken without extraordinary risk. And it’s also necessary for Russians to realize that their arrogance is very much misplaced.

  2. Cork,
    at the same time, what matters as well is the share of gas in total energy demand. In the case of Poland, gas supplies less than 10% of Polish energy supplies, since the Poles use coal for generating electricity almost exclusively.
    The Germans, on the other hand, use gas for about 30% of their total energy supply, most of it for electricity generation, much of it on-site at large industrial plants.
    In any event, the gas dependency issue works both ways in the short-run, since Europe needs Russian gas (and oil) as much as Russia needs money.
    The whole focus on Russia in terms of energy security is largely bogus in any case. The real threat to energy security is Europe’s regulatory framework for energy.
    The long-term threat to energy security in Europe is a completely insufficient level of flexibility to deal with short-term disruptions, whether political or physical.

  3. When you speak about Europe’s dependence on Russian energy are you speaking about “new” Europe or only about “old” Europe? While it’s true that some of the original EU member states, such as Germany and France, may be only “heavily” dependent on Russian energy, instead of “totally” dependent, that’s definitely not true of some of the more recent EU member states, such as Baltic states, Poland, Romania and Bulgaria, which were originally Russia’s allies in the old Warsaw Pact. Russian energy infrastructure is heavily developed into these formerly communist states and they are 99-100% dependent on Russian energy, especially on Russian gas.

    I spent 3 weeks in Bulgaria in 2007, and I was surprised by the prevalence of Russian petrol stations, such as Lukoil stations; they are everywhere. Additionally, almost all petrol stations carry both gasoline and natural gas (natural gas as a motor fuel). I was surprised to learn that about 30% of the vehicles in Bulgaria are equipped to run on Russian natural gas, instead of gasoline.

    Even countries such as Germany and Italy, which are not as heavily dependent on Russian energy, are keen to build new pipelines from Russia (the Nord Stream and South Stream projects), which not only will increase their dependence on Russian energy, but the dependence of Western Europe overall, since these countries intend to function as major “hubs” for Russian gas, irrespective of what “official” EU proclamations might say to the contrary.

    The planned expansion of the EU eastward means bringing in states such as Ukraine, which again are essentially 100% dependent on Russian oil and gas. Could that be changed in the future? Probably. But not without massive investments in energy projects that essentially defy all economic logic. An alternative approach would be for the EU to simply cultivate better relations with Russia, which would insure the reliability of lower-cost Russian energy supplies for the foreseeable future.

    Although Russia has frequently been accused of using “energy as a political weapon,” in fact Russia has never done that, even during the peak of the Cold War hostilties. The short-lived cutoff of Russian gas to Ukraine in January of 2006 was all about a price dispute, not a case of Russia trying to strongarm other countries into accepting Russia’s views on geopolitics. (Russia is insisting that the former Soviet states pay the full market price for Russian energy, and they’ve been pushing back on that.) But don’t take my word for it. Listen instead to the official view of the Bush Administration on the subject here. While that war-mongering loose cannon Dick Cheney has falsely accused Russia of using “gas as a weapon,” in various neo-conservative forums (preaching to his own choir), that was by no means the first time Mr. Cheney’s views differed markedly (and inexplicitly) from the official views of his own Bush administration. (For example, Mr. Cheney continued to insist that that Iraq possessed weapons of mass destruction long after the Bush Adminsitration dropped that view.)

    Incidentally, we may see another such dispute between Russia and Ukraine very soon, as Ukraine still has about $2.4 billion in unpaid debts owed to Gazprom, and Russian President Dmitri Medvedev has instructed Gazprom to collect that debt (before Ukraine has the chance to spend its recent $20 billion IMF bailout elsewhere). Russia will not sign a new gas contract (for 2009) unless Ukraine clears this old debt first. And Russia has said that it will not supply gas to Ukraine without a contract. The current contract expires on Jan. 1, 2009.

    Ukraine currently pays Russia only $179.50 per 1000 cubic meters, which is less than half the European market price for gas, and they still can’t pay reliably. President Medvedev said the Ukrainian price for Russian gas may rise to $400 per 1000 cubic meters starting in 2009, which is more in line with the current market price. If Ukraine enters NATO then you can kiss subsidized Ukrainian energy goodbye. This will either lead to a sharp contraction in the Ukrainian economy or Europe will step up to the plate to pay for the gas subsidy (as Russia will not subsidize the economy of any NATO member country).

  4. “as Russia will not subsidize the economy of any NATO member country”

    Russia should give oil and gas for free for all former Soviet republics (occupied teritories) and forced Warsaw pact countries and Finland as reparations for war, terror, destruction, occupation, genocide of nations elites etc

  5. Yes ttc, you are exactly right. A new treaty of Versailles, I say! It worked out so well the first time around, a repeat is in order.

  6. “Although Russia has frequently been accused of using “energy as a political weapon,” in fact Russia has never done that, even during the peak of the Cold War hostilties.”

    Misha, please, during the Cold War Russian gas and oil weren’t that significant like today either in production or global demand. They had no decent infrastructure to get their oil and gas to market. Same with Russian mining of base metals. China’s recent demand for both have created the rise in the price of commodities.

    There was sufficient American and OPEC oil in supply during the Cold War. Russia was a much more insignificant player.

    The Europeans refuse to use this opportunity to do something smart in curtailing Russia. Sarkozy is a typical vain preening gutless French idiot and Germany’s ex- Chancellor Schroder is on the Gazprom board of directors, so much for the EU doing anything based on moral principles.

  7. The relationship between Europe and Russia on the subject of energy is one of mutual interdependence. Europe is no more dependent upon Russian energy than Russia is dependent upon Europe for the substantial income generated from the sale of that energy.

    The new “globalized” world, with its advances in communications (the Internet) and advances in transportation (ubiquitous jet travel) has made the world a much smaller place. The citizens of the world, and especially of Europe, simply have to find a way to peacefully coexist with each other (even if they may never be the best of friends). Fostering trade, capital flows, commerce and mutual economic interdependence is one of the best ways to achieve peace and prosperity in the new globalized world. That ought to be obvious to a baboon.

    Imagine that the United States was told that it ought to stop importing energy from Canada tomorrow, because someone else (let’s say a distant partner) didn’t like the political regime in Canada, nevermind that Canada is currently a major energy supplier for the US, and nevermind that this distant partner really had no ability to do anything about the political regime in Canada in any case, other than to offend and anger it. So where would the U.S. make up its energy shortfall then? Saudi Arabia? Iran? Libya? Yeah, as if THOSE were sorts of regimes that the West ought to be supporting and financing.

    Russia has made a lot of progress towards “convergence” with Western values and Western ideas, even since Soviet times, and especially during the past 8 years, under former President Putin’s able leadership. Russia’s economy is more open and integrated with the world than it’s ever been. Any honest observer will admit this fact, and those who willfully refuse to knowledge the enormous progress progress which Russia has made are guilty of missing the forest for the trees; they are simply “not helpful” given the realities of the current world situation (whether this is due to their own psychological fetishes about Russia or for whatever reason). Not everyone is carrying the ‘psychological baggage’ about Russia that the authors of LR so very obviously are.

    I don’t know who publishes the LR blog, and I don’t care frankly. But I’d have to say that when I think about it I have to imagine some enraged Lithuanian or Estonian or Pole, who is thinking about some war 500 years ago, and who is single-mindedly obsessed with trying to find some new way to “hurt” Mother Russia, even if it means the whole global ship will sink along with such efforts.

    That Europe at large does not embrace such obsessive thinking should not surprise anyone.

    Now the US, for its part, does seem to be willing enough to initiate a new Cold War–and maybe even a hot war–but quite for its own reasons, which have more to do with finding new ways to justify the continued US political hegemony over Europe than with any genuine sympathy or understanding towards these “useful idiots” in Eastern Europe who irrationally hate Russia so. That much ought to be obvious to any astute observer of the current world situation.

    What is not helpful is the compulsive desire to offend and anger Russia, in season and out of season, even when Russia appears for all intents and purposes perfectly willing to extend an olive branch to the West (which let’s face it, Russia has been doing–strategically if not always tactically–since at least the mid-1980’s).

    Russian leaders have their own internal political “issues” to deal with, vis a vis the West, due to historical and other reasons. To my mind, it appears that what is in order is a bit of understanding and empathy extended in Russia’s direction, rather than never missing a new chance to poke the already scab-infested Russian bear in the eye yet again.

    If the West can make its peace with the likes of a China (a single-party communist state which brooks no opposition whatsoever), or a Saudi Arabia (an absolute dictatorship, which doesn’t even pretend to hold elections; which funds Islamic extremist schools, which denies basic human rights to women, etc, etc.) simply because the Chinese have lots of cheap labor, or the Saudis happen to be sitting on a shitload of hydrocarbons, then the West ought to at least try to be more understanding toward Russia and the legitimate concerns that Russian leaders bend over backwards to try to explain and express.

    The simple fact is that in 2008 the areas where Western interests converge and overlap with Russian interests are far more numerous than the areas where those interests are in implacable conflict (although some disagreements, even between partners, are always inevitable, as everyone understands).

    There are untold numbers of problems in the world which simply cannot be solved without active Russian participation and cooperation. I’m thinking here about global terrorism, global warming, nuclear proliferation, and a whole host of major world issues of pressing concern. (Sure, the west can bury its head in the sand and pretend that such threats “aren’t even real,” but how is that helpful?)

    Russia long ago adjusted its thinking to the new realities of a changed world, and Russia has been waiting for the West (and especially for the U.S.) to finally catch up with Russian thinking ever since. It’s been a long lonely wait. But if that doesn’t happen then the world is doomed, quite frankly.

    You will never “defeat” Russia or “control” Russia. Russians are simply too proud and independent to allow that to happen . This applies to the masses of ordinary Russians in the Russian heartland as much–and even more so–than it does to Russian elites. And Russian elites enjoy more mass-support among ordinary Russians the more they demonstrate Russian independence and tenacity. If you don’t understand that then I would suggest that you don’t understand anything about Russia. Russians would prefer to live with the amenities and high standard of living enjoyed by most of the citizens of the West (to be sure), but Russians will also support the most tyrannical of all tyrannical bastards as a leader, if that’s what it takes to keep Russia free and independent from those foreign forces which would try to control and enslave Mother Russia. Russia has lived too long under foreign domination to forget about it so easily (and this is a major theme of Russian history). But then why would that be a problem for you, unless your plan all along was to try to dismember, control and enslave Russia? That’s just not going to happen. Ever. Try to deal with it and move on already. Germany did.

    It doesn’t really mater how wonderful and beautiful that you think your new one-world ideology is (as you carefully polish it and shine it up in your own private garage). Russia will never have your rule imposed over her. Period. Not without taking the rest of the world down with her, which Russia definitely has the means to do, now that the nuclear genie is out of the bottle.

    What is needed more than anything is an “adjustment” in the thinking of the leadership in the West (and specifically in the U.S.) as Russia’s leadership has long ago adjusted its thinking to the new multipolar global reality which we all must live with (whether we particularly like it or not).

    It’s somewhat ironic that the one nation which more or less invented the idea of “checks and balances” in government (having as they did an intuitive mistrust for concentrated governmental power) eventually also became the one nation that would do more than any other to eliminate the self-same concept from the face of the wider earth. But not to worry. They will not succeed with their mad one-world-order project, any more than Hitler succeeded with his project. Russia will rise again. And Russia will do her duty, to herself and to the world. You have my word on it. This is Russia’s destiny.

  8. “You will never “defeat” Russia or “control” Russia. Russians are simply too proud and independent to allow that to happen .”

    Why does it keep happening?

  9. What you need to realize, America is not right wing with the choice between misery and dependancy, which is all you know.

    Right wing in America is, do what you can with what you have, and if you have extra, sell it.

    It might sound simplistic, but the net benefit is, encourage people to overproduce, and you will see a personal benefit, and the world will see a net benefit(after taxes).

    America’s corrupt government feeds more hungry than all other countries combined.

    That is not an exageration.

    If you wish to “take down america”, these people will suffer first.

  10. this is shocking,they must take their steps carefully.

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