Andrew McKillop
writes: There are increasingly sure signs that Russia’s Gazprom will
not be able to meet its self-assigned, and massive gas production
targets. The increasing vindictiveness of relations between Russian oil
and gas corporations, all closely controlled by Putin’s Kremlin, and
foreign ‘partners’ such as BP, Total and Shell, are in large part due
to new gas reserves not being as big as hoped, and cost plus time
constraints for bringing these reserves into the Gazprom gas gathering
and transport network, serving Europe, that are always increasing.
Deliberately underestimating costs before project starts, then raising
them almost by the week as development grinds slowly along, is a sure
way to brew conflict between project partners. As Ali Samsam Bakhtiari
has put it: Put in a nutshell,
Gazprom’s present predicament is untenable. With dwindling production
based on declining major gas fields (and no fresh giant field on tap),
the Russian gas monopolist will inevitably have to curtail its exports
as it cannot (or rather dares not) cut domestic supplies delivered at
extreme-low prices….. Thus, it will have to boost export prices in
order to compensate for internal ‘manque a gagner’ and also hope to
somehow lower external demand. …  [Gazprom's] present pipe network
spanning over some 150,000 kilometers is in daily danger and will
require in the future ever-increasing maintenance linked to spiraling
costs. (Bakhtiari, March 2006). As Bakhtiari and plenty of other
observers surmise, Gazprom boasts of ‘almost unlimited’ gas reserves,
are no more than boasts, and identical to oil reserve bragging by OPEC
countries - designed to suck in capital and bolster investor
confidence. In the real world, the diminishing but critical gas
reserves of the three-biggest west Siberian gasfields (all of them
‘associated’) are unable to meet even short-term gas demand of Russia’s
domestic, CIS, and EU consumers. Only massive capital spending, and
immense luck would make it possible for Russia to meet projected gas
export demand in the 2009-2015 period. Put another way, Peak Gas, for
Gazprom and its down-the-gasline consumer customers, is likely to
arrive quite early, about 2009. … Coming to grips with, even
accepting the idea of Peak Oil has taken at least 10 years, like the
acceptance of climate change and the need to do something about it -
which has taken about 15 years. How long will it take for Peak Gas to
be accepted as fundamentally linked and related to Peak Oil? The jury
is out for deliberation on this one, and nobody knows when it will be
‘politically credible’ to advance the idea that world gas supplies are
even today unassured, and sure to decline, tomorrow. What is important
is the triad oil-gas-electricity which unlike coal are all highly
interdependent. If one part of this three-leg stool falls away, the
stool falls. Demand projections for world electricity - growth is
running at 9% pa - all assume, either explicitly or implicitly, that
‘abundant and cheap’, as well as ‘environment friendly’ natural gas
will take the strain. This is for the real world, outside the cosy
images of windfarms, and nuclear power stations that will not be built.
Removing cheap gas from the picture will very surely trouble the
reassuring but impossible concept that after Peak Oil we will have a
‘Gas Bridge’ for decades, even for 50 years as some die-hard dreamers
like to proclaim. Gas prices will soon firmly link to oil prices, that
is expensive oil will drag up gas prices rather than underpriced gas
dragging down oil prices – this being what most consumer country
deciders like to believe, surely hope, and inscribe into white papers
and green books as a surrogate for reality. This oil-gas price linkage
will start soon, at latest by 2007-2008. The excesses of downward price
speculation in 2006 (gas prices falling to an equivalent of about 17
USD/barrel), so attractive to consumers and political leaders of the
consumer countries, will soon be a thing of the past, no doubt mirrored
by upward price speculation of the same ‘imaginative’ virility and
excess. The main problem – exactly as for oil – will be that
fast-rising gas prices will do little or nothing for increased supply
and supply capacity. This is yet another tell-tale sign of the
fundamental linkage between Peak Oil and Peak Gas. (12/14/06)
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