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UK protectionism threatens European gas supplies

by Jerome a Paris Wed Apr 19th, 2006 at 05:18:21 PM EST

yes, my title is provocative. But "they" deserve it.

Gazprom has reacted badly to the revelation by the Financial Times that the UK government had gone through all sorts of contorsions to be ready to block, against the law, the mooted take-over of Centrica by Gazprom (discussed in this earlier story), and is now threatening to stop supplying gas to Europe in the future:

Gazprom issues threat over EU gas supply

Gazprom, Russia’s state-controlled gas monopoly, on Wednesday told European Union countries not to block its international ambitions, warning that it could redirect supplies to other markets.


In a statement after a meeting between Alexei Miller, Gazprom’s chief executive, and EU ambassadors, the company said: “It is necessary to note that attempts to limit Gazprom’s activities in the European market and politicise questions of gas supply, which in fact are of an entirely economic nature, will not lead to good results.”

The warning follows the revelation earlier this week in the Financial Times that the UK government had considered changing merger rules to block a potential takeover of Centrica, Britain’s biggest gas supplier, by Gazprom.

(...)

“It should not be forgotten that we are actively familiarising ourselves with new markets, such as North America and China. Gas producers in central Asia are also paying attention to the Chinese market. This is not by chance: competition for energy resources is growing,” it said.

Gazprom said that, while it would fulfil its current contracts with European clients, the future relationship with these countries should take into account the Russian company’s ambitions to move into the downstream markets.

Sergei Kupriyanov, a spokesman for Gazprom, told the FT: “We just want European countries to understand that we have other alternatives in terms of gas sales. We have a fast-growing Chinese market, and a market for liquefied natural gas in the US. If the European Union wants our gas, it has to consider our interests as well.”

Gazprom’s statement appears to be a riposte to the UK’s consideration of changing its merger control regime.

(...)

Gazprom’s threats follow an outline agreement between Russia and China to supply the Chinese market with gas from western Siberia, which is also the main source of gas for Europe. Given that Gazprom’s reserves have been static for the past five years, the supply of gas to China will decrease the volume of gas available to European countries.

Hahahahaha. The UK should stick to liberalisation, it sucks at being protectionist... it takes real experience to be one competently...

Now, as I have repeatedly written, I think that this whole notion that Gazprom's reserves and production are flat and that any supplies to China would decrease supplies to Europe is totally stupid. Gazprom is not increasing production because it has not market at "real" prices (it would always deliver more domestically, but that's at low regulated prices). Once the markets open, the production will be there, and that threat is thus mostly moot.

What is true is that they can only concentrate on so many mega-projects at a time, and each new pipeline/gas export infrastructure is a multi-billion multi-year endeavor which needs to be negotiated, financed and managed and few company can do several of these at the same time. So they could choose to focus on their LNG projects rather than on a new pipeline to Europe - but f the market is there in Europe, they'll take it.

But I find it irresistible to see Blair's mindless panic at suddenly finding the country dependent on imports (as if nobody could have predicted it), and his profound hypocrisy exposed.

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What a nice irony. :)

But still, I find this natural gas business so complicated and nasty. And it's not like it is cheap anymore.

Best not to use any natural gas for any purpose, except maybe in the chemical industry.

We do have competitive alternatives.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Apr 19th, 2006 at 05:53:46 PM EST
Sure you´re right about the minor point here, Centrica.

But you don´t say anything about the major point!
A Russian - state owned - gas company is flat out threatening the whole EU. Not only Great Britain.
Simply put, they´re saying that if we Europeans don´t - ah - "cooperate" with them, they might look for other customers in Asia or North America for example.
Care to tell me what "cooperation" like that would look in 10 years? Since Europe needs that gas?

Sure, right now the gas infrastructure demands that Gasprom has to sell us gas. Not that many pipelines or LNG ports available in Asia or North America. As you said, each project is a "multi-billion multi-year endeavor".

All that said, I find the "threat" chilling.
Follow "Gasprom" wishes or else....

So they could choose to focus on their LNG projects rather than on a new pipeline to Europe - but if the market is there in Europe, they'll take it.

Huh?
What about China and India? Forget LNG projects.
Didn´t I read diaries from you about the rising energy needs of China for example?

Given that most of the gas fields are in Siberia IIRC why can´t they threaten us with choosing Chinese customers? Especially given the current trade and account surplus of China?

by Detlef (Detlef1961_at_yahoo_dot_de) on Wed Apr 19th, 2006 at 06:14:43 PM EST
Sorry but no, Europe doesn't need gas. Europe needs politicians with enough guts to tell the freemarketers that energy is too important to be let to the negligence of markets.

Gas' only benefit is its low upfront capital cost per MW of generation or heating capacity. Otherwise, it's a sucker game dependent on a highly volatile and unsafe commodity.
by Francois in Paris on Wed Apr 19th, 2006 at 07:09:51 PM EST
[ Parent ]
Sorry but no, Europe doesn't need gas. Europe needs politicians with enough guts to tell the freemarketers that energy is too important to be let to the negligence of markets.

Care to tell where to find the abundant energy resources still undiscovered in Europe? Unless you mean coal?
Any other energy resource, be it oil, gas or uranium, Europe is depending on foreign sources.

Sure, we can use wind, solar or tide energy. For maybe 10-20% of our energy use.

But tell me - I´m really curious - our substitute for natural gas (or oil)?

by Detlef (Detlef1961_at_yahoo_dot_de) on Wed Apr 19th, 2006 at 07:44:29 PM EST
[ Parent ]
Uranium. Not domestic, but imported from Australia and Canada, which is almost as good as domestic. And we could develop the vast untapped Swedish uranium reserves (15 % of global uranium reserves).

Replacing oil is an entirely different matter than replacing natural gas. Natural gas is used for heat and power generation which nuclear power can do just as well, or better.

Oil is mainly used for transportation, and you can't (yet) propel a car with electricity.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Apr 19th, 2006 at 07:55:35 PM EST
[ Parent ]
Starvid, thanks. You answered Detlef for me.

And yes, the energy issue is really two folds - mobile applications vs. fixed applications.

Inaction on fixed applications is inexcusable as current technologies can amply solve any issue of foreign dependence or reliability of supply at acceptable cost. It's strictly a problem of political will. When undesirable actors like Gazprom try to throw their weight around, the only answer should be "fuck you".

The real tough issue is for mobiles, that is for oil supply.
by Francois in Paris on Wed Apr 19th, 2006 at 08:27:49 PM EST
[ Parent ]
Jesus, I could have written exactly those words myself! As a matter of fact, I have done that, at least a hundred times!

Political will. Exactly the phrase i always use...

And "fuck Gazprom" is also a recurring phrase of mine.

Are you a long lost spiritual twin? ;)

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Apr 19th, 2006 at 08:52:29 PM EST
[ Parent ]
I don't know about twinhood but I believe the two of us are the whole of the pro-nuclear community on ET :)
by Francois in Paris on Wed Apr 19th, 2006 at 09:32:59 PM EST
[ Parent ]
Well, count me in at least as not necessarily hostile...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Apr 20th, 2006 at 12:38:04 AM EST
[ Parent ]
Quadruplets, at the least. And if Plan 9 is hovering, that makes 5.

Former Dutch prime-minsiter Lubber (also of UN fame) expressed recently his order of priorities for gas/oil alternatives:
1)Renewables
2)Energy Conservation
3)Nuclear energy
4)Coal

Maybe he has been reading ET, too... The list sounded familiar.

by Nomad on Thu Apr 20th, 2006 at 04:12:40 AM EST
[ Parent ]
And Plan9, too.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Apr 20th, 2006 at 04:26:11 AM EST
[ Parent ]
Count me in, too

Pierre
by Pierre on Thu Apr 20th, 2006 at 09:32:48 AM EST
[ Parent ]
By the way, what's up with nuclear power in Sweden? I was reading this paper and I was like "gnnnn?!?". Obviously, the UIC is pro-nuclear but from the poll numbers, it looks like there is a really weird disconnect between the political class and the general population.
by Francois in Paris on Wed Apr 19th, 2006 at 09:39:39 PM EST
[ Parent ]
Yes, it's an absurd situation. The ruling Social democrats are officially against nuclear power, but the party is split on the issue. 34 % of social democrat voters are against nuclear power while 47 % support it. Problem is they are held hostage by the "environmentalists" and the communists whom they require support from in parliament.

This is one of the main reasons I will vote for the bourgeoise (yes, they really call themselves that) opposition in the elections this autumn.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Apr 20th, 2006 at 06:18:28 AM EST
[ Parent ]
How do the environmentalists and communists propose to make up for the lost power generation capacity should the nuclear power plants go offline without being replaced? Or is that question never posed to them?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Apr 20th, 2006 at 06:26:38 AM EST
[ Parent ]
It's never asked. Hey who cares about energy anyways? It's not like it's important. :/

The dilemma in Swedish electricity policy is that we have three incompatible goals, of which only two are possible to reach at any given time. The goals are:

  • No more exploitation of hydroelectric resources (=no more hydro).

  • No more greenhouse gas emissions from power generation (=no natural gas).

  • Nuclear phase-out (=no nuclear).

If someone where to push the "greens" they would probably respond "renewable power and conservation".

The problem is that the remaining renewable resources, the hydro, is completely off limits. Wind is a marginal resource in Sweden, 10 TWh (of which 1 TWh has been exploited) compared with our 140 TWh consumption.

Then we have conservation. The problem here is that the vast Swedish electricity consumption is mainly due to our heavy process industry, which is vital for the country and also very electricity efficient. That consumption can't be reduced.

So then they attack small consumers instead, slapping high electricity taxes on citizens which corporations don't have to pay. This policy has not managed to reduce consumption, only slow consumption growth. And one should remember that increasing electricity use is a good thing as long as total energy consumption is constant (as has been the case in Sweden for the last 30 years).

The only way to conserve power in Sweden is to reduce power production by closing nuclear reactors. This pushes the power price upwards, creating conservation. And at the same time, killing vital private industry.

Nice job.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Apr 20th, 2006 at 09:40:40 AM EST
[ Parent ]
Those three goals are compatible. The fourth (implicit) goal that makes the whole incompatible is "nondecreasing electricity supply". And, in fact, the situation you are describing is one in which the first three goals are achieved and the fourth is given up.

How about renewably using wood coal for fuel? Sweden has huge and sensibly managed forestry resources.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Thu Apr 20th, 2006 at 09:49:45 AM EST
[ Parent ]
Yes of course you are correct. But for a number of reasons the competitivness of Swedish process industry must not decrease. It's just a big no-no.

Anyway, using wood fuel is not an option. It is already used for heating all our cities in combined heat and power plants, and in the very important paper industry, not to mention the big plans for cellulosic ethanol or black liquor for DME.

There is just not enough wood.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Apr 20th, 2006 at 09:59:50 AM EST
[ Parent ]
CIA World Fact Book:
Timber, hydropower, and iron ore constitute the resource base of an economy heavily oriented toward foreign trade. Privately owned firms account for about 90% of industrial output, of which the engineering sector accounts for 50% of output and exports.

GDP - composition by sector:

  • agriculture: 1.8%
  • industry: 28.6%
  • services: 69.7% (2005 est.)

Industries:
iron and steel, precision equipment (bearings, radio and telephone parts, armaments), wood pulp and paper products, processed foods, motor vehicles
It does seem you may have hit "the limits of growth" unless you use nuclear power (even at an increasing rate). Not good.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Apr 20th, 2006 at 10:11:39 AM EST
[ Parent ]
Not really. The amount of hydro and timber resources have been finite (albeit renewable) and exploited almost to max for several decades, and during the latest 30 years our energy consumption has remained constant. The only change has been a switch from oil to biofuels and nuclear power.

As a matter of fact, biofuels is larger than nuclear energy in Sweden. The energy balance is something like:

  • Nuclear 13 %

  • Hydro 13 %

  • Biofuels 17 %

  • Oil 40 %

  • Other and calculation error 17 %

By the way, I have been looking more closely at Swedish uranium reserves. They fall mainly into two kinds. Some newly discovered pretty small high grade reserves and the awesome giant very low grade reserves.

The world's total conventional (ie very low grade excluded) uranium reserves are 2 million metric tonnes. The unconventional reserves at Mount Billingen alone are 300.000 to 1 million tonnes. Total Swedish reserves are 4-32 million metric tonnes.

The big spread is due to no one looking for uranium since 1980 when we had our negative nuclear referendum. All funds for uranium prospecting were cut.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Apr 21st, 2006 at 03:04:28 AM EST
[ Parent ]
Synthetic fuels...

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Apr 20th, 2006 at 04:25:41 AM EST
[ Parent ]
I've written about this before. Gazprom doesn't have that much power. Europe is closer and thus cheaper, and the hard to build infrastructure is already here, so it's always easier technically to add a line to the existing network than to build a brand new export line. So exporting to China will always be a partly political act, with the price that includes.

In any case, Russia will depend for a long time on its European customers for most of its exports - and a huge chunk of its export proceeds and budgetary income. This is not something they can ignore either.

But it's natural for them to make such "noises"; it's like Europe talking about diversification of supplies or conservation - a threat to the exclusivity of the relationship. Why do we seem to care about only one side of the balance? (Yeah, i know, rhetorical question)

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Apr 20th, 2006 at 12:37:23 AM EST
[ Parent ]
for Europe.
by observer393 on Wed Apr 19th, 2006 at 11:19:24 PM EST
I blame gay marriage.

Failing that, Exxon.

Seriously, Blair is a tumor on UK politics; if that can quicken his removal, we're the better for it.

by Lupin on Thu Apr 20th, 2006 at 04:04:16 AM EST


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