The Oil Drum: Europe

Yesterday, on the basis of press reports, I noted that the new EU Energy Strategy was depressing, if predictable. But today, the strategy was actually posted on the EU's website (you can find it here, with all supporting documents) and, reading it, I find it much less offensive than the press makes it to be.

For one, beyond an early reference to the current goals of "sustainability, competitiveness and security of supply", there is not a word about competition and market mechanisms in the whole Memo on the Strategic Energy Review (pdf). Not one. I was amazed. In fact, this memo, beyond a bit of fluff that can easily be ignored, is almost sensible!

Let me get you through it.

From Peak Moment Television, this is Matt Simmons' 26 minute talk at the ASPO convention called, "Oil and Gas--The Next Meltdown:"

Gail’s recent post on the fragility of the US distribution system and the shortages that will be imposed by refinery outages, is a reminder of our dependence on pipelines for supply. The dependence is not just in the US, though the debate over the reality of a new gas pipeline from Alaska to the lower 48 rumbles along as a part of the election debate.

Most of Europe also depends on pipelines, particularly natural gas ones, and it is because of that that I am going to take a somewhat nervous stance and disagree with a recent article by Jerome. Some considerable time ago we swopped comments about the likelihood of different pipelines being laid to exploit the natural gas in Turkmenistan, and so from that point, this post is an admission that his opinion at the time (that many of these pipes wouldn't happen) was correct. However part of the reason for this is the less than benevolent role that I see Russia is playing, and this is my disagreement with him.

My concern is emphasized by the difference in objectives of two recent trips around the periphery of Russia. First there was the trip by the Russian President, who, with Gazprom CEO Alexei Miller, toured oil and gas supplying countries such as Turkmenistan, Azerbaijan and Kazahkstan in July. Out of that came both an agreement for Russia to buy Turkmen gas but also for Gazprom to invest in the Turkmen gas infrastructure. (Quotes under fold)

Prime Minister Gordon Brown, is trying to reassert his authority on the cheap, by publishing an anti-Russian diatribe in today's Guardian (a left-leaning newspaper). It's an impressive exercise in weasel words and tough-sounding emptiness.

Before I take you through it in detail below the fold, let me note again that this sets the tone for public discourse on the topic. Newspapers, even if they have different information on the underlying conflict, have to report the aggressive declarations by Brown and others, and cannot fail to paint that as increased tension with Russia. As Russia responds (and it often does in rather unsubtle ways), reality follows discourse, further inflames it, and the whole process takes a life of its own. Pundits, even well intentioned ones, can then go on to pontificate about evil Russia and a small number of concepts, such as the "energy weapon", enter public lore and become "acquired concepts" (I'm tempted to write "acquired conceits") even when the facts on the ground are rather different.

But by then, the Mission has been Accomplished: the discussion is no longer about our failing energy policies (or rather, the lack thereof), or about our leaders' incompetence, but about the Enemy which wants to hurt us and against which We Must Stand Firm (Behind our Beloved and Fearless Leaders).

I understand our leaders trying this: after all, this is all they have to run on. But why, oh why, does our media have to fall for it hook, line and sinker?

This was posted in May 2007 and is worth reposting today given the new context of tense relations with Russia and worries/suspicion/empty talk about "energy weapons." The original post is built as a discussion an an Economist article about Russian gas (A bear at the throat) published in April 2007. Back then, "it took legitimate (if often poorly informed) worries about Russia's sometimes blustering behavior on the energy markets to peddle the usual insane crap that market liberalisation is the only solution to promote energy security." Today, the focus seems to be more on the geopolitical threat the Russia represents, but the conclusion is still, of course, about the incompetence and failure of continental Europe - this time not to liberalize, but rather to 'stand up' to Russia's bullying. Below, the original post, with some additional comments written today in italics and [between brackets]).

[Last year] I spoke at a debate on Gazprom at IFRI, a French think tank. That conference was organised after the publication of two quite different articles about Gazprom:

Gazprom as a Predictable Partner. Another Reading of the Russian-Ukrainian and Russian-Belarusian Energy Crises by Jérôme Guillet
Gazprom, the Fastest Way to Energy Suicide by Christophe-Alexandre Paillard

The titles give a hint that the papers start from pretty different positions - as you can see in the executive summaries of each that I am posting below, [but they in fact reach fairly similar conclusions, which are still relevant today]

When I first went to talk to someone about investing in stocks, it was carefully explained to me that I should not be concerned over daily fluctuations but rather should look at longer-term outcomes of events. So it has been with the recent price fluctuations with fuel, in that I haven’t really been that concerned with the causes of daily, or even weekly ups and downs, since those moves were often in reaction to transient events, but have rather tried to pick out more long-term changes that will have more of a permanent impact. Thus it was just over a month ago that I wrote about a quote from the CEO of Gazprom, which is perhaps (given recent events) worth repeating:

Gazprom forecasts that Russian gas prices will reach 500 U.S. dollars per 1,000 cubic meters by the end of 2008. "If oil prices exceed in the future 250 dollars a barrel, then gas prices will grow to 1,000 dollars per 1,000 cubic meters," Miller said.

I then went on to talk about the visit of the new Russian President to Turkmenistan, Azerbaijan and Kazahkstan to ensure that their supplies of natural gas and oil traveled to the west via Russian pipelines (with appropriate fees along the way) rather than being routed through alternate pipelines, where those fees and the concurrent flow-rate controls would not be available to Russia. If nothing else then, as Gail caught in Open Thread #4 the benefits of investing in alternate pipelines, such as Nabucco for which Turkmenistan gas must first cross the Caspian and then pass through Azerbaijan and Georgia in the Trans-Caspian Pipeline have suddenly become a whole lot less attractive.

Update
Medvedev Signs Georgia Peace Plan After Saakashvili (Update4)

The Georgian interior minister, Shota Upiashvili, said at a Tbilisi news conference that the Russians today carried out an attack on a railway bridge near the Georgian village of Grakali paralyzing the whole Georgian railway system.

Rail bridge destroyed west of Tbilisi - Reuters witness

KASPI, Georgia, Aug 16 (Reuters) - A Reuters television crew verified on Saturday that a railway bridge on the main line west of the Georgian capital Tbilisi has been destroyed. . .

Villagers said an explosive device had been detonated remotely on Saturday by men in military uniforms.

Georgia has asked for a cease-fire, but Russia continues its air raids. Bombing originally began in the breakaway province of South Ossetia. Russia is now demanding that Georgian forces disarm in another breakaway province, Abkhazia, or Russian troops will move in. This would be a major escalation of the war.

A few stories below the fold: