Gazprom risks dose of own medicine in Turkmen dispute - Energy Business Review:
Also here from Vedomosti and here from the Moscow Times.
I had not expected this to come to a head quite as quickly as this year. In short, Turkmenistan has woken up to the fact that Russia is selling its gas to to Ukraine at $230Mm3 whilst Turkmenistan is getting $65Mm3. In addition somewhere (you'll understand why the link is missing) is reporting that GAZP is buying substantially all of Turkmenistan's non-Ukrainian-bound production to meet Russian domestic demand. Better buy Turkmen gas at $50-65Mm3 than sell your own at that price.
Meanwhile RAO UES is reporting that there is not enough domestic gas (scraped off the MT website, thankfully translated from yesterdays Vedomosti. - copied at the bottom of the page.) Whilst any intra-Russian report of this kind has to be treated with skepticism, as its likely to be about something else altogether, the underlying facts are, in the short-term at least, correct. Is it interesting that Chubais goes public just before the Turkmen story breaks?
In the interest of completeness Jerome a Paris, one of the most authoritative sources on Russian/CIS/FSU gas, disagrees that there is a lack of gas which could be produced in an instant in Russia. He argues instead that GAZP is merely keeping its gas in the ground until the domestic price approaches netback parity. A good start for following his arguments is here. There are enough links to keep you going for a while. There are a number of people who disagree with him, including the IEA. Who in turn are under assault for made-up-numbers.
JaP also strongly believes that the proposed and announced gas pipeline between Kazakhstan and China, with a Turkmen branch, will never be built. I will agree that more pipelines are announced than built. In this case I will venture that Russia/GAZP has done enough to make the pipeline more rather than less likely. What will stop the pipeline is a change in the price that GAZP buys from Trashcanistan. Same result for our friend Turkmenbashi, oh great leader etc.
It seems likely that there will be a short and medium term solution to the Turkmen supply problem. In the short-term not much will change. The medium-term is more intriguing.
Here's the MT version of the Vedomosti article:
Unified Energy Systems doesn't have enough gas. Electricity consumption is rising, but no one is providing the electricity monopoly with any more gas. UES chief executive Anatoly Chubais said Tuesday that a 15 percent increase in the domestic price of gas in 2007 and the creation of a free internal gas market were the only way out of the impasse.
UES is the largest domestic purchaser of gas, accounting for about 30 percent of all domestic consumption, or 150 billion cubic meters of gas per year. Total production in Russia in 2005 was 641 billion cubic meters, 151 billion of which was exported. That UES is now facing a gas shortage is no surprise, as foreign demand for gas is rising. It is also rising on the domestic front, and the amount gas needed for electricity production will rise by more than 25 billion cubic meters by 2010. The supply to UES is slated to rise by only 3 billion. The amount of gas needed for electricity production will rise by about 15 percent until then, but Gazprom's development plans call for a production increase of only 8 percent by 2020.
That UES is already facing this kind of gas crunch today is the result of a number of factors, including rapid growth in electricity consumption and the fact that Gazprom is already channeling some production into reserves to cover increased winter demand. The differentiation between gas sold at federally fixed prices, from $46 to $48 per 1,000 cubic meters, and that sold at floating prices 15 to 25 percent higher is also an issue.
One solution would be for gas prices to rise, which would make it more attractive for Gazprom to sell to the domestic market and would remove the distinction between fixed and floating prices for gas. But raising domestic gas prices still won't address the main problem: Gazprom's own production shortfall. President Vladimir Putin recently commented that limited capacity at UES was acting as a significant brake on economic growth, identifying the cost at about 5 percent of gross domestic product. But regardless of capacity at UES, it can't produce electricity without gas.
There are three solutions: augment gas production, lower consumption or liberalize the gas market. The prospects on the consumption side are hardly better than those for production. Despite Chubais' statements that the share of gas in the production of electricity will fall slightly by 2010, the demand at UES will still rise in absolute terms. So liberalizing the gas market is the only practical option, and allowing independent producers access to the pipeline system is as important a step as raising domestic prices.
This comment was published as an editorial in Vedomosti.
[composed and posted with ecto]
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