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April 7, 2006

Something stinks - and it's not just gas

By: Silvio

Gazprom, the Russian giant which controls 16% of world gas reserves, had 31 billions in sales in 2004 and owns the world's longest pipeline network (150,000km) is making the headlines quite often lately. Maybe too often.

First of all, a few days ago we read that Gazprom is "squeezing Belarus":

Addressing an international energy conference on April 4-5 in Moscow, Gazprom Vice-Chairman Alexander Ryazanov threatened to raise the price of gas to Belarus to "at least triple the present level" after December 31, 2006, so as to bring the price for Belarus "in line with European prices that keep rising" [...] Gazprom's warning aims to force Belarus to speed up the handover of the national gas transport and distribution company, Beltransgas, to Gazprom. If that happens, the Russian side would concede a sweetheart price for gas to Belarus, at least temporarily.

Hey, but wasn't Ukraine the big traitor that Russia wanted to strangle - while Belarus has always been the ever-lasting, trustworthy faithful friend?!? So what is happening now, tripling gas prices up to 110$/cubic meter in order to force Belarus to "speed up the handover" of the national gas company? Come on, we can just imagine all the Belarus' efforts to stop Putin's Gazprom to get their hands on Beltransgas...

On another - apparently unrelated - story, we discover that Gazprom has secured the control over all gas pipeline projects of Armenia - in exchange of a guaranteed volume of gas supplies for the next 25 years and a fixed gas price for the next three years. And the price is 110$ / cubic meter.
So, for the same price at which Gazprom is "squeezing" Belarus it is getting a hold on a very important piece in the Asian-European energy game: the 40km-long portion of the Megri-Kazharan gas pipeline from Iran to Armenia that is to be put into operation by the end of this year - thus gaining the control of virtually all inflows to former Soviet republics.

Now, it could be that Gazprom is just the weapon that the Kremlin is using to reassert its control over neighboring countries: but is it necessary to do it with friendly countries like Armenia and Belarus? Could it be an example to rebel countries - Ukraine? And freeze to death two loyal neighbors?!? (just wait winter and see what will happen to Armenians and Belorussians with gas at 110$...)

Could it be then that the gas giant is facing real economic troubles - due to inefficient management and geological problems? And where are they going to get the money to keep the game running - for sure not from Germany or Europe, at the moment, considering also that Schroeder is the head of a Russian-led gas pipeline project and Angela Merkel is coming under pressure to bury her misgivings about President Vladimir Putin’s regime and adopt a friendlier tone, right?

But if these management and geological problems exist (and they do exist, just remember that about 80% of the known Russian reserves are in the less-then-hospitable west Siberia, and that since the early 1970s the rate of discovery for new fields has been steadily declining) - for how long they can be covered with spikes in prices of gas sold to already poor countries? And what will happen when Europe will have to pay for all this - in a world where oil is peaking and civilization look at gas as the best substitute, even in the transport industry?

Huge amounts of gas lay under Russian soil - but do we have the infrastructure, the money and the political power to reach it?

Posted by Silvio at April 7, 2006 8:59 AM Category: Resource Depletion