Mapping Europe's Last Best Hope Against Russia's Gas Stranglehold

Tyler Durden's picture

While the US media is still hung up on the idea of exporting its apparently abundaent gas to Europe to rescue them from Russia's iron-grip, the reality, as Cheniere Energy's CEO exclaimed "it's so much nonsense, I can't believe anyone believes it," and so it is that the Europeans, who have their own gas deposits may be left to solve their dependence issues alone. As Stratfor notes though, even with new supplies coming online, Russia's market share will not be threatened, though Moscow's ability to use natural gas prices and supplies as a political tool will diminish over time, particularly in countries outside its immediate borders.

 

Via Stratfor,

 

Analysis

On May 23, Italian energy company Eni signed a deal with Gazprom in which, for the first time, Gazprom allowed the price to be determined by the spot market for natural gas instead of being linked to oil prices. Russia has long fought to keep the price formulation linked to oil prices, as that arrangement is more lucrative. While Italy is the first country for which Moscow had to give up this pricing mechanism, it certainly will not be the last.

Unlike oil markets, natural gas markets have long been regionalized. Transporting natural gas over long distances requires either that the gas be liquefied, an expensive process, or a long pipeline be built, which does not have the flexibility of liquefied natural gas since the buyers or sellers are always those parties on either end of the pipeline. Historically natural gas was effectively a byproduct of oil production, and most gas was burned off at the source instead of sold to the market. When it was sold, it was unclear how to price it because of the lack of competition. As a result, in many contracts natural gas was indexed to the price of oil based on its energy content, roughly a fifth of crude oil's. This system has lasted more than 50 years in Russia and many other natural gas markets, including Asia. As more pipelines were built in North America, and to a lesser extent Western Europe, companies began to compete, and the competitive price of natural gas was not always the same as oil.

Natural gas supplies have boomed over the past decade and likely will continue to grow. Oil production, however, has stagnated, and as the two markets have moved away from one another so has the disparity between gas-on-gas and gas-on-oil pricing mechanisms. Traditional natural gas exporting countries like Russia and Qatar will continue to hold out as long as possible, but will have to give in eventually to the more market-oriented price formulation. But even with new supplies coming online, Russia's market share will not be threatened, though Moscow's ability to use natural gas prices and supplies as a political tool will diminish over time, particularly in countries outside its immediate borders.

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PartysOver's picture

O will find a way to screw it up.  Just give it a little time.  EU will shiver.

MillionDollarBonus_'s picture

Common guys, it's time to invest in green technologies and end our dependence on foreign fossil fuels once and forall!

CrashisOptimistic's picture

The problem with your comment is that it was time 40 years ago -- and it happened 40 years ago -- and every year since.  It failed.

You can invest all you want.  You can't change physics.

There is no oil replacement.  Period.  And most will die because of it.

Winston Churchill's picture

Thus spake the conductor of the ZH glee club.

Herd Redirection Committee's picture

Just look at that map for the geography.  Notice anything interesing re: Hungary, Poland, Belarus, Ukraine, the Steppe just goes on and on (to the East, that is) for thousands of miles.

That was horse country.  Switzerland, Germany, Northern Italy, not so much.

And hence why those lands were historically 'strongly influenced' by Russia, the land of horses.

elegance's picture

And that's why our hatred of Russia is stronger than anyone elses.

FinalCollapse's picture

Herd: Steppe in Poland? WTF? Are you feeling OK today?

BrosephStiglitz's picture

There are oil replacements.  But they are either incredibly dangerous to store and transport (too volatile), or they require massive resource investment and energy input to create.

Vampyroteuthis infernalis's picture

Oil replacement do NOT currently exist. The present alternative energy schemes do not work as a viable replacement. Nothing more than greenie shams. Someday an alternative for oil will come on line. We are no where near that point though. 

Herd Redirection Committee's picture

Our forefathers sailed from Manila to Mexico City using the wind.  Its a viable source of energy (on some level).

CrashisOptimistic's picture

I'm looking forward to seeing sail powered trucks bringing food to Walmart shelves. 

I'm also looking forward to seeing them get that mast through tunnels, and maintain wind propulsion in them.

Sokhmate's picture

Those trucks will use sail powered refrigeration.

meghaljani's picture

Go back to sailing then. I would enjoy me diesel powered Carnival cruise. 

Buckaroo Banzai's picture

Natural gas can be converted to oil. The basic technology to do so is not new. If our capital formation and deployment process wasn't so badly fucked up we would have done this already. Kind of a no brainer.

http://newenergyandfuel.com/http:/newenergyandfuel/com/2012/01/23/natura...

CrashisOptimistic's picture

GTL, gas to liquids, been around for decades.

Not used for decades for good reason.  It doesn't work.  The energy in exceeds the energy in the oil out.  The water requirement for the process can't be met at any significant scale.

There are a zillion ideas and techniques that work to make 1 barrel of oil.

There are none, and never will be one, that will do 90 million barrels per day.

Buckaroo Banzai's picture

You miss the point. OF COURSE the energy in exceeds the energy out. That's just basic thermodynamics. The point is, you are paying a little bit up front for a lot of savings on the back end:

1) oil is easier and more flexible to transport than NG.

2) There is a gigantic infrastructure in place for refining oil and distributing its end products. NG-- not so much.

3) the political problems associated with NG pipelines go away.

Flakmeister's picture

You just reinforced what I said below in spades....

Flakmeister's picture

Did you actually understand and think through anything that you claim?

Sure, you can build GTL plants at enormous cost, but you are far better off simply using the NG as direct replacement....

There is a very good reason why it is only done on small scales...

Buckaroo Banzai's picture

"you are far better off simply using the NG as direct replacement...."

Wrong. Have you considered the costs of converting everything that uses oil, gasoline, and related products to use NG?

Have you considered the fact that the existing NG distribution network would have to be massively upgraded to the tune of trillions of dollars?

 

Flakmeister's picture

Why would you have to convert everything?

NG displaced oil-fired generators in '70s and '80's and now it replacing diesel on select long-haul truck routes...

Even then NG is not a viable long-term substitute for oil, it is only a bridge to whatever lies beyond...

BTW, Shell just deep sixed a proposed GTL plant for Louisiana...

http://www.shell.com/global/aboutshell/media/news-and-media-releases/201...

homonohumanus's picture

Indeed it is all bullshit for now at least.

 

Matt's picture

viable replacement at what level of energy consumption? today's level? exponential forever growth? subsistence level? pre-industrial level?

One big problem is that everything is mispriced, so it is hard to make real comparisons, and easy to purchase net-negative technology.

I suspect wood is probably the best renewable energy source, and sugar cane / energy beets making a close second, with wind and solar somewhere behind that.

A major obstacle is near universal acceptance of reality, which stands in the way of making neccessary changes. There are still Homeowner's Associations and municipalities and government agencies obstructing people's ability to produce their own food, for example.

TBT or not TBT's picture

There is so much fucking coal though, hundreds of years worth. That is going up the stack if we don't embrace nuclear and, I don't know maybe orbital solar collectors.

CrashisOptimistic's picture

Forty years that stuff has been considered.

It doesn't work.  Nothing has oil's qualities.

Matt's picture

That's because for 40 years people have been looking to continue sustaining infinite exponential growth. Alternatives can work after a 90% reduction in consumption and then a relatively steady state (although I suspect it would be more sine-wave like) economy.

sleigher's picture

Maybe if we used the resources we have more efficiently?

https://www.youtube.com/watch?v=GEed43yimmM

 

Or

http://rexresearch.com/ogle/1ogle.htm

 

There is a lot of evidence out there that we have just been doing it wrong.  Now I know this doesn't get us off of oil but it sure could buy us some time.  I won't go into all the other altrernative energy research out there that the pentagon just shelves due to national security interests.

Flakmeister's picture

Let me guess, you also shill for E-CAT?

sleigher's picture

e-cat?  What are you going on about?  I was just making a point that we don't use our resources very efficiently.  I guess that makes me a shill for e-cat.  whatever...

Flakmeister's picture

Linking sites for 100 mpg carburetors is usually a tell....

sleigher's picture

Actually that site is about removing the carburetor.  Using the gas fumes into the air intake because it is those fumes that are combustible.  The liquid gas not so much.

Matt's picture

You mean like an ERG that recycles emissions to be recombusted? Japanese cars have been doing that for at least 30 years.

CrashisOptimistic's picture

But dood, don't you see that getting efficient is not some new revelation?  Forty Years.  Since the 1970s there has been a desperate search ongoing for efficiency, for alternatives, for . . . outright change of behavior.

It hasn't happened for the very worst reason of all.

It can't happen.  Present processes are close to optimal.

Death comes.  Soon.

donsluck's picture

Are you blind? There has been no increase in energy efficiency for 45 years? You are incorrect.

sleigher's picture

There appears to be many people who have applied for patents and found ways to increase efficiency.  I agree it isn't a new revelation.  We should always be working towards greater efficiency.  What would happen if all cars got 100 MPG?  What would that do to the cost of oil and the economy?

Matt's picture

"It can't happen.  Present processes are close to optimal."

Yep. People driving 4000 pound vehicles at 65 miles per hour 2 hours per day to commute to a job manufacturing things designed to break after 3 years is pretty damn close to optimal.

Cruise ships? Practically over-unity right there!

Houses plastered with massive double-pane windows with single doors using heat pumps year-round to make things comfortable? Practically perfection incarnate!

Growing food 5000 miles away and flying it in on jet planes? There is no possible way you can get more efficient than that!

Growing food in the desert and trucking it into town instead of having gardens? "it can't happen. We're all gonna die!!!!!"

homonohumanus's picture

That is pretty well said.

 

Another tiny thing as a kid, I remember that my family and I used to store glass bottles and bring them back to the store and exchange them when buying new ones. Now... we are lazy and pay (through taxes) so glass is collected.

I think I saw that still in place in Germany. It is a tiny thing but it shows how "green parties" are often out of touch with simple realities and are promoting future tech for the sake of letting the industrial world go its nefarious but profitable ways unaltered.

Matt's picture

In Belize they still use and reuse glass bottles, pop in glass is something like $0.50 cheaper than in plastic. Pop-tops, with the bottle-opener by the till on the way out. It helps if your drinks are bottled closer to where they will be consumed, rather than hundreds of miles away, where the weight difference of plastic over glass provides an advantage.

homonohumanus's picture

Well you should be more wary. There are big reserved supposedly, and supposedly we could exploit them.

 

Look at the shale gaz forecast from 2 years ago and the correction, down by 96% (or 94%?) now that people tried for themselves.

 

Coal can be used as electricity, bio diezel, etc. but I can't see it a substitute for oil.

 

Sooner or later we will have to do with a less energy.

Matt's picture

"Look at the shale gaz forecast from 2 years ago and the correction, down by 96% (or 94%?) now that people tried for themselves."

No. the original estimates are the total amount that can technically be recovered. The 96% reduction is based on the amount of natural gas that can be produced at today's prices.

If you have not been paying attention, natural gas prices in America are barely above cost of production. The rest of the world pays up to quadruple the price for natural gas. Once the price of natural gas normalized +100% to +300% from today's prices, far more will be viable.

"Coal can be used as electricity, bio diezel, etc. but I can't see it a substitute for oil."

Fischer-Tropsch process if you NEED diesel. Or GTL from natural gas. Algae-based alternatives for plastics, medical use, etc.

"Sooner or later we will have to do with a less energy."
Yes. less energy, less plastic wrappers. Less disposible crap designed to fail within a short timeframe. I don't believe it needs to be a post-apocalyptic wasteland scenario.

Of course, climate change / cycles, changes in rainfall patterns (don't care if it is AGW or natural solar cycles: why is irrelevant all that matters is what changes), those are the big things. That, and the ticking time bombs of spent fuel ponds. 

homonohumanus's picture

I watched an interesting presentation on the matter a while ago and it seems that you are right.

The guy doing the presentation had nice credential and according to him without a massive breakthrough once gaz and oil are gone we would have to do with around a quarter of the energy we use.

 

I can believe how full of shit are some things are read of late, like those highway made out of solar panel.

People have to think, the longevity of solar cells is not great, neither the efficiency. Now add all the crap would cover the highway and I would better that efficiency will be dreadful. Then you have to move the electricity...

To the point imigine the RIE, you have have to do a lot of maintenance. Anytime there is a bump on the road, may be cleaning. You have maintenance on I don't know how many miles of highway and so on.

 

It is exactely like those dreaming of gigantic solar farms where it appreas to make sense, mostly the same issue: you lose a lot of power along the electric wires and maintenane will further kill RIE. 

It would kill it now done with oil and gas for which RIE is still pretty good, down the line...

 

It is the same bio diezel, it works with extremely intensive form of agriculture, agriculture nowadays is nothing else than the fine art to transform oil into food... or oil though I fail to see how that can be efficient outside of government subventions, etc. /bs

 

 

 

TBT or not TBT's picture

You mean like nuclear, dams, stuff like that?

intric8's picture

Set the example for us MDB! Setup a huge windmill in your front yard to run a dynamo

Dublinmick's picture

My thoughts exactly intric8

We will find a way, we are merkins.

The answer to all of this has already been decided by the gang that put up the Georgia guide stones. Americanus Doofosaurus is to be reduced by 90%. Amazingly they will buy it. I see cut rate vaccine signs outside the Winn Dixie store all of the time. 400 pounders walk outside carrying cases of aspartame coke. There is nothing you can do for them. Any effort to explain it would only result in a blank look.

There are 400 nuke plants in the world. The one in Fukushima has enough plutonium itself to kill all of us. The earth's axis is now shifting at a geometrically increasing rate and earth change is in full force. Volcanic activity is at an all time high since record keeping began. There are over 20 plants on the New Madrid fault. You remember when that one went off in 1817? Pictures rattled on the wall in New York, the Mississippi ran backwards for awhile and changed course. The last flooding saw water come up around the plant in Nebraska. They put rubber innertubes around it as a safety measure and some water actually entered the building.

There is another Yellowstone warning, Old faithful has developed a crack and earthquakes are approaching 4.0. Helium 4 is now being emitted where it never appeared before. Scientists say it is from deep below the surface indicating something is going on. If it goes for the first time in 640,000 years, everything within 500 miles will be dead, ash will cover the entire United States, it will be 1000 times worse than Mount Saint Helens, which itself is a midget compared to Rainier. In fact that indians say when little sister calls, big brother soon answers, big brother being Rainier. Helium 4 appears right before major eruptions as it did at El Hierro in the Canary Islands. Incidentally the Canary Islands contain a volcano called Cumbre Viejo with a granite cliff weighing thounsands of tons. If it falls into the water the tidal wave from Canada to the Carribbean could be in the area of 3 to 400 feet. Lots of plants on the coast.

Germany has wised up a bit and are trying to dissasemble it's plants and go to coal. No word on what France will do with their 50. Germany wants to go to coal, good luck. The coal by the way is in .................. get ready for it ....................... Donbass.

My advice is just take it easy and enjoy the show while it lasts, you know living on the edge. It is always this way at the end of the Kali Yuga. Gold is great as long as there is something to buy.

Dublinmick's picture

I should have added, I am investing in consciousness. That is all that will be leaving when exit this world. When one door closes, another one opens. You can discuss what happened to us with old friends on the other side.

CrashisOptimistic's picture

Just as an FYI, pretty much no one reads past 3 or 4 short paras in a comment.

Flakmeister's picture

Hey, ding a ling, you should heed his advice...

donsluck's picture

This "other side" argument drives me crazy. It's useless. There is a REASON all living organisms resist death. Life is a structure. When it collapses it must be fully digested (by other life) back to a chemical state before plants can use it. I agree with the effort to raise consciousness, but it certainly is not an "investmemt" where profit is sought.

Jumbotron's picture

Ummm.   energy is neither created nor destroyed....it just moves from one form to another.

 

Same with life energy.  Many people like me call that the soul.