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Guest Post: Europe Has Had Enough, But Can It Stand Up To Gazprom?

Tyler Durden's picture





 

Submitted by Jen Alic of OilPrice.com,

Gazprom has Europe’s natural gas market in a stranglehold and Europe is attempting to fight back, first with a raid last year on the Russian giant’s offices and then with a probe launched earlier this week against its allegedly illicit efforts to control the EU’s natural gas supplies.

The bottom line is that the same natural gas revolution in the US, which was enabled by hydraulic fracturing (fracking), is now threatening to loosen Gazprom’s noose on the EU, and Gazprom simply won’t have it.  

To head off a potential natural gas revolution in the EU, Gazprom is pulling out all the stops, and EU officials say that the company has been illegally throwing obstacles in the way of European gas diversification.

Poland’s situation is a case in point. Last year, a US Department of Energy report estimated Poland’s shale gas reserves at 171 trillion cubic feet. Gazprom got nervous. In March this year, the Polish Geological Institute suddenly felt compelled to contradict that report, saying reserves were only around 24.8 trillion cubic feet. In June, Exxon announced it would pull out of its shale gas projects in Poland. Investors started getting cold feet and shares began to drop. Chevron and ConocoPhillips are plodding along with their shale gas operations, for now.

Still, 24.8 trillion cubic feet is no paltry volume and enough to ensure that Gazprom remains nervous. And then there is Ukraine, which also has sizable shale gas reserves and where the Russian noose is even tighter.

Right now, the only thing keeping the shale gas revolution from hitting Europe as it has in the US is technology: the shale reserves in Europe are on land that is more inaccessible, there is a lack of necessary infrastructure and fracking equipment, and protests against the environmental impact of fracking are more serious. But the biggest problem is Gazprom.

EU governments are both desperate to break the Russian stranglehold by developing shale gas reserves and wary of going up against a gas giant on whom they depend for supplies. It’s a tough position and the outcome will depend on how the EU hedges its bets: Can it develop enough shale gas reserves quickly enough to take on Gazprom?

Poland is still a long way off from being able to fully develop its shale gas reserves. It will take time to conduct the necessary environmental impact studies and infrastructure would require a major overhaul.

The EU publics are divided between those who fear fracking and those who fear Gazprom and so far, the former fear is trumping the latter. France and Bulgaria have both banned fracking under pressure from the public, but Poland is marching on, its officials relentlessly insisting that fracking is safe.

Earlier this week, Germany’s Environmental Ministry urged a ban on fracking near drinking water reservoirs and mineral springs and called for environmental impact studies from developers, prompting concerns that Germany will tighten fracking regulations. Germany has massive natural gas potential, but environmental concerns are keeping a tight rein on development for now.

The end victory for Gazprom would come in the form of a European Commission ruling banning fracking—a ruling which would be applied to all EU countries, including Poland which has shown more political will to stand up to the Gazprom boogey man than others.

In the meantime, the EU is investigating Gazprom’s actions in eight countries—Bulgaria, Estonia, Latvia, Lithuania, Slovakia, Poland, Hungary and the Czech Republic. In Bulgaria, where fracking has been banned, Gazprom is the only supplier of gas. It is also the sole supplier to the Baltic states and Slovenia. It supplies over 80% of gas needs to Poland and Hungary, and nearly 70% of the Czech Republic’s.

It has strengthened its grip on Europe further due to the fact that it owns the one-way gas pipelines into the region and forces buyers into long-term contracts in which prices are tied to oil.

The EU has tried numerous tactics to loosen the Gazprom grip, including the implementation of new energy policies designed to separate supply from delivery and by seeking new pipelines that could deliver gas from elsewhere. While the EU’s alternative pipeline dreams have largely failed so far, it is eyeing developments now in Northern Iraq, where Turkey is courting the Kurds to build a new pipeline that could eventually deliver gas to EU markets. But this is a long way, and possibly a war, off.

Having failed so far in the area of alternative suppliers, the EU is now moving the front lines of the battle to the legal field, targeting unfair competition, which it stands a better, but still only minimal, chance of changing the rules of the game. The probe into Gazprom is looking at three things: Gazprom’s attempts to hinder the free flow of gas across the EU; its purposeful blocking of diversification efforts; unfair pricing and contractual arrangements.

Specifically, the EU says Gazprom has implemented a strategy to segment national markets by preventing gas exports and limiting delivery options, as well as by obligating buyers to use Gazprom infrastructure. Most significantly to the consumer, Gazprom’s pricing policies, which fix gas prices to oil prices, mean that European consumers see no benefit from the natural gas revolution in the US, which has increased global supplies and reduced prices on the open market.

Will the EU be able to actually levy fines for unfair competition and unravel the monopoly? Not unless it plays as dirty as Gazprom, which will simply cut off supplies and the circulation of those European countries that used to be in its back yard. Eastern and Central Europe will be the ones to pay the price for the European Union’s battle.

Let’s not pretend that energy companies are clean and that governments aren’t using them to forward nefarious geopolitical objectives (US multinationals in Northern Iraq, for instance). The point is not to paint Gazprom as the ultimate evil in energy. This is about Europe, and the EU’s “Mommy Dearest” struggle with Gazprom, which is undoubtedly playing an underhanded energy-politics game worthy of the most sinister of accolades.

One would not be surprised to discover that Gazprom has gone environmental and has had a hand in shaping the environmental concerns of the EU publics. As such, it is highly convenient that Gazprom has recently come under very public attack by our leading international environmental group. Everyone plays dirty, any means to an end.

 


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Wed, 09/12/2012 - 12:45 | Link to Comment LawsofPhysics
LawsofPhysics's picture

No energy, no real eCONomy, period.

Wed, 09/12/2012 - 12:52 | Link to Comment CPL
CPL's picture

I understood that...cough...liberating Libya was suppose to resolve this Gazprom issue.

 

How strange Gazprom is back on the radar again after liberation.

Wed, 09/12/2012 - 13:37 | Link to Comment Stackers
Stackers's picture

If Raegan were still alive I'm sure he would have a good " I told you so " for Europe. Not like these idiots were not warned about becoming dependent on Russian gas decades ago when they first started building gas pipelines.

Wed, 09/12/2012 - 12:47 | Link to Comment prains
prains's picture

nothing like a good frack in the morning

Wed, 09/12/2012 - 12:48 | Link to Comment Upland27
Upland27's picture

In Soviet Russia, natural gas owns you!

Wed, 09/12/2012 - 12:48 | Link to Comment Flakmeister
Flakmeister's picture

A shale gas puff piece....

The fact that Exxon pulled out and the others are dithering is the only tell you need....

Wed, 09/12/2012 - 13:45 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

Tells us what?  There's no gas there?  LOL.

Wed, 09/12/2012 - 13:59 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

There is a very poorly worded geologic concept floating around.  "Cheap oil" or Cheap gas.

It's not a matter of cheap.  It's a matter of difficult.  You think Bakken oil wells collapse their production fast?  Gas collapses twice or three times faster.  So you drill more holes and the word Frantic becomes analagous with tepid as a description of lava temperature.

If you think Shale Gas is a winner, have a look at what has happened to Chesapeake and why they are trolling around for suckers to buy those leases.

Wed, 09/12/2012 - 14:06 | Link to Comment Flakmeister
Flakmeister's picture

The only guys to make money in shale gas was PetroHawk... And they did so by selling out....

Wed, 09/12/2012 - 14:23 | Link to Comment Tirpitz
Tirpitz's picture

... plus the owners of the water supply.

Wed, 09/12/2012 - 14:55 | Link to Comment BorisTheBlade
BorisTheBlade's picture

Not entirely true, Indian farmers will soon be able to afford an iPhone 5 thanks to shale energy:

"Guar has changed my life," said Shivlal, a guar farmer who made 300,000 rupees ($5,400) - five times more than his average seasonal income - from selling the beans he planted on five acres (two hectares) of sandy soil in Rajasthan state.

"Now, I have a concrete house and a color TV. Next season I will even try to grow guar on the roof."

http://www.reuters.com/article/2012/05/28/us-india-shale-guar-idUSBRE84R07820120528

Wed, 09/12/2012 - 14:08 | Link to Comment SmittyinLA
SmittyinLA's picture

Exxon pulled out because there wasn't enough gas to make it profitable......or maybe they found more profitable prospects http://www.reuters.com/article/2012/04/18/us-exxon-rosneft-idUSBRE83H0UE20120418  So Europe doesn't get a lil new economic freedom, Exxon will make a killing, and they can always come back to Poland and frack later.

Wed, 09/12/2012 - 15:28 | Link to Comment Scalaris
Scalaris's picture

No, the fact that Exxon pulled out right after drilling one well in each concession, within the Podlasie and Lublin Basins, and coming up with insufficient gas that would constitute it commercially viable, despite their, I'm guessing infinite, budget, is more likely a tell of a deal struck between Rex Tillerson and Vladimir Putin, regarding the alliance between Exxon and Rosneft, and the shared cost for the 2013 Siberian drilling campaign for tight oil, held in non-porous rock, which cannot be extracted by conventional drilling, with an envisagement of an unconventional output potential at 300,000 bpd, in perspective oil fields that may hold almost half the proven reserves of the United States.

As a result, Exxon acquires a majority percentage in a more lucrative acreage, containing more prized oil over less prized gas, while Russia maintains its current stronghold over gas prices, to Poland, Germany and the UK.

As disturbing as it sounds, I'm with Soros on this one.

Wed, 09/12/2012 - 17:06 | Link to Comment Freddie
Freddie's picture

Exxon sucks.  Let smaller independent energy companies drill in Europe.  The EU-SSR is owned by Putin.

Wed, 09/12/2012 - 18:11 | Link to Comment ersatzteil
ersatzteil's picture

nice icon, Flakmeister

Wed, 09/12/2012 - 12:52 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Yup, someone ask Chesapeake about what a mother lode the whole concept is.

Wed, 09/12/2012 - 12:57 | Link to Comment malikai
malikai's picture

I read about this last week. I guess it comes down to the same tired story of economic depression: protectionism. By both Gazprom and the Eurocalytes.

Wed, 09/12/2012 - 12:57 | Link to Comment buzzsaw99
buzzsaw99's picture

fracking sux

Wed, 09/12/2012 - 14:16 | Link to Comment Ckierst1
Ckierst1's picture

No, knee-jerk Luddite knotheads sux.  Frac(k)ing is simply a subsurface stimulative technique to increase production in relatively tight petroleum reservoirs.  With proper geologic and engineering supervision it is a scientifically, economically and societally sound and beneficial technology.  It is what nature does eventually anyway by naturally fracturing and jointing brittle geologic formations during tectonism (frequently creating hydrocarbon seeps), merely speeding up the process to beneficially capture the trapped resource.  Try looking at surface exposures and notice the fracture patterns.  Geee, I thought gummint agencies were supposed to be regulating all this stuff anyway, no?  I know, I know, we need more gummint figleaves regulations!  Say, what are they calling the MMS this week?  Hint!!!  If there is a fuckup it frequently means that gummint wasn't minding the store like the hot tub dickhead in my avatar for instance, not that stuff can't happen anyway in any complex enterprise.  Are you prepared to stand in the path of progress and absorb the consequences, hmmmmm?  That's why injured parties need to be able to make damage claims and operators made to tender bonding and have plenty of insurance.  Feds can't be permitted to run interference for corporations (which are gummint sanctioned enterprises).  Gee, I also wonder if Gazprom is frac(k)ing too?  Noooooo!

Wed, 09/12/2012 - 14:51 | Link to Comment Tirpitz
Tirpitz's picture

"It is what nature does eventually anyway by naturally fracturing..."

So, care to explain how nature manages to mix that secret poison juice pressed into the ground? At least nature doesn't keep its toxic recipe top secret.

On the other hand, 7 billion sheeple on the planet are at least 6 bn too many, so toxic drinking water sure does come with some benefits...

Wed, 09/12/2012 - 16:36 | Link to Comment TheBigTree
TheBigTree's picture

Several of the companies have already released their formula.  Its 99% sand and water and 1% other things.  A good amount of that 1% is guar gum (from a plant grown in India), surfactant, emulsifier, and other chemicals you are already washing down your sink.  The absolute worst thing is a hydrocarbon that is close to diesel, which is being pumped into a formation already full of naturally occurring oil 7,000' below your feet.  

I do work in the industry, so go ahead and throw my facts out because "i'm talking my book", and listen to what the babbling green idiots throw out next to induce a fear into you that must be dealt with by voting for them.  For the Nazi's it was Jews and foreigners, for George W. it was mythical weapons of mass destruction, and for Demorats, its global warming.  

I'll make sure my next order of guar gum was grown organically to make you feel good.

 

Wed, 09/12/2012 - 12:58 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

nyet, bitchez!

Wed, 09/12/2012 - 12:58 | Link to Comment Eally Ucked
Eally Ucked's picture

Gazprom gets its gas from unpopulated areas of Russia and former republics, environmental rules almost dont apply. Get it from densely populated countries of Europe will be challenge despite of so rich estimates of reserves.

Just let them play games 

Wed, 09/12/2012 - 13:03 | Link to Comment magpie
magpie's picture

Good luck. Sounds almost as savvy as extracting carbon credits from Chinese airlines.

Wed, 09/12/2012 - 13:14 | Link to Comment CPL
CPL's picture

LOL!

 

I forgot about that.  China told the world to STFU and mind it's own business.  Rules and regulations are only useful as the people following them.

Wed, 09/12/2012 - 14:54 | Link to Comment No Euros please...
No Euros please we're British's picture

Magpie and CPL I voted you both up because you hit the nail on the head. The sociopaths that run Europe just don't get it that their bluster means absolutely fuck all to real powers like Russia and China. How many times do Russia have to cut the gas supply before the EU "get it". Those that can do, and those that can't join the EU.

Wed, 09/12/2012 - 13:04 | Link to Comment frenzic
frenzic's picture

Winter's just around the corner. Get ready for some supply disruptions to drive their point home. What have we got? Nothing.

Wed, 09/12/2012 - 13:17 | Link to Comment CPL
CPL's picture

Not true.

 

Europe is good at making committees and armies of bachelor's of nothing to establish into civil servant roles to help produce central bank printing.  Chief export of Europe currently is hot air.

Wed, 09/12/2012 - 14:09 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

Absolutely spot-on.  It's a continent of gold-holding aristocrats and their indentured peasant paper-pushers.  They understand nothing except "do as I say". 

Wed, 09/12/2012 - 13:33 | Link to Comment Urban Redneck
Urban Redneck's picture

Gazprom wins.  Russian oilmen & bankers are tougher than the EU paper-pushing bureaucrats pretending to lead. 

Good to know that after Katyn Forest, the US betrayl, and the 2010 incident- the Poles are still pushing back against Moscow, while the lazy fucktards to the west complain about their free shit being reduced.

Wed, 09/12/2012 - 13:36 | Link to Comment Uncle Remus
Uncle Remus's picture

Same as it ever was - no fuel for the Panzers.

Wed, 09/12/2012 - 13:46 | Link to Comment magpie
magpie's picture

Wait for the Merkel solarpowered Leo 2 photo-op

Wed, 09/12/2012 - 13:37 | Link to Comment eddiebe
eddiebe's picture

Here's a thought: Pebble reactors.

Wed, 09/12/2012 - 13:43 | Link to Comment Zero Govt
Zero Govt's picture

those Ruskies are surely ruthless when it comes down to it

hope negotiations go well, there's winter coming up

Wed, 09/12/2012 - 13:53 | Link to Comment SmittyinLA
SmittyinLA's picture

it appears "Europe" is run by the CA legislature

Wed, 09/12/2012 - 13:54 | Link to Comment magpie
magpie's picture

but one at least has a working highspeed train network

Wed, 09/12/2012 - 14:45 | Link to Comment Tirpitz
Tirpitz's picture

"the EU says Gazprom has implemented a strategy to segment national markets..."

Wondering what the entertainment industry's doing since half a century now - where can I buy the right to broadcast a new release from Ireland to Istambul?

"by obligating buyers to use Gazprom infrastructure"

Free markets in EU, as far as I'm concerned. No country is preventing any potential competitors to spend a few billions for an alternative pipeline infrastructure.

"Gazprom’s pricing policies, which fix gas prices to oil prices"

Again, free market with the freedom of signing contracts, or refusing them. Uranium supply contracts regularly run 30+ years, electrical power cabling requires either huge up-front payments or signing lengthy contracts. Their reluctance to satisfy a few short-term-profits oriented claim jumpers might as well be understandable considering the huge capital expenditure the suppliers have to shoulder - alone.

"European consumers see no benefit from the natural gas revolution in the US..."

...nor will they see their meat prices rise when Texas cattle gets scarce...

"Will the EU be able to actually levy fines for unfair competition and unravel the monopoly?"

Now, what monopoly? Areva is free to import shale gas from Spain and Ireland and even Denmark, if they desire so.

"Not unless it plays as dirty as Gazprom, which will simply cut off supplies and the circulation of those European countries that used to be in its back yard."

Conjecture at its best. The Warsaw Pact states wanted free markets, but are not ready to pay free market prices. Seeing them stealing gas destined for the Western European markets would be reason enough for military action if done to some trigger-happy superpower. Gazprom's patience may reach a breaking point if the EU dwarfs keep it from fulfilling her contractual obligations.

And then, for a change, the Warsaw Pact states would all be better off playing nice with Mother Russia.

Wed, 09/12/2012 - 17:25 | Link to Comment Lost Word
Lost Word's picture

It seems that no one has mentioned LNG shipping as an alternative to Eastern pipelines.

Wed, 09/12/2012 - 14:50 | Link to Comment Emperor
Emperor's picture

So many fake reports about oil and gas discoveries in recent times. Let us better accept that this is the era of resource-rich countries. Those countries could destroy the resource import-dependent economies of the West. The recent Chinese boycott of rare earth could be just the beginning. 

Wed, 09/12/2012 - 14:55 | Link to Comment rustymason
rustymason's picture

Sounds unfair to Russia. Afterall, they only have two exports that I know of, petrocarbons and hot chicks. Gotta make the most of what ya got.

Wed, 09/12/2012 - 15:07 | Link to Comment Stuck on Zero
Stuck on Zero's picture

Europe can frack now or wait until the Euro is tanked an Russia is charging them through the nose.  Then they can frack.

Wed, 09/12/2012 - 16:21 | Link to Comment TheBigTree
TheBigTree's picture

Polish gas is a dream that will never be realized with current technology.  The shale is extremely deep, hot, and naturally fractured.  Deep and hot can be dealt with to an extent with $$$.  Naturally fractured in a gas shale is 99% of the time a death knell.  Gasprom can throw whatever kind of environmental roadblocks they want, the fact remains that the shale there is not going to produce commercial quantities no matter how much gas is in place.

If Gasprom is so wrong for throwing out environmental diversions...then why are people not jumping up and down in the streets about Obama's beloved Warren Buffett.  The man singlehandedly got the Feds and the Nebraska state government to stop the Keystone pipeline because of the precious "sand hills".  Nobody seems to care that the Keystone pipeline was going to abruptly put an end to BNSF's stragglehold on railing out Bakken oil.  BNSF is making ransom money to the tune of $15 /BBL he exports.  Buffett makes more money per barrel than the producers do.  

Now the pipeline is delayed, and Buffett gets to rape the oil producers for several more years.  

Thu, 09/13/2012 - 00:15 | Link to Comment steve from virginia
steve from virginia's picture

 

The current Russian gangsters are in process of burning through their energy resources as fast as possible so as to prevent future generations of gangsters from gaining anything by them.

 

What do the current gangsters actually gain? Some paper promises that mean very little: entitlement for a handful to buy big houses in Mayfair in London or penthouses in NYC. So what? What about next generation? Where do they live? In tar paper shacks?

 

Shale gas in Europe does not compute: not the same as shale gas in the US. The geology is different. The gas reserve estimates are based on seismic studies not production. When wells are drilled there is far less gas coming out of the hole than the estimates suggest. The same thing happens in the US where shale gas reserves have been cut more than 50%. Meanwhile, the costs rise and wells deplete almost 80% in a year.

 

The Europeans have burned through their own resources, wasted on such stupidity as World War One and World War Two. Add to that, the incredible non-remunerative veneer of American-style automotive waste.

 

Once the gas is gone, it's gone. Try heating Germany, Poland, France and the rest of Europe with 'household garbage to energy' nonsense ... chumps.

Thu, 09/13/2012 - 06:59 | Link to Comment RiskAverseAlertBlog
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100% British propaganda. This is how the "divide and conquer" game is played.

Do NOT follow this link or you will be banned from the site!