The demand for natural gas is growing all over the world. Putin’s Russia is the main exporter of methane and a fair share of national wealth - and its political weight - depends on blue gold. But the US, thanks to the shale gas revolution, have entered the game: and a global risiko is underway to win the hand.
by Mattia Bernardo Bagnoli
Everyone wants it, many seek it, few have it. And if they hold it tight or sell it to the highest bidder. Because it is by far the most clean and ductile fossil source, increasingly requested globally. It is methane. From this summer to the center of a fierce struggle between Washington and Moscow - for the tacer of Brussels - with sanctions and mammoth pipelines. Russia is the first exporter of natural gas, the second producer shortly after the United States. Gazprom is the colossus tasked by the Kremlin to manage the Russian blue gold: economy and politics, in this case, go hand in hand. And for Moscow the chessboard is becoming more and more global. This is why 2018 could be the starting point of a long war: the gas war.
According to the latest provisional figures of the International Energy Agency (IEA) for 2015, world production of natural gas stands at 3.590 billion cubic meters (or mmc). At the top of the list of producer countries - since 2009 - the United States appears, with 769 mmc; on the podium follow Russia (638) and Iran (184); the rest of the top-ten is composed of Qatar (164), Canada (164), China (134), Norway (122), Saudi Arabia (87), Turkmenistan (83) and Algeria (82). However, if we look at the net exporters’ ranking, things change and Russia remains in first place (192 mmc) followed by Qatar and Norway, both with a share of 115 billion cubic meters. The countries that import more methane are Japan (117 mmc), Germany (73) and Italy (61). Followed by China, Turkey, Korea, France, Mexico, the United Kingdom and Spain. In short, Western Europe and the Asian giants. What then are the reference markets of the producing countries. However, the framework may change soon and drastically.
“The natural gas market - supports the IEA - is undergoing a fundamental transformation. The industry has surpassed the energy sector as a driving force behind the increasing use of gas, thanks to the increase in demand in places like the People’s Republic of China, developed Asia, the Middle East and the United States. At the same time, structural changes in gas supply and trade are changing the global gas market. The strongly overburdened supply markets, the continuing shale gas revolution in the United States, the second wave of additional liquefaction capacity from Australia and the United States, and the rapid traffic of LNG, are disrupting traditional models of gas and prices: this is forcing producers to redefine their strategies and explore new markets “. For Russia this is a potentially nightmare scenario.
“In the next few years - says Mikhail Krutikhin, energy security expert at Carnegie in Moscow - the gas market will be increasingly influenced by liquefied natural gas (LNG), which can be traded as a common commodity all over the world, without contracts connected to long-distance pipelines. The supply of liquefied gas will significantly exceed demand until 2022-2024, when new projects are introduced and the gas tankers will pass pipelines “. “Gazprom - continues Krutikhin - has lost the proverbial liquefied gas train and has already been forced to rely on price dumping to maintain its position in Europe: it is not clear how long the Russian monopolist can afford to sell gas at a loss “.
Gazprom, for its part, disputes this scenario and claims that it will not have to grant any discount. “If you look at the first half of 2017 - underlines a company spokesperson - gas supplies to Europe have risen by 12.5% compared to 2016 while those of Algeria are 6.9% and those of Norway by 2%. To speak of an increase in competition is therefore exaggerated. So much so that the regasifiers are full to 25% of their capacity. This means that our gas, mostly linked to oil prices, is already quite competitive, already favored by the market “. Russia, in short, still has arrows in the quiver. Not least its geographical position, which makes it the preferred energy partner of Europe and has allowed Gazprom to export in 2016 179.3 billion mmc of gas. A record that, it seems, in 2017 could be beaten bringing export to 185 billion mmc. In fact, in the first six months of the year Russia covered 30.7% of the EU methane needs. Qatar - according to Kommersant - in the same period has reduced deliveries to Europe by 10.2% diverting attention to the Asian market.
“The laws of physics, when it comes to methane, can not be bent,” explains a former Gazprom executive to the ANSA. “Production and storage are difficult. That’s why it is first sold and then produced: the gas must be consumed quickly, otherwise the quality goes down. Hence the logic of long-term contracts, which guarantee both the producer and the consumer. The gas pipeline will therefore be increasingly competitive compared to the gas tankers on a 5-6 thousand kilometer stretch “.
Provided that the market conditions do not change from evening to morning.
The battle for Europe
The latest sanctions imposed by the US to Russia openly mention Washington’s opposition to projects “like the Nord Stream 2” and say clearly that the interests of the American natural gas shale exporters “must be guaranteed”. Russian President Putin has reacted with rage by expelling from Russia over 700 American diplomats defining sanctions “a blatant attempt” in Washington “to use their geopolitical advantages in order to secure economic interests at the expense of the allies”. A concept made even more explicit by Foreign Minister Serghei Lavrov. The US, he said, seeks “both to have an Atlantic bond with Europe and, at the same time, to do the interests of its energy companies: and they make it shamelessly, using completely unfair methods from the point of view of competition”. The United States, playing at the tip of a metaphor, wants to have a sober Europe but the empty gas station.
“I believe that the options provided by the new US legislation against exports from Russia are certainly a preparatory action for a gas war,” says ANSA Alexei Grivach, deputy director of the National Energy Security Center. “This is not a confrontation between the United States and the EU against Moscow but a hostile act of Washington against Russia and against Europe. The US has in fact clarified that they are ready to act without taking into account the interests of European partners, increasing export revenues through unfair competition on the European market, which means losses for companies, a reduction of energy security and overall global competitiveness. EU “. The latest version of the law, emphasizes Grivach, was watered down compared to the initial draft thanks to the pressure of Brussels on the Americans - the foreign ministries of Germany and Austria issued a joint declaration of fire at the time, accusing the USA, substantially, of violation of national sovereignty. But the law leaves hands free to the president to impose additional sanctions without the intervention of the Congress or the Senate. “If Trump will increase the dose - concludes Grivach - then not only will they end up in the Nord Stream 2 and TurkStream viewfinder, but also a huge number of European suppliers of energy, pipes, equipment and services, a wide range of financial institutions ... really a problem for the sovereignty of the EU in terms of security and energy policy “.
Now, said so it seems that Brussels and Moscow on the gas love and agree and that the new routes of supply of blue gold - precisely the doubling of the Nord Stream, which will have to bring to the regime, considering also the two lines already active, 110 billion cubic meters of gas per year directly in Germany, and the possible extension of the TurkStream to southern Europe - are progressing towards construction. It is not so. Both projects are under pressure. The north route, in addition to representing smoke in the eyes of the US, is strongly opposed by Ukraine, which currently hosts the gigantic Urengoy-Uzhgorod gas pipeline of over 140 billion cubic meters (potential) per year. The royalties of transit yield in Kiev 2 billion dollars a year as well as a political lever not just towards Moscow. Which then is the reason why Russia wants to bypass Ukraine. Originally, the ‘dealins’ had been set for 2018, also considering the fact that transit contracts with Ukraine will expire in 2019. Gazprom now seems willing to insert a more gentle principle of gradualness. The decision for Italy is in any case of strategic importance given that the bulk of the gas purchased and consumed by our country - through Eni contracts - takes place right at the end of the Ukrainian pipeline, at the Austrian station of Baumgarten.
“The main obstacle to energy negotiations between Russia and the EU is the clash between their perceptions of energy security,” says Krutikhin. “Moscow argues that the biggest threat to European energy security is the reliability of Ukraine as a transit country while Brussels believes that the construction of new Russian gas pipelines that bypass Ukraine will do nothing to improve EU energy security . The EU, in fact, emphasizes that Ukraine has never violated its transit obligations while Russia has shut down the taps on some of the coldest days in 2006 and 2009 and then significantly cut the volume of exports to Europe at the end of 2014, every time for political reasons: Brussels believes that the real threat to European energy security is not Ukraine, but rather the unpredictability of the Russian authorities “.
The theme is very delicate and crucial, in fact, for a continent, Europe, increasingly dependent on gas. Yet the truth, as often happens when it comes to international intrigues, is not said to be unique and incontrovertible. “We were not the ones who voluntarily cut supplies,” assures the former Gazprom executive. “It was the Ukrainians who blocked the flow of gas downstream and we could not do anything but stop the pumping stations in our territory: we lost a lot of money because we had to pay very high penalties for not having respected the contracts” . The establishment of Moscow with the alternative routes to Ukraine was born shortly before the Euromaidan. And for reasons not just political. “The Urengoy-Uzhgorod pipeline - continues the source - is in very bad condition and the real transport capacity is reducing: this is the fault of Kiev that for years has not invested in the maintenance of the infrastructure”. Moral. To bring the pipeline back to optimum conditions, “more money” would be needed than a new pipeline is required today. That’s why Gazprom - and the Kremlin - are pushing for both the Nord Stream 2 and the TurkStream: less conditioning and more efficiency.
