By John Helmer, Moscow
If you believe what the Washington and London think-tanks want you to believe, Russia’s days as the world’s dominant oil and gas exporter, blackmailer of Ukrainian independence, extortionist of the hypothermic Germans are numbered. Gazprom is on the rocks! Igor Sechin will shortly be yesterday’s man!! For those who believe, the saviour of the free gas-consuming world and the deus ex machina in this particular line of business is SGR — the shale gas revolution.
“The relative fortunes of the United States, Russia, and China — and their ability to exert influence in the world — are tied in no small measure to global gas developments,” a report  from Harvard University’s Belfer Center and Rice University’s Baker Institute claimed last July.
Better than that, SRG is about to trigger a crippling revolution inside Russia itself. “As local shale production and African LNG increasingly offer a counterweight to Russia, arbitration between Gazprom and the European firms over pricing reaches an unexpected conclusion: Gazprom capitulates. Trading hubs emerge, driving Russia toward gas-on-gas pricing and, much to Putin’s displeasure, gas market privatization takes hold not only in Europe but looks poised to take place inside Russia itself.”
Cripes! “Russia has been teetering on the brink of dissolution following a succession of unsuccessful authoritarian leaders in Moscow. The year 2030 delivers the final blow. No longer able to sustain internal weaknesses and mounting political dissent despite rising oil and gas income, the country collapses into a loose series of warring autonomous federations and loses all credibility as a gas supplier.”
Jeepers! “This is where everything is being turned on its head,” echoes Fiona Hill, an ex-intelligence operative employed by the Brookings Institution in Washington. “Their days of dominating the European gas markets are gone.” Hill has been promoting the end-of-days for years .
The market in geopolitical analysis of gas is almost as concentrated as the gas itself. So if a think-tank from Sweden takes a look at the problems, it’s bound to be looking from the viewpoint of a net importer of energy with zero crude oil, refined oil, or natural gas production of its own . But Sweden’s energy supply requirement depends far less than its European neighbours on imports from Russia, or on imports of gas from any source.
How does independence of Russian gas imports help with analysis of the impact of SRG on Russia? A report this week from the Swedish think-tank analyses Russia’s response to the purported “gas revolution” and Its implications for Europe. In the soon to be published report, the conclusions start with this: “Shale gas from the US is not going to revolutionize the world as US reserves only amount to about 10 percent of estimated global technologically recoverable gas reserves, the US is a large consumer of gas itself and the low prices for natural gas in the country have slowed down investment in new production sites. The US is likely to allow increased exports but with just the cost for handling and shipping LNG adding around $2-3/MMBtu to the cost in any country importing LNG, quantities will be small and prices will be higher than in the US.”
Supply-demand arithmetic, according to the Stockholm analysts, is more decisive than geopolitical wishful thinking. In order for US shale-gas producers to operate profitably, the “necessary gas price [should fall] between $4.20-8.75/MMBtu. If costs associated with handling LNG and transporting it to Europe, estimated at $2-3/MMBtu, are added we see that US producers would be willing to sell their gas in Europe for $6-11.75/MMBtu. This can be compared with estimates of Russia needing a gas price of around $12/MMBtu in order to cover the costs for developing its wells and pipelines.”
Instead of SRG destroying the market for Russian gas producers, and crippling the Kremlin’s budget, ARI thinks that all the Russians have to come up with is a price for piped natural gas exports or LNG that can beat the American price offer. Bottom line: “US gas would never be able to fully replace Russian gas in Europe, but Russia will need to become more efficient in its gas development in order to meet the competition.”
Can that Russian revolution happen? The Stockholm report thinks it’s already under way in Sechin’s reorganization of independent gas production under Novatek and Rosneft control; stimulation of new liquefied natural gas (LNG) export volumes from Yamal (Novatek) and Vladivostok (Gazprom); and other measures, including reduction of the cost (price) of pipeline gas exports to Europe (North Stream, South Stream, Blue Stream), and to China.
The key to the effectiveness of these changes isn’t whether or not Gazprom loses its monopoly on exports of gas to the others, but on how President Vladimir Putin turns the policy key he is holding, so as to preserve Russia’s global gas market share without a mutually destructive fight for revenues and profits between Gazprom, Novatek, and Rosneft. The Swedes think he can. The Americans are hoping he can’t.