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Alexander Khurshudov: Eastern Europe hasnt realized yet that gas transportation through the Ukraine is to stop in 1.5 years

July 04/ 07:21

Let’s start with some naked facts.

The first line of the Turkish Stream is going to be put in operation in March 2018, the second one in 2019. Alexey Miller, the head of Gazprom reported this to the RF President Vladimir Putin at the ceremony dedicated to the beginning of laying the deepwater part of the Turkish Stream. 

European Commission received a mandate to negotiate with Russia about the Nord Stream-2 and is now going to present it to the participant countries, according to Maros Sefcovic, European Commission Vise President in charge of Energy Union.   

In January-March 2017gas transportation via the Nord Stream to Europe grew by13.5% compared to the same time last year, as reported by Gazprom. Alexey Miller, the head of Gazprom claimed at St. Petersburg International Economic Forum that the Nord Sream-2 wouldn’t suffice with such increase in consumption.     

Meanwhile the heads of Eastern European countries strongly object to the construction of the Nord Stream. The Prime Minister of Slovakia Robert Fico claimed after meeting Arseniy Yatsenyuk in Bratislava, that the heads of Western Europe are betraying the Eastern countries-members of the Union. While the President of Poland Andrzej Duda believes that the project is causing a catastrophic loss to his country, the Prime Minister of the Czech Republic Bohuslav Sobotka sticks to the same point of view.      

I was surprised by, to put it mildly, nervous reaction of our ex-friends, current opponents. One can get the impression that someone is taking away their sole means of livelihood. Meanwhile, transporting gas is not a free lunch, it is work. They have to maintain very important pipelines, ensure the operation of pumping units, measure and control the quality of gas. Sure, this work brings profit and foreign currency revenue, but they are not so big for the transiting countries to rip their hair out and groan about a catastrophe.        

However, if you look closer, sitting on the pipe may bring some other kinds of profit, not stipulated in the transit contracts. For instance, not a long time ago, Poland suspended reverse flow of gas from Germany, but complained to Gazprom. It is strange that they would push their claims not against the supplier they pay, but against the initial producer of the gas. Still, Gazprom did not get offended, explained what had happened as “a little technical problem” and soon announced that the problem was solved. In response to that Poland resumed the “reverse flow”. 

It can be implied from the veiled press releases that the problem was increased water content in the gas. Very seldom it can happen that some water seeps into the pipeline during process operations and then evaporates there. That is why at gas delivery points there are always condensate gathering tanks and coolers, so this does not cause any problems. What the Poles did was take gas directly from the pipeline and then they couldn’t think of anything better to do that to raise a little fuss. So, here is the conclusion.  

The notorious gas was sold by Gazprom to Germany, and the transit via Poland was paid for to Poland. However, the gas didn’t reach Germany and stayed with the Poles, who bought a cheaper batch at the gas hub. Poland received the transit fee FOR NO REASON, while it also saved money on transporting gas from Germany.   

 However small, this cheating is shameless. The cheater pushes claims, threatens to stop transporting gas though its territory, files law suits against the Nord Stream pipeline. The Eastern Europe doesn’t seem to realize that in 1.5 years gas transit via the Ukraine will simply stop. There is a simple explanation to it.  

If the Ukrainian court fines “for monopolism” not the provider of the service (Naftogaz), but the CUSTOMER (Gazprom), then this court is insane. Tomorrow this court will fine a mother for having children or a father for not eating lard. If the government welcomes the insane decision and is trying to collect the insane fine, then the government is insane. Nobody is going to make deals with such a government. And without a deal there won’t be any transit. What if the Nord Stream construction will fail because of delays and law suits? Then there will be neither transit, nor gas. Gazprom’s reasoning will be as follows: we did our best to provide supplies, you did your best to ruin them. Fuel with your court decisions, gentlemen.   

Other news briefly

The US president Donald Trump announced the beginning of constructing an oil pipeline from the US to Mexico and adding gas supplies to South Korea. At first sight this looks strange, since the US exports to Mexico 856 thousand bpd, while importing 630 thousand bpd from it. No, it’s not the same oil being pumped back and forth, it is different. The thing is, the production of superlight oil has grown in Texas; it contains more and more condensate, the output of diesel and other heavy fractions is small, so it is of no use to the country’s own refineries and that is why it is sold abroad and replaced with imported heavy oil. 

As far as the gas export to South Korea is concerned, it began as far back as December and 487 mln cubic meters of gas have been delivered there since then, which account for 1.07% of the country’s annual consumption. The American president seems to have the talent of a brilliant advertising agent, so perhaps he shouldn’t have changed his line of business.  

The production of dry natural gas in the US in the first quarter reduced by 3.2%, from 2089 to 2022 mln cubic m/day compared to the same time last year. 2016 data was amended considering just one extra day in February. Meanwhile the gas rig count almost doubled, growing from 88 to 160.  

Jacques Nasser, the chairman of BHP Billiton, the largest mining company in the world, said the company shouldn’t have invested $20 bln into the US shale oil, as reported by Reuters… BHP joined the US shale business in 2011. The decline in oil prices that has happened since then made the company write down $13 bln.    

I would add that it’s the losses that keep the shale business going. If BHP Billiton sells its shale leases, the new buyer will get them cheap. This cost saving will enable them to make ends meet for several years, but then they will be overcome by the losses as well. I wonder what kind of specialists they have in the largest mining company that they got into such a mess. Or was it because nobody listened to them, the top managers hurried to catch the shale train? Well, here they are now.

Stockholm arbitration court has ruled to recover $1.7 bln from Naftogaz Ukraine in favor of Gazprom, said Alexey Miller, the head of Gazprom at the press-conference after the annual general meeting. This is a preliminary very soft decision, which Gazprom is going to appeal. Naftogaz is $2.6 bln in debt for the supplies in 2013-14 only. I can imagine how hard the judges had to twist and turn to reduce pure indisputable debt. It’s no wonder that the details of the decision are not revealed by the mass media.

Brent quotes broke the long-term uptrend during the last ten days of June (see the picture) and reached $44.5, followed by the expected bounce back closing at $48.8.   

Commercial oil and petroleum products stock hardly changed at all last week. The operational data shows that the production has been fluctuating within 9.25-9.35 mln bpd for the last three months. This data is certainly not very precise; more reliable statistics for April is not yet available. The US rig count reduced by 1 last week, but it is still 2.2 times bigger than last year, 940 compared to 431.     

Now the price may grow to $50, followed by a possible decline. The market will start rising only when the US oil production starts declining steadily. Let’s wait. 


 

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