The FT has one of those stories today where the headline and the first paragraph, Gazprom delays raise supply crunch fears says one thing but the rest of the story contradicts it.
A few days later, he drove that warning home in the most vivid way possible, with Gazprom's own investment cuts and production delays raising the spectre of a gas supply crunch in Europe
Are we missing something here? It's a long way from Gazprom cutting production to supply fears. Gazprom isn't cutting production in some nefarious plot to put Europe on their knees. They are cutting production because there isn't any demand.
"Barely a year ago everyone was saying Gazprom would not be able to keep up with demand," says Jonathan Stern of the Oxford Institute for Energy Studies. "The speed of the turnround has been extraordinary."
Alexei Miller is talking his own book, just as the peak oilers and bullish energy traders are talking theirs. For different reason, they all want to talk up shortage. And they all hang on to outdated concepts refusing to understand how the world's attitude to energy has changed. This isn't going to be like the last two oil shocks. We were fooled twice, but a myriad of new technologies from new boilers, to heat pumps, to LED lighting to smart metering has caused a lot of incremental change that is resulting in permanent demand destruction. Combine that with economic incentive: Each barrel of oil over $50 is a good reason to not use another one. Any number of mad scientist/techno optimist schemes make perfectly good economic sense the higher oil goes.
Another story today from Bloomberg is far more optimistic about gas, unless one happens to be an energy consultant who puts the fear of God into clients by having them read headlines about gas shortage (fix your price now folks, two years or five years at 50 pence per therm?) What's important here is who is talking (Exxon) and where they have suddenly found an enormous new source of gas:
“Our expectations are that we are going to achieve a very high recovery level in that field,” Chief Executive Officer Rex Tillerson told reporters at a conference yesterday in Groningen province, where the deposit is located. “There is still an enormous amount of gas yet to be recovered.”
Yet until recently this was considered a mature field whose inevitable decline would push us into the arms of the Russian Bear. But it appears that the US experience of shale gas is not only one of discovering new fields but extending old ones.
“They’ve got coal seam right under the Groningen gas accumulation; you go a little bit shallower and there is gas shale....
They haven’t even started to drill very deep at Slochteren,” Cyril Widdershoven, senior business consultant at the TNO Science & Industry institute in Delft, Netherlands, said today in an interview. “There is probably much more, also in unconventional resources
So unless one wants to make money from nuclear, clean coal, pipelines to nowhere or are among a few mad Czechs who still think it's 1967, the potential for supply crunches recedes further each day. Even Alexei Miller will soon realise that the future of the gas industry does not depend on high prices, but high demand, but high demand will cannibalize oil as well. The question will be why would Russia's best customers such as Germany, France and Italy want to buy gas from Yamal when there is plenty on Zeebrugge and TTF's doorstep?
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