I’m sure I’ve mentioned before that Aslund has a big-league hate on for Russia and everything it does because he personally despises Putin. Therefore, any downward movement in GAZPROM’s fortunes is a good excuse for a stream of bilious invective from him, since he maintains Putin is GAZPROM’s “real chairman”, and therefore personally responsible for the catastrophic mismanagement which has led to GAZPROM’s ignominious dethroning.
According to Aslund, GAZPROM was doomed to fall from its lofty perch, owing to “reluctance to absorb new information, corruption and outlandish arrogance.” But his spit-flecked accusations are based on rankings in three different lists, none of which feature the same Number 1 – Most Profitable Company (Exxon Mobil), Biggest Company (ICBC Bank, China) and Most Valuable Company (Apple).
So, don’t colour me a believer just yet. Because the company that sits atop the list of America’s most profitable companies and currently world’s most profitable, is Exxon-Mobil. Why am I not convinced by Aslund’s raving about corruption and malfeasance? Why, because in 2004, Exxon-Mobil was one of four major oil companies investigated for bribing the president of Equatorial Guinea with some $700 Million for favourable consideration of oil rights, considering the country was in an oil boom. President Teodoro Obiang Nguema Mbasago, a dictator reviled for corruption and human rights violations, was alleged to have bought nearly $4 Million worth of stately homes in Washington, DC and Rockville, Maryland while Walter International was paying the college bills to send the president’s son to Pepperdine University. Obviously, corruption not only pays, it is just part of the way big companies get bigger. To say nothing of “more profitable”. So far as I can make out, the investigation came to nothing, and Exxon-Mobil got off scot-free except for a puny $50,000.00 fine it paid in 2003 for trading illegally with Sudan, although former Mobil executive J. Bryan Williams was indicted for bribing the president of Kazakhstan for a lucrative piece of the Tengiz oilfield as well as for evading taxes on more than $7 Million in unreported income, which included $2 Million in kickbacks.
This is not meant to be a ringing denunciation of Exxon-Mobil; however, I think it’s just a little hypocritical for GAZPROM to be singled out for corrupt practices when Exxon-Mobil is obviously as corrupt or even more so, and is rewarded with laurels and approbation for being in the top spot just vacated by GAZPROM. So, apparently, what twists Anders’ testiklar is not so much that GAZPROM is corrupt as it is that they failed to maximize their profits, through inefficiency and mismanagement, since he has voiced no criticism of Exxon-Mobil.
His disapproval evidently does not extend to RosNeft, either, as he periodically reminds his readers that RosNeft is panting down GAZPROM’s neck and ready to step into its boots as Russian petrogiant. Know why that is? Because BP International retains shareholder status in RosNeft, and RosNeft partners with…Exxon Mobil. In Aslund’s mind, GAZPROM is too stuck-up to let the big multinationals buy in, and that translates to inefficiency and mismanagement in his view.
Aslund is also bullish on upstart Novatek, citing them approvingly as a company that is beating up GAZPROM for its lunch money. The owners of Novatek are Gennady Timchenko – supposedly Vladimir Putin’s good buddy who lets him secretly own as much as 70% of GUNVOR – and…GAZPROM. GAZPROM owns 19.4% of Novatek.
But my favourite Aslund Senior Moment – predictably, because you know my views on the subject – is his har-de-har mockery of Putin for suggesting (implausibly, says Aslund) that shale gas is more expensive than conventional gas, while Europe is swimming in cheap LNG and a monstrous gas glut has GAZPROM’s back to the wall.
Unfortunately, only time will tell, and – as the popular saying goes – experience keeps a dear school, but fools will learn at no other. You simply cannot shake the unshakeable belief of some people in shale gas and its devastating impact on Russia’s future as an energy provider. Similarly, the belief in a gas glut and limitless supplies actually is driving prices down. For how long? We’ll see. What can you tell us about it, Dmitry Orlov?
Oh, dear. “The best-developed shale gas basin is Barnett in Texas, responsible for 70% of all shale gas produced to date. By “developed” I mean drilled and drilled and drilled, and then drilled some more: just in 2006 there were about as many wells drilled into Barnett shale as are currently producing in all of Russia. This is because the average Barnett well yields only around 6.35 million m3 of gas, over its entire lifetime, which corresponds to the average monthly yield of a typical Russian well that continues to produce over a 15-20 year period, meaning that the yield of a typical shale gas well is at least 200 times smaller.”
Well, yes, I have heard that the Energy Returned On Energy Invested (EROEI) for shale gas was much lower than that for conventional gas, which suggests it is indeed more expensive because all the big returns are up front, right after you drill, after which the well quickly plays out. But what about Poland – wasn’t there some rumor that there were enough reserves to supply all of Europe, and that the Russians were going to be left watching its taillights, or something?
“The composition of shale gas is something of a state secret in the US, but information about the gas produced from the nine Polish shale gas test projects did leak out, and it’s not pretty: Polish shale gas turned out to be so high in nitrogen that it does not even burn. Technology exists to clean up gas that is, say, 6% nitrogen, but Polish shale gas is closer to 50% nitrogen, and, given high production costs, low yields, rapid depletion and low wellhead pressure, cleaning it up to bring it up to spec (which is 1% nitrogen) would most likely result in a net waste of energy.”
I imagine some will be tempted to call Orlov just a shill for the Kremlin, telling Russophiles what they want to hear. And that’s possible, I suppose. I’d be disingenuous, though, if I did not point out that he called it exactly right on the embarrassing faceplant of Facebook, before the issue of its IPO, and that it is a consensus view among financial analysts that what is keeping the U.S. economy breathing – and the Dow at record highs – is quantitative easing and the continued injection of another $85 Billion per month as the U.S. government buys more of its own bonds and mortgage-backed securities in order to keep the supply of cheap money flowing. According to the International Business Times, in an analysis of Exxon-Mobil stock, “Looking ahead, Exxon Mobil has more natural gas exposure than its competitors. If natural gas prices increase, as they are expected to, then it could negatively impact the company. That said, this still wouldn’t be a major blow. The biggest threat would be a reversal in loose monetary policy by the Federal Reserve. If this happens, then the entire industry will suffer, but it will still hold up better than most industries due to the sheer size of the companies and their ability to manage challenges thanks to large cash flows.”
There should be two takeaways from that; one, natural gas prices are expected to start coming back up, and the illusion of a gas glut cannot keep them suppressed for much longer. Two, the biggest engines of the American economy are going to suffer a shock which only their huge cash flows and liquidity will see them through if the Fed stops printing money and wheelbarrowing it into circulation. How long can it keep that up? Your guess is as good as mine, but it’s not forever. At this stage of the game, although it publicly toys with the idea of cooling off the money printing-press for a while, it dare not stop. But I don’t need to tell you, I’m sure, that if a serious challenge to the dollar were mounted now and it lost its status as the world’s reserve currency, the debacle which followed would be of epic proportions. The USA is way, way overextended on debt, all the while it is trying to print its way to dollar happiness.
Maybe Orlov has it all wrong, at least with his analysis, although it’s hard to dispute his numbers. But I don’t think so. Neither does The Automatic Earth, which has some truly alarming statistics, especially if you threw everything you had into shale gas. The number of drill rigs for dry natural gas in the USA – far from exploding, as you would expect from the Next Big Thing – has plummeted from a high of 1,606 in 2008 to a dismal 562 last year, the lowest number since 1999. That’s bad enough on its own, but overall production across the USA began to decline in March of 2012. When the drop in output overlaps the drop in number of producing rigs – especially in an industry that must keep constantly drilling in order to keep at least solvent enough to be able to borrow more – the arc of descent will steepen into a power dive. Shale gas is cruising on fumes, while the industry is producing at a loss in order to keep prices in the basement with the impression that supplies are so abundant that they don’t know what to do with it all. When the fog is blown away and the awful truth can no longer be hidden, people will have nowhere to go but to reliable suppliers of natural gas. The alternative-energy industry is just not ready to pick up the slack, although it should undergo a renaissance in interest.
What else you got, Anders? Oh, that’s right, I remember – GAZPROM’s incompetence in Turkmenistan cost it its access to China. Well, sorry, but that’s wrong. GAZPROM just wrapped up a deal in March to deliver gas by pipeline to China which is expected to amount to 38 bcm annually. According to Fitch Ratings, “The agreement with CNPC is the latest in a string of investments by Gazprom that will dramatically improve its position in Asian gas markets, which is currently represented only by a 50% share in the 9.6 million tons per annum (mtpa) Sakhalin-2 project. Earlier this year, Gazprom approved a decision to construct a three-train, 15mtpa LNG plant in the Russian Far East near Vladivostok, with the first train to be commissioned in 2018, and plans to supply LNG from there to Asian markets.” Also, the Energy Information Administration has an entirely different view of the pipeline deal with Turkmenistan: “As a result of a pipeline explosion on the Central Asian Center export pipeline to Russia in April 2009, Turkmen gas production was shut in and suffered serious declines. Gas production fell almost 50 percent from a high of 2.5 Tcf/y in 2008 to 1.3 Tcf/y in 2009. Following the pipeline repair and a new pricing agreement signed with Russia in January 2010, Turkmenistan raised production to 1.6 Tcf/y in 2010 from 1.3 Tcf/y in 2009. However, Russia agreed to accept about 400 Bcf/y or only one-third of the volumes it imported prior to the explosion and at a lower import price, resulting from its declining exports to Europe.” Gee, that sounds to me like it was Russia’s decision to import less gas from Turkmenistan, owing to declining demand from Europe. And you can spin that decline in demand any way you like, but the collapse of Europe would certainly not be good news for anyone, and if Europe manages to recover, gas demand will return to or surpass previous levels. See how it works? Meanwhile, customers are not as eager as Aslund makes out to buy from a country which has a single all-powerful autocratic dictator as leader who can do anything he likes – they tend to be…whimsical.
And don’t even start with Nabucco. The EU’s Nabucco pipeline, which would – in EU fantasy-land – cut Russia out of gas shipments to Europe to whatever degree was possible by routing a gas pipeline independent of Russia to carry Caspian and Middle-Eastern gas direct to Europe. This is supposed to compete with GAZPROM’s South Stream pipeline, so let’s see how they stack up against one another. The South Stream project started construction in December 2012. Construction of Nabucco has not started yet although the preparations began in 2002, and it is not expected to be operational – if it is ever built – before 2018. If that great day ever arrives, at its rated capacity of 31 bcm annually it will supply at best 6% of Europe’s needs. South Stream, partnered with Italy’s Eni, is expected to double that volume, and even in that case there will be room for expansion – if Europe recovers. As an example of GAZPROM’s unbridled arrogance, the company agreed to a 50-50 partnership with the Hungarian Development Bank for the Hungarian leg of South Stream, as well as joint construction and operation of a gas storage facility with Hungary’s MOL. Roman Kazmin’s “Future of Gas” takes a very pragmatic view: “The argument is that the more routes we have available to deliver gas to the European markets, the better it is for the European consumers. In an ideal world, these extra volumes should come from sources other than Russia. If this is not possible, the availability of secure gas volumes is what matters at the end of the day rather than the source of this gas.”
Spiegel is less equivocal about who has not only a commanding lead, but a solid reputation for delivering on its commitments. “The Nabucco pipeline is intended to transport gas from the Caspian Sea region, along a 3,900-kilometer southern route to Baumgarten in Austria, bypassing Russia in the process. But not a single meter of the pipeline has yet been laid, and that will likely remain the case. The Nabucco project will not be implemented as planned…Three weeks ago, Hungary’s MOL Group voiced significant doubts about the project, and now another consortium member is thinking of pulling out. RWE executives have already prepared politicians in Brussels and Berlin for the worst case in recent weeks. They haven’t made a final decision yet, but the chances that the company will remain committed to Nabucco are not good…So far, Moscow has consistently proven to be a reliable supplier. Officials at Gazprom say that a pipeline “is a delivery promise cast in steel,” and they insist that no company is going to invest billions in a pipeline and then choose not to use it.”
It’s not even that Anders Aslund hates all Russian business; well, I’ll let him tell you himself, from a 2011 interview with Steve Weisman.
Steve Weisman: The deal was announced on August 30. I don’t know if there has been any adverse political reaction in the United States. Is there any reason for Americans to be concerned that the Russians have access to American resources?
Anders Åslund: I don’t think so. And you can also see the previous reactions about there being very little reaction against Russian business in the United States, unlike as you mentioned the Chinese business activities here. Say, for example, Lukoil, which owns perhaps 2000 gas stations.
Steve Weisman: What about Western confidence in the reliability of doing business with Russia?
Anders Åslund: You can say that there had to be a deal between some big Western company and one of the big Russian companies. It’s amazing that it has taken this long for a deal to take place.
Mind you, he does go on to blame, yes, Vladimir Putin for the collapse of the BP-RosNeft deal, saying that he can’t make up his mind. But you get the point – he has nothing against RosNeft making nice with Exxon-Mobil and getting rich – he just hates GAZPROM, because it’s a state company and Aslund is a free-market capitalist who starts to twitch when he hears the words “state company”.
Regular readers will notice an amazing degree of compatibility between what Anders Aslund wishes would happen and what Anders Aslund announces is happening. But neither Vladimir Putin or GAZPROM is going anywhere in the immediate future.