by Nadejda M. Victor
06-04-06
Three months ago the Russian energy giant
Gazprom forced Ukraine to pay sharply higher prices for natural gas. At the
time, the story was portrayed as a political struggle for control in Kiev.
But earlier Gazprom announced it was tripling gas prices in Belarus, a country
that is politically close to the Kremlin. Moldova has been forced to accept a
doubling of prices over the next three to four years, and the other former
Soviet republics are already paying market prices for Russian gas.
The truth is that these price increases are not political. Rather, they
reflect worrisome economic and geological facts about Russian gas fields. The
Kremlin is not simply trying to use Gazprom to reassert authority in Belarus,
Ukraine or anywhere else.
There are in fact deep problems with Gazprom -- problems created by its
inefficient management and a looming decline in gas production.
Russia controls over a quarter of the world's gas reserves -- more than any
other country. Most of the known Russian reserves (about 80 %) are in west
Siberia and concentrated in a handful of giant and super-giant gas fields. Since
the early 1970s the rate of discovery for these new fields has been declining.
Moreover, output from the country's mainstay super-giant fields is also steadily
falling.
Huge investments are needed to replace this dwindling supply, and all the
options for new production will prove costly and difficult. New fields in the
far north and east of the country are distant from most of Russia's people and
export markets, requiring wholly new transport systems such as pipelines.
Moreover, most of these fields are found in extremely harsh environments where
it is technically and financially difficult to operate.
Gazprom controls neither the capital nor the technology that will be needed.
The state-controlled company is already deeply in debt and burdened by many
expensive obligations, such as supplying Russia's population and friends with
cheap gas. The company has to work with foreign partners.
So far Gazprom has been able to forestall crisis. Economic stagnation across the
former Soviet Union and Eastern Europe since 1990 dampened gas demand. Russia,
which had a surplus at the time, sharply increased its gas exports and made
contractual commitments that will remain in force for many years.
But following the long stagnation, Russia's internal gas consumption is
rising again as the economy expands. And new Russian policies to promote
development of the country's eastern regions will, in the next few years,
require large new commitments to supply gas to that region (along with spending
on railroads, airports and other infrastructure).
Even when the Russian economy was in the doldrums the country was notable as a
large gas consumer because of its extremely inefficient energy system. Today
Russia is the world's second-largest gas user, after the United States, although
its economy is only one-twentieth the size of the US economy.
Electricity in Russia is produced forthe most part by gas, but the country's
gas-fired electric generators work at 33 % efficiency on average, compared with
50 to 55 % in Europe. More than 90 % of residential and industrial gas consumers
don't have meters. Gas is even cheaper than coal -- Russia is the only large
country where that is true -- so incentives to switch to an abundant fuel are
weak.
In recent years Russia has boosted gas supplies by squeezing Turkmenistan to
sell gas to Russia at a deep discount. But Turkmen gas production is poised to
decline, and Turkmenistan's gas industry is barely functional because the
country's political environment is scary for long-term investors. Other Central
Asian suppliers, notably Kazakhstan, are unlikely to be able to bridge the gap.
Caught between growing internal consumption of gas, continued inefficiency
and mounting external obligations, Russia's gas industry faces a looming crisis.
Given the country's vast resources, it seems that many producers could fill the
void. But a series of policy decisions created two roadblocks that Gazprom has
been happy to reinforce. One is the lack of access to the Gazprom-controlled
pipeline network, which explains why few companies even bother to look for gas:
They know they can't get what they find to market. The other barrier to
investment is the low internal prices, which make gas production uneconomic
except for companies that can sell their products outside.
Gazprom needs cash -- much more cash -- for investment. At the same time, it
needs a strong incentive for former Soviet republics to cut their own very
inefficient consumption.
Analysts have ignored the risk that Russia's supplies could fall short
because they focus on Russia's vast gas resources and the new Western investors
who are -- albeit cautiously -- entering into joint ventures with Gazprom. But
those resources and ventures are for the long term, and the looming crisis of
supply is unfolding now.
The gas shortage is likely to become most acute over the next few years. If
there is an unusually cold winter in 2008, the year of Russia's presidential
election, then Gazprom will face a politically unpleasant choice: whether to cut
off internal customers (voters) or the Western customers who are the firm's main
source of hard cash.
The writer is a research fellow at the Program on Energy and Sustainable
Development at Stanford University. She is co-author of "Axis of Oil" and of a
forthcoming comprehensive review of Russia's gas pipelines.
Source: www.washingtonpost.com