When I first went to talk to someone about investing in stocks, it was carefully explained to me that I should not be concerned over daily fluctuations but rather should look at longer-term outcomes of events. So it has been with the recent price fluctuations with fuel, in that I haven’t really been that concerned with the causes of daily, or even weekly ups and downs, since those moves were often in reaction to transient events, but have rather tried to pick out more long-term changes that will have more of a permanent impact. Thus it was just over a month ago that I wrote about a quote from the CEO of Gazprom, which is perhaps (given recent events) worth repeating:

Gazprom forecasts that Russian gas prices will reach 500 U.S. dollars per 1,000 cubic meters by the end of 2008. "If oil prices exceed in the future 250 dollars a barrel, then gas prices will grow to 1,000 dollars per 1,000 cubic meters," Miller said.

I then went on to talk about the visit of the new Russian President to Turkmenistan, Azerbaijan and Kazahkstan to ensure that their supplies of natural gas and oil traveled to the west via Russian pipelines (with appropriate fees along the way) rather than being routed through alternate pipelines, where those fees and the concurrent flow-rate controls would not be available to Russia. If nothing else then, as Gail caught in Open Thread #4 the benefits of investing in alternate pipelines, such as Nabucco for which Turkmenistan gas must first cross the Caspian and then pass through Azerbaijan and Georgia in the Trans-Caspian Pipeline have suddenly become a whole lot less attractive.

There has been the occasional story popping up in Drumbeat over this past week or so about the severe winter and gas shortages in Iran, and their resulting cut in supplies to Turkey. The Iranian domestic shortage was supposed to be made up from Turkmenistan. Unfortunately the shortfall from Iran to Turkey was supposed to be made up by increased supplies from Russia, but those also are falling short. About a year ago we saw some of the same discussion about supplies from Turkmenistan, through Russia, to Europe, with shortfalls and price increases – particularly relating to the gas supplies to Ukraine, through which the pipelines flow. At the end of that discussion the Turkmen got an increase in the price of their gas. It is therefore not surprising to see that Turkmenistan is seeking to double the price it gets from Iran.

As the production from Saudi Arabia continues to lag, even if transiently, Russian production and exports become more critical to world supply. And so we exchange the problems of getting oil from the sandy wastes of the Empty Quarter, with those of production from the icy wastes of Siberia. There are a couple of small issues, that I thought could be discussed, relative to this.

The first of these relates to gas supplies from that part of the world. It was interesting to note, in light of a number of comments made on this site about Gazprom’s acquisition of Western European pipeline company shares, that they now appear to be similarly interested in those of Portugal, as their strategy to control gas flows throughout Europe continues to succeed. The benefits, to them, of this policy are clear, for example in the negotiations over Kovykta, a field with 2 tcf of natural gas and over half a billion barrels of condensate. The plans were to sell some 2 bcf, largely locally, and then to expand deliveries through pipeline networks.

Unfortunately BP has noted:

TNK-BP cannot sell gas from its vast east Siberian Kovykta field or its smaller Rospan unit in western Siberia without Gazprom because of the Russian gas giant's monopoly control over Russia's pipeline network.

And here it has a problem, since the local market is not large enough to absorb the gas that the field can produce...

Jerome pointed out that, with 25% or so of the world's natural gas under it's control, Gazprom is now pretty much calling the shots, and that a lot of the stories hitting the news should be read with that understanding in mind. That if they don't want a pipeline to be built, then it won't be.