Monday, June 16, 2014

Tech Talk - Thatcher, Putin, Coal and Gas

Back some forty years odd years ago when Edward Heath was Prime Minister of the United Kingdom, and the coal industry was still nationalized, the miner’s union went on strike, just after the Christmas Season. This followed an overtime ban that had started the previous November. The strike began on January 9, 1972 and lasted 7 weeks. Tellingly, just after it began some 17 schools had to close, as they had no heat in their buildings, without coal. Within a month the Government had to declare a state of emergency, and factories began to close due to a lack of power. Sensibly the Government of the day gave in to miners’ demands and they went back to work at the end of February.

Two years later there was a relatively similar series of events, with an overtime ban, followed by a three-day workweek as power cuts and blackouts developed, but this time Edward Heath also called a General Election, assuming he had the national sympathy. He was wrong, he lost.

These lessons were not lost on Margaret Thatcher, who had noted that it was not smart to offend the miners when the nation still relied on coal for much of its power, and when, in the winter, there was not a lot of coal in reserve at the power stations (because of the preceding overtime bans leading into winter). Thus, in 1984 when she, in turn, had to face the wrath of the National Union of Mineworkers (NUM), she had made sure that the situation was much different. Prior to the strike she had arranged for coal stockpiles to be built up over a period of three years. In addition the strike began on March 5th. It started because of the Coal Board decision to close 20 mines (since the earlier strike the number of miners had already fallen from 250,000 to 187,000 and the closures would cut another 20,000 from that number). It crumbled a year later, with a vote to return to work on March 3, 1985. The mining industry never recovered, and by the turn of the century the NUM was down to around 5,000 members.

I was reminded of those days by the latest clash between Gazprom and the Ukrainian government. In the past, when the Russians demanded that Ukraine pay its gas bill, the timing usually took place at the beginning or in the heart of winter. The problem that this gave the Russians was that they were supplying Western Europe through Ukraine, and any shut-off in the supply of natural gas to Ukraine had immediate consequences in Europe, which has become increasingly dependant on that gas. The result of the timing of the disputes was, therefore, generation of considerable diplomatic pressure leading to a relatively rapid resolution, without Russia getting all the deals that it wanted.

This time, however, it may be that Russia has learned, as Margaret Thatcher did, that timing is critical in this type of situation. Instead of waiting to November to call in the bill, Gazprom has presented it in June, when European demand for natural gas is lower. In addition the Nord-Stream gas pipeline is in place. This carries roughly 2 trillion cu. ft. a year of natural gas 760 miles into Germany, without passing through Ukraine. The twin pipes were completed and on line by October 2012.

Figure 1. Nord-Stream (Baltic Sea pipeline) bypassing Ukraine with 55 billion cu m of natural gas a year, (Daily Mail), out of a total sale of 262 billion cu m.(Spiegel)Note a second major pipeline from Yamal goes through Poland.

And while there has been talk about bringing in natural gas through Nabucco, that has slowly faded in the face of reality. Gazprom (as Brenda Shaffer has noted) has done remarkably well in gaining control of the different feeds and pipelines that come out of the East and head west into Europe. For example:
Moscow has taken steps to block the entrance of Iran into European gas markets; in 2006, the Russian company Gazprom bought a pipeline from Iran to Armenia and limited its size to ensure that it could be not be used to carry Iranian gas into Europe.
Consistently supplies have been confined to pipes that are under Russian control. It has a percentage of the Interconnector that carries natural gas into the UK and there has been little regard paid as it stepped in and took interests in other national pipeline companies across Europe.

So Gazprom can now wait while Ukraine exhausts its own reserves. It is reported to have some 13.5 billion cu m on hand, but it needs to have 18-20 billion at the start of the winter, if it is to get through. By stopping the flow now, Russia is having Ukraine burn those reserves between now and winter, while keeping the nations further west supplied. This means that the pressure will become that much more intense on Ukraine as winter starts to approach, and there is no alternate source of supply.

Gazprom has not hesitated to profit from this in the past, and is already in a position to demand whatever price it sees fit.
Ukrainian and Russian officials have been fighting about gas pricing since Yanukovych was ousted. After Russia annexed the Crimean Peninsula, it hiked gas prices for Ukraine 81 percent, from $269 per 1,000 cubic meters of gas to $485. That price was the highest in Europe, and Ukrainian officials refused to pay, calling it politically-motivated retaliation.

Gazprom has since lowered its price demand to $385, broadly in line with prices for other European countries. Ukrainian officials have sought to pay less and have said the way Russia was structuring the deal meant they would remain vulnerable to price hikes if they did anything to displease the Kremlin.

“Any price they offer is in the form of a discount that can be undone at any time,” said Pierre Noel, an energy security expert at the International Institute for Strategic Studies.
Don’t hold your breath waiting for this to be resolved.


  1. From september on Ukraina will hav a possibility to import all the gas it needs from the west. Last month price on German border was 375. Without political conditions.

  2. A price of 385 is about $11/MCF, which is about $.11 per kWh, just for fuel.

    Wind power in the US is about 6-7 cents per kWh, so you'd think Ukraine would push it as hard as it could. Instead, they're insisting on 50% domestic content, which apparently is slowing things down greatly.

    Talk about shooting yourself in the foot...

    This from end of April this year

    "Thus, there are no important enterprises in the town of Slavyansk, neither mines, nor military bases or scientific institutions. However, it stands in the very center of the territory of the “Yuzov project”, where the deposits are located of the energy source of the 21st century are located - of the tight sandstone natural gas also known as shale gas.

    The gigantic deposit spreads into a part of the territory of Donetsk and Kharkiv regions.

    (large picture of Ukraine with gas deposits marked)

    The total area of the shale gas deposit is almost 8 thousand square kilometers. Experts point out that the gas deposits in this land can bring revolutionary changes not only to Ukraine’s energetics, but of the whole Europe.

    “According to the latest confirmed data, coming from Americans, there are 3.6 trillion cubic meters of gas that they clearly see how to extract. This is a significant amount, a large amount, because if Ukraine increases extraction by 15-20 billion cubic meters, it will become an exporter”, - the director general of the center for energy studies Oleksandr Kharchenko points out."

    This is from September of last year before the crisis.

    "Royal Dutch Shell that won a tender to develop a shale gas deposit in Ukraine’s Donetsk and Kharkov regions promised to invest around $410 million into geological surveying at the project’s first stage. These investments will be realized within three-five years.

    According to an optimistic scenario, the Yuzov shale gas field may produce up to 20 billion cubic meters a year, which corresponds to Ukraine’s current gas output.

    The Ukrainian government’s press service said investments into the field at the stage of commercial development would total $3.75 billion. Ukraine plans to start drilling prospecting holes this year. The Yuzov field’s reserves are estimated at 4 trillion cubic meters."

    I know you and others from TOD are really expert on debunking such stuff like whether deposits, reserves what have you are real or serious game changers ,etc. Reading the above brings to mind that this whole govt. overthrow in Ukraine and war for Donbass is really an ethnic cleansing to get at the gas areas from Shell and Oligarchs greedy for money. Obama and Nuland engineered this just like Cheney and Bush the Iraq war. Educated Comment? I hope that htis would shed an unemotional light among Peak Oilers on what up till now seems a matter of pro and anit-Russian opinion coloured by whatever arguments happen to be on hand about who shot who on what day. But these articles seem to throw everything in a completely different light.

  4. There is natural gas associated with the coal of the Donets basin, but it may be more difficult to get the gas out of fine-grained sandstone than shale, since the former doesn't have the fracture planes that exist in the latter. Shale is a description that covers a very wide range of rocks.

    1. Poland with similar climat, population, teritorry and stronger economy uses 14 billon cubic meter/y. Difference are mostly savings - building and hot water pipes insulation, industrial processes as well. Nothing very costly or complicated, political will is enough. And 2-4 years time. No extra extraction is needed. A little time or luck (warm winter) is needed.

  5. Maczeta:
    But where does Germany get their gas?

    1. Abt 20% domestic, more than 35% North Sea imports, Russia imports more or less the same.
      The rest abt 5%-10% these are renewables- biogas and very small but growing hydrogen enrichment of natural gas (electrolisis from surplus electricity- means renewables) and very small quantity of LNG- road trucked from Rotterdam- its cheaper then Russian gas (trucking included!!!) Next year probably will be finished Świnoujście Gazoport (LNG regasification facility) smg like 10 km from German border and main gas pipes.
      Gas consumption is dropping like stone, LNG is cheaper, and renewable gas production is growing. First provider to resing from will be costly and unreliablie Gazprom