A race between fast changes in markets and strategies comes into being
How fast can markets and strategies turn? Those who thought that the relationship between Russia and Europe concerning energy supply in former days was rather complicated may reconsider their opinions in view of what is coming into focus. The writers oftoday's main feature offer you a factual analysis of new market factors that make pace influencing the pricing of energy, especially that of natural gas.
For decades a twin set provided a firm foundation for trade and transport between Russia and the rest of Europe. Security of supply was a rather linear tree phased proces consisting of sufficient reserves on the supply side, reliable transport and enough and stable capacity on the receiving side. On the market gas prices were mainly linked to oil prices and although they fluctuated sometimes frequently, the system itself contained no surprises. And as we all know stability in business relations and systems is like honey to the bees.
Our expert analysts David Koranyi and Adnan Vatansever make clear that this relatively quiet world is more or less confronted with fast moving developments. Of course we saw already changes in the last ten to fifteen years. More competition, increasing volumes of LNG and on a lesser scale renewable energy slowly but manageably eroded the mentioned price linkage. As far as Europe is concerned the security of supply has been enforced. Gazprom extended its supply network with two giant pipelines and in Europe border crossing infrastructural connections were improved leading to a more integrated and in case of transport or supply difficulties mutually supporting network.
However, taking into account the speed of scale gas findings and production, especially in the United States, it is justified to speak of a revolution. If in a relatively short period the US as an energy importing country turns so is expected, at least as far as gas is concerned, into an exporting nation, then the term seems to be in place. Certainly when one considers that this new exploration technique and the willingness to explore and invest in unconventional gas reserves are spreading over the world as was it a global fashion.
Let us face it, ten years ago unconventional gas reserves were part of reports and writings and dealt with more from a technical and scientific point of view than based on commercially feasible considerations. Has the modernistic culture of fast changing interests, speedy distribution and rapid followers already reached the historically more long term oriented sectors?
Although there is still a long way to go there is a real and concrete move forward recognizable. Tight gas seems to become flight gas. Without doubt this put pressure on price levels as Koranyi and Vatansever explain and as can be expected strongly urges Russia to think over its strategy. Also for domestic reasons and interior policy considerations.
At the same time gas usage in European countries decreases, firstly because of the economic crisis, secondly because supply from renewable energy sources, although slowly, is increasing and thirdly by the reason that electricity producers are looking for a purchase optimum the coal prices nowadays being lower than gas prices. Whatever the position is for all countries in Europe and the continent as a whole the situation is becoming more complicated. The saying 'steady as she goes' is referring to the old, romantic days. The waters are roughening.
This week's main feature is mostly concerned with Russian affairs and energy positions, but it touches unmistakably the whole energy world. The first part deals mainly with pricing. Next Thursday in part 2 the uphill battle is being treated.