April 16, 2010
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Home / Issue Archive / 2010 / March #3

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Editor's Letter

Gazprom Taps Thomas Paine for a “Common Sense” Approach to the Shale Gas Challenge

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Pat Davis Szymczak

   I’m writing this month from Houston where I’m attending IHS CERAWeek. To say this event is “high level” is an understatement. There are more energy company CEOs and senior government officials per square meter here than you’ll find at any other event anywhere else in the world.

   I’m so impressed that I got up at 5 a.m. one day to be sure I’d not be caught in traffic while driving across town to hear Gazprom’s Deputy Chairman Alexander Medvedev deliver the morning keynote. But at a 7:30 a.m. breakfast session on “Chinese Gas Demand” I learned that Medvedev had cancelled because Russia’s prime minister had requested his presence in India.

   Of course, no one believed the India story and throughout the day I noticed a bit of snickering whenever someone uttered the “R” word. Soon though the press in Moscow reported what was really happening “under the carpet”: Gazprom was incensed that ENI CEO Paolo Scaroni had (in his dinner speech the night before Medvedev’s planned appearance) suggested that the competing Nabucco and South Stream pipelines be partially merged. Here in Texas, we’d call that “an ambush.” Had Medvedev showed up the next morning, his message would not have been heard. The audience would have one question in mind … “Would Gazprom support Nabucco?”

What Was Alexander Medvedev Supposed to Say?
Why would Scaroni deliberately try to embarrass Medvedev? ENI is the technology advisor and main commercial partner to the Gazprom-led South Stream. Both pipelines would deliver gas to Europe and both are political. South Stream keeps Gazprom in control while Nabucco seeks to diversify supply so as to lessen European dependence on Russian gas. South Stream could be twice as expensive as Nabucco, which in turn, may face difficulty securing supply to fill the pipe.
Gazprom would not debate such a thing in a forum as public as IHS CERAWeek. I must say though that I was amused to read the text of Medvedev’s speech which was later posted for download at “CERAWeek Online” together with a White Paper on Gazprom’s industry view. I’m not joking, Gazprom’s U.S. speechwriter opened Medvedev’s keynote by quoting Thomas Paine!

   “I am here to challenge your thinking and your perceptions,” quoting from the opening graphs. “One of your founding fathers and noted political philosophers, Thomas Paine, is widely known for his phrase: ‘These are the times that try men’s souls.’ Well apparently, as we have all learned over the past 18 months, times have not changed as much as we would like to think since 1776.”

When the Best Government is No Government
Since most Oil&Gas Eurasia readers are Russian, let me try to explain why this sounds so funny to an American who has lived in Russia. Thomas Paine was a pamphleteer and an intellectual revolutionary who heavily influenced the French and the American Revolutions. Every American school kid knows Paine as the author of the pamphlet “Common Sense,” written in 1776 – the year my ancestors told England’s King George III what he could do with his taxes. Yes, he is a “Founding Father” and to a man, America’s Founding Fathers were all fiercely independent landowning capitalists who thought that the best government was “no government.”

   The bit of history that Paine represents – “The Enlightenment” – is the very bit of history that all my Russian friends tell me that “Russia missed” and that’s why we Americans and Russians can’t understand each other. Then, the real howler (yes, this is a direct quote!) “To quote your President Reagan: ‘Let’s trust but verify.’” What?! The late U.S. President Ronald Reagan said this, but in the context of U.S.–Soviet nuclear disarmament. This is the same Cold Warrior Reagan who labeled the U.S.S.R. “The Evil Empire” and implored, “Mr. Gorbachev, tear down that wall!”

   Where did Gazprom’s PR advisor in the U.S. get this (student intern?) speechwriter? I’m tempted to say that if I were Russian I’d be offended, but honestly, I have to say that, as an American who does business in Russia, I’m offended too. It seems that Americans and Russians can’t communicate important stuff to each other because the kitsch stereotypes keep getting in the way.

A Call for Market-Driven Competition
Medvedev did though have a serious message to communicate. Quoting his text: “Energy is not a weapon but a resource, and governments must not script regulations and ‘policies of the month’ that create volatile investment parameters … and people in this room cannot preach the need for opportunity to invest in Russia’s resource base while simultaneously working with governments around the world trying to restrict [Gazprom’s] participation in pipeline and energy projects. Let’s decide whether this industry is going to be a politically driven one or a market driven one. I am for the latter, unless you are afraid to compete with us.”
Gazprom is feared because it is a state-owned producer with title to the world’s largest natural gas reserves. So if world powers had traded natural gas in 1776, King George III would have been in control, and Thomas Paine, together with America’s Founding Fathers, would not have had a chance.

   In the “18 months” that Medvedev’s writers suggest have “tried men’s souls” the U.S. has gone from a market ready to consume LNG from Gazprom’s Shtokman field, to a market that now sees no need for further LNG imports (Russian or otherwise.) In the last 18 months, shale gas has become the craze. And several presentations at IHS CERAWeek suggested that the U.S. may become a net exporter of natural gas, even of LNG. Had Medvedev delivered his keynote, he would have disagreed: “The development of shale gas is real but the price at which sustained shale production is feasible over the long-term will enable LNG to compete in the U.S. market. This is the basis of Gazprom’s strategic commitment to Russian LNG as a head-to-head competitor in North America with shale gas producers and other gas suppliers.”

   If Medvedev is right, that is good news for Shtokman. But even if his speechwriter got the LNG angle wrong, Gazprom has options. Gazprom is knocking on doors in Washington DC to obtain rights to develop U.S. gas reserves; it is trading gas out of offices in Houston and in London. And as for shale, the fact is, Russia has the most shale gas in the world if you add up estimated deposits in West Siberia and European Russia near the Arctic Circle. In Moscow in March, the Duma discussed recommendations that the government explore commercial development of Russian shale gas. With apologies to Thomas Paine and King George, I think that makes a whole lot of “Common Sense”!

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