All Gas Or Just Hot Air?

This is a kind of bits-and-bobs post without a lot of coherence, as I am trying to make sense of something which is hard to make sense of, so anyone with more specialist knowledge, please chip-in.

Now I think what we have here is a highly complex situation, and if individual actors behave strangely in a complex situation, this should not in fact surprise us. The big picture scenario is the economic take-off of what are going to be two enormous energy consumers – India and China – and a growing per-capita consumption of energy in the rest of the OECD towards the previous US ‘highs’. This has lead to a large and significant increase in oil prices, and the rest of what is happening can be seen as the scrum which has assembled in the wake.

Now what else do we know?

Well firstly that oil was also cut off to Moldova, and Armenia was threatened with a substantial rise

Secondly there is this news :

At a solemn ceremony on December 15, Kazakh President Nursultan Nazarbayev pressed the button to officially begin pumping oil at the Atasu terminal along the new Atasu-Alashankou pipeline. ….The planned extension of the Kenkyak-Atyrau pipeline built in 2003 to the Kumkol oil fields in Kyzylorda region (south Kazakhstan) will increase greatly the volume of oil to be delivered to the refinery in China’s Xinjiang Autonomous Republic.

In other words, it is possible to build pipelines in more than one direction.

Much of the oil needed to fill the pipeline is expected to come from the Kumkol fields in south Kazakhstan, which China gained after the acquisition of the PetroKazakhstan oil company, and Chinese-owned oil deposits in Aktobe region, west Kazakhstan. However, China needs Russia’s Siberian oil to make the pipeline profitable. The endeavor requires a great deal of diplomatic skill not only from Beijing, but also from Astana.

Also, gentle reader, kindly note:

“It is also possible that India might join the gas pipeline project.”

Really I know hopelessly little about the whole Siberian and Asian gas issues, but maybe we are all just about to become experts, among other reasons because after Russia the other major gas producer seems to be Iran.

As background reading I would heartily recommend this paper – Siberia: Russia’s Economic Heartland and Daunting Dilemma – by Brooking’s Fiona Hill and this one – Demographic/Health Problems in the Russian Federation: Trends, Dimensions, Implications – by Nicholas Eberstadt.

Especially this part of the latter paper:

But Russia’s demographic decline can be viewed in terms of its specific regional as well as broader its global geopolitical implications. One area that falls under especially intense demographic pressure is the vast expanse of the Russian Far East. Despite the region’s ostensible development potential, the fact is that the area has never attracted much in the way of natural settlement, nor supported much in the way of self-sustaining enterprise. Quite the contrary: the peopling of the Russian Far East, both during the Russian Imperial age and the Soviet era, was historically predicated upon involuntary movement of forced labor—and massive economic subsidy.

With those subsidies programmatically interrupted in the post-Communist era, the Russian Far East has registered especially sharp demographic decline, most of it due to out-migration. Whereas Russia as a whole reported a population decline of less than 1.5% between its 1989 and 2002 censuses, the Russian Far East registered
a drop of about 15%. Some parts of the territory experienced even more precipitous depopulation over that interval: Sakhalin was down 23%; Kamchatka, 24%, Magadan, over 50%.44 [SEE FIGURE 32] And given the Russian Far East’s environmentally and climatically challenged prospects for truly business-worthy undertakings, the impending decline of the Russian population base, and the national economy’s less than unlimited potential for lavishing unrequited financial rewards upon current or future residents of the tract, it is by no means clear that this enormous territory’s tiny population—currently, less than 7 million people stretched across a space of 2.4 million square miles—can remain as densely populated as it current is over the decades ahead.

The present “near-demographic vacuum” in the Russian Far East—and the prospect that population density in the region may decline still further in the years ahead—has invited continuing geopolitical speculations of a “yellow peril” hue in contemporary Russian journalistic and political circles, with sometimes anxious imaginings that a populous and overcrowded Chinese neighbor would encourage a Volkswanderung north, to colonize and (re)claim the terrain. Those imaginings, it must be said, seem to be informed more by xenophobic fears than economic
reasoning: the economic fundamentals of the frozen Russian Far East, after all, are scarcely more appealing to Chinese peasants than to the region’s fleeing Russian citizens. (If anything, the region may be even less hospitable in Chinese than Russian eyes for a variety of cultural reasons.)

Be that as it may: even if there is no “push” from China into this vast and open territory, an empty and otherwise unprotected expanse, which borders both a rapidly changing China and a perennially belligerent North Korea—and which includes the site of an unsettled territorial dispute with Japan—is likely to remain a continuing security concern to policymakers in Moscow, and stands likely only to add to the defense and internal affairs outlays that the Russian state’s diminishing population will be obliged to finance over the years ahead.

Fiona Hill makes equally interesting reading on this very same topic.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

4 thoughts on “All Gas Or Just Hot Air?

  1. Another result from some late night surfing:

    “For its part, Gazprom appears to welcome the proposal to monetize the ‘transit-for-supplies’ relationship with Ukraine. Not only does the idea support the Russian major’s attempt to liberalize gas prices for Russian industrial consumers from 2006, but it also gives the gas giant the incentive to push for higher gas prices for Moldova as well. Moldova may get stuck paying even higher gas prices to Gazprom from 2006, but there is clearly a political dimension to Gazprom’s threat to raise Moldovan gas prices to ‘European levels’.

    At the same time, Belarus — which has its own tortuous ‘transit-for-supplies’ arrangement with Gazprom — could see the Russian gas giant turn around and use Naftogaz’s proposal against Belarus, forcing Belarus to pay higher prices. Monetization of this relationship could bring about the downfall of Belarussian President Alexander Lukashenka, as the Belarussian economy — while less dependent on gas transit revenues than Ukraine — is even more dependent on cheap Russian gas supplies. Changes in the Ukrainian-Russian gas sector relationship, then, could have knock-on effects in Belarus and Moldova, forcing Ukraine’s neighbours into market-oriented reforms as well.”

    from: http://www.prime-tass.com/news/print.asp?id=372687&topicid=65

    The monetization aspect is interesting. And the whole text is well worth a read.

    If there are any accountants reading AFOE, check out this Independent Accountants’ Review Report for Gazprombank (pdf): http://www.gazprombank.ru/media/papers/financial_report/2005/GPB_IFRS_Intrim_CFS_6m_2005-e3.pdf

  2. after Russia the other major gas producer seems to be Iran

    No analysis on how Iranian demographics will impact the country’s ability to export energy? Especially if the US and/or Israel are forced to make sure nuclear power won’t be used? I am surprised.

    You should also look at the planned Iran/India/China pipeline. Considering what India and China would have to release into the planetary atmosphere without that gas, I am inclined to be happy that they get the stuff.

  3. Edward, your dismissal of Siberia and the Russian far east is predicated on them remaining cold. Is this what is expected to happen under global climate change?

    I have seen no studies talking about the expected changes to specific regions of the world, only the more general “world ‘average’ temperature rises by x degrees” type studies. I can understand that modellers may not want to make predictions that are currently uncertain, either because the computational horepower is not yet available, or because the effects that are important for regional prediction are not yet fully understood.
    Bearing that in mind, the two kinda-sorta claims in this regard that I have seen occasionally mentioned are
    * the infamous cooling down of Europe/UK from the gulf stream shutdown
    * a warming of Russian central Asia
    (* I would imagine, though I’ve not seen this mentioned, an analogous warming for Canadian central North America)

    Anyone have any light to throw on this? Predictions of how the climate of Russia will change over the next 50 years?

    (On the same topic, it would seems to a naif like myself that Russia and Canada do extremely well out of global climate change, Europe does pretty badly, the US seems to be a mixed bag, and, the interesting cases, China, again perhaps mixed bag, India more bad than good, and Brazil and Indonesia more bad than good.)

  4. @ Maynard

    You are obviously right about climate. The problem is time scale – the short, the medium and the long runs.

    Most of the energy and demographic issues seem to loom in the 2010 – 2020 horizon, I may be wrong (since I don’t know enough here, and as you indicate maybe no-one does) but it seems the big climatic impacts would come towards the last quarter of the century. In the short term demographics and energy consumption would only seem to be a positive feedback mechanism building up the climatic change.

    So yes, buying some land to build for your grandchildren in Canada (or even Siberia) might be a much better investment than a house now in Barcelona or Shanghai.

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