#24 - JRL 2007-38 - JRL Home
From: "Dietwald Claus" <dietwaldclaus@hotmail.com>
Subject: Economist Intelligence Unit Gas Blunder
Date: Thu, 15 Feb 2007
Economist Intelligence Unit Gas Blunder [re JRL #28, February 5]

The Economist’s Intelligence Unit has committed a serious blunder when ranking the world’s gas exporting countries in “A gas OPEC ­ don’t worry, there won’t be an effective cartel” (February 5, 2007). Referring to BP Energy Review data for 2005, the authors claim the five largest exporters of gas to be “Russia (151bn cubic metres); Canada (104bn cu metres); Norway (79bn cu metres); Algeria (65bn cu metres); and the Netherlands (47bn cu metres)”.

This is not correct. The Economist failed to notice that these numbers refer to contracted gross exports only, and do not take into consideration imports. In the context of energy security, contractual gross export volumes do not matter. What matters is surplus production ­ how much gas a country has left after domestic consumption is deducted from domestic production.

Looking at gross export data provides only distorted picture. For example, with 4.4bcm gross exports, Belgium looks almost as import as Denmark, whose exports were 5.29bcm. However, Belgium imported 21.9bcm (both LNG and piped gas) in the same year and has no domestic production at all, while Denmark didn’t import any gas and has a domestic production of 10.4bcm.

Furthermore, the data used by the Economist does not consider trade movements within the FSU (in fairness to BP, this is clearly pointed out in the report but was obviously overlooked by the Economist’s analyst’s). Thus, while Russia’s surplus production is 192.9bcm, its contractual gross exports are given as only 151.28bcm. The same applies to Turkmenistan, whose contractual export volume is given as 6.9bcm (compare this to Belgium’s 4.4bcm), while its surplus production is whopping 42.2bcm! Clearly, somebody should have smelled rat when Turkmenistan’s gas exports appeared only marginally more important than Belgium’s or Denmark’s!

When contractual imports are deducted from exports, the picture becomes marginally less distorted, but still places Turkmenistan just marginally above Denmark, and below the Netherlands, Bolivia and Myanmar. But when ranked according to surplus production, the picture begins to look more plausible to anybody with some understanding of the international gas market:

1. Russian Federation 192.90 bcm

2. Canada 94.10 bcm

3. Norway 80.50 bcm

4. Algeria 63.70 bcm

5. Turkmenistan 42.20 bcm

6. Indonesia 36.60 bcm

7. Trinidad & Tobago 29.00 bcm

8. Qatar 27.60 bcm

9. Malaysia 25.00 bcm

10. Netherlands 23.40 bcm

The Economist’s analysis suffers from other shortcomings: it considers Iranian gas exports to Europe to be insignificant. Ironically, Europe’s Nabucco project ­ which is meant to diversify European gas supplies and has been discussed more than once in the Economist ­ depends to a large degree on an increase in Iranian gas production. While current Iranian production is only 87bcm, its growth potential is tremendous. Last but not least, Iran exports almost as much gas to Turkey as Qatar to Spain ­ the latter’s only European customer.

It’s also quite strange for the Economist to dismiss the possibility of a gas cartel on the grounds that in the short-to-medium term, Gazprom has no alternative but to sell its gas to Europe and Turkey. After all, as long as Europe cannot get gas cheaper elsewhere ­ which is precisely what a cartel is all about ­ this is irrelevant.

It’s anybody’s guess whether there will be an effective gas cartel or not ­ but it is unwise to dismiss the possibility as of yet, particularly if one’s analysis is as faulty as that of the Economist’s Intelligence Unit.

Dietwald Claus
Kirov, Russia.