Jul 17, 2008

How do you tell a difference between political, and commercial? (Oil Cut to Czech Republic)

By Andrej Nosko

How does one tell what is politics and what is business? If business uses the state to further its interests, people call it state capture. How do you call it when state uses business to further its interests? Raison d'etre?
Following the recent news in Czech Republic makes one wonder about Russia, or maybe rather about the rest of the Europe? Is not Russia the 'normal' one in the equation? It is doing what states have been doing for hundreds of years - maximizing its power.

Oil supplies from Russia have been cut to Czech republic, without any warning (in accordance to the agreement with Russia, the EC should have been informed), and U.S. presidential candidate Mr. McCain, subconsciously turned-on his Cold War reflex, when he expressed “regret some of the recent behavior that Russia has exhibited [...] including reduction in oil supplies to Czechoslovakia.”

When Nicollo Machiavelli wrote to his friend Francesco Vettori 495 years ago, that he can only talk about politics, because he doesn't understand business, the political reality was quite different. In the contemporary polyarchic political systems (people sometiems call them democracies, but this is energy security section, so I leave the conceptualization issues aside) interests (whose?) tend to be aggregated through political parties. Therefore state should cater for the needs of its citizens, through politicians aggregating the preferences and interests of their constituencies to maximize their potential for re-election, (which, if democracy functions well, should happen through catering for the decisive amount of electorate). Nonetheless, this is theory, the reality is, as usual, bit different. State uses business to pursue its needs and interests, and business uses the state reciprocally. This is particularly the case in the energy sector.

Without advertising a new movie (which in itself advertises bio fuels), the first few seconds of the following clip fit this blog: "Energy is really political, and it was always political."

On the July 10, Czech Ministry of Economy confirmed cuts in oil supplies from Russia. Nothing serious, previously I have written about the fact that Czech Republic has diversified its oil supplies, it also has sufficient strategic stockpiles (at 02/06/2008 CR had more than required 90 days of its consumption of fuels) this means that Czech refineries have sufficient time to buy substitute crude oil elsewhere, and they also have alternative route to ship it into the country.

So if there is nothing serious, one could ask why this blog-post. I would like to point out couple of similarities from the history, and pose couple of questions, without any definitive answers. On July 8, Czech Republic and USA signed an agreement on 'controversial' anti-missile shield radar base to be stationed in Czech Republic. This is part of a US system, that aims to protect USA against Iran, the other part of the system to be stationed in EU - the ten interceptor missiles are planned for Poland. Russia was not happy about this. At numerous occasions Russia has voiced its discontent with US plans to station its installations in Europe. Another example is at the end of this video, when Mr. Putin, back than president of Russia, 'theorizes' over aiming missiles at Ukraine, if it joins NATO - a potential move that Russia is not very happy about.

Therefore it is interesting, that the oil supplies were significantly 'reduced' only to Czech Republic, and this happened just a day after the signing of the agreement with USA. Russian side claims reasons are unpolitical (the official press statement states reasons as "technical organizational problems in Russia"). Nonetheless, even Russian media makes the connection, see an article in Kommersant, Pravda or longer historical and regional comparison in RIA Novosti. Let's review context of similar events from the recent past, when supplies of energy were significantly reduced, or cut completely, for business or technical reasons.

Besides the well known issue of 'gas row' with Ukraine in 2006, 2007 and 2008, which would deserve a separate post, and very interesting case of gas cut for Georgia (2001, 2004, and combined with electricity in 2006 - mostly in connection with the Russian supported separatism movements), or oil cut in Belarus in 2007 (over prices of products and transit fees, followed by an agreement on early warning system), the case of Lithuanian refinery Mazeikiu deserves more attention.

In July 2006, Lithuanian refinery Mazeikiu ceased to receive its oil supplies through Druzhba pipeline allegedly due to technical problems. Ideas of some, who have pointed out, that the fact that the cut, and a peculiar fire in the refinery, occurred after Gazprom was not succesful in trying to acquire the only Baltic refinery, over Polish PKN Orlen, are supported by the fact that the supplies have still not been restored. The refinery imports oil through its Butinge terminal, originally conceived as an export terminal.

Seeing this situation, and the experience of PKN Orlen, from Lithuania, and Latvia (Ventspils bid), its Czech operator Unipetrol (owning both of the Czech Refineries), may be facing another struggle with the Russians in the eastern part of the EU. It may also be another proof, that the distance between the politics and business is much smaller than the 15 km, that Alexander Medvedev mentions. (In an interview for Euronews at 5:30"/6:55" in this video referring to the distance between the Kremlin and HQ of Gazprom in Moscow).

Read more on How do you tell a difference between political, and commercial? (Oil Cut to Czech Republic)

Jul 14, 2008

Energy, Environment, Philosophy and a Couple of Related (not only summer) Videos

By Andrej Nosko

It is summer. According to the calendar also in Brussels, and although the heating season in Europe is out of sight (well, its not too warm here in Brussels, but heating is not required, at least not yet), with the increasing temperature swings, and the requirements for air conditioning energy consumption does not decrease too much. People travel more, go on holidays, politicians go on their long summer holidays, so it may be appropriate to provide also our readers with bit lighter 'summer post.' Here it comes, after bit more philosophical beginning, there is a selection of energy related videos (some even bit lighter). So just kick off your shoes, turn on the fan, grab a cooled refreshment and see the more interactive side of energy.

This first video is actually rather long (30min) presentation by (or rather of) Al Gore. His usual message. Lots of words.

I do not want to endorse Al Gore, I would rather like to offer a complementary reading, to balance the opinions, You our dear reader can make up your mind for yourself, as a teaser here is an excerpt:

"This small example of environmental atavism reveals a more fundamental aspect of the public discourse about climate change. At the core of environmentalist animus [...] is a categorical suspicion about technology itself, which is connected to a larger philosophical pessimism about human civilization and man’s supposed separation or alienation from nature. We have seen this style of argument during the long controversy over the arms race in the late stages of the Cold War, during which the immense political and technical aspects of the problem were, for a certain cast of mind, entirely subsumed beneath a more general critique of how the arms race was merely symptomatic of a larger crisis of civilization. Unless this larger crisis was addressed, it was suggested, there would be no hope the arms race could be solved.

It was not but twenty years ago that the large nuclear weapons arsenals of the superpowers threatened the instantaneous destruction of civilization and perhaps human life itself. Today, climate change is said to threaten the same things, only more slowly. It is remarkable how similarly the leading advocates for these two problems understand and conceptualize them. In the case of both the arms race then and climate change today, we are told that the issue is ultimately philosophical in nature, and that wholesale changes in our philosophical perspective must necessarily precede political and policy remedies to the problem. Should this perspective be taken seriously? What can it really mean?"
I recommend reading the whole thing here. Okay, its bit long and I know that it's not entirely summery and light, but philosophy and seeing things in wider context is often important to be able to tell BS and possible also see hidden agendas. (Without referring to anything in particular, of course)

For some reason when I saw the following commercial of Vatenfall AB, it reminded me of... well, see for yourself, if it reminds you of anything.

We like to buy stuff, when we feel guilty, just as this commercial points out:

If you feel guilty about your carbon footprint you can buy unlimited amount of clean consciousness here.

Here is a totally new and alternative source of energy, I have never heard of it before:

And finally two 'summer energy music hits' :

And another bit more energetic version of the same song:

Here is lyrics that comes with it (original by NFX):

One source of energy the ultimate discovery electric blue for me never more to be free electricity nuclear and H.E.P. Carbon fuels from the sea wasted electricity.

One source of energy electricity all we need to live today a gift for man to throw away the chances has nearly gone the alternative is one final source of energy solar electricity.

Read more on Energy, Environment, Philosophy and a Couple of Related (not only summer) Videos

Jul 13, 2008

Europe’s greatest energy-secret hidden beneath the onions and garlic!

By Andrej Nosko

The natural gas field near the city of Makó, known for the garlic and onion farming, is considered to be one of the largest continental troughs in the world. If the initial estimates prove to be accurate, amount of the non-conventional gas found under the garlic and onion fields of Makó would mean it is the biggest onshore gas field since 1959 discovery of Groningen field in Netherlands. This would position Hungary as an important gas producer, potential exporter and would free Hungary altogether from its gas import dependence.

Makó in the recent news
Although the presence of the non-conventional gas in Hungary strictly speaking, is not such a novelty. The news reemerged when on March 31, 2008 USA, Texas based consultant RPS Scotia Group, published the Resource Estimates of the Makó trough, and in the begining of April MOL Nyrt, the largest acreage holder for unconventional plays in Hungary and the owner of a well-developed energy infrastructure in Hungary, announced results of its joint study with Exxon, noting great potential in the Makó area.

The following map has been compiled and redrawn from various illustrative images, included in the Falcon Oil and Gas Ltd. FORM 51-102F1 (Management Discussion and Analysis for the year ended December 31, 2007) and MOL April 14, Press release, to illustrate the contractual relationships in the Makó trough. The map is interactive, and annotated, feel free to click on the colored polygons, or open the larger map before reading further.

View Larger Map
Open Map in Google Earth Progam (You must have Google Earth software installed)

Contractual relations in Makó trough
Although the largest acreage owner of the unconventional gas resources in Hungary is MOL, the news of Makó deposits was publicized mainly in connection with a series of announcement of joint deals between Canadian Falcon Oil and Gas Ltd., Hungarian MOL, and USA based ExxonMobil.

On April 10, 2008 the TXM Exploration and Production LLC, wholly owned subsidiary of Canadian British-Columbia based Falcon Oil and Gas Ltd. entered into a Production and Development Agreement with ExxonMobil Corporation affiliate Esso Exploration International Limited (acting in Hungary through its subsidiary ExxonMobil Kutatas es Termeles Magyarorszag Kft). On April 11, 2008, was this agreement followed by MOL and Exxon which signed an agreement to start a joint exploration work program in blocks 106 and 107 (see the map) in Makó Trough, as well as MOL's taking part on the Exxon's stake of the previous deal with Falcon. On May 16, MOL and ExxonMobil signed a Heads of Agreement to undertake a joint technical study of basins in Hungary with unconventional hydrocarbon potential.

Makó deposits in historical perspective
The predecessor of MOL, Hungarian state-owned oil company was exploring nonconventional gas deposits in Hungary (click for map overlay) already in 1960's and 1970's, and as WSJ quotes, geologist Dr. Gyorgy Szabó, currently a director at Falcon, who took part in the geological survey of the region in 1970s, Hungarian geologists "knew there were hydrocarbons there, but we also knew the rock was low-permeability and low-porosity." According to WSJ, in the late 1980s, the World Bank financed a deep-drilling program in Hungary, supervised by experts from the U.S. Geological Survey. The results of that review ended up in the hands of John Gustavson, founder of USA Boulder-Colorado based Gustavson Associates, who was touring former Warsaw Pact nations in 1991 on the lookout for oil and gas. In 1998 he acquired the license for a big chunk of Makó. Gustavon unsuccessfully tried to entice major oil companies into the project. Acording to WSJ he won interest of Marc Brunner, now CEO of Falcon Oil and Gas and, back than founding chairman of Ultra Petroleum, Pannonian Energy (which was in 2001 acquired by Gasco Energy of which Mr Brunner is currently a Chairman) and Pennaco Energy (Acquired by Marathon Oil), all companies with significant exprience in nonconventional gas exploration, notably in Wyoming.

Estimations of recoverable sources
Besides the news converage which is rather unreliable, since it does not provide citations, one can use two available reports for the 'preise' estimations. It is the September 2006 Independent Resource Assessment from The Scotia Group and March 2008 update to this report. The reports can be obtained throught search in the SEDAR database. The selected data from the reports is included in the following table (The comparison data is used from the BP Statistical Review of World Energy 2008):

Show the table in full screen.

This table summarizes the probabilistic summation of the recoverable resource estimates, nonetheless, this is only the technical probability of the project, and the certainty of the exploration still varies significantly. According to various sources, time to go online for the Makó gas varies from late 2008 to 2012 or to even later dates. Nonetheless, the news of the Makó deposits is very interesting and important, and although the nonconventional resources are not the cheapests there are, with the prices of gas predicted to rise substantially for Europe, even the nonconventional gas resources will prove indispensable and affordable.

If the predictions of Alexei Miller, Gazprom CEO, of gas prices rising to $500 per 1,000 cubic metres from the current $400 by the end of 2008 - or even $1,000, should the oil prices hit $250 per barrel - prove accurate, Makó's Hungaricum will not be onions and garlic, but natural gas and, a new landscape populated by hundreds of gas drill rigs.

Link to photo gallery of drills (added on November 19, 2008)

Read more on Europe’s greatest energy-secret hidden beneath the onions and garlic!