The Climate Spectator has a pair of article on EIA research into China's appetite for natural gas. The first looks at where China currently gets its gas from - How important is gas to China's energy mix?.

China more than tripled natural gas production since 2003, producing 3.8 trillion cubic feet in 2012, and the government is targeting production to reach about 5.5 Tcf of natural gas per year by the end of 2015. Most of the anticipated production growth is from large onshore fields in the western and north central regions of China as well as from the offshore deepwater regions in the South China Sea. China's natural gas consumption has outstripped domestic supply since 2007, triggering rising imports of both liquefied natural gas and pipeline gas. China's natural gas consumption rose at an average annual rate of 17 per cent from 2003 through 2013, reaching nearly 5.7 Tcf in 2013.

In 2013, China imported nearly 1.8 Tcf of LNG and pipeline gas to fill the growing gap between supply and demand. Imported natural gas met 32 per cent of China's demand in 2013, up from 2 per cent in 2006. China is swiftly developing its LNG import capacity in the urban coastal areas and currently has 10 major regasification terminals with 1.7 Tcf/y of capacity. In 2012, China rose to become the third-largest LNG importer in the world, after Japan and South Korea, and in 2013, the country imported 870 billion cubic feet of LNG. Estimates for the first half of 2014 show LNG imports growing at faster levels than in previous years.

The second article looks at the supply situation from Russia - China's gas equation, post-Gazprom.

Russia's largest natural gas company, Gazprom, finalised a deal with the Chinese National Petroleum Corporation in May. New natural gas production in Russia will mainly come from fields in eastern Siberia, which currently lack export infrastructure. The planned Power of Siberia pipeline will export gas south to China and east to a liquefied natural gas plant on Russia's east coast.

This contract is Gazprom's largest to date. Gazprom has a monopoly on pipeline natural gas export contracts made by Russia. The situation differs from that in LNG markets, where other companies such as Rosneft and Novatek may participate.

China's northern and eastern provinces have growing natural gas demand that cannot be met by existing pipelines or LNG, and the new Russian natural gas will mostly go to meet demand in these regions. China has also committed to purchasing 38 bcm (1.3 Tcf) per year of natural gas from Turkmenistan by 2016, increasing to 65 bcm (2.2Tcf) per year by 2020.

As a footnote, Technology Review has an article on China's problems trying to develop shale gas - China’s Shale Gas Bust.

In 2013 China became the third biggest user of natural gas behind the United States and Russia, consuming 166 billion cubic meters (bcm). By 2019, the International Energy Agency expects China’s annual natural gas consumption to grow 90 percent, to 315 bcm. Half of that increase is expected to be supplied by domestic gas production, which would come from multiple sources, including shale reserves.

That IEA estimate for gas consumption is much lower than the production target China had set for itself: 420 bcm of natural gas annually by 2020, with hydrofracturing, or fracking, being used to get 60 to 80 bcm from shale.

China is estimated to hold the largest technically recoverable reserves of shale gas in the world—nearly twice as much as the U.S. But the shale industry in China has struggled to get off the ground. Most projects are still in the exploration phase. In many cases the formations that hold gas are deeper than in North America and more expensive to reach. Further, Chinese shale tends to have more clay in it, which is an obstacle to extraction (see “China Has Plenty of Shale Gas, But It Will Be Hard to Mine”). These challenges led the government last week to reduce the 2020 shale-gas target to 30 bcm.

Even that would represent a huge increase. Of the 117 bcm of natural gas that China produced in 2013, only 0.2 bcm came from shale.

While I wouldn't view Dmitri Orlov or Gazprom as unbiased observers of the global gas industry, this post at Club Orlov is quite thought provoking - Shale Gas: The View from Russia.

The official shale gas story goes something like this: recent technological breakthroughs by US energy companies have made it possible to tap an abundant but previously inaccessible source of clean, environmentally friendly natural gas. This has enabled the US to become the world leader in natural gas production, overtaking Russia, and getting ready to end of Russia's gas monopoly in Europe. Moreover, this new shale gas is found in many parts of the world, and will, in due course, enable the majority of the world's countries to achieve independence from traditional gas producers. Consequently, the ability of those countries with the largest natural gas reserves—Russia and Iran—to control the market for natural gas will be reduced, along with their overall geopolitical influence.

If this were the case, then we should expect the Kremlin, along with Gazprom, to be quaking in their boots. But are they?

Here is what Gazprom's chairman, Alexei Miller, recently told Süddeutsche Zeitung: “Shale gas is a well-organized global PR-campaign. There are many of them: global cooling, biofuels.” He pointed out that the technology for producing gas from shale is many decades old, and suggested the US turned to it out of desperation. He dismissed it as an energy alternative for Europe. Is this just the other's sides propaganda, or could Miller be simply stating the obvious? Let's explore. I will base my exploration on Russian sources, which is why all the numbers are in metric units. If you want to convert to Imperial, 1 m3 = 35 cubic feet, 1 km2 = .38 square miles, 1 tonne = 1.1 short tons).

The best-developed shale gas basin is Barnett in Texas, responsible for 70% of all shale gas produced to date. By “developed” I mean drilled and drilled and drilled, and then drilled some more: just in 2006 there were about as many wells drilled into Barnett shale as are currently producing in all of Russia. This is because the average Barnett well yields only around 6.35 million m3 of gas, over its entire lifetime, which corresponds to the average monthly yield of a typical Russian well that continues to produce over a 15-20 year period, meaning that the yield of a typical shale gas well is at least 200 times smaller. This hectic activity cannot stop once a well has been drilled: in order to continue yielding even these meager quantities, the wells have to be regularly subjected to hydraulic fracturing, or "fracked": to produce each thousand m3 of gas, 100 kg of sand and 2 tonnes of water, combined with a proprietary chemical cocktail, have to be pumped into the well at high pressure. Half the water comes back up and has to be processed to remove the chemicals. Yearly fracking requirements for the Barnett basin run around 7.1 million tonnes of sand and 47.2 million tonnes of water, but the real numbers are probably lower, as many wells spend much of the time standing idle.

In spite of the frantic drilling/fracking activity, this is all small potatoes by Russian standards. Russia's proven reserves of natural gas amount to 43.3 trillion m3, which is about a third of the world's total. At current consumption rates, that's enough to last 72 years. Russian gas production is constrained by demand, not by supply; it is currently down simply because Eurozone is in the midst of an economic crisis. Meanwhile, US production has surged ahead, for no adequately explored reason, crashing the price and making much of it unprofitable.

Let's compare: Gazprom's price at the wellhead runs from US$3 to $50 per thousand m3, depending on the region. Compare that to shale gas in the US, which runs from $80 to $320 per thousand m3. At this price, the US cannot afford to sell shale gas on the European market. Moreover, the overall volume of shale gas being produced in the US, even given the feverish drilling rate of the past couple of years, if cleaned up, liquified, and shipped to Europe in LNG tankers, would not be enough to book up just the LNG terminal in Gdańsk, Poland, which is currently standing idle. It seems that Gazprom has little to worry about.

The US, on the other hand, does have plenty to worry about. There has been much talk already about groundwater pollution and other forms of environmental destruction that accompanies the production of shale gas, so I will not address these here. Instead, I will focus on two aspects that are just as important but have received scarcely any attention.

First, what is shale gas? Ask this question, and you will be told: “Shut up, it's methane.” But is it really? The composition of shale gas is something of a state secret in the US, but information about the gas produced from the nine Polish shale gas test projects did leak out, and it's not pretty: Polish shale gas turned out to be so high in nitrogen that it does not even burn. Technology exists to clean up gas that is, say, 6% nitrogen, but Polish shale gas is closer to 50% nitrogen, and, given high production costs, low yields, rapid depletion and low wellhead pressure, cleaning it up to bring it up to spec (which is 1% nitrogen) would most likely result in a net waste of energy.

Even if shale gas is low enough in nitrogen to burn, the problems do not end there. It may also contain hydrogen sulfide, which is toxic and corrosive and has to be removed before the gas can be stored or injected into a pipeline. It probably contains toluene and other organic solvents—ingredients in the fracking cocktails—which are carcinogenic. Lastly, it may be radioactive. All clays are mildly radioactive, and shale is a sort of heat-treated clay. While Barnett shale is not particularly radioactive, Marcellus shale, which has recently been the focus of frantic drilling activity, is. Thanks to Marcellus shale gas, radioactive radon gas is being delivered directly to your kitchen, via the burners of your stove, or to a power plant smokestack upwind from where you live. This is expected to result in increased lung cancer rates in the coming years.

Second, why is shale gas being produced at all? Natural gas prices have fallen through the roof, and are currently around $2 per thousand cubic feet. This works out to around $70 per thousand m3. If shale gas costs from $80 to $320 per thousand m3 to produce, it is unclear how one might make any money with it.

But perhaps making money with it is not the point. What if shale gas is just a PR campaign (with horrific environmental side effects)? Going back to what Alexei Miller said, what if the entire point of the exercise was to increase the capitalization of shale gas exploration and production companies? The number one company in shale gas is Chesapeake Energy, the owner of the Barnett basin and a major player in the Marcellus basin. This company almost went bankrupt in 2009, but then managed to claw its way back to profitability in 2010 and 2011 by drilling, and drilling, and drilling, and then drilling some more. Sixty percent of their revenue is from drilling operations. And now there is a scandal involving Chesapeake Energy's (former?) chairman, Aubrey K. McClendon, who apparently awarded himself a stake in each well his company drilled, used them as collateral for billions in loans, and used the loans to bet that natural gas prices will go up (they haven't). In the meantime, natural gas drilling rig count has dropped to a ten-year low. Given that shale gas wells deplete very quickly, it looks like the shale gas boom is over.

But now that it's over, what was it, exactly? It appears to have been something like the dot-com bubble: companies with no conceivable way of turning a profit using hype to attract investment and drive up their valuations. Since 2008, various kinds of hype-based market manipulations have become the staple of economic life in the US, and so this is nothing new or different.

One interesting question is, What sort of bubble will the US attempt to blow next, if any? There is the Facebook IPO coming up. Facebook is a ridiculous time-waster and, as such, seems a bit overpriced. Are we going to attempt blowing up another dot-com bubble? Another round of subprime mortgages does not seem to be in the works. What's a bubble boy to do? If there are no more bubbles to blow, then it's back to just plain printing money.

So this whole shale gas thing didn't work out as planned, did it? But could it have? Had it turned out to be much better in every way, could it have swung geopolitical influence away from Russia and Iran and back toward the US? Alas, no.

You see, there is no such thing as a global natural gas market. Yes, there are some LNG tankers sailing about, but that is very much a point-to-point trade. There is a closed North American market, a European market, and another market in the Asia-Pacific region. These markets do not interact. The North American market and the European market could have potentially shared just one producer: Qatar. Qatar once wanted to export LNG to the US, but then decided to export it to Europe instead, generating less of a loss, because European gas prices are substantially higher. And the reason Qatar is dumping natural gas in Europe is because it has gas to dump: its northern gas field is a very “wet” field, with a substantial percentage of natural gas condensate. Qatar's OPEC quota is 36-37 million tonnes of oil per year, but natural gas condensate is not considered to be oil and is not covered by OPEC quotas. Exploiting the condensate loophole allows Qatar to export 65.7 million tonnes: 77% over quota. The LNG is just concomitant production, and Qatar can afford to export LNG to Europe at a loss. This is a juicy bit of trivia, but really something of a footnote: an exception that proves the general case: there is no global natural gas market.

Just when you thought you'd seen everything - an ode to Russian gas, "which never runs out" - The Gazprom Song.

The LA Times has an article on some central asian great game play that seems to be driven by Gazprom not wanting to pay for relatively expensive Turkmen gas during a supply glut - Turkmenistan accuses Gazprom of causing pipeline explosion.

Turkmenistan blamed Russia's state natural gas monopoly Friday for a pipeline blast that shut off shipments to Russia — an unusual show of tension that could help Western efforts to buy Turkmen gas directly.

Turkmenistan's Foreign Ministry said in a flurry of statements that Russia's Gazprom decided on short notice to reduce the amount of gas it takes from Turkmenistan. Gazprom's export division gave only one day's warning, which wasn't sufficient time for Turkmenistan to reduce its flow into the pipeline network, the ministry said.

The blast, which occurred late Wednesday, "was caused by a gross unilateral violation by Gazpromexport of the norms and rules of the natural gas sales agreement," the statement said. Another statement said Gazprom's actions were "rash and irresponsible" and put lives at risk.

Gazprom has not commented, but Russian Foreign Minister Sergey Lavrov suggested Gazprom was not at fault. "This accident is purely technical," Lavrov said late Friday, according to Russian news agency RIA-Novosti. "I am counting on the fact that this will all be quickly settled."

But Turkmenistan's accusatory language — and putting the accusations at the diplomatic level — raise new questions about Turkmenistan's willingness to rely on Russia as the main purchaser of its gas.

Russia has aimed to corner the market on Turkmenistan's immense gas reserves, but the country also is being courted vigorously by the West, which wants Turkmenistan to be part of a proposed trans-Caspian route that would feed into the U.S.-and EU-backed Nabucco pipeline, which has yet to get off the ground. However, many analysts are skeptical about Nabucco's prospects because there appears to be insufficient gas for the pipeline.

In 2007, Russia, Kazakhstan and Turkmenistan signed a joint declaration on the construction of a 1,100-mile (1700-kilometer) pipeline along the Caspian Sea shore that would run from Turkmenistan through Kazakhstan and into Russia's network of pipelines to Europe. Gazprom hopes the pipeline will supplement current gas deliveries from Turkmenistan by around 30 billion cubic meters.

Work on building the pipeline has yet to get started, however, and disagreements between Gazprom and Turkmenistan could further stall the project.

Two weeks ago, Turkmen President Gurbanguli Berdymukhamedov was expected to sign a protocol on a second pipeline to Russia during a visit to Russia, but the move fell through for unspecified reasons. That was seen by analysts as a significant disappointment to Gazprom.

Turkmenistan meanwhile, has signed an agreement to sell 40 billion cubic meters of gas a year to China and could be interested in further diversifying its customer base.

The explosion damage to the Turkmen pipeline was not expected to cause major disruptions. And the temporary halt of Turkmen gas could work to Gazprom's advantage. Gazprom's gas output dropped 24 percent in March, and a company senior executive said on Thursday that production would be declining by 10 percent each year within the next five years.

While desperate for cash to boost domestic production, Gazprom has to pay for expensive imports from Turkmenistan which are getting far less attractive as demand in Europe is shrinking. Pumping gas from Turkmenistan is "simply unprofitable," said Dmitry Lukashov from UBS in Moscow.

AFP reports that Bolivian President Evo Morales has enacted a new constitution which further redistributes control of the countries resources to indigenous people - Morales enacts new Bolivian constitution

President Evo Morales on Saturday proclaimed the start of "communitarian socialism" in Bolivia as he enacted a new constitution that empowers the country's indigenous majority and allows him to seek reelection.

The move is the centerpiece of Morales' promise to "re-found Bolivia," South America's poorest country, and overturn a centuries-old political and social order inherited from Spanish colonial times.

Morales, the first indigenous president since Bolivia declared independence from Spain in 1825, told an enthusiastic crowd of supporters that right-wing opposition groups have been trying to oust and even kill him ever since he took office in 2006.

"Now I can say: you can take me out of the (government) palace, you can kill me ... mission accomplished for a united Bolivia!" he told the crowd in the working-class town of El Alto, a bastion of Morales support, just outside the capital La Paz. "Only the wisdom of our people, of our social forces have let us identify and defeat external agents, defeat US imperialism," he told the cheering crowd.

He noted that the new constitution bans foreign military bases in Bolivia, and made reference to the expulsion in September of US ambassador Philip Goldberg -- allegedly for organizing a plot against him -- and later all agents of the US Drug Enforcement Agency (DEA).

The sweeping constitutional changes allow 36 indigenous communities and groups to win the right to territory, language and their own "community" justice, and enacts agrarian reform measures by limiting the size of landholdings.

The IHT reports that Morales is heading to Russia to sign a gas deal with Gazprom - Bolivia leader to visit Russia, sign Gazprom deal.

Bolivia's vice minister of energy says President Evo Morales is heading to Moscow this month to sign a $3 billion deal with Russia's Gazprom energy giant. ... Donaire said Wednesday the pact covers development of Bolivia's natural gas industry, creation of a regional gas institute and updates to an earlier deal that also involves France's Total SA.

Reuters reports that Bolivia enjoyed high oil and gas prices in 2008 - Bolivia natgas, mineral exports up 42.6 pct in '08. I suspect there will be a large reversal this year.

Bolivian exports rose by 42.6 percent in 2008 to a record $6.84 billion on the back of strong prices for natural gas and minerals, the Andean country's top revenue earners, the government said on Wednesday.

The value of Bolivian exports grew strongly during the first nine months of 2008, but growth slowed in the fourth quarter due to the global financial crisis, the National Statistics Institute, or INE, said in a report.

Leftist Bolivian President Evo Morales is striving to increase state revenues from the country's natural resources and has raised taxes on energy and mining companies since taking office in early 2006. He has also nationalized several energy and mining firms as well as the country's largest telecommunications company.

Bolivian exports have been increasing since 2001, when exports from the impoverished South American country totaled $1.23 billion. Imports rose by 44.25 percent in 2008 to $4.99 billion, helping Bolivia achieve a trade surplus last year, the INE said in a separate report.

Sales of fossil fuels and minerals accounted for 72.4 percent of total exports, the INE said, and sales of natural gas and other fuels represented nearly 50 percent of exports.

Bloomberg reports that Venezuela is also investing in Bolivian energy projects - Bolivia’s Gas Investors to Spend $530 Million in 2009.

Bolivia’s energy minister said the country expects to boost oil and natural-gas investment to $530 million this year as ventures with Russia and Venezuela fill a void left by private investors.

Gazprom OAO, Russia’s natural-gas exporter, agreed to develop deposits in Bolivia’s gas-rich eastern lowlands, Bolivian Hydrocarbon and Energy Minister Saul Avalos said in an interview Feb. 4 at his La Paz office. Venezuela and Bolivia’s state oil companies plan to invest $240 million to explore in Bolivia. “The amount of investment this year is higher than before the nationalization,” Avalos said.

Investment in the Andean nation dropped almost 80 percent since President Evo Morales bought out refining assets and raised taxes to nationalize the gas and oil industries in October 2006. Investment fell to $120 million in 2006, Morales’s first year in office, from a peak of $580.8 million in 1999.

The energy industry had forecasted $332 million of energy investments in 2008. Bolivia has the second-biggest natural-gas reserves in South America after Venezuela.

Inhabitat has a report from Bulgaria on the continuing impasse between Russia and the Ukraine over Russian gas exports - Gazprom Crisis Engulfs Europe.

Home heating price increases have certainly been a major concern for recession-strapped households in northern climates, but the possibility of having one’s heat completely shut-off in this new era of natural resource ‘muscle flexing’ and bitter political show-downs is perhaps a whole new energy policy boiling point in Europe and beyond. Russia’s decision this week to turn off the flow of gas from its Gazprom pipelines to the Ukraine, which in turn forced many European countries to rely on their (in some cases virtually nonexistent) gas reserves, demonstrates the dire need to identify alternatives to Siberia and the Middle East for our massive oil and gas dependencies. Given that my family and I are currently in Bulgaria for six weeks, we are experiencing the Gazprom gas cut-off crisis first-hand. This issue will not be going away any time soon, despite the band-aid patches that will crop up over the next few weeks and months.

Media sources from around the globe began reporting earlier this week that exports of Russian gas via Gazprom had ceased to flow from Russia to the Ukraine. Central and Eastern Europe were worst hit as the bitter cold shuddered in the New Year with temperatures plunging to -10 C or lower in some regions. Heating systems were shut down as regional officials grappled with how to allocate whatever reserves, if any, they had – does one prioritize the elderly, the very young, schools, hospitals? According to reports from the BBC, “the EU says it wants its own monitors to check the flow of gas. The EU depends on Russia for a quarter of its gas supplies, some 80% of which is pumped through Ukraine. The countries that have reported a total halt of Russian supplies via Ukraine included Bosnia-Herzegovina, Bulgaria, Croatia, Greece, Hungary, Macedonia, Serbia, and Austria. Italy said it had received only 10% of its expected supply.”

Here in Bulgaria the situation is particularly dire as gas reserves can be measured in days alone. Cities outside of Sofia have been more drastically affected, although family members of ours living in the capital’s Soviet-style blocs were trying to manage in freezing cold temperatures without any heat or hot water. Given that centralized heating is the norm for these communities, every household is affected when a shut down occurs.

Politics and not just economics are to blame for the finger pointing that is occurring back and forth across the border between the Ukraine and Russia, as each accuses the other for the cut-off in supply. Many view this crisis as a case of Russia’s Gazprom and the Ukraine’s Naftogaz taking the EU’s gas supply “hostage”. This is perhaps the 21st Century’s first glimpse into how future wars may be fought.

The SMH reports that the Russians are playing hardball over price increases for gas to the Ukraine, causing some nervousness in Europe about possible supply interruptions - Russia cuts off gas to Ukraine.

Russia on Thursday cut off gas supplies to its neighbour Ukraine after failing to agree a new contract, sparking renewed concern over Europe's dependence on Russian-controlled energy resources. Major European consumers of Russian gas - most of which transits across Ukraine - reported no immediate impact on their supplies but the European Union expressed concern that the dispute had flared up yet again.

Russia's state-run gas giant Gazprom confirmed that supplies to Ukraine were shut off at precisely 10am (1800 AEDT) after the parties failed to agree terms for a 2009 contract to replace the old one which expired at midnight. "We have reduced the supply of gas to Ukraine by 100 per cent," Gazprom spokesman Sergei Kupriyanov told reporters.

Ukraine's gas company, Naftogaz, confirmed that the volume of gas it was receiving from Russia had dropped, but promised that transit of supplies meant for customers downstream in Europe would be guaranteed.

Gazprom's move recalled a similar cut-off in January 2006 that affected gas supplies to Europe, although this time, Ukraine and the EU say they have enough gas reserves to see them through the winter.

A Gazprom official said the flow of more than 300 million cubic metres per day of gas that transits Ukraine destined for clients further afield in Europe would continue unabated. Around a quarter of the gas used in the European Union - more than 40 per cent of the gas imported by the bloc - comes from Russia, 80 per cent of it moving in pipelines that pass through Ukraine. ...

The European Union's Czech presidency and the European Commission said in a joint statement that they were "concerned" by the turn of events. But Italy and Poland, two big consumers, said on Thursday they had no immediate problem with their Russian gas deliveries. Germany said precautions had already been taken to ensure supplies were not disrupted.

Kiashu at GWAG has a look at the Russian energy situation as well - After the game is won, all bets must be paid.

We see recently linked on TheOilDrum an article saying that Russia has "blundered" because... it relies on fossil fuel exports for money. The writer Steve LeVine is speaking too soon in saying that Russia is "in trouble". For one thing, he lacks perspective,

"Simply put, Russia is in trouble. Its much-ballyhooed $600 billion cash reserve base dropped by a quarter by Dec. 1, to about $450 billion, and even further since."

At least they have cash reserves, rather than having to borrow funds to do their spending. He goes on,

"The Putin era’s new generation of oligarchs, like Deripaska — men who obtained ownership of large parts of Russia’s industrial sector in the last few years — is lining up for a bailout from some $110 billion in foreign debt coming due next year. According to Bloomberg’s Yuriy Humber and Torrey Clark, that’s twice the debt owed in Brazil, China and India. The oligarchs are seeking some $78 billion in loans."

It is unclear why US$280 billion for the EU, or US$700 billion for the US, or US$255 billion for Japan, why these occasion no comment in an article where the much smaller amount of US$110 billion is presented as a dangerous thing.

Of course the Third World has a total debt of some $523 billion; readers may recall that a few years ago when the Third World asked for this debt to be delayed or written off, it was explained that doing this would cause financial chaos in the West; we can afford $1,235 billion for ourselves, but cannot afford $523 billion for them. We wagged our fingers and gave them a lecture about fiscal responsibility. Stop laughing, please, it's rude.

Apparently, tremendous debts are bad for Russia and the Third World and absolutely must be paid back as soon as possible, but tremendous debts are an unfortunate necessity for us in the West and we should pay them back... well, sometime later, no hurry.

LeVine, an American writing in an American magazine, also quotes Zachary Shore, an American, as speaking of Russia's "weak banking sector", and apparently is not trying to be ironic.

This sort of article shows how the West tries very hard to present itself as a brilliant success and the rest as a dismal failure. But Russia of course also has natural gas, and while oil's price has plummeted from near $150 in July to under $40/bbl this December, natural gas has halved rather than dropped by three-quarters; though as Lavine correctly notes, much gas is sold on long-term contracts, so spot prices don't reflect immediate conditions as much as with oil. Can Russia increase its gas prices to make up for loss of oil revenue? It seems that they think so.

Putin says "cheap gas" era ending

Mr Putin said the cost of extracting gas was rising sharply, therefore "the era of cheap energy resources, of cheap gas, is of course coming to an end".

The Gas Exporting Countries Forum (GECF) [a precursor to a natural gas version of OPEC] meeting in Moscow has agreed a charter and plans for a permanent base. [...]

The countries attending are Algeria, Bolivia, Brunei, Egypt, Indonesia, Iran, Libya, Malaysia, Nigeria, Qatar, Russia, Trinidad and Tobago, the United Arab Emirates and Venezuela. Equatorial Guinea and Norway are attending as observers. [...]

Officials at the meeting stressed they were not trying to set up a price-fixing cartel. [...]

Ukraine row

At the moment Russia remains locked in a dispute with Ukraine over non-payment of debts. Russia's Gazprom says Ukraine owes it $2bn (£1.4bn) and has warned it may cut off gas supplies next month if the dispute remains unresolved. [...]

So what do we have?

1. Russia's income from oil drops
2. Russia speaks of the possibility that gas will become more expensive
3. Ukraine is behind on its gas bills, and so Russia may cut their gas off, which - oh no! would cut off a good chunk of Europe, too - most unfortunate and I'm sure Russia would express many regrets.

They don't need an official price-fixing cartel with that happening. The EU will pay Ukraine's gas bill, and in the next round of gas contracts higher prices will be negotiated. Putin and Medvedev, following their checkmate of the West in the Caucasus where the EU was trying to diversify its oil and gas supplies, now want the EU to pay up.

This is the price the West pays for continuing to burn large amounts of fossil fuels. Russia is not blundering, we are.

Dilip Hiro has an article at TomDispatch on The Current Oil Shock, noting there is "no end in sight". he doesn't really grapple with peak oil, simply referring to "static supply" and doesn't seem to have any idea about clean energy at all, instead looking at limitations of coal and nuclear for nations looking to increase energy supply.

When will it end, this crushing rise in the price of gasoline, now averaging $4.10 a gallon at the pump? The question is uppermost in the minds of American motorists as they plan vacations or simply review their daily journeys. The short answer is simple as well: "Not soon."

As yet there is no sign of a reversal in oil's upward price thrust, which has more than doubled in a year, cresting recently above $146 a barrel. The current oil shock, the fourth of its kind in the past three-and-a-half decades, and the deadliest so far, shows every sign of continuing for a long, long stretch.

The previous oil shocks -- in 1973-74, 1980, and 1990-91 -- stemmed from specific interruptions of energy supplies from the Middle East due, respectively, to an Arab-Israeli war, the Iranian revolution, and Iraq's invasion of Kuwait. Once peace was restored, a post-revolutionary order established, or the invader expelled, vital Middle Eastern energy supplies returned to normal. The fourth oil shock, however, belongs in a different category altogether.

Nick Turse also has a post up at TomDispatch on Iraq and "The Oil Deal Nobody Wants to Talk About", looking at the close links between Hunt Oil and the Bush Administration.

For years, "oil" and "Iraq" couldn't make it into the same sentence in mainstream coverage of the invasion and occupation of that country. Recently, that's begun to change, but "oil" and "the Pentagon" still seldom make the news together.

Last year, for instance, according to Department of Defense (DoD) documents, the Pentagon paid more than $70 million to Hunt Refining, an oil company whose corporate affiliate, Hunt Oil, undermined U.S. policy in Iraq. Not that anyone would know it. While the hunt for oil in Iraq is now being increasingly well covered in the mainstream, the Pentagon's hunt for oil remains a subject missing in action. Despite the staggering levels at which the Pentagon guzzles fuel, it's a chronic blind spot in media energy coverage.

Let's consider the Hunt Oil story in a little more detail, since it offers a striking example of the larger problem. On July 3, 2008, according to the New York Times, the House Committee on Oversight and Government Reform found that Hunt Oil had pursued "an oil deal with the regional Kurdistan government that ran counter to American policy and undercut Iraq's central government." Despite its officially stated policy of warning companies like Hunt Oil "that they incur risks in signing contracts until Iraq passes an oil law," the State Department in some cases actually encouraged a deal between the "Texas oil company with close ties to President Bush" and Kurdistan that "undercut" Prime Minister Nouri al-Maliki's government in Baghdad.

Asked if the White House was aware of Hunt Oil's negotiations with Kurdistan's largely autonomous regional government, President Bush's press secretary Dana Perino replied, "I don't know of anybody who was aware of it."

It turns out that wasn't exactly the truth of the matter. The Times noted that the company's chief executive, "Ray L. Hunt, a close political ally of President Bush, briefed [the President's Foreign Intelligence Advisory Board, of which he was a member] on his contacts with Kurdish officials before the deal was signed." In fact, in a July 2nd letter, Committee Chairman Henry A. Waxman told Secretary of State Condoleezza Rice: "Documents obtained by the Committee indicate that contrary to the denials of Administration officials, advisors to the President and officials in the State and Commerce Departments knew about Hunt Oil's interest in the Kurdish region months before the contract was executed."

For the Times, however, the hunt for the story ended with Hunt Oil. No attention was paid to its corporate twin, Hunt Refining, with its own major financial ties to the Pentagon, the President, and the U.S. occupation forces in Iraq. This despite the fact that the company proudly promotes itself as "a significant supplier of jet fuel to the U.S. Department of Defense" in the Southeastern United States.

And why not be proud? Ever since the President's Global War on Terror revved up and Iraq was invaded, Hunt Refining has quietly reaped major rewards. While the company was a defense contractor back in the 1990s, according to DoD documents, Hunt did not receive any funds from the Pentagon in 2000 or 2001. From 2002-2004, however, the company began garnering contracts and collected an average of just over $15.5 million a year. And only then did the good times begin to roll. In the last three years, records show that Hunt has taken in increasingly larger sums of taxpayer dollars from the Pentagon -- $39.6 million in 2005, $52.2 million in 2006, and, in 2007, a whopping $70 million. (Hunt Refining did not return telephone or email messages seeking comment for this article.)

Hunt's largest 2007 Pentagon contract was for the delivery of both aviation turbine fuel and JP-8 jet fuel -- the latter a product used by the Army and Air Force that is very similar to commercial jet fuel. That deal was awarded just months before Hunt Refining and its affiliate Hunt Southland Refining agreed, according to Department of Justice documents, "to pay a $400,000 civil penalty and spend more than $48.5 million for new and upgraded pollution controls at three refineries" as part of a settlement to resolve "alleged violations of the Clean Air Act."

In addition to its Pentagon connections, Hunt Refining, too, has tight ties to President Bush. Ray Hunt's son Hunter Hunt, the senior vice president of Hunt Oil Company, is, according to his corporate biography, "also involved in special projects that occur at Hunt Refining Company." The younger Hunt, however, took a leave of absence from the family businesses, from 1999-2001, to work for the Bush presidential campaign "as the primary Policy Advisor responsible for energy issues" and chief architect of Bush's national energy policy.

While Hunt Oil is finally making headlines and garnering press attention for its Bush administration connections and dealings in occupied Iraq, just as it should, Hunt Refining's complex ties to the force in charge of occupying that country aren't considered news at all. Despite the obvious financial relationship and network of curious ties that extend from the White House and the Pentagon to Texas, Alabama, and Iraq, this part of the story is just considered business as usual.

Iraq is also the topic of this June article from Naomi Klein - Disaster Capitalism: State of Extortion.

It's been ten months since the publication of my book The Shock Doctrine: The Rise of Disaster Capitalism, in which I argue that today's preferred method of reshaping the world in the interest of multinational corporations is to systematically exploit the state of fear and disorientation that accompanies moments of great shock and crisis. With the globe being rocked by multiple shocks, this seems like a good time to see how and where the strategy is being applied.

And the disaster capitalists have been busy--from private firefighters already on the scene in Northern California's wildfires, to land grabs in cyclone-hit Burma, to the housing bill making its way through Congress. The bill contains little in the way of affordable housing, shifts the burden of mortgage default to taxpayers and makes sure that the banks that made bad loans get some payouts. No wonder it is known in the hallways of Congress as "The Credit Suisse Plan," after one of the banks that generously proposed it.

But these cases of disaster capitalism are amateurish compared with what is unfolding at Iraq's oil ministry. It started with no-bid service contracts announced for ExxonMobil, Chevron, Shell, BP and Total (they have yet to be signed but are still on course). Paying multinationals for their technical expertise is not unusual. What is odd is that such contracts almost invariably go to oil service companies--not to the oil majors, whose work is exploring, producing and owning carbon wealth. As London-based oil expert Greg Muttitt points out, the contracts make sense only in the context of reports that the oil majors have insisted on the right of first refusal on subsequent contracts handed out to manage and produce Iraq's oil fields. In other words, other companies will be free to bid on those future contracts, but these companies will win.

One week after the no-bid service deals were announced, the world caught its first glimpse of the real prize. After years of back-room arm-twisting, Iraq is officially flinging open six of its major oil fields, accounting for around half of its known reserves, to foreign investors. According to Iraq's oil minister, the long-term contracts will be signed within a year. While ostensibly under control of the Iraq National Oil Company, foreign firms will keep 75 percent of the value of the contracts, leaving just 25 percent for their Iraqi partners.

That kind of ratio is unheard of in oil-rich Arab and Persian states, where achieving majority national control over oil was the defining victory of anticolonial struggles. According to Muttitt, the assumption until now was that foreign multinationals would be brought in to develop brand-new fields in Iraq--not to take over ones that are already in production and therefore require minimal technical support. "The policy was always to allocate these fields to the Iraq National Oil Company," he told me. This is a total reversal of that policy, giving INOC a mere 25 percent instead of the planned 100 percent.

So what makes such lousy deals possible in Iraq, which has already suffered so much? Ironically, it is Iraq's suffering--its never-ending crisis--that is the rationale for an arrangement that threatens to drain its treasury of its main source of revenue. The logic goes like this: Iraq's oil industry needs foreign expertise because years of punishing sanctions starved it of new technology and the invasion and continuing violence degraded it further. And Iraq urgently needs to start producing more oil. Why? Again because of the war. The country is shattered, and the billions handed out in no-bid contracts to Western firms have failed to rebuild the country. And that's where the new no-bid contracts come in: they will raise more money, but Iraq has become such a treacherous place that the oil majors must be induced to take the risk of investing. Thus the invasion of Iraq neatly creates the argument for its subsequent pillage.

Several of the architects of the Iraq War no longer even bother to deny that oil was a major motivator. On National Public Radio's To the Point, Fadhil Chalabi, one of the primary Iraqi advisers to the Bush Administration in the lead-up to the invasion, recently described the war as "a strategic move on the part of the United States of America and the UK to have a military presence in the Gulf in order to secure [oil] supplies in the future." Chalabi, who served as Iraq's oil under secretary and met with the oil majors before the invasion, described this as "a primary objective."

Invading countries to seize their natural resources is illegal under the Geneva Conventions. That means that the huge task of rebuilding Iraq's infrastructure--including its oil infrastructure--is the financial responsibility of Iraq's invaders. They should be forced to pay reparations. (Recall that Saddam Hussein's regime paid $9 billion to Kuwait in reparations for its 1990 invasion.) Instead, Iraq is being forced to sell 75 percent of its national patrimony to pay the bills for its own illegal invasion and occupation. ...

Intimately connected to the price of oil is the global food crisis. Not only do high gas prices drive up food costs but the boom in agrofuels has blurred the line between food and fuel, pushing food growers off their land and encouraging rampant speculation. Several Latin American countries have been pushing to re-examine the push for agrofuels and to have food recognized as a human right, not a mere commodity. United States Deputy Secretary of State John Negroponte has other ideas. In the same speech touting the US commitment to emergency food aid, he called on countries to lower their "export restrictions and high tariffs" and eliminate "barriers to use of innovative plant and animal production technologies, including biotechnology." This was an admittedly more subtle stickup, but the message was clear: impoverished countries had better crack open their agricultural markets to American products and genetically modified seeds, or they could risk having their aid cut off.

Genetically modified crops have emerged as the cureall for the food crisis, at least according to the World Bank, the European Commission president (time to "bite the bullet") and Prime Minister of Britain Gordon Brown. And, of course, the agribusiness companies. "You cannot today feed the world without genetically modified organisms," Peter Brabeck, chairman of Nestlé, told the Financial Times recently. The problem with this argument, at least for now, is that there is no evidence that GMOs increase crop yields, and they often decrease them.

But even if there was a simple key to solving the global food crisis, would we really want it in the hands of the Nestlés and Monsantos? What would it cost us to use it? In recent months Monsanto, Syngenta and BASF have been frenetically buying up patents on so-called "climate ready" seeds--plants that can grow in earth parched from drought and salinated from flooding.

In other words, plants built to survive a future of climate chaos. We already know the lengths Monsanto will go to protect its intellectual property, spying on and suing farmers who dare to save their seeds from one year to the next. We have seen patented AIDS medications fail to treat millions in sub-Saharan Africa. Why would patented "climate ready" crops be any different?

Meanwhile, amid all the talk of exciting new genetic and drilling technologies, the Bush Administration announced a moratorium of up to two years on new solar energy projects on federal lands--due, apparently, to environmental concerns. This is the final frontier for disaster capitalism. Our leaders are failing to invest in technology that will actually prevent a future of climate chaos, choosing instead to work hand in hand with those plotting innovative schemes to profit from the mayhem.

Privatizing Iraq's oil, ensuring global dominance for genetically modified crops, lowering the last of the trade barriers and opening the last of the wildlife refuges... Not so long ago, those goals were pursued through polite trade agreements, under the benign pseudonym "globalization." Now this discredited agenda is forced to ride on the backs of serial crises, selling itself as lifesaving medicine for a world in pain.

Moving on, it seems the Iranian partnership with Gazprom may have been the straw that breaks the camel's back with the US reported to be planning to reestablish diplomatic ties - After 30 years, US to send diplomats to Iran. Of course, this could just be a cynical Republican maneouver to try to reduce oil prices in the run-up to the election.

The US is planning to establish a diplomatic presence in Tehran for the first time in 30 years, a remarkable turnaround in policy by president George Bush who has pursued a hawkish approach to Iran throughout his time in office.

The Guardian has learned that an announcement will be made in the next month to establish a US interests section in Tehran, a halfway house to setting up a full embassy. The move will see US diplomats stationed in the country.

The news comes at a critical time in US-Iranian relations. After weeks that have seen tensions rise with Israel conducting war games aimed at Iran and Tehran carrying out long-range missile tests, a thaw appears to be under way.

The White House announced today that William Burns, a senior state department official, is to be sent to Switzerland on Saturday to hear Tehran's response to a European offer aimed at resolving the nuclear standoff.

Yet another Bush administration foreign policy success - Iran has to decided to let Gazprom help develop its oil and gas reserves.

IRAN and Gazprom have signed an agreement for the Russian energy giant to help Teheran develop its oil and gas fields. The move comes just days after Total dropped out of a multibillion-dollar gas deal and also after Iran announced overnight it has discovered a new oil field.

Oil Minister Gholam Hossein Nozari said the oil field in province of Khuzesta holds 1.1 billion barrels of sweet crude oil, of which 233 million is recoverable.

“The Iranian National Oil Company and Gazprom signed an agreement in which the two sides will cooperate in the development of Iran's oil and gas fields,” the oil ministry's Shana news agency said.

No financial details were given but the agreement signals Iran's determination to secure Russian help for exploiting its energy resources as Western countries pull out due to political pressure.

The head of French energy giant Total last week said it was dropping out of a multibillion-dollar gas investment to develop phase 11 of the South Pars gas field, saying it was currently too risky politically to invest in Iran.

The Asia Times has an interesting report on Chinese difficulties in obtaining gas at a price they like - with Gazprom proving just as eager as LNG exporters to lock in high prices.

China is a power behind global commodity flows as well as prices. But Beijing has been slow to understand that it is the horse that pulls the cart; the whip hand belongs to the coachman.

Chinese negotiators have already made one colossal mistake in pricing their supply of liquefied natural gas (LNG). They are making a second in trying to draw out of Russia a discount for natural gas. For China to insist on tying Gazprom down to the extraction cost of Siberian gas - at a fraction of the price Gazprom sells its gas to Western Europe - is producing an impasse in current negotiations and slowing down Russia’s readiness to invest in the pipeline systems, on which Chinese calculations depend. ...

According to calculations by a Moscow gas market analyst, the share of natural gas in China's energy supply is expected to more than double to 7% by 2010 from the present 3%. In 2004, domestic natural gas production reached 47.5 billion cubic meters (bcm) in China. Consumption was at roughly the identical level, but is growing fast and is outpacing domestic extraction rates. The PRC's gas needs will amount to 97 bcm as early as this year and 103-120 bcm by 2010, according to conservative estimates. It is clear that gas imports are vital for China.

"Russian gas is the optimal and most mutually beneficial option to satisfy the PRC's increasing energy needs and hence the parties are interested in shortly achieving the targets stated in the Protocol," one analyst said. "From a commercial viewpoint, it is crucially important for Gazprom that gas will be supplied at prices formulated on the basis of petroleum prices. Certainly, there are some other benefits, including a relative proximity of consumers (the transmission route to China is far shorter than to Europe) and the absence of transit countries along the supply route."

The Chinese have been trying to come up with alternatives, and see if they add to leverage with Moscow and improve their bargaining position in the global market. The Russian conclusion is that they have thrown themselves a boomerang.

According to one industry source: "Take, for example, the LNG market - already this isn't working. Recent history shows that when China came to the LNG market to buy, everyone started pushing up the price. So the initial Chinese plan to buy everything on the LNG market raised the price, instead of holding it stable. The main suppliers for China now are Indonesia, Malaysia and Australia. But extraction in some of these countries will be falling. In others, pricing is tied to crude oil."

Gas traders claim that the Chinese at present find themselves signing to pay a premium to the prevailing crude oil price for LNG from the Middle East. A recent contract with Qatar sets a gas price equivalent to US$130 per barrel of crude oil. Freight costs come on top. Deliveries contracted from Australia in the Gorgon project (off the northwest coast of Western Australia) will not start until 2014, but they too are tied to oil. Chevron, ExxonMobil and Shell have signed forward agreements to share the product of Gorgon LNG between India, Japan and PetroChina. But supply to China will be limited to 1 million tonnes per annum, according to the heads of agreement signed last September.

If the crude oil price remains at the current level, then gas from these sources could cost China more than $500 per thousand cubic metres. That is roughly double the prevailing price at which Gazprom supplies gas to Europe.

Alternative supply schemes under consideration in Beijing include a pipeline from Myanmar, but the capacity is very small - just 10 bcm. Other pipeline routes from Turkmenistan and Iran are "a black box", the Russian source says. "The deposits are far from proven, and there are too many risks over too many borders, as the gas moves to China."