Denial works. In a way.

During a televised Q&A session in April 2013, Vladimir Putin responded to a journalist’s claim that Gazprom had mistakenly written off the shale gas revolution as a short-term fluke:

So it’s hard to say whether Gazprom missed the ‘shale-gas revolution’ or not – we do not have an answer yet. Why? Because shale gas production cost is much higher, many times higher, than that of gas extracted in a traditional way.

At that time, the US was producing a little over 80 bcf/d. There has been no sign of a decline since. In fact, natural gas output (as measured by gross withdrawals) surpassed 110 bcf/d in August 2019. The principal limiting factor appears to be the capacity of LNG export facilities rather than production capacity. Moreover, as LNG plants and terminals are being built, American gas is now the number one threat to Gazprom’s market share in Europe. Production costs have gone down dramatically, of course, enabling the output growth and making American LNG reasonably competitive.
In other words, Gazprom got it wrong in 2008, kept getting it wrong – together with Putin – in 2013, and who knows if they’ve taken off their blinkers since. They’ve surely noticed something, and you should never underestimate the predictive power of a broken clock:

With regard to production in the United States, it is becoming an exporter, indeed, and we are well aware of it…
….there are growth restrictions [limits to growth] in the United States as well. I am not going to list the reasons behind such restrictions. Our analysts believe that US production has reached, as the oil people say, “a plateau.” We do not predict any serious growth.

This was said last week, Nov. 20, 2019 – six and a half years after the quotes above. It’s an excerpt from Putin’s response to a question asked by a Total executive.

Now, it’s quite possible that US oil production will peak or plateau pretty soon. At about 13 mmbpd, it’s 0.5 mmbpd higher than Saudi Arabia’s production capacity, to say nothing of its actual production. (If you added natural gas liquids, the gap would increase.) Whether Russia could be producing 13 mmbpd rather than 11-plus mmbpd now without the OPEC+ deal is an open question. Hypotheticals aside, the US is the largest crude producer globally. From a base so high, fast growth can’t be realistically expected, especially in percentage terms. In physical terms, the EIA expects the US to add more than 500,000 bpd in liquids output between this month and the end of 2020. That would be more than twice the size of Russia’s production cut under the latest OPEC+ deal. Even 3% pa growth can go a long way if the base is around 20% of the world’s supply.

More interesting is how Putin’s advisers arrived at this: “we do not predict any serious growth.” I am tempted to think it was by repeating the same formula for years. Since no growth can go on forever without slowing down at some point, all you have to do is keep saying it until it works. Sort of.


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