Konstantin Simonov: There will be no shale gas in Armenia

They in Armenia keep talking about ways to diversify their energy sources as what they have for the moment is just gas from Russia and a nuclear power plant using Russian uranium. There is also gas from Iran supplied in exchange for electricity (1 c m for 3KWh). Advocates of diversification in Armenia are mostly incompetent people talking about green energy, additional fuel imports and shale gas, allegedly discovered by Americans in the Lake Sevan basin. EADaily has asked Head of the National Energy Security Fund Konstantin Simonov to comment on these subjects, both globally and as applied to Armenia.

Shale gas

Shale gas and oil have been on agenda for a long time already. Some 7-8 years ago the world community believed that they were running short of gas and oil. Now they see that they have lots of resources. So, it turns out that our planet is even better than we thought it to be. We have methane everywhere. The Japanese are trying to extract it from water. So, why not to try to do the same at Lake Sevan?

The key problem here is the cost. Shale gas and shale oil are not myths. But I call them “carbon koalas.” Why? Because koala is an endemic. It lives only in North America. You can put it in a zoo and it will live but there will be no economics. Poland was such a zoo. The Poles drilled wells and proved that they could produce shale gas. But later they calculated the costs and saw that there were no economics.

This “koala” lives in North America due to a combination of unique factors.

The first factor is that the US has vast free territories unlike Europe or Armenia. The distance between Lake Sevan and Yerevan is just 75 km. This is not a distance. When extracting shale oil, you need to drill vertically, while for shale gas you need horizontal drilling. So, if today you start drilling in Sevan, in a couple of months you’ll get to Yerevan.

The second factor is that the Americans have their own technologies – lots of drilling rigs. Armenia does not produce them, so, it will have to buy them.

The third factor is that the Americans have infrastructure. They have perfect gas network, unlike the Europeans.

All these factors are crucial. Without them, just resources are not enough. I can grow pineapples at home, but this will not turn Russia into a producer of pineapples.

Our conclusion is that there will be no shale gas production in Armenia.

Renewables

When talking about green energy, we should know that this source generates electric power and is not a solution to the problem of fuel. For electric power to become a fuel, you will have to make it such. There is a concept saying that soon we will have only electric cars. But this is just one scenario and we can’t be 100% sure here.

This will require a developed system of recharging facilities that will let you recharge your electric cars quickly. Besides, electric cars will have to have sufficient fuel distance. Let’s imagine that your electric car has a fuel distance of 200 km – but this is good for ideal conditions but if you try to use such a car in the north of Russia, it will stop after a couple of meters. Have you ever tried to use your cellular phone when it is -15 C? Yes, you are right – it runs out in five minutes.

There are people that keep persuading us that we will soon witness a revolution. Recently Reuters published a list of the most influential researchers in the world, where on top was a cancer and Alzheimer’s disease specialist. But have they cured cancer or Alzheimer’s disease? No but they talk a lot about it. The same is true for batteries – Elon Musk (founder of PayPal, Tesla Motors and SpaceX) keeps saying that he will make some breakthrough battery and wants us to believe him. And people believe him and invest money in what he is doing. But not everything we invest money in, pays off.

This is important but here we need to know what green energy can give the world.

For Armenia, this is also crucial. Will the country switch to electric cars? For the time being, the Armenians prefer gas. This alternative is being actively discussed in many countries, including Russia. And here we have pioneers like Armenia and Pakistan. So, it is possible that in some 20 years we will use gas rather than electric cars.

Price has so far been one of the key problems of green energy. Today, this type of energy is not as expensive as it was before. The point is that when oil cost $100 per barrel, green energy producers spent huge state subsidies on development. And today they say that their production costs are almost the same as production costs in the gas sector. But the question here is how they calculate those costs?

The key problem of electricity is that it cannot be stored – unless you have a super-battery. Musk says that he has solved this problem and that very soon we will have batteries that will accumulate energy during the day and will give it at night.

One more problem is that you need constant current in an electric network. So, if you have a wind power plant and you have no wind, you need to have diesel fuel or some other fuel just to keep your network operating. So, when calculating your production costs, you will have to keep in mind this fuel as well.

Green energy producers in Europe and the United States are facing problems because of shale fuel. When they were asking for subsidies, their key idea was that very soon gas and oil would end. But now it turns out that there is plenty of gas in the world and it is cheap.

Statistics: there is much ado about green energy, but its share in global energy market is just 4%.

As regards Armenia, in future that country may have niches for green energy, particularly, water power. But there are much more serious things – gas and nuclear power.

NPP

The Armenian Nuclear Power Plant is an important factor in Armenia’s energy system despite calls by the EU and Turkey to shut it down. The best alternative to the plant – if it is shut down – is gas-generating capacities. Electric power from Georgia might also be an option. But nuclear energy has one big advantage – it is cheap. Due to the plant, the Armenians have no problems with electricity.

So, I don’t think that they will shut it down.

Gas imports

Armenia may import gas from Iran. But the problem here is that Iranian gas will not be cheaper than the gas supplied from Russia – especially now that there are chances that Gazprom will give Armenia an even bigger discount for its gas. The only market using gas from both Russia and Iran is Turkey. In Q4 2015, Russian gas there cost an average of $330 per 1,000 c m, while Iranian gas was 50% more expensive. So, this is all we need to know about the price of Russian gas for Armenia and the “others.”

Simonov gave the interview in Yerevan, where he was attending a roundtable on Eurasian integration and the South Caucasus. The event was also attended by Armenia’s deputy Energy and Natural Resources Minister Areg Galstyan, former Defense Minister Vagharshak Harutyunyan, UN energy expert Ara Marjanyan, political analyst Alexander Iskandaryan, military expert David Harutyunov, expert on Georgia Johnny Melikyan and Head of the International Institute for Newly Established States Alexey Martynov.