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66 comments on The Russian Bear?
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66 comments on The Russian Bear?
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A blockade is an act of war. An embargo is not. Ukraine (and Russia) have no duty of care to see that Western Europe doesn't freeze.
And nobody is placing an embargo. It's EU issue for EU to resolve. Russia already proposed numerous pipelines that would allow higher supplies during very cold periods and would increase reliability of supplies overall. It's was EU (not all, but some of EU countries) that was delaying North Stream. EU at this point has nobody to blame but itself.
As far as Ukraine it's has a horrible goverment that choose to try to blackmail EU and Russia yet it quite possible that it's actions will backfire. Russia offered gas to Ukraine below the cost that Russia itself is paying for imported gas. I think Putin mentioned that Russia was willing to subsidies Ukraine due to their tough economic situation. But after Ukraine tried to blackmail Russia and blocked EU gas, all goodwill on part of Russian goverment is gone and now they are demanding full market price. I believe EU officials have already stated that if Ukraine ever wants to become part of EU it must stop it's current actions and allow Russian gas to pass though unobstructed.
Europe has certainly brought this on itself by simply assuming the contracts will be fulfilled. I can't for the life of me understand why the EU wouldn't step in to help Ukraine pay a sensible price for the gas they use from Russia unless they thought it was just a bluff on Russia's part. But then the EU does not act as one. Though as a critical transit country for natural gas, you'd think Europe would care what happens to Ukraine. Now things have got out of hand it will take more than a quick sit down meeting to sort things out. What a pickle!
However hifi, you sound less than objective in the tone you use to express the issue. What Russia has done *does* amount to an gas embargo even if they don't cast it as that. Fine, it's an indirect embargo and they felt their hand was forced, but either way they risk letting thousands freeze in Eastern Europe over this - that's pretty serious. The alternative pipelines are not built. The Baltic option will take a while yet and the capacity of the belarus and Turkish pipelines is insufficient.
At a time when energy suppliers in Europe were set to lower gas prices, it seems all too convenient timing that this comes now. Obviously it was planned long in advance by Russia. Each party has its role to play here. Germany has avoided taking sides with either Russia or Ukraine and is leading the discussion nowhere. They should have stepped in far earlier but then they have the storage capacity - it's not Germany's population that stands to freeze. They can just sit on the sidelines.
Russia has no viable way to deliver gas to Europe. It can't force Ukraine to let that gas pass though.
You can call it an embargo, but it's clearly not an embargo by Russia. Russia is doing everything it can to send gas over (maxing out it's other pipelines to Europe and Turkey), but it can't control government in Ukraine. You can say that Ukraine government closing off it's transport network is effectively enforcing an embargo against EU. Yet even that is not 100% correct. EU is the party that choose to delay (indefinitely?) construction of North Stream. And as such it is EU that effectively choose (it clearly had a choice here) to be in a position where transit country can blackmail it. I know it's easier for EU to look for villain elsewhere then to admit it's own failures. But how can a reasonable person accuse Gazprom of not doing enough, when it was the very party that probably fought the hardest to ensure reliable gas supplies to EU, while EU was working hard at blocking that? Seriously, credit due when it's due. And people freezing their asses off, should know who to thank for that.
I also do not get why would you say that it was planned by Russia. It reminds me of people who would claim that Russia somehow forced Georgia to attack S. Osetia. Russia does not control government of Ukraine (or Georgia since I brought it up). All that Russia can do is respond in situations like that. It was pretty clear that this would happen for many months now. Russia constantly had to fight battles to get Ukraine to pay for the gas that it used. It was not unexpected that Ukraine would blackmail Europe and Russia when new prices would be applied for the new contract. Russia certainly tried to avoid that by offering price below it's own cost (effectively subsidizing a rather incompetent government in Ukraine) but Ukraine's government refused. I believe that most EU governments have way more influence over current government of Ukraine that Russia does. Why didn't EU forced Ukraine not to interrupt gas flows is beyond me.
You might say that North Stream would not be ready by now. But if it was being build it would be a very different situation.
"I can't for the life of me understand why the EU wouldn't step in to help Ukraine pay a sensible price for the gas"
ROTFLOL, Ukraine has been charged less than half the going rate and they haven't even paid that on time as per contract. We know what happens when gas or oil etc are priced too low; it encourages demand and discourages efficiency - see SUV. should we be subsidising the cost of oil & coal elsewhere? give me subsidised energy and I will run plenty of energy intensive businesses and undercut those paying the market price.
Of course Ukraine should receive something for the transit but this must be a relatively small part of the overall cost. Typical rates are around $4 for 1,000 cubic metres of gas per 100km against a cost of say $400 for 1,000 cubic metres of gas.
Preventing your goods from being stolen is not an embargo.
The EU should be applying maximum pressure on Ukraine to agree to pay the market rate for gas, not steal any and agree the correct rate for transit. Otherwise why on earth should the EU want as a member a state that will not follow normal rules?
How is 400 USD/mcm consistent with market? At current FX rates this translates to 27-28 EUR/MWh which is about 20% *over* western european prices for the next 3 years.
400 USD/cm = 294 EUR/cm /10.4 = 28.3 EUR/MWh
Cal 10 TTF ~22.60
Cal 11 ~ 24
Can someone explain how this is "at market?"
I got my figures from platts
"... Last year Ukraine paid Russia around $179.50/1,000 cubic meters for gas supplies, compared with an average price for European importers of around $400/1,000 cu m. Gazprom had offered to supply gas to Ukraine at a price of $250/1,000 cu m in the first quarter of this year in last-minute negotiations at the end of 2008, but this was rejected by Naftogaz. Dubyna {the head of Ukraine's state oil and gas company Naftogaz Ukrayiny} said part of the dispute centered on how much money Ukraine receives for its services as a transit country.
Ukraine consumes around 6.4 Bcm/year of gas to maintain pressure in the transit pipelines, he said, which would become more costly if Ukraine has to pay Russia a higher price for its gas.
..."
Sounds like a lot of gas just to maintain pressure, maybe they're not stealing the gas it's just leaking :-)
Here's a free article
http://www.platts.com/Magazines/Insight/2008/dec/2e0qZ08120812BS0sQ92P0_...
Wouldn't it be nice if all the prices for gas were quoted using the same measure rather than say (USD/MMBtu UK: GBp/therm, Alberta: CAD/Gj) from upstream, $179.50/1,000 cubic meters ... I suppose that's the beauty of standards, there's so many to choose from:-)
One of the problems is that the whole russia/ukraine deal is murky involving third parties, so who knows what is being creamed off. I would like to hope that Putin is cleaning up after the criminal years of Yeltsin, but who really knows?
There's a good schematic map on the FT site that shows gas movements - principally from Russia and Norway - with production, consumption and transit figures for every country in Europe.
http://www.ft.com/cms/s/0/ceba9530-dcef-11dd-a2a9-000077b07658.html
Obviously Europe should not be reliant on one shaky source for a critical portion of its energy. After a few days of cold even the Germans might be in favour of some nukes, everybody will be willing to pay more for e.g. wind power, home solar water, European electricity grid linked to North Africa...