Our first problem of the year is an energy one
Posted by Heading Out on January 1, 2006 - 1:58pm
Since the Russian government is likely to expand this policy to other countries that have left their sphere of influence, this could be the beginning of a whole new set of political realities. And it is a set where Western Europe and the United States, since we do not have the reserves, will be unable to help much.
UPDATE The New York Times points out that it is not only Ukraine that is involved.
Effects were starting to be felt in Europe tonight. The Hungarian natural gas wholesaler MOL said that deliveries from the affected pipeline were down more than 25 percent, according to Reuters. The news agency added that in Poland, supplies dwindled 14 percent.Because the amount of gas that flows through a pipe is controlled by the driving pressure that is used to push the gas along, the Russians have reduced the pressure in the pipeline. This, in turn, lowers the volume that the pipe will deliver over its length. In note that in the stories there is apparently some evidence that the Russians have that the Ukrainians are tapping the pipe as it carries the gas through their country. This was expected , according to a Russian spokesmanPolish officials said reserves were adequate for now, and the Hungarian company asked big gas consumers to switch to oil where possible.
The dispute comes a year after the Orange Revolution brought a pro-Western government to power in Ukraine, and ends a decade of post-Soviet subsidies in the form of cheap energy that allowed Moscow to retain some influence over the former Soviet republics. At the heart of the conflict is a jump in Moscow's utility bill for Ukraine: Russia is now asking for $220 to $230 per 1,000 cubic meters of natural gas, up from $50 now. Ukraine's economy has depended on buying cheap energy from Russia.
From the very beginning the Ukrainian authorities had plans to begin to use gas without permission from January 1," said Kupriyanov. "To be more precise, they planned to start to steal gas -- steal it from European consumers." Ukrainian officials have sent mixed messages about their intentions. Yushchenko has said that supplies to other European countries would not be affected by the dispute, but Ukrainian Prime Minister Yuri Yekhanurov said his country was entitled to 15 percent of the gas crossing Ukraine as a transit fee.
Contact
- Content: editors at theoildrum dot com
- Tech support: support at theoildrum dot com
License
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.
Does the US have the refrigeration plants and transport to carry LNG to Europe?
We only have LNG evporators for imports, not liquifiers for exports.
The Europeans will substitute heavy oil for gas for heating and power peaking and steam generation, which will increase the price of oil.
They will pay for the oil by selling US treasury bonds, which will decrease the value of the dollar in comparison to the euro.
Which will hurt our imports and help our exports. Expect to see a lot of Europeans visiting America in search of cheap vacations, retirement homes, college educations, medical procedures, etc.
Energy, especially Natural Gas, is a regional trump card that we will see played time and again.
That suggested Ukraine was making up for its shortfall by drawing gas intended for other countries. Gazprom officials in Moscow said they would not know definitely if that was the case until later on Sunday.
Gazprom said gas deliveries to western Europe would not be disrupted, unless Ukraine covered its own shortfall by siphoning off transit supplies being piped westward across its territory.
Russia flexes it's power. The US must react.
Also, Problem #2-
Exxon no longer operates in Venezuela-
Venezuela takes control of oil fields
Business Briefcase
CARACAS, Venezuela (AP) - Venezuela's state oil company said yesterday it has successfully signed agreements to bring all 32 privately operated oil fields under government control after reaching a deal with Spanish-Argentine oil company Repsol YPF.
http://canadaeast.com/apps/pbcs.dll/article?AID=/20051231/TTMONEY09/%20512310510/-1/MONEY
How important is this? Notice you will find Nothing about this in the US MSM.
Or that 40% of oil/gas GOM production is still shutin and offline.
http://www.businessweek.com/ap/financialnews/D8EQOKV8A.htm?campaign_id=apn_euro_up&chan=gb
Russia wants to increase the price to Europe and blame the Ukrainians, and is doing that now. Russia figures to boost the price of the oil to make up for the loss of natural gas going through the Ukraine. Russia previously renationalized the oil industry to make sure they got the increase in oil prices.
But what the Ukraine is doing is to cut off the supply of gas to the factories in the eastern, Russian speaking part of the Ukraine, which are owned by the Moscow types, instead of cutting off natural gas to the consumers in the Ukraine as a whole.
Big whorls have little whorls
That feed on their velocity,
And little whorls have lesser whorls
And so on to viscosity.
-- Lewis F. Richardson
It has by accusing Russia of assorted nefarious motives while at the same time not making a single squeak about blatant Ukrainian thievery. The US then expects Russia to supply it with LNG and complains that there isn't enough investment in Russian oil and gas production. Why should Russia do anything for the USA? The US walks and talks like Russia's enemy and at the end of the day it is Russia's enemy.
http://www.baltimoresun.com/news/nationworld/bal-gas1226,1,539239.story?coll=bal-nationworld
headlines
Natural gas buyers in bidding war
EU, Asia willing to pay premium for supplies, placing chill on U.S. imports
By Russell Gold
The Wall Street Journal
Originally published December 26, 2005
Excerpt:
"In an extreme example of the situation, a tanker carrying liquefied natural gas last month arrived from Nigeria and idled in the Gulf of Mexico for a week -- during which prices soared in Europe - before sailing to Spain to unload its cargo. Recently, the Spanish have been willing to pay $2 to $3 per million BTUs above Gulf Coast spot prices, according to PIRA Energy Group, a New York consultant. South Koreans, meanwhile, are paying a premium of about $2 and the British a premium of $2 to $6."
Drudge Report:
PAPER: 'United States planning a military strike against Iran'...
http://www.jpost.com/servlet/Satellite?pagename=JPost%2FJPArticle%2FShowFull&cid=1135696369601
Ok, reading a little between the lines Russia is basically saying: "Now that you're not our good friend anymore, we're not going to subsidize your energy supplies any longer."
Of course here in the US, charging 4x more overnight is considered highway robbery, no matter what the history of that "price" or the other intangibles that were exchanged as quids to support that price, so we shocked and cry foul at the free market replacing old client state relationships.
But I wonder who holds more power in this situation. Russia has the gas, but Ukraine has the pipeline:
and they have Russia's Navy:
It's already an interesting year.
The critical piece is how long the Ukraine can hold out without stealing gas from the pipeline and it seems they already are. They didn't prepare well for this round, but there will be more.
If Russia builds a pipeline through Belarus, then Ukraine could be literally left out in the cold.
Or at least, that's the offical story...
My drink is now on the screen!
Until the Russians no longer need the pipeline, Ukraine can simply fulfill their contract from what passes through their territory.
"During the period between 2005 and 2009 the Customer (Gasprom) will sell annually natural gas at the price of 50 US dollars for 1000 cubic meters, which is not subject to change by the parties, from the gas transportation services of Russian natural gas through the territory of Ukraine to ensure the gas balance of Ukraine."
In light of Europe selling treasury bonds, this is not good following John Snow's comments that the US govt doesn't have enough cash to run past February - mid-March.
This crisis highlights the need for energy self-sufficiency, and also the spiralling costs of natural gas making it unsuitable for heating and electricity production.
I've posted my thoughts about the situation at Earth Sentinel, my site dedicated to finding solutions to peak oil and climate change. Read down for two excellent arguments for supporting a nuclear/hydrogen economy.
Nick
EU nations have started to feel the impact of Russia's axeing of gas supplies to Ukraine, as Moscow accused Kiev of stealing EU supplies.
Source: BBC (link)
Ukraine: US$230 (Russian demand, up from $50)
Belarus: US$47
Armenia and Georgia: US$110
Romania: US$280
Average EU charge: US$240
Poland was heavily involved in the "Orange revolution" backing Yushchenko's side. This created a bitter dispute with Russia and it will be interesting to see whether gazprom will insist on bumping that rate as well. Although a hike of $40 dollars is unlikely to have as big an impact on Polish economy as quadrupling the prices would for Ukraine.
Ukraine is the biggest consumer of natural gas per capita in the world. Instead of demanding gas for a trivial price they should focus on conservation and adoptation of new technology to replace the obsolete equipment they use now.
http://www.ego.gov.tr/gdb/gaz_2.asp
It translates to slightly more than US$300 per 1000 cubic meter. What is the price the Russians charge? That's a difficult question, and the answer may very well be top secret. The issue is that Turkey receives gas via two pipelines, one crossing Ukraine, Romania and Bulgaria, and the other, "Blue Current" that crosses the Black Sea. The price of natural gas depends on which pipeline it crosses, and some other factors.
The Turkish state monopoly BOTAS web site has some useful information. Especially, the following table shows annual natural gas imports of Turkey by origin since 1987:
http://www.botas.gov.tr/eng/activities/ng_ttt.asp
The Austrians, with help from the Hungarians and Rumanians are pushing for a new pipeline to IRAN. The project is called Nabucco. So for the Russian side, this might be a window of opportunity, as long as the Ukrainian route is the only viable one.
I've written about it in more detail here: It was cold, will it be cold when it matters?
- The act or an instance of extorting
- Illegal use of one's official position or powers to obtain property, funds, or patronage
- An excessive or exorbitant charge
- Something extorted
This Russian blackmail is meant to influence the upcoming Ukrainian parliamentary elections in March. I would say this generally makes Russia an unreliable energy supplier.This lesson will not be lost on the Europeans even if they do gang up on the Ukraine in the coming week. Can't wait for that next G8 summit due to be held in the first half of July 2006 in St. Petersburg. You know, guys, I know this is a serious situation and all that but right now I can't stop laughing!
If Ukraine wants to siphon gas destined for other consumer countries then it is not Russia's responsibility. Laugh all you want.
Or perhaps you have some other understanding of how Gazprom's contracts work?
"Crying"? Hey, wait a minute -- I'm on Gazprom's side, as far as the price formula being applied here in Lithuania. I agree, $125-$140 per 1000 m^3 works for me. I posted on this in another thread, started by Yankee, some days ago. I don't see Gazprom's price charged to Lithuania as being particularly political...the formula relies on market prices at Rotterdam, Antwerp, and Amsterdam, if I recall correctly.
Is the US using Iraqi oil? I mean all of it?
How easy would it be to pull this off?
With all the problems lately, our supplies seem to be above normal and prices are still pretty cheap.
This might also explain why the US neocons (Chalabi) are pushing for higher prices in Iraq, it would lower the costs of Iraqi exports even more.
I am removing my tin-foil hat now
Not according to the US. First what is "all of it"? Nobody knows exactly.
Second, how much Iraqi oil did the US use in 2004? Again if anybody knows they aren't telling but roughly .6 million barrels a dayJust bfore the war started in 2003, the US was getting 80 to 90% of Iraq's exports. There is no reason to think this has changed much.
So if production figures are correct, and it is not coming to the US, where is it going?
Perhaps this is why the oil markets seem to have less supply than indicated by the production figures.
To have a market, don't you have to have at least two or more competing suppliers and two or more consumers who have a real choice in doing business with any or all of those suppliers? In the Russia/Ukraine/EU natural gas chain we have, for the most part, a single supplier - Russia - and a number of consumers who have little choice but to deal with that single supplier.
This is a market only in the sense that if the Ukraine and the EU countries agree to pay a high enough price, and if they don't do anything to further piss the Russians off, then maybe Russia will open up the spigot.
I agree with the previous poster who said that this situation perfectly fits the definition of 'extortion'. I fear this type of situation will become all too common in the year ahead.
against humanity. Russia only supplies 25% of the EU's gas so the point about "single supplier" is rather hollow.
http://news.bbc.co.uk/2/hi/business/4569846.stm
"The European Union as a whole gets around 20% of its gas from Russia..."
Comparing the US price of natural gas is irrelevant. Unlike oil, natural gas markets are still fairly regional, significantly limited by the lack of pipelines, LNG facilities & LNG ships. We are almost entirely consuming natural gas from the Americas, not Russia. Basically, it is not like Russia could turn around and sell Ukraine's gas to the US for 390$, so that should have no real bearing on what they sell it to Ukraine for. (by the way, does anybody have ng prices for the ME? I suspect they would further reinforce the still regional aspects of the natural gas market).
But that's not the most important point. The most important point is that Russia's actions are clearly not motivated by selling natural gas at market prices.
First, they just renewed a year contract to sell NG to Belarus (Russia's pawn) for 47$.
Second, Gazprom is not a capitalist entity. It is an oil behemoth wrought and controlled by the Russian government, thus more subject to the forces of politics, not the market. It is thus a government sanctioned moneopoly, another tick against capitalistic justificaitons for its actions.
Third, Gazprom just bought thrice its normal portion of Central Asian gas in a blatant attempt to deny the Ukraine an alternate supply.
Gazprom... "tightened the screws on Thursday by agreeing to buy Central Asian gas that would normally have gone to its neighbor."
The Ukraine consumes 80 some billion cubic meters, and Russia has then not only cut off their own supply, but bought up an additional 20 bil. that the Ukraine might have used to compensate for the cutoff, effectively making itself the sole provider.
This seems to be an important part of the story that has been entirely neglected, and although I am still curious as to what price they purchased it for, I think it effectively seals the case that this is not simply a matter of Gazprom demanding a fair price. This is Russia attempting to do harm to Ukraine.
Belarus should never have been an independent state. There are more linguistic, cultural and racial differences in the UK. Belarus and Russia intend to merge together again so Belarus gets Russia's domestic rate. Maybe you should whinge about the Baltics getting it for $125.
Naftogaz of Ukraine is the same sort of state owned monopoly and I don't see you complaining.
Ukraine is setting the tone with its hardball tactics. There is nothing wrong with Gazprom taking measures to secure its interests. It is interesting how the current blatant theft by Ukraine at the rate of 100 million cubic meters a day is not of any concern in the halls of western power. Instead demands are made on Russia to guarantee this and guarantee that. Gazprom has no obligation to guarantee anything in the face of brazen thievery by Ukraine.
Russia quadrupled it's price of gas and the Ukraine quadrupled it's price of transport.
But Russia will win, because unlike the Ukraine, Russia has oil. Russia will stop shipping gas and start shipping oil and the loss of the gas will make oil prices go up, and Russia makes out like a bandit. Instead of selling gas for the equivalent of 4$ a barrel, it will sell oil at 80$ a barrel. For Russia, it's great.
Until the Chechnyans blow up the oil pipelines, that is.
The Thermo-Gene Collision will now assert the other half of the equation to maintain and/or accelerate decline momentum. The Gene-side will inevitably result in Genocide. Recall the Russian induced Ukrainian famine of the 1930s, then extrapolate to our modern world. The naked ape has chosen the course of power versus cooperation as the future modus operandi.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
So, perhaps in the grand scheme of things, in the long run yeast may have better survival traits than the human race, which looks to be quite anxious to destroy itself.
Anyway, algae on the cold dark side of the rock will naturally try to migrate to the warm sunny side of the rock. And, metaphorically, so it is too with humans. People will naturally tend to migrate from squalor to prosperity, from hunger to plenty. It's almost like an electrical potential: the greater the wealth-to-poverty differential, the greater the driving force for something extreme to happen. And when that potential is discharged: look out!
In our case we clearly have the potential to face a collapse which stems from energy starvation, or from the byproducts of our consumption, or both. Finding a steady state solution without a population collapse looks pretty unlikely at this point unless the brewer intervenes.
Speaking of cooperating with the Reich -- is that what Molotov was doing when he signed that pact with von Ribbentrop?
There is a dangerous fairy tale afoot nowadays, propagated by some in the Putin administration, that the occupation of the Baltics never happened, and that in turn is based on sweeping the pact under the rug.
If you don't think the Ukrainian famine or the pact are part of history, then I would be happy to sell you an abiotic oil field and a certain bridge in Brooklyn...
BTW, Molotov's deal with the Nazis bought the USSR enough time to increase its military potential by 40%. If it was such a big collaboration with the Nazis (e.g. shipping them grain,
while US based corportations shipped them oil) then why was the USSR preparing for a war?
The Baltics were quite zealous in their support for Hitler and
they still extoll their SS participation by holding regular SS veterans parades.
No SS veterans parades around here. Had some great fireworks on New Year's, though! Perhaps you're referring to an annual parade in Latvia?
Actually, to get back to the subject of the thread, I suspect we're in agreement -- Gazprom's price increases should not be interpreted as an across-the-board political gesture. There's plenty of economic rationale behind them. Perhaps we can agree on that?
BP feels the heat over gas debacle
Thanks to Gazprom, there's yet another commodity which will cross the Kaliningrad-Lithuania border in all kinds of amazing ways, in order to exploit the huge, huge price differential between the Russian Federation (including that military base on steroids, Kaliningrad) and the EU (including Lithuania). Used to be sugar -- you'd see lines of hundreds of people, trudging across the pedestrian bridge over the river separating Kaliningrad from Lithuania. Then gasoline was fashionable. Lately it's been cigarettes -- frogmen have been captured, swimming over, dragging unbelievable quantities of cigarettes in waterproof containers.
So, how do you get natural gas from Kaliningrad (which, incidentally, has to pass through Lithuania anyway first) back to Lithuania? Any enterprising engineers who can build a covert pipeline under the river, for example?
Ya gotta hand it to the Russians, they do have a knack for making things comical. Keep your sense of humor, Ukrainians -- everything will work out...
A 4-month old girl died when she fell off a couch ... sleeping with her parents and 3-year-old brother on a sectional couch early Thursday because their upstairs bedrooms were cold, police said.
It isn't even that cold around here, but families are crowding in the living rooms for heat. Another article announces another NG rate hike.
But there's so much you can do on the cheap. I have personaly use a $6 plastic drop cloth and a $2 roll of twine to insulate an attic fan in a friend's home. Air leaks are the biggest problem and should be the first thing you go after. Once it gets cold you can just feel around to spot them.
----
Let's say for example, natural gas prices climbed in America and everyone switched over to electric. Then electric rates go up. What then?
Solar panels on the roof tops and wind turbines where allowed?
Geothermal?
Low cost nuclear power?
Your list did not mention coal which is what they will probably switch to the most during this emergency since many coal pechkas are probably still operational.
Is there any such thing as a market price for NG in this region?
Early Market Reaction:
Estimates of how dependent the EU is on Russian Natural Gas:
So there is comfort in the near term, but I wonder how these numbers will look in 5 years, 10 years, 25 years as European fields decline?
The Ukrainian idea of market price of $80 is not rational in this context. The Ukrainian government has known all the time that the crisis is coming. Commentators there have frequently hinted that the government knows where there is avalaible gas - "in the transit". Just take it from the pipelines. And let the EU handle this with the Russians.
The 15% transport charge in gas is a lot. If the other countries along the pipeline would charge the same, about third or more of the gas would be taken off as "transit payment". The transit costs, maintaining pipelines, pumping etc., do not change with the natural gas price. So it is natural that the Russians want to pay in cash for the transit, not in gas.
I think we have here political motives, too. But the main background is the changing energy situation in Europe.
This crisis highlights also the fact that much of energy in the whole world is not traded at "market" price or "market" terms. Energy producing countries usually have far lower domestic prices and all kind of discount arrangements (as have the US and the Saudis). This has begun to change and will have considerable impact on the global energy demand.
It's also interesting to note that Venezuela is already moving to a barter system for it's oil products.
This is the fear from the UK point of view. We are almost at the end of the line. The weather forecasts for the end of this week and into next week are very cold, in cold weather the UK is highly dependent on daily flows from the continent since we are unable to meet demand on a cold day from our own beach and storage flow rates. The associated high prices and much of the required gas demand destruction comes from gas power stations resulting in electricity shortage.
It will be interesting which matters more to Russia, how "reliable" the West views it or how much it wants to retain influence in the former USSR.
It will also be interesting to see if Germany cares more about the Ukraine given its need to increase gas imports.
The core of the conflict is that Ukraine wants to get paid in natural gas for the use of it's pipelines. And the Russians want to pay in cash.
For years now, the Ukraine is taking natural gas out of the pipelines for it's own use, claiming it to be the price for transport. And now with the cut in Russian export, it still does, so the customers at the end will feal it.
Russia has asked many times before in last couple of years for the EU to help with this conflict, to act as an intermediate between the two countries. Especialy because it concerns natural gas that is being sold to the EU.
Offcourse there is a political component here in this conflict; the timing (upcomming elections in Ukraine). And Russia says: "well if you want to be a non-regulated open market economy, you have to pay the current marktet price"
So this is not a sudden powerplay by Russia, but the outcome of a long-lasting gas-quarrel between Ukraine and Russia
The gas markets are now sellers markets. The Russians will find buyers no matter what.
Also the US is inking deals to import LNG (frozen to liquid gas) from Qatar.
The Ukrainian demand to get gas at $80 price is not realistic at all. This is also politics. The deal with Belarus is different and involves the ownership of the pipelines - and Russia and Belarus have this principal agreement on a union.
One view here is that that the Ukrainian government wants to compel the West to help it economically. The Ukrainian economy has stalled after the "Orange Revolution", partly because of higher oil prices, and the promised help from West has been rather meager. The government can hope to get the EU finance and mediate a deal and show this as an accomplishment in the coming elections. We will see.
Now Gazprom has announced that it will restore the supply to the EU. We will see what this means.
Our current level of energy usage worldwide--the energy equivalent of a one Gb of oil every five days--simply cannot be maintained.
I would argue that energy exporters curtailing their exports represents a win/win proposition. They get more money. We curtail our energy usage, which is going to happen sooner of later anyway, and alternative energy sources become more attractive.. The longer we maintain the fiction of infinite growth, the harder the fall is going to be.
Ukrainian heavy industry is more energy-intensive than German, because it is mostly metallurgical industry, not manufacturing. The steel used in German cars must be produced somewhere. It is easy to boast about high energy efficiency when really energy-intensive production is outsourced.
The point here is that energy efficiency is a function of energy used in the past - ie. the infrastructure, machinery, housing, education etc. Well insulated houses need less heating - but it takes more energy to build them. Good roads increase mpg - but require energy to build. Modern machinery are more energy-efficient - but it takes more energy to gather the experience and do the research to build them.
Energy efficiency is also a function of energy used now. The good roads are the more efficient the more cars use them (this is optimization - if no cars use them they have no effect, if the traffic is stalled by too many cars, they have no or negative effect). That is why higher energy use is more efficient and long-time high energy use most effective. This means, by the way, that we cannot offset diminishing energy use by increasing efficiency - the energy efficiency will decrease when there i less energy to use. The former Soviet countries are an example of this.