The Russian-Ukrainian situation continues
Posted by Heading Out on January 2, 2006 - 11:51am
The continuing gas situation between Russia and Ukraine is receiving more attention in Europe perhaps than here. The problem is not just with Ukraine, Poland and Hungary as the Washington Post report shows.
The former Soviet republic of Moldova, which neighbors Ukraine, has not received Russian gas supplies for two days, Russia's RIA-Novosti news agency reported. It said Moldova had not signed a 2006 contract with Gazprom, and that Moldovan President Vladimir Voronin had complained that the Russian price was too high.But an agreement to resolve that particular issue appears imminent. At present the Russians claim that Ukraine stole 100 million metric meters of gas yesterday. There is also a question as to whether Ukraine is continuing to get gas from Turkmenistan, a normal supplier of around 120 million cubic meters a day to Ukraine. Russia has bought almost all the export supplies from Turkmenistan for the first quarter of this year. (Thanks William).
Like Ukraine, Moldova has sought to orient itself away from Russia and toward the West.
UPDATE: Interestingly the Turkmen press reports that there have been no discussions with Ukraine, and
The press release says that, meanwhile, gas supplies through Central-Asia-Centre (CAC), the only gas conduit that facilitates shipment of Turkmen volumes to Russia and Ukraine, would remain closed from 00:01, 1 January 2005 to 7 January 2005 for repair and maintenance of the system.
At the same time the Ukrainian government has said that it is still getting around 120 million cubic meters from there, although interestingly the Guardian report notes
Ukraine's fuel and energy minister, Ivan Plachkov, said Ukraine was relying on its own reserves and deliveries of about 120m cubic metres a day from Turkmenistan via Russian pipelines.The BBC is reporting that the drop in the gas quantities being passed on to Europe has now got as far west as France, with drops in supply of up to 40%.
He added that the country had the right under existing contracts to take a share of gas exported via the Ukrainian pipeline and would do so if the temperature fell below -3C. However, Mr Medvedev said Russia was not sending on any Turkmen gas.
"As of today, only Russian gas is entering the Ukrainian gas transport system," he said. He stressed the gas was meant solely for export to Europe.
Austrian, Romanian and Slovak authorities said supplies from Russia were down by about one third, while Hungarian gas firm MOL said its supplies were down by 40%.Should the situation continue to deteriorate then it is likely that it will have increasingly significant impacts around Europe. The current reassurances from Governments will likely prove somewhat less reliable if they all end up trying to get additional supplies from, say Norway, which itself can only deliver a certain volume. Given that the winter is not going to get much warmer apparently, this may lead to problems in a number of countries, some of whom may not be ready.
France was 25-30% down and Italy 24%, officials said.
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It took Gazprom two years to build the Blue Stream pipeline under the Black Sea, which is a much more challanging engineering effort than the Baltic pipeline currently under construction. Given that both pipelines have the same length it is feasible that Gazprom can complete the Baltic route in two years instead of four. It would be smart to greatly increase its capacity as well as upgrade the pipeline running through Belarus and Poland.
The natural gas conflict between Ukraine and Russia is an old one. According to the research institute Clingendeal in the Netherlands, this conflict is allready 10 years old.
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 the real price for transport in cash, quite logical from their perspective, because the costs of running a pipeline stays the same, but the natural gas-price doesn't.
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 the transport of the natural gas to Europe. And now with the cut in Russian export, Ukraine still does so, transfering the pain to the customers at the end of the pipeline.
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. Specialy because it concerns natural gas that is being sold to the EU.
Up till now, the EU has done nothing to help in this conflict.
Well, now the EU will act, I can tell you that for sure.
Ofcourse 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 market price"
So this is not a sudden powerplay by Russia, but the outcome of a long-lasting gas-quarrel between Ukraine and Russia.
Well put.
The world is shifting from a Zero-Sums Game
to a Declining-Sums game (sub zero).
Look at the cost issues from a theoretical point of view, expressed in platinum ducats or some other notional currency.
Exploration for gas, sunk cost of 1 ducat.
Development of gas, sunk cost of 1 ducat.
Purification of gas, no change, cost of 1 ducat.
Transportation of gas, sunk cost of 1 ducat.
Profit on gas, 1 ducat.
Increase the price from 5 ducats to 20 ducats, and now it is generating a profit of 16 ducats.
So logically the Ukrainians should charge the Russians half of that increase in price, or 9 ducats instead of 1 ducat.
Instead the Ukrainians are sensibly only charging the same price as before, 15% of the gas, just like the last ten years. They know that keeping a reputation for honesty is more important than short term profit taking.
Russia 45.1%
Africa 27%
Norway 23.9% (Norway is not in the EU)
Middle East 1.7%
A graph shows, as best as I can scale it, that 53% of EU gas consumption is met by internal production. This reduces Russian gas to 24% of EU consumption.
I suspect the confusion between percentage of imports and percentage of consumption accounts for the two widely quoted figures of half and quarter of EU gas from Russia.
There is an interesting quote in the article from Russian state Duma deputy Alexander Lebedov "We used to be called Upper Volta with rockets, now its Upper Volta with gas"
The table at the bottom states that Gazprom delivers:
"One-third of EU gas imports, and one-fifth of gas used in EU."
Since there is a chorus of western ministers demanding that Russia prove its reliability (instead of demanding that Ukraine stop stealing gas), I infer that the BBC numbers are more realistic.
(A corollary: Will Wall Street continue to invest in the "emerging markets" of Eastern Europe without subsidized energy?)
What we are describing is a form of the Zero-Sums Game or more so, a Declining Sums Game if gas & oil are the only bones left to fight over:
http://www.randomfate.net/archives/001181.html
http://www.coyoteblog.com/coyote_blog/2005/07/physics_wealth_.html
http://www.washingtonpost.com/wp-dyn/content/article/2006/01/02/AR2006010200828.html
This in addition to Ukraine's retaliation that demonstrated that the supplies of Ukraine and Western Europe are inseperable, convinced the Russians that they had bet wrong, and are now drawing back. I predict they'll attempt to save face by compromising now. They'll still get their money, and, more importantly, they won't lose their reputation, very important as they attempt to expand their production and markets, especially to the US.
According to EIA in 2004, we imported 652 BCF in the form of LNG and our total consumption was 22,356 BCF - so we imported about 3%, not 1% from LNG.