Ukraine energy crisis

[techumseh]

So, by that definition, the US is not a "market economy", since it has refused to abide by the terms of NAFTA with respect to softwood lumber tariffs.

Sauce for the goose and all.

[Main_Brain]

There is a backstory here regarding the Germans going along with Russia to build a second pipeline to go around the Ukrainian pipeline directly from Russia to Germany.

Actually the Balltic Sea- Pipeline is build to bypass Polands "Transit Fee´s".

[Serb]

Originally posted by Colon


An article mentioned they had a contract til 2008 (?) with the previous price, so Gazprom doesn't seem to be respecting a contract.

Bullsh!t.
There is a chapter in this contract which clearly states that new additional protocol which determinates prices for a next year should be signed EVERY YEAR prior to Jun 1.
So basicly whole contract states that Russia will supply Ukraine with gas up to 2009. The price should be fixed within a year, BUT NEXT'S YEAR PRICE should be regulated by additional protocol.

And one more time for some very wise guys:

THE CONTRACT WE HAVE DO NOT OBLIGE US TO SELL OUR GAS TO UKRAINE FOR 50$ per 1000M3 up to 2009. THE PRICE HAVE TO BE DETERMINATED VIA ADDITIONAL PROTOCOL EVERY YEAR.
The negotiations over prices for 2006, started in March 2005, but have been constantly sabotaged by Ukraine. Since the protocol wasn't signed utill Junary 2006, the Gasprom stop delivery.
AND IT IS IN COMPLETELY ACCORDANCE WITH THE CONTRACT.

[Serb]

Originally posted by DRoseDARs
You should mention the fact that Russia tried to quadruple the price Ukraine paid for the gas. The $230 was the new price Russia wanted them to pay.

And what is so wrong with that?
WHY the hell we should subsidize a country which is hostile towrads us and which is our competitor on steel market?
It's f*cking absurd:
1) they buy our gas at 50$ and then re-export it to Romania for 250$.
2) Their steel industry is competetive only thanks to cheap Russian gas which cost them less 1/4 of a real price.

Why the hell we should subsidize our own cometitors?

[Serb]

Re: Ukraine energy crisis

Originally posted by VetLegion
OK, so Putin seems to have closed the pipe that takes gas to Ukraine, but the problem is the gas for the rest of Europe goes through the same pipes!

Croatia recieved 30% less gas today because Russia is playing tough with the breakaway dominion!

What do you think about the whole affair?

I think the same as always - Yush is *****. Ukraine stolen over 220 million M3 of gas within just two days.
I've said a year ago, in time of Orange euphoria, that "we will bury you".
This day has come. Now the Evil Empire strikes back.
Poor, poor, Ukraine.

[Saras]

As always, a sober Bloomberg analysis:

Gazprom's Business Is Energy, Not Foreign Policy: Matthew Lynn

Jan. 4 (Bloomberg) -- Russia still hasn't mastered the art of investor relations.

Just before Christmas, Russian President Vladimir Putin signed a law ending limits on foreign ownership of shares in OAO Gazprom, the country's natural-gas export monopoly, which is 38 percent owned by the Russian government.

Then on Jan. 1, a dispute flared between Russia and neighboring Ukraine over the terms on which Gazprom's gas is shipped through the country and into western Europe. For a few days, natural gas supplies to countries such as Germany and France dropped 40 percent, threatening a chilly winter for nations that are dependent on Gazprom for their energy.

The result? Global investors are allowed to buy Gazprom stock, yet they will be wondering whether it's worth the trouble.

Gazprom shares will always be undervalued until the company makes a simple decision: Does it want to be a leader in the global energy industry or just an arm of Russian foreign policy?

The idea that Gazprom should find itself among the ranks of BP Plc and Exxon Mobil Corp. is far from fanciful. In 2004, the company signaled its intention to become another Exxon. And it certainly has the potential to think in those terms.

Gazprom, which controls 16 percent of the world's known natural gas reserves, is already the biggest producer of that commodity. Chief Executive Officer Alexei Miller has said he expects Gazprom to be the largest energy business in the world within four to five years. Its share price has been soaring, both as the value of energy rises, and as the company takes more of the western European market. You could buy the shares for about 13 rubles in October 2001. Now they are valued at more than 190 rubles.

New Legislation

Until last month, foreign investors were prevented from owning more than 20 percent of Gazprom's shares, and weren't allowed to buy them locally. That has changed. ``For Gazprom, it certainly means the opportunity to attract new investments, including top- class foreign investors,'' said Gazprom Chairman Dmitry Medvedev as the decision was announced.

For investors, that was welcome news. ``We applaud this move,'' Credit Suisse First Boston said in a note to investors. ``President Putin and the Russian government have fulfilled their promise to eliminate the ringfence before the end of 2005.''

For all its attractions, Gazprom has some way to go before it takes its place alongside BP and Exxon, companies run for the benefit of their shareholders. They may well have extensive contact with their national governments. BP CEO Lord Browne can probably get U.K. Prime Minister Tony Blair on the phone at any hour. Yet nobody would claim BP puts politics before business.

A Fine Line

Gazprom, by contrast, hardly looks like a private company at all. CEO Miller worked with Putin in their native St. Petersburg. Chairman Medvedev is also the first deputy prime minister, and one of the Russian president's closest colleagues. The line between government and company is very fine.

That's why the gas dispute with Ukraine is so worrying.

The price at which Russian gas is shipped to western Europe through former Soviet republics is a complex issue. Gazprom used to sell energy cheaply to the former satellites as a legacy of the old command economy. It can argue with some justification that it should charge market prices. And it is certainly entitled to object to gas destined for Ukraine being sold at a profit to other countries.

At the same time, it is hard to escape the thought that the Russian government is pressuring Ukraine by using gas supplies the way Soviet leaders used tanks and soldiers to ensure subservience.

Russia's Plan

Russia was unhappy with the Orange Revolution in Ukraine a year ago, when Viktor Yushchenko took power after a disputed presidential election ended in defeat for pro-Russian Prime Minister Viktor Yanukovych. Putin clearly aims to prevent Ukraine from moving closer toward integration with the European Union than Russia has been able to do.

What's true in Ukraine is also true in Belarus. It won't have escaped anyone's notice that supplies were also stopped to that country in February 2004.

Shareholders in Gazprom aren't interested in any of that. A company can't be a market leader unless it pursues its own interests and those of its customers.

Russia could use a company like Gazprom a lot more than the country needs political leverage in Ukraine or Belarus. Its future depends on companies that can integrate with the world economy.

There is no reason why Gazprom can't serve as that model as long as it refuses to be an instrument of Russian foreign policy.

[Sava]

Originally posted by Serb

"we will bury you".

Poor, poor, Ukraine.

[Serb]

And some analysis from the Times online:

http://www.timesonline.co.uk/article/0,,630-1969022_1,00.html

The Times January 04, 2006

Europe has left it too late to wrest back control from Russia over gas
By Carl Mortished


IT IS brutal, but it is business. Gazprom’s imposition of an enforced new year energy slim on Ukraine brought a loud squeak from Kiev, followed by the sound of spanner on metal as Ukrainians tapped the Russian firm’s gas export lines to Europe.
If you think the Russians cruel for cutting off their neighbour, try the Ukrainian option when the gas bill next drops on your doormat (the price we pay in Britain, too, is about to soar). Tell the gas company that the price is unreasonable, refuse to pay and see what happens.



I can predict a flurry of indignant correspondence, the offer by the gas company of a brief period of relief and interim credit. Shortly thereafter, expect the arrival of a man in a little van to turn off your tap.

All this happened in Ukraine, except, unlike you, Ukrainians were enjoying very cheap gas, less than a quarter the price charged to most Europeans, a subsidy worth several billion dollars a year. Ukraine’s Orange Revolution (a declaration of independence from Moscow that never mentioned the word “gas”) released Gazprom from the political obligation to support financially a former Soviet comrade. So it behaved like any dominant supplier of a vital commodity in huge demand — it jacked up the price, in this case fourfold.

Predictably, European politicians are in a flap, noticing for the first time their utter dependence on Russian gas. Instead, they should reflect on their even greater dependence on pipelines — yesterday’s sudden drop in gas pressure in Austria, France, Germany and Hungary was due to theft by Ukrainians from transit pipes, not a Russian embargo.

Europeans ought to know that the gas price is a thorny problem. It was the European Union and the United States that held up negotiations over Russia’s accession to the World Trade Organisation, arguing that Russian industry was enjoying an unfair energy subsidy from cheap gas. Eventually, the Kremlin agreed that Gazprom would raise gradually its domestic fuel price from $27 per 1,000 cubic metres in 2004 to a still cheap $60 by 2010. It would be difficult for Washington and Brussels to argue, then, that Ukrainians should be treated with kid gloves. Do we really want cheap Ukrainian steel, subsidised by underpriced Russian gas, dumped on our markets?

Russophobes in Washington and elsewhere may find it difficult to accept, but this is business, albeit of a Godfatherish variety. It may be true that President Putin egged on the gas merchants, savouring the discomfort of the naive President Yuschenko, who a year ago thumbed his nose at the Kremlin. Amusing, perhaps, for Mr Putin to present gas bills to Ukrainians as they shuffle to the polling booth next March. But Gazprom has its eyes on something bigger than Ukraine.

It is all about pipes. The Russian company wants control of its export routes, hence its insistence that payment for gas transit fees across Ukraine would no longer be made in gas but in cash at market rates. Initial talks about bringing the transit lines into a German- Russian-Ukrainian consortium are off the table, Ukraine having realised that it would lose its last bargaining chip.

Control of export routes is the key to Mr Putin’s strategy of enclosing erstwhile enemies in Europe and America in an ever-tightening but warm and cosy embrace of natural gas. Ukraine is an irritating hurdle to overcome, but in the end there can be no doubt that Kiev will knuckle down and pay. There is no alternative; can Mr Yuschenko dare to suggest that his Western market economy should be propped up by a foreign, socialist institution? Today, EU ministers will confer on a strategy to deal with the perceived new threat of disruption to supplies of Russian gas. Were they honest, they would summon the Ukrainian ambassador and demand assurances that there will be no further theft of gas in transit to European customers.

They needn’t bother. It is too late. The decisions that might have slowed or limited the dependence, such as investment in nuclear power, should have been made a decade ago. Instead, Europe’s leaders chose to ignore reality, to pander to political extremists on the environmental fringe. In energy terms, we are no longer in control.

[Saras]

I played WIN SP-MBT Ukraine Assault vs Russia defend scenario, already within Ukraine, Jan 2006. So far so good, lost an engineering tank, killed three T-72's, successful heliborne envelopment of forward Russian positions. Let's see how it develops

[Serb]

Originally posted by Spiffor
I think Putin is shooting himself in the foot with this one. Yushchenko could easily exploit the situation with nationalist posturing, and the EU would be more than happy to give some money so that the initial shock isn't too catastrophic for the Ukrainians.

Unless Yushchenko caves in very quickly, I think Putin has really lost his satellite here.

Some money?
The price of the question is 3-4 BILLIONS US DOLLARS Russia loses every year due to ridiculous price they pay.
Putin offered a 3,6 billion USD credit for Ukraine, they denied.
IF you EU guys love Ukraine so much, please, go ahead, cover-up their expenses. But something tells me, nobody in EU is willing to present 3-4 BILLIONS A YEAR.
WHY THE HELL SHOULD WE?

[Serb]

Originally posted by DRoseDARs
That was my thinking too. Either Putin wants Russia to be closer to Europe or he doesn't. Looks like he doesn't and it also seems he wants to alienate Eastern Europe to while he's at it.

So, after translating of that from the language of "balh-blah-blah" hypocritical diplomacy we have: "Either Putin wants Russia to be a EU's pawn or he doesn't."
Why the hell we should susidize anyone (esp. our competitors and hostile regimes)?
And why the hell our desire to make Ukranians pay a full market price for our goods alienates Europe? I though you want a market economy both in Russia and Ukraine. Is it wrong? If not, than what's the point to whine here?

Russia has IT'S own national interests. Either you accept that everyone should pay a fair price or shut-up about market economy in Ukraine.

[Dinner]

Serb, please probvid written proof that the contracts allow Russia to change the price. That would be a highly unusual practice so it requires more then just your word.

[techumseh]

Given the volitility of energy prices, it would seem prudent, and not at all unusual.

[Serb]

Originally posted by Oerdin
This is good and bad for Russia. It is good because they'll now get market price for Russian gas but the other side of the coin is that once you use a lever like this everyone takes notice and begins searching for alternatives. I suspect that new pipeline which bypass Russia will soon be in the works; things like the the new Turkish line taking Caspian Sea oil to market without going through Russian terrirtory. We could see a gas pipeline following a similiar route.

Long run there is likely going to be a push to replace natural gas with electrical power where possible (like for winter heating) as the electrical heating systems can be powered by nuclear power plants, alternative power sources (wind, geothermal, hydro, maybe even solar), or even old fashioned coal which Europe has no shortage of. They could even push for a gas pipeline from North African fields to Europe via Spain. No one likes being held hostage so it is likely everyone is going to look for ways to lessen the hold Russia has over Europe's energy market.

Sorry, Oerdin, but I can't agree with you here.

Russia doesn't hold Europe's energy market hostage. Russian gas contributes to only 1/4 of EU consumption. The country which has the biggest share on this market is Norway. Currently Norway is above the capability to deliver more on European market. New pipelines which bypass Russia? That's fine, but the question is where those pipelines would start? In North Africa? Such pipelines will be profitable only if gas prices will be very high. The longer the pipe, the more gas worth for a consumer.
On the other hand, Russia has the largest stockpile of natural gas on this planet. And it's relatively close to Europe and has a great gas infrastructure on its own territory. The problem we have now is not a hostage situaton where Russia is a hostage taker, but a hostage situation when Ukraine is hostage taker, because 80% of Russian gas goes to European consumers through Ukranian territory. And as Ukranian leadership demonstrates now, they are more than ready to steal Russian delieveries to EU. This is what is the problem, not existance of large Russian gas sources. Gas is much cheaper and more environmental friendly than oil. EU can't completely give up cheap Russian gas, but those gas shipments shouldn't be a hostage of Ukraine. So I believe, what we shall see after this crisis is diversification of gas routes from Russia to EU which bypass third countries. Like Russian-German Baltic pipeline project.

[Serb]

Originally posted by Oerdin
Serb, please probvid written proof that the contracts allow Russia to change the price. That would be a highly unusual practice so it requires more then just your word.

The contract allow both Russia and Ukraine to define next's year prices via negotiations. If no additional protocol signed after such negotiations this automaticly means termination of the contract. It's quite simple really. And I wounder why your media hides this simple fact and protrays Russia as side who doesn't fulfil its obligations. Had it was true, there was no this crisis at all - Ukraine could easily bring us to Stokgholm court and easily win this case.

If you don't trust me, ask Saras. I bet you trust his word and I'm sure he is familiar with this issue.