Ukraine energy crisis

[PLATO]

Originally posted by Colon
15.

It was actually 20 I think.

[PLATO]

Ukraine looks to have won what they started out to accomplish. They had been negotiating for a phased increase to market prices to avoid an economic shock. It seems that Gazprom and their masters in the Kremlin decided that it really wasn't in their interest to cause an economic disaster on their boarder.

Gazprom and Moscow seem also to have achieved their goal in emphasising that Market conditions should be the determinor of price.

Europe wins by being put on notice that both Ukraine and Russia are critical to its Energy needs. This should cause policies that will work to secure these energy supplies and foster closer relations with both Russia abd Ukraine.


While Russia has tremendous gas reserves, Ukraines arenot shabby. Hopefully, as the price rises to market levels for its gas, the Ukraine will begin to develop its own gas infrastructure and begin to compete as an exporter.

Nice solution for all.

[Lawrence of Arabia]

new york times reported that ukraine's chemical industry becomes unprofitable at above $85 per 1,000. (they are old and inefficient because they have long subsisted on highly subsidized gas)
The manufacturing sector becomes unprofitable at above $105 per 1,000. (same deal as before)
at $95 per 1,000 we can expect much of the chemical industry to die off.

[Seeker]

"Sorry, that's not going to fly in international law"

lol I don't think it's tecumsehs interpretation of internat'l law you have to worry about but rather Great Leader Putin's...he's the one that gets to say 'Sorry No Dice' here...and since he rules russia, international law is what he says it is.

[lord of the mark]

Originally posted by Lawrence of Arabia
new york times reported that ukraine's chemical industry becomes unprofitable at above $85 per 1,000. (they are old and inefficient because they have long subsisted on highly subsidized gas)
The manufacturing sector becomes unprofitable at above $105 per 1,000. (same deal as before)
at $95 per 1,000 we can expect much of the chemical industry to die off.

in which case Russia loses the gas sales. Since gas is uneconomic to store, and is largely a byproduct of oil production, what will they do with the rest? They dont have the pipeline to China yet, (do they?) and europe can only take so much at the current price.

see it seems to me that price discrimination between markets may actually be a rational strategy for Russia given the nature of Natural Gas marketplace, and that rather than a "subsidy" may be why they charge lower prices to ex-Soviet countries. That they will no longer do so for Ukraine may be about politics, rather than moving to an "optimal" market price, since if the NYT is right, that price may not be the best one for Russia to offer to the Ukraine from a strictly economic POV.

[Saras]

Originally posted by lord of the mark
see it seems to me that price discrimination between markets may actually be a rational strategy for Russia given the nature of Natural Gas marketplace, and that rather than a "subsidy" may be why they charge lower prices to ex-Soviet countries. That they will no longer do so for Ukraine may be about politics, rather than moving to an "optimal" market price, since if the NYT is right, that price may not be the best one for Russia to offer to the Ukraine from a strictly economic POV.

amen brother lotm. Only I think that eventually (very vague, I know...) they should be charging normal market prices.

Also, I think that large users should be able to negotiate directly with gas suppliers (i.e., Gazprom) and only pay the pipe company for transportation. Since at least on paper Ukraine is to join the EU, they will have to implement relevant EC regulations that require economic separation of transmission and supply businesses within gas utilities, and this would become possible. Gazprom would be destroying shareholder value if they outright refused to supply otherwise solvent buyers at prices lower than Western customers are paying.

[Adam Smith]

Originally posted by lord of the mark Since gas is uneconomic to store

US currently has about 1/3 year's consumption stored, primarily in Gulf Coast salt domes. Does Russia have similar capability?

Originally posted by lord of the mark it seems to me that price discrimination between markets may actually be a rational strategy for Russia given the nature of Natural Gas marketplace

How would Russia prevent arbitrage of the gas it sells (much less that sold by other producers) if the price difference is greater than the cost of transportation?

Originally posted by Saras
I think that large users should be able to negotiate directly with gas suppliers (i.e., Gazprom) and only pay the pipe company for transportation.

Are there two or more pipelines that can be used, or, alternatively, price regulations that prevent holdup? (I very much doubt the latter at present, but that may change as Ukraine becomes more intgrated with Europe.)

[lord of the mark]

US currently has about 1/3 year's consumption stored, primarily in Gulf Coast salt domes. Does Russia have similar capability?

I dont know. Werent those stockpiles established, like the petroleum stockpiles, to offset an interruption of imports?

How would Russia prevent arbitrage of the gas it sells (much less that sold by other producers) if the price difference is greater than the cost of transportation?

I suppose they know enough about the Ukrainian economy to estimate Ukrainian consumption, apart from the official statistics. I dont know if they are in a position to monitor shipments on the pipelines west from Ukraine into Europe, or what the capacities of those pipelines are, or if they significantly exceed what is already sold from Russia to Europe through those same pipelines. AFAIK Ukraine doesnt have an LNG export terminal, so I think thats the only way to export the gas.

[Saras]

Originally posted by Adam Smith

Are there two or more pipelines that can be used, or, alternatively, price regulations that prevent holdup? (I very much doubt the latter at present, but that may change as Ukraine becomes more intgrated with Europe.)

There usually is one big mofo pipe, and yes, there are return on RAB (regulatory aset base) caps.

[Adam Smith]

Originally posted by lord of the mark Werent those stockpiles established, like the petroleum stockpiles, to offset an interruption of imports?

After digging for more info, let me amend my earlier statement. The salt domes, which may be analogous to the petroleum reserve, are a small part of the total. The vast majority of gas storage is "traditional storage" which is used to offest seasonal variation in demand.

[Saras]

Originally posted by Adam Smith
How would Russia prevent arbitrage of the gas it sells (much less that sold by other producers) if the price difference is greater than the cost of transportation?

Good point, but a good lawyer (and trust me, Gazp can afford the best, in large quantities ) would be able to structure a monitoring provision that would not allow arbitrage by cheap gas-buying customers.

[Saras]

http://www.inogate.org/html/maps/mapsgas.htm

Gas storage sites shown on map.

[Dr Strangelove]

I think that Russia built the new pipeline to Turkey.

[techumseh]

Originally posted by Seeker
"Sorry, that's not going to fly in international law"

lol I don't think it's tecumsehs interpretation of internat'l law you have to worry about but rather Great Leader Putin's...he's the one that gets to say 'Sorry No Dice' here...and since he rules russia, international law is what he says it is.

Yeah!

[Saras]

Originally posted by Dr Strangelove
I think that Russia built the new pipeline to Turkey.

Baku-Tbilisi-Tseyhan is an oil pipe, iirc. No new gas pipes, also iirc.