October 4, 2007
Gazprom vs Ukraine, Round 2
As I write, the state of Gazprom’s dispute with Ukraine remains unclear. The Russian company is declaring victory, but the government that has apparently agreed to pay Gazprom’s missing $1.3bn is the old one, not the new one that is expected to come to power after the elections at the weekend.
Further west, consumers who suddenly found they needed to know about Ukraine in January 2006, when the last dispute over gas supplies turned nasty, can afford to stay relaxed, for now at least. European gas prices have barely twitched. There is plenty of gas in storage - except in Italy - and the weather is warm. European solidarity with Ukraine, however earnestly expressed, will not have much political force behind it.
The worrying thing for Ukraine is that ten years from now, it could be even more isolated. At the moment, it is still a very important transit country: 80 per cent of Gazprom’s exports to Europe go through it. But Gazprom’s strategy is to by-pass transit countries as much as it can, with projects such as Nord Stream and South Stream. Even Nabucco, the EU’s favourite pipe-dream pipeline, might end up carrying quite a lot of Russian gas, through Turkey and into Austria. If those pipelines get built, Ukraine could be needed for only 40 per cent of Gazprom’s exports. And that will make choking off gas supplies that much easier.
By the way, if you want to know everything there is to know about gas in Ukraine, a great place to start is an excellent paper by Simon Pirani of the Oxford Institute for Energy Studies, available here.
This is not “Round 2″. These crises and negotiations have been going on almost every year since 1992. In 1993/4, it was at the heart of the presidential election in Ukraine (the only one in the CIS where a sitting president was beaten and left power peacefully, btw).
For lots more information on the Ukrainian-Russian gas sagas, I’d like to recommend the following two articles:
Ukraine vs Russia: Tales of pipelines and dependence (Dec. 30, 2005)
http://www.eurotrib.com/story/2005/12/30/173336/17
Gazprom as a Predictable Partner. Another Reading of the Russian-Ukrainian and Russian-Belarusian Energy Crises (published by IFRI, the French think tank)
http://www.ifri.org/frontDispatcher/ifri/publications/russie_cei_visions_1111752534925/publi_P_publi_rus_guillet_1175087580144
These crises have come back on our radar screen at the same the UK has become a net gas importer. I find the coincidence troubling.
Posted by: Jerome a Paris | October 4th, 2007 at 11:46 am | Report this commentYour ten year out predicion is far fetched. South Stream is hardly working and Nord Stream is facing delays. Ukraine actually has much more leverage than Yushchenko knows how to use.
If Russia again tries to double gas prices and the EU again tells Ukraine to deal with the problem itself, I suggest Ukraine take the following tack: inform EU customers that Russia refuses to sign a reasonable transit contract, and invite the EU customers to negotiate supplies directly with Russia at the Russia-Ukraine border. Then the EU customers can pay for transit across Ukraine with a portion of the gas they buy from Russia.
But of couse the main thing Ukraine needs to do is replace all its central heating. Then this whole discussion becomes immaterial.
Posted by: Tom Warner | October 4th, 2007 at 11:51 am | Report this commentThanks for those comments.
Jerome: you are quite right of course. There is a pretty good summary of the history in that OIES paper I cite above; I will check out your recommendations too.
Tom: I agree both Nord Stream and South Stream face huge challenges: not least, in Nord Stream’s case, all those munitions at the bottom of the Baltic. But Gazprom really wants to make them happen, and has serious partners to help it achieve those goals. We shall see. As for Ukraine’s central heating: well said. That’s what happens if you under-price gas for five decades.
Posted by: Ed Crooks | October 9th, 2007 at 12:04 am | Report this commentUPDATE:
I have now read the paper at http://www.eurotrib.com/story/2005/12/30/173336/17
Posted by: Ed Crooks | October 9th, 2007 at 12:10 am | Report this commentIt has a lot of fascinating material in it, and some great background on the rows of the early 90s in particular.
It is rather ridiculous for anyone and for Ukraine to have imagined that they will forever get FREE gas while “biting the Bear’s hands the feeds it”.They are more dependent on Russia than any other country particularly in terms of trade.
As far as Gazprom’s Nord Stream dreams. Yes it has delayed (as expected) but it is right on track and with the financial, technological and political muscles of EON, BASF and GASUNIE - you bet is bound to happen. So Yunchenko and Tymochenko has no option but to work with Moscow otherwise gas prices are going further UP NOT down.
Posted by: Julius | January 3rd, 2008 at 11:12 pm | Report this comment