Russia and the Ukraine have not yet resolved the issues
Posted by Heading Out on January 2, 2006 - 11:19pm
But I am just a little tempted to say "so, what?" There was no immediate switch over to other pipelines that would have allowed maintenance of supply, since these alternatives are not immediately available. In the case of Ukraine the second string to their bow, the Turkmenistan supply, comes through Russia and is equally vulnerable to the same pressure as Ukraine applied to Western Europe. And when all the dust settles, I suspect that Ukraine will have to pay the price that has been asked.
The fall-back suppliers to Western Europe have, in the past, been the reserves in the North Sea. But the UK is now importing gas and has its own worry about supply stability. Norway has a problem also. From the Scotsman
And in another risk to western European economies, Norway, Britain's biggest gas supplier, warned it would not be able to increase output to meet any shortfall from Russia.
So the problem that Europe has now to confront is that of alternate supply. The current situation has demonstrated the vulnerability of many countries to changes in the current supply scenario. But there are no long-term answers to dependence on the limited number of suppliers that exist, short of changing to a different fuel. The suggestion this time is that those who can should switch to oil. Or alternately the business can close, or move to another country where a more reliable supply exists.
That is in large measure what is currently going on in regard to the American situation, businesses can either no longer afford to use gas, or have moved to places where it is more reliably available. This reduction in demand has apparently been sufficient to offset the reduced supply from GOMEX and thus there is less immediate pressure on supply.
There are some industries that will find it hard to change, or alternately to find an alternate source of energy in the volumes that will be needed. This change in the supply picture for different countries will also change the demands for oil, and it will be interesting to see how that will, in turn, alter the demand for oil.
I would end today on a different note. I have written about the dangers of coal bed methane earlier. With the current doubt about the fate of the miners in West Virginia following the underground gas explosion at the Sago Mine, I would ask your prayers tonight for them, and for their families.
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So less people are getting gas for next-to-nothing and the price goes down and we are told there's no effect? OK the weather is warm for January but it was warm last week too, but why would it be surprising that when demand drops the price drops too? If the price went up now then I'd say the "Gazprom dispute" was not having any affect on the prices.
Consider the fact that the only card (aside from unusable nukes) that the Putin people hold is energy. Their economy is a dwarf among the big countries. The EU and the US thus encourage him to join the big-power club based on their convenience: "sell us your supplies cheaply and we'll treat you like one of the club." If I were the Putin regime, I wouldn't want to be sitting at the big-power table merely by grace of offering up cheaply and eagerly the lifeblood of my regime. That smacks of the pathetic, fawning role of a 19th century Indian local worthy invited to tea (outside of course) at some colonial British club in Bangalore. The stiff smiles on the white faces and the tentative seat at the table might have been enough back then, making the Indian a very big man among the locals in Bangalore and thus one very willing to help grease the wheels of empire.
But the Putin people aim to rebuild a state-capitalist superpower with global reach. Now they can sit at the G8 table feared for the very visible power they wield (and their evident willingness to use it) more than they are loved, so to speak, for their willingness to be the waterboy, the waiter, the loyal sepoy. After several years of watching the Bush regime put their Coles Notes reading of Machiavelli into practice, we should hardly be surprised that the Putin people are signalling that energy supplies are the functional equivalent of the American military and potentially a much more effective tool of foreign policy (and a money-maker to boot).
I think you maybe correct and I have expressed similar sentiment in my blog, yet such a move by Putin would only be a short to medium term gain. In the long term, it would motivate Europe to diversify away from Russia - be it building nuclear power plants, alternative sources of natural gas and so forth.
I think its a dangerous gamble to make, if such was the intention.
- Daniel
The one thing I learned is that the Ukrainians resell their subsidized gas. That's really rude like selling a precious gift and biting the hand that feeds you all at once. That leaves Gazprom having to lose sales because they are giving someone a discount.
Italy - peaked in 1995, production falling at a rate of 5 - 6%
Germany - peaked in the '70s, production flat.
Denmark - peaked probably in 2005, official forecast up to 2009 is decrease by about 1%.
Netherlands - peaked on '70s, production essentially flat.
Poland - peaked in '70s, production has been flat at the level of about 4 billion cubic-m/year, but small increase lately.
UK - peaked in 2000, production falling at accelerating rate.
So all EU gas producers have peaked and most of them are quite small - the only really significant are the UK and Netherlands that account for about 80% of the EU domestic production. The total EU production peaked in 2001. The Netherlands have been able to compensate for the falling UK production - but this is clearly not possible in the future. The Netherland could, maybe, boost its production still by about 10 Bcm above the present level, but this cannot offset North Sea depletion.
So, we can see that the EU domestic gas production is going to decrease considerably in the near future. In 20 years time North Sea (UK, Denmark, Germany, Netherlands) will be almost totally depleted. This means that 80 - 90% of the EU domestic gas will be off. This will increase the imports demand considerably. But probably no outside supplier will be able to cover the EU consumption at the present level.
As we know, Norway cannot increase its exports to the EU. Algeria is a big exporter to the EU, but peaked in 1999. Russia and Central Asia will be more important in the future. Here we have the background.
Russia will remain crucially important for the EU as a natural gas supplier. Gas prices will inevitabe rise as China gets its pipelines connected to Central Asia and Caspian Region and Russia and LNG exports to the US increase. There is few real alternatives or substitutes for natural gas in Europe in the required scale. Coal has mostly depleted and it is not possible to increase oil use that much. Nuclear would help, but not in short run - and there is the uranium shortage waiting.
Putin is an exceptionally astute politician, and what he understands particularly well is [political] power, and how to grab it. He has forced Western Europe to take a stark look at the realities of their energy situation, which inevitably involves acknowledging the position of power in which Russia now sits. What's more, he can blame it all on Ukraine.
Look back at Yukos, Khodorkovsky,
Exxon.
Khodorkovsky, once the richest man in Russia, now doing hard labor.
The negotiation at the end of this gambit was between the EU/E3
and Russia.
Russia wil not allow the Ukraine to join NATO and purchase hardware from Lockheed and General Dynamics with subsidized Russian gas. Not going to happen.
Eventually the Ukraine will be getting the blame for the EU's lack of gas. The game has only just begun. When it's all over the Ukraine will be joining the Shaghai Cooperative.
I seriously doubt Putin is worried for the EU reaction (buying gas somewhere else). First of all because our suppliers from, say, North Africa have already stated they can't pump more.
But more important, you forgot about China: EU buying gas from other suppliers means Putin will simply sell his gas/oil to the energy craving China... and I think EU doesn't like to witness Russia-China bonds getting tighter.
Yes, Putin is very smart...
For an entertaining and thought-provoking Russian perspective on the background to this crisis, check out this link:
http://www.exile.ru/2005-December-28/gas_attack_the_ukraine_gives_itself_indigestionby.html
Incidentally the whole exile.ru website is worth reading if you have the time, especially Gary Brecher's regular War Nerd column.
Regards
Chris