It's Russia's Gas!

[Ste]

Funny this, Nadia is adamant Russia it toally correct in cutting off the gas supply to Ukraine, and to my impartial eye - seems reasonable they should pay market rates. I know other favoured countries get it at rediced rates but it's Russia's gas - they can charge what they want.

Anyone with Ukrainian wives/gf's with an opposite viewpoint about russia's agression and how unfair it is?

Ste

[BC]

Considering the gas is transported across Ukraine and in light of longstanding agreements I think RU and Ukraine should agree that the price 'at the wellhead' should be the same for both countries.  The pipelines get their cut on top.

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

I wonder what RU companies pay for gas to distribute to their customers.. certainly not the price they are asking from Ukraine.

Have to remember there is a lot of industry in Ukraine that is dependent on low gas prices, not just babushka at her stove.

[Shadow]

As Russia tries to explain to Ukraine, independence has a price

Russia is charing the low gas prices to most of its former Soviet republics. The ones that seek indepence from the Russian commonwealth pay the price.

I hope that next month the British and Americans will get the same taxes on gasoline as the Dutch pay. After all we all need to pay the same price

 

[andrewfi]

Gazprom has made it quite clear that Ukraine can have a lower price for its gas if it cedes control of the pipeline to Gazprom. At the moment Naftogaz controls the pipeline and is stealing gas from Russia as can be seen from the downstream effects of Gazprom's removal of Ukraine's supply from the pipeline.

If Ukraine (Naftogaz) were being honest, there would have been no effect upon Europe. This has been a useful demonstration to the world of what Ukraine has been doing for years!

BTW, the Baltics pay only $110 per 1000 cubic meters.

Russia (Gazprom) are entitled to charge whatever they want for gas supplies, Ukraine can choose not to buy. The issue of transit rights and control is seperate and governed by agreements. By asking for arbitration, Ukraine is simply angling for delays. It is unlikely IMHO that any court would be inclined to force a seller to decrease its price on political grounds.

This is a big problem for Ukraine though as their heavy industry and fertiliser production relies upon cheap gas. Inefficiencies in the production systems mean that if Ukraine were to pay the same price for energy as Europe, then they wuld be rendered uneconomic.

Just a thought... Ukraine currently exports gas to Russia. Guess what they charge?

$50

$100

$150

$200

$250

or even more...?

They actually charge Russian clients $260 per 1000 M³

[Ste]

I hope that next month the British and Americans will get the same taxes on gasoline as the Dutch pay. After all we all need to pay the same price

Surely we pay the highest for petrol/gasoline/benzina in the world! Cheapest here at the moment is 85p a ltr.

Ste

[Shadow]

Wrong....just paid 1,27 Euro and that is real cheap. Average is 1,32 Euro per liter.

[Jet]

pretty close actually!

1.27 Euro = 0.874380 United Kingdom Pounds

(that's Approx $3.87 USD per gallon)

[Leslie]

Andrew,

Politics lie at the heart of this dispute.  Quadrupling the price of gas in January then switching off the supply is hardly good business practice !

Fact is the vast majority of Russian Gas is exported to Europe over Ukraine sovereign territory.  Russia physically cannot ship gas to Europe if Ukraine closes the pipelines.  A fact which has several EU countries hustling for a deal !!

I think you are quite correct about "stealing gas"  I think this was the basis of the white mamba's fortune !

Russia needs to end the "leakage"  Several EU countries need to secure their supplies. Ukraine has chosen to develop as a market economy.  It has to face the reality of paying market prices.

In economic terms a deal needs to be done.  Politically this will be very difficult.  Putin and Yushenko are not "bosom pals".  The strong arm energy tactics employed by Putin against the Baltic's were not very effective in gaining political leverage.  I think they will be even less so against Ukraine.....

 

[Ste]

pretty close actually!

1.27 Euro = 0.874380 United Kingdom Pounds

(that's Approx $3.87 USD per gallon)

Latest at the Petrol Station - 89p a litre! 93p a litre for diesel! Diesel used to be half the price of petrol....

I'm sure it's still probably hovering around 84/86p a litre at my favoured petrol outlet, the one at Sainsbury's, where I think they subsidise it a little....

Funny really, I think I've finally got over gallons, think in litres now!

Ste

[andrewfi]

Leslie ~ The price increase is not a new thing. It has been 'in the pipeline' for many months. It all started when Ukraine wanted an end to barter arrangements and what they thought were lower than market prices for gas transportation arrangements, Gazprom agreed but then suggested that what was sauce for the goose was also sauce for the gander. A 'new' market price of $160 dollars was set out in March of last year. Dmitriy Medvedev then decided to increase to $230 when Gazprom discovered that Ukraine was on-selling Gazprom natural gas to Rumania for $260. Naftogaz was buying gas from Russia for $50 and then selling it on to Rumania for $260. That went down like a cup of cold vomit at Gazprom! Of course, even at the current price, Ukraine is not paying its bills and owes the Russians IIRC about $2billion for gas already supplied.

From what I have seen, Gazprom are willing to charge a much lower price to Ukraine for gas, as long as Naftogaz ceded control of the pipeline to Gazprom, just as has been agreed in Belarus (also where very hard negotiations took place!) Belarus is paying $46. Naftogaz are unlikely to agree since they are profiting from the transport fees they charge and also from their thefts from the pipelines. BTW, Naftogaz is also state owned and controlled. Ceding control could be a good deal for Ukraine (if not Naftogaz) as the pipeline in 2000 was valued by the EBRD at $26 billion dollars, but it needs substantial repairs due to the age of the system - Ukraine could expect a LOT of cheap gas.

So, is politics involved, yes, of course, but it is not quite as portrayed in the Western media. This is not a simple tit for tat political exchange, it is about Russia maintaining control over its own assets and not being robbed. I am cetain that notwithstanding the chest beating that went on in Germany a couple of days ago, that the energy ministers across Europe now understand that Ukraine has been stealing and the proof is now pretty incontrovertible.

BTW, Ukraine has its own supplies of gas and, were it not for the lack of investment in infrastructure, could supply all its domestic needs. Gas in Ukraine is at the moment cheaper than in Russia.

[docetae]

I'm on the pro Ukraine side on this issue. Putin was trying to create a crisis when Yutchtenko was going to loose the next elections , he was hoping to see Ukraine coming back as a russian satellite, but the Yutchenko plays the crisis on his advantage.

The real goal is not who is going to control Gas in Ukraine but who is going to use the black sea facilities. Ukraine goal is to join the european communauty, Yutchenko wins the first round as from Europe , Russia is seen as the one cutting the pipe.

Next step ? crisis in the black sea, sebastopol treaty canceled, so crisis on borders ... Back to the UN where the US sponsored ukrainian president gets helps from the security council ... except russia and Ukraine name is added on the waiting list to enter the european communauty ...

[andrewfi]

Of course the Black Sea base is a bargaining chip, but it is seperate. If Ukraine reneges upon its agreements with Russia it will not stand them in good stead with its neighbours to the west or north.

Ukraine can not afford to pay the new charges for gas. They may, or may not have the money, but their industry is not efficient enough to convert energy to products at the new prices. But, the reality is that Naftogaz/Ukraine put themselves in this situation.

The subtext is, of course, about spheres of influence and that has little enough to do with short term issues in Ukraine, especially looking at the timeline of the negotiations. In the west, we have been given the clear impression that this gas issue is all new; it is not, it goes back a year. Since then Yushchenko and Tymoshenko have dynamited the country's economy. Ukraine wants Europe to prove how much we love them, Russia is willing to demonstrate that they are really Ukraine's best buddy and Europe will not actually do anything to help Ukraine.

What this episode is doing is demonstrating to the world the incompetance of Yushchenko who is now pretty much a spent force. He will become an irrelevance after the parliamentary elections and the country will move back to its previous steady course and probably cheaper gas!

[Leslie]

Here is a link to todays Times editorial -

http://www.timesonline.co.uk/article/0,,13509-1969221,00.html

The idea that this "punishment" will drive the Ukrainian people back to the stifling embrace of the Donetz oligarchs is laughable.  Do you watch Ukraine TV?  Watch the evening news and see how this is being spun!

Ukraine will not ceed control of the pipelines to Gazprom.  It will sell them to a western oil giant first.  The EU will be very happy about this.  Russia should be too.  Certain Ukraine oligarchs will lose access to a gas gravy train that has made them billionaires.....

 

 

[Leslie]

A deal is done??

See this link -

http://biz.yahoo.com/ap/060104/russia_ukraine_gas.html?.v=7

To better understand the Turkmenistan link read this -

http://www.timesonline.co.uk/article/0,,13509-1968795,00.html

 

[andrewfi]

It would be wrong to think that this incident will, on its own, cause the downfall of Yushchenko. The process was well in train before this issue reached its current prominence. As I noted, this is simply another demonstration of the incompetance of the 'Orange Revolution' and its real hollowness. Given Yushchenko and Tymoshenko's past and ongoing personal interest in gas  the Russians are being remarkably restrained!:)

From the Russian perspective, this is all good! Ukraine stuck the stick into the wasp's nest in the first place by insisting upon 'market pricing' in its relations with Gazprom, Gazprom simply agreed with them. Russia is very keen to demonstrate to its people the hollowness of the US inspired 'colour revolutions' and to the world in general that in imposing similar restrictions that apply upon NGOs in the US, they are pursuing a reasonable policy. How often does the media have to tell Russians that they pay more for gas than Ukrainians and that Russia wants 'fairness' before the populace get the point?

Chances are that if a foreign firm DID buy the pipelines, Gazprom would not be less happy with the situation than they are now, after all, the pipelines will need to be used and they work in only one direction. They would get to charge whatever price they wanted for gas, they could ensure in a more direct manner the honesty of the carriers and they would have spent no money...

 

[andrewfi]

Hmmm...

So, how cheaply is Turkmen gas supplied to Russia if commingling the supply allows a price of $95?

My guess is that the price is simply that the new figure is $95 and the Ukrainians stop stealing... Probably as good a deal as Ukraine can afford and thus as good as Gazprom can get. They double their prices, Ukraine no longer has the anomalous gas flow as a cover for its unauthorised abstractions, the price for transit is also agreed, everyone a hero!

If at some time in the future Gazprom were to divest itself of Rosukrenergo then its hands would once again be freed.

[BC]

My guess is that the playing field is being leveled on both sides.

I particularly enjoyed the statement:

U.S. State Department spokesman Sean McCormack on Tuesday decried "the use of energy for political purposes."

I wonder if the reverse is also true: "The use of politics for energy purposes"..

[andrewfi]

BC ~ Essentially, I think you are right. The Ukrainains have been stealing for years, that may now become harder to do and certainly less easy to find a justification. The Russians have demonstrated to the world that they wanted to charge Ukraine market prices, nobody will ever be able to point a finger at Russia and say 'favouritism' given that the deal was impelled and supported by Europe and the US, so a victory for Russia in foreign policy terms as the west have demonstrated their balls of bread!

[Rvrwind]

Oh this is a dandy topic & one I have been dealing with for weeks.

By the way, we are not talking Gasoline here, this is LPG (Liquid Petrolium Gas) for home & industrial use, some of you are confusing the two.

Firstly Andrew is correct, Ukraine has been stealing Russian gas for years. Just last year Gasprom discovered that all the underground reserves that they filled in the ukraine for any future shortages are empty, millions of liters of gas just mysteriously disappeared & the Ukraine feels no obligation to pay for it.

Secondly what the Ukraine needs to realize is they will never get Turkmekistan Gas. Mainly because it has to be pumped through Russia to get to them or they need to build their own pipeline around Russia, which they can by no means afford. On top of that, Russia already has a 25 year contract with Turkmekistan to supply gas to Gasprom & has not enough left over to sell to the Ukraine. So how they figure to get gas there is beyond my comprehension.

Gasprom pays for transit of the gas through the pipline of Naftogaz Ukrainy at a fair market price & has even said they will pay what they pay elswhere (which is substantially more) as long as Ukraine agrees to do the same (pay what everybody else pays).

Ukraine wants to join NATO and allow NATO troops to base in Ukraine, this is against Russia's best interest. All former republics that are still friendly to Russia are reaping the rewards, those like Ukraine that badmouth Russia & are turning thier backs on Russia will pay, simple logic, simple deduction.

Is America or any other country not the same, their friends get priviledged status, period. Ukraine made its bed & now they will have to lay in it. The only pity is, it is the Europeans that will feel the effect hardest if Ukraine decides to steal the gas as Gasprom will surely shutdown the pipline. Ukraine has to get their head out of their ass & realize they are no longer part of Russia, they are not entitled to Russian gas & if they wish it they will pay for it just like everybody else.

By the way, at present, Ukraine pays less for gas than we here in Russia pay!!! So in my opinion they should pay up or shut up, end of story!!!

RVR - Canadian Cowboy/Agency Owner

[Ste]

It's true this pipe thing has been going on for years, I remember discussing this with Nad' online on 2003!

I seem to remember hearing the pipe is actually russia's, or Gazprom's, and the Uke's stole that too, admittedly that's a Russian perspective....

RVR, is it not Natural Gas we are talkiing about?

Here in the UK we still have our North Sea Gas although I understand we are a net importer. The guys on the news are talking of building a pipeline 'over the top' via Germany, dunno how realistic that is.

Ste

[andrewfi]

There will be a pipeline through the baltic sea to Germany and ultimately west to the UK. IIRC it is supposed to reach Germany by 2010. BTW, yes, the gas is natural gas and not a liquid.

[Leslie]

I am certainly not going to defend the actions of the oligarchs on either side.

Originally everything was owned by the soviet state not just Russia.  The actions of the oligarchs following its demise would be judged as theft under western law.  What Putin/gazprom did to Yukos was theft.  The vast fortune of the Tymoshenko clan was founded on energy trading (aka theft!).

Natasha (my wife)  is not interested in any of this.  She thinks they are ALL criminals (and I am not going to argue!)  She looks at this in a different light.  The heating charges (communal heating) of her family and friends have risen very steeply.  An average figure for a winter month, for a 2 room flat is now over Hrivna 100.  This is not much in free market terms.  It is set to double under this new deal.  This is fine if you are working but for old people it is a disaster.  The monthly state pension is only Hrivna 200.... Babushka HAS to move in with her family.  One of my wife's school friends lives in a 1 room apartment - Babushka has recently joined them.  5 people  - one room!

[BC]

Leslie,

Don't think the same is not happening in RU..  I think the communal 'taxes' have risen 3 or 4 times in the last two years.. and still going up.

Believe it or not I think RU could benefit greatly with modernization of heating facilities and even subsidizing new hot water heaters in apartments.  Instead of wasting gas on low efficiency appliances and central heating systems they could  profit even more from increased exports with zero investment for more export capacity.

Average temp here in our house is 20-21C  In RU at least 25C.  Thermostats on radiators are simply not there.. The only way to control the temperature is to open those little windows..

[Leslie]

BC,

The match box style Soviet era apartment blocks have as much insulation as my garage.  They also have antiquated communal heating systems.  which were designed and built when heating was the state's responsibility.  In many buildings a single apartment cannot be "cut off" - it is impossible. So if  a large % of the people living in the block don't pay the heating charge, the gas bill cannot be paid.  So the heating system for the entire building is turned off....

This has caused rioting!

It is impossible to control the populace when the police and most importantly the army will not enforce the law.  The gas is switched back on and the bills are not paid.  This is stealing but when the government steals on a grand scale can you expect honesty from regular people who will freeze when it is -25C ??

There is no money to tear down and replace these poorly built apartments except maybe in central Kyiv and some of the other large cities.   Ukraine is barely governable since the Orange revolution.  Western standards are not relevant.   The most important issue is keeping things peaceful....

 

 

[groovlstk]

BC,

The match box style Soviet era apartment blocks have as much insulation as my garage.  They also have antiquated communal heating systems.  which were designed and built when heating was the state's responsibility.  In many buildings a single apartment cannot be "cut off" - it is impossible. So if  a large % of the people living in the block don't pay the heating charge, the gas bill cannot be paid.  So the heating system for the entire building is turned off....

This has caused rioting!

It is impossible to control the populace when the police and most importantly the army will not enforce the law.  The gas is switched back on and the bills are not paid.  This is stealing but when the government steals on a grand scale can you expect honesty from regular people who will freeze when it is -25C ??

There is no money to tear down and replace these poorly built apartments except maybe in central Kyiv and some of the other large cities.   Ukraine is barely governable since the Orange revolution.  Western standards are not relevant.   The most important issue is keeping things peaceful....

 

 

This is spot-on, Leslie. My girlfriend in Dnepropetrovsk has complained several times over the last few months that she has no heat. When I ask her why, she says that when enough people in the building don't pay their heating bills, they cut off service to everyone for a day or two to piss everyone off.

I think this situation is a lot more damaging to Russia then to Ukraine, as the G8 powers who were already reluctant to accept Russia as a member--let alone assume the presidency--now have confirmation that Russia is a wild card.