Gas Pipeline and effects to Ukraine

[Diplomacy]

http://news.yahoo.com/s/afp/20081223/ts_afp/russiaukraineeconomygascompanygazprom_081223010145

[Law]

Gazprom shuts off gas links to Ukraine
In comments broadcast Wednesday evening on Russian state television, Prime Minister Vladimir Putin said that any interference with Russian gas exports to Europe would carry "serious consequences for the transit country itself." He did not elaborate.

Underlying the gas dispute are long-running tensions between the two countries. In 2004, after the street protests known as the Orange Revolution installed a pro-Western government in Ukraine, talks over gas supply and its transit became strained.

Gazprom has characterized the pricing disputes, which arise when contracts expire at year's end, as purely commercial. Yet critics who contend Russia uses oil and natural gas exports as political leverage over former Soviet and East bloc states see clear ties to the region's turbulent politics.

"Russia will use the economic factors to transform the internal politics of Ukraine," Hrigoriy Perepelitsa, director of the Foreign Policy Research Institute, the academy of the Ukrainian Foreign Ministry, said in a telephone interview.

Full article here...
http://www.iht.com/articles/2009/01/01/europe/gazprom.php?page=2
 

[Shadow]

It all seems to simple. Pay the bills in time, and Russia has no reason to do anything. 

Before the Orange Revolution, Ukraine paid 10% of the price that Europe pays for the gas, and got money as transit country.
With the Ukrainian aspirations to be inside the EU and NATO, and break away from Russia, it was clear that Russia would reply by giving them the same conditions as EU countries.
For 2009 the offered price is still only 50% of the price the Czech or Germans pay, but Ukraine is calling upon the economic crisis to negotiate a lower price.

The yearly closing of the gas is becoming a New Year tradition that seems unfortunately necessary.

[Beaverpatrol]

"The yearly closing of the gas is becoming a New Year tradition that seems unfortunately necessary."

... great comment but sometimes the pipeline remains closed.  The Russian rattles with pleasure the saber.Then are open bills very welcome.  IMO : dangerous affairs!

like ever , excuse my poor english

[OlgaH]

but sometimes the pipeline remains closed.  The Russian rattles with pleasure the saber.

Only when one side of a contract breaches the contract. Gazprom was too kind and patient for too long time.  Now the Ukraine Naftogaz must pay penalties and fines for payment delaying according to the contract, so the greedy man pays twice  I think the best saber would be international court of justice next time and the litigation costs will be added to the debt and fines 

"The message is very simple," said Ilya Kochevrin, executive director of Gazprom's export arm, Gazexport, to the International Herald Tribune. "If you receive a product, you have to pay for it. If you don't pay, you don't receive it."

[Blues Fairy]

Nevertheless Ukraine keeps expropriating the gas "for maintenance purposes", about 21 million cubic meters per day.
http://top.rbc.ru/economics/02/01/2009/272419.shtml

Gazprom is very PO'd and considering alternative transit routes.   

[OlgaH]

Nevertheless Ukraine keeps expropriating the gas "for maintenance purposes", about 21 million cubic meters per day.
http://top.rbc.ru/economics/02/01/2009/272419.shtml

Gazprom is very PO'd and considering alternative transit routes.   

 

Blues Fairy, "expropriating" is a too beautiful word  "stealing" would be correct  As Kupriyanov said "they steal" and Oleg Dubina even doesn't feel shy to announce about it http://censor.net.ua/go/offer--ResourceID--109238    More over they refuse an access to gas measuring station to independent auditor of SGS.   

[Shadow]

Actually I presume that this is done on a daily basis when transport is running as usual. Just because there is now more control the amount of disappearing gas is noticed.

[docetae]

For more infos read a little about RosUkrEnergo ....

[Blues Fairy]

Actually I presume that this is done on a daily basis when transport is running as usual. Just because there is now more control the amount of disappearing gas is noticed

Actually they're supposed to pay for the maintenance gas as per contract with Gazprom - unless Gazprom is misinterpreting the contract.

"Stealing" would describe something stealth while Ukraine does it quite openly.

[neo]

i don't think Russia is in a particuarly strong position to lecture on good business ethics.

With State blessing BP, Shell, Telenor and countless others have been screwed out of hundreds of billions by their russian business "partners" so Ukraines fiddling of the gas meter is chump change compared to the daily robbery of Russia Inc.

[OlgaH]

Actually they're supposed to pay for the maintenance gas as per contract with Gazprom - unless Gazprom is misinterpreting the contract.

If Gazprom misinterprets the contract Yuschanko would never miss such chance as to apply to the International court of justice.   

[OlgaH]

Naftogaz has said that with no gas in its pipes, it would have to divert a daily volume of 21 million cubic meters bound for Europe to maintain pressure in the network -- a measure Gazprom could interpret as siphoning. "We saw this announcement," said Gazprom's Sergei Kupriyanov on Thursday, according to Russian and Ukrainian media outlets, "but we believe that we should wait for the moment when 24 hours expire and we can draw corresponding conclusions. That will happen tomorrow (Friday) in the middle of the day."

The EU is feeling the impact of the Russian-Ukrainian gas dispute.
The most affected EU state so far is Romania. Bucharest reports today that natural gas deliveries via Ukrainian pipelines are down 33 percent from normal level.
Hungary, too, has seen a drop. Deliveries there are down 25 percent. In Poland, deliveries are down 11 percent, while Bulgaria has also reported a decrease in gas supplies via Ukraine.

[OlgaH]

“Gazprom has taken the decision to file a lawsuit with the Stockholm international arbitration court to force Naftogaz Ukrainy to secure unimpeded transit of Russian gas to Europe across Ukraine.

The lawsuit will be filed in accordance with the Contract of June 21, 2002 on the volumes and terms of Russian natural gas transit across Ukraine to European consumers over 2003-2013.

As part of this lawsuit Gazprom will ask the court to adopt in the shortest possible time provisional measures prohibiting Naftogaz Ukrainy to take any actions aimed at reducing the Russian gas transit to Europe.

I have notified Russian President Dmitry Medvedev about the planned legal action and he has approved this decision.

All the necessary documents will be prepared and sent to Stockholm in the nearest future,” OAO Gazprom Management Committee Chairman Alexey Miller told reporters.

http://www.gazprom.com/eng/news/2009/01/33506.shtml

RosUkrEnergo, a Swiss-registered gas trader selling Russian and Central Asian gas to Ukraine, filed two lawsuits against Naftogaz at the Arbitration Institute of the Stockholm Chamber of Commerce earlier today: one over a $614 million debt for Russian gas deliveries and the other seeking to force Naftogaz to ensure the transit of Russian gas through Ukraine in accordance with existing contracts. RosUkrEnergo's move was aimed at ensuring the insterests of European gas consumers and forcing Naftogaz to perform its contractual obligations, the gas trader said.

      RosUkrEnergo accuses Naftogaz of Ukraine of breaching its obligations over its contract with RosUkrEnergo on the lifting and transportation of natural gas from underground storage facilities. Instead, Naftogaz has blocked the transit of natural gas owned by RosUkrEnergo and intended for the company's European partners.

      Ukraine also violated the Energy Charter Treaty, RosUkrEnergo's spokesman claimed, citing Article 7 of the Charter, which provides that the transit state "shall not, in the event of a dispute over any matter arising from that transit, interrupt or reduce, permit any entity subject to its control to interrupt or reduce, or require any entity subject to its jurisdiction to interrupt or reduce the existing flow of energy materials and products prior to the conclusion of the dispute resolution mechanism."

http://www.rbcnews.com/free/20090103170035.shtml

[mendeleyev]

Hmm, me thinks Russia is very selective.  Gazprom spokesman Sergei Kupriyanov says that "the price for Belarus will be slightly lower than it should be in line with the original contract," Kupriyanov said on Echo of Moscow radio on Saturday.  Huh??

"It is important not only to set the price but also to get the money," he said, justifiying the lowered price to Belarus.

At the beginning of the 2009, "Belarus will buy Russian gas at a higher price than now, but then it will go down following the declining oil price," Kupriyanov said. (What the heck does that sentence mean?) The gas price will also be declining "for all European partners, for the Baltic states, and for Moldova," he said.  (But not for Ukraine, because Ukraine doesn't want to call Russia "Daddy."

Gazprom announed that in line with the price formula set for Belarus, gas sold to that country should cost it 67% of the average European price in 2008. The Gazprom price for Belarus is $129 per 1,000 cubic meters.

Ukraine, which allows Russia to have a pipeline across it's territory to carry the gas to Europe will pay more.  Much more. Russia has said it was prepared to charge Ukraine $250 per 1,000 cubic metres this year before talks collapsed, after which it raised the price to $418. Kiev has said its highest offer was $235, and it wanted Russia to pay higher transit fees.

As of today, 04 January, Russia is demanding $448 from Ukraine, and $129 from Belarus.

No Russia isn't using gas for politics.  Not at all.

[Misha]

The price of natural gas follows the price of oil with a delay of 6-8 months. As such, if the price of oil stays low (i.e. $30-40 per barrel), you can expect a major drop in the price of natural gas by this summer. As such, GAZPROM wants to force Ukraine to sign a contract while the price of natural gas is still high as opposed to negotiating a price based on where natural gas should be given the current price of crude oil.

[OlgaH]

The Gazprom price for Belarus is $129 per 1,000 cubic meters.

Because Belarus doesn't siphoning gas that is intended for Europe and doesn't create problems with payment delay  

BTW I was looking for a "fresh" news about the gas price for Belarus in 2009, could you please give the link.


It is time for Russia and Europe to pay more attention to the project Nord Stream 
http://www.nord-stream.com/en/

[Simoni]

Hmm, me thinks Russia is very selective.  Gazprom spokesman Sergei Kupriyanov says that "the price for Belarus will be slightly lower than it should be in line with the original contract," Kupriyanov said on Echo of Moscow radio on Saturday.  Huh??

"It is important not only to set the price but also to get the money," he said, justifiying the lowered price to Belarus.

At the beginning of the 2009, "Belarus will buy Russian gas at a higher price than now, but then it will go down following the declining oil price," Kupriyanov said. (What the heck does that sentence mean?) The gas price will also be declining "for all European partners, for the Baltic states, and for Moldova," he said.  (But not for Ukraine, because Ukraine doesn't want to call Russia "Daddy."

Gazprom announed that in line with the price formula set for Belarus, gas sold to that country should cost it 67% of the average European price in 2008. The Gazprom price for Belarus is $129 per 1,000 cubic meters.

Ukraine, which allows Russia to have a pipeline across it's territory to carry the gas to Europe will pay more.  Much more. Russia has said it was prepared to charge Ukraine $250 per 1,000 cubic metres this year before talks collapsed, after which it raised the price to $418. Kiev has said its highest offer was $235, and it wanted Russia to pay higher transit fees.

As of today, 04 January, Russia is demanding $448 from Ukraine, and $129 from Belarus.

No Russia isn't using gas for politics.  Not at all.

Excellent post, mendeleyev.  You nailed it.

[Misha]

This post provides a nice analysis of the crisis over gas prices and the conflict pitting GAZPROM against Ukraine: http://www.oilandglory.com/. An excerpt from Steve LeVine's analysis:

In Europe, natural gas prices follow oil, and Russia is clearly of the consensus view that oil will average somewhere in the neighborhood of $60 a barrel this year. That corresponds to a natural gas price of about $350 per 1,000 cubic meters. (Here's the loose formula to get the natural gas price: divide the oil price by six, then multiply the result by 35.3).

Hence the claim by Russian Prime Minister Vladimir Putin that the demand by Gazprom, Russia's natural gas behemoth, for $250 per 1,000 cubic meters from Ukraine this year amounts to a "humanitarian gesture."

Ukraine, however, has embraced oil's most recent price band. It's arguing that oil will average $40 a barrel this year, or $235 per 1,000 cubic meters of natural gas. That's precisely what Ukraine has counter-offered to Gazprom.

(As a separate matter, if Europe truly is paying $500 per 1,000 cubic meters, as Gazprom has claimed, it is seriously overpaying. That corresponds to $84-a-barrel oil.)

(Another baffling issue is Russia's claim that it's owed a $600 million late fee on top of the $1.5 billion natural gas bill that Ukraine already has paid. That's a 40% penalty, and Ukraine is only a month late.)

The subtext is the nature of the two countries' contract, which is based not on the spot price of natural gas, or a forecast, but a formula that lags current prices by eight months. In other words, when Gazprom is retorting that it in fact could charge Ukraine $418 per 1,000 cubic meters if it so wishes, that's Russia's estimate of the price of natural gas last May.

In the end, look for the two countries to settle some place in the middle, say at $50 a barrel oil, which would entitle Gazprom to charge $294 per 1,000 cubic meters. But don't be surprised if Ukraine bends a bit more toward Russia's demand than a down-the-middle compromise; indeed, I wouldn't be surprised if Ukraine agrees to Gazprom's offer of $250 per 1,000 cubic meters.

The dispute has more bite than previous rows because of the economic times. Ukraine is in an economic fix, as is Gazprom.

Regarding the latter, Gazprom's troubles go far. It doesn't produce much of the gas it ships to Europe, but markets gas it buys mostly from the Central Asian state of Turkmenistan. In order to obtain long-term rights to that gas, and not have it siphoned off by a covetous West, Gazprom has agreed to pay the Turkmen about $340 per 1,000 cubic meters.

Given market prices, that means that Gazprom might be forced to sell to Europe this year at a loss, unless it unilaterally cuts the price it pays to the Turkmen, who in that case could respond by withholding supplies.

"Gazprom is in a tough spot," says Kenneth Medlock, a natural gas expert at Rice University's James A Baker Institute for Public Policy, who helped me with the calculations for this article. If Gazprom loses the Turkmen supplies, Medlock said, "they are going to have trouble meeting their contractual commitments" to Europe.

[OlgaH]

(As a separate matter, if Europe truly is paying $500 per 1,000 cubic meters, as Gazprom has claimed, it is seriously overpaying. That corresponds to $84-a-barrel oil.)

   and Europeans are such fools and they don't know anything about real price and agree to overpay. I doubt it

(Here's the loose formula to get the natural gas price: divide the oil price by six, then multiply the result by 35.3).

So in July 2008 the price on gas should be 866.44 

[Misha]

  and Europeans are such fools and they don't know anything about real price and agree to overpay. I doubt it

So in July 2008 the price on gas should be 866.44 

Olga, there is always a 6-8 month lag in the price of natural gas. If the price of oil had stayed at its July price, then the price of natural gas would be trading at $866 now. The Europeans are not stupid. If prices for oil stay low, they will be paying much less for natural gas when they renegotiate their contracts.

[OlgaH]

Olga, there is always a 6-8 month lag in the price of natural gas. If the price of oil had stayed at its July price, then the price of natural gas would be trading at $866 now. The Europeans are not stupid. If prices for oil stay low, they will be paying much less for natural gas when they renegotiate their contracts.

I absolutely agree with you about Europeans' business skills. 

BTW 8 months ago the oil price  was $127.35 so the gas price should be $749.24. 

[wxman]

Oddly, the US is criticized for not having a more diverse energy plan, and justifyably so, yet a large part of Europe still relies heavily on Russia for it's energy needs, not just for heating, but also using the Russian natural gas to produce electricity. And yet, even more pipelines are being built from Russia into western Europe. If you put all your eggs in one basket, they will all eventually start smelling rotten.

[Admin]

I absolutely agree with you about Europeans' business skills. 

BTW 8 months ago the oil price  was $127.35 so the gas price should be $749.24. 

 

Olga, I have no idea what y'all are chatting about here - but just noticed your new avatar and wanted to let you and Robert know that I think that is a wonderful photo. You both look great and very happy.

Nice choice.

OK - enough disruption. Please resume whatever was going on before my interruption.

- Dan

[OlgaH]

If you put all your eggs in one basket, they will all eventually start smelling rotten.

   Do you say it by your own expirience? Don't keep the eggs for so long time and don't buy more than you can eat, and also don't forget to check expiry date