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A STORM IS BREWING IN THE EAST DESPITE TEMPORARY GAS TRUCE
By EBR Staff Writer
Energy Business Review
July 6 2006
The January 2006 Russia-Ukraine gas deal has been temporarily extended
to the autumn; a temporary truce largely driven by Russia's position as
chair of the G8. There are two events on the horizon with potentially
serious implications for the reliability of gas supplies to Europe:
Yulia Tymoshenko's appointment as Ukrainian prime minister, and
Turkmenistan's decision to hike gas prices to Russia.
'Content Last year, Russia sparked a crisis in European gas supply
by seeking to unilaterally end a long-term gas contract with Ukraine
and raise prices to international levels. In November 2005 Russia
proposed a price rise from $50 per 1,000 cubic meters to $160, but the
following month it suddenly raised the price to international levels
(around $230 per 1,000 cubic meters). This was twice the amount paid
by Armenia, Georgia and the Baltic states, and much more than the
existing $50 special rate effectively reserved for pro-Russia former
satellites such as Belarus.
AdvertisementRather than phase-in price increases or go to
international arbitration as requested by Ukraine, state-controlled
Gazprom said it would simply turn gas supplies off on January 1, 2006,
if Ukraine did not comply. Ukraine did not comply and continued to
take gas out of transit pipelines pursuant to its original agreement,
bringing accusations of theft from Gazprom.
Some 80% of Europe's Russian gas is transported across Ukraine, and
when the taps did get turned off, seven European countries reported
30% drops in gas pressure within hours.
Russia under pressure
These events were bizarrely timed by Russia to coincide with its
chairmanship of the G8, with a specific focus on energy security. The
EU ratcheted up diplomatic pressure for the dispute to be resolved and,
immediately after the US weighed in, a deal was reached on January 4,
2006. This was accomplished by blending much cheaper Turkmen gas with
Russian gas, to produce an overall price to Ukraine of $95 per 1,000
cubic meters.
Gas prices under this new contract were scheduled to come up for
review on July 1. Up to the day before the deadline Russia had not
decided whether it would raise rates or not. At the same time Ukraine's
outspoken former prime minister Yulia Tymoshenko has been waiting in
the wings, making dramatic declarations about the need to scrap the
contract altogether. The brewing storm has been averted at the last
minute through an agreement between the departing administration in
Kiev and Moscow: the terms of the January agreement are to be extended
to the end of Q3 2006.
There can be little doubt that the 'energy security' G8 meeting
in St. Petersburg on July 15, at which Russia is the chair, is the
driving factor by this sudden capitulation by Russia and Gazprom.
This new agreement, however, is a truce and not a resolution of the
dispute. The task of setting in place a long term agreement remains
unresolved. To this end, two interwoven variables could yet combine
to create potentially serious disruptions in future gas supplies
to Europe.
The Tymoshenko factor
First, Ukraine's former firebrand prime minister Yulia Tymoshenko is
on the cusp of re-forming a government, and she has already called
for a revision of the Russia-Ukraine gas contract. The January
compromise gas deal was only possible because Ms Tymoshenko had
earlier been replaced as Ukraine's premier. During and after this
spring's national elections, she repeatedly called for the January
gas deal to be called off.
The returning Ms Tymoshenko is dedicated to forcing RosUkrEnergo out
of the Ukraine-Russia pact. In 2004, in the dying days of former
president Leonid Kuchma's government, this murky company secured
a sweetheart intermediary role carrying Gazprom-secured gas from
central Asia to Ukraine, through Gazprom pipelines, to sell on to
Ukraine's NaftoGaz Ukrainy.
The commercial rationale for RosUkrEnergo's role is unclear. But
the company's original involvement as monopoly gas supplier to
Ukraine was set up under President Kuchma's pro-Russia, pre-Orange
Revolution government, just before it orchestrated massive electoral
fraud in a bid to hold on to power through presidential candidate
Victor Yanukovich. The company is consequently seen by many, and most
importantly Yulia Tymoshenko, as a vestige of that regime. This has
direct implications for the security of gas supplies to western Europe.
Turkmenistan turns tables
Ironically, Russia is now in the position that Ukraine was last year.
Turkmenistan, having learned from Russia's hard ball strategy, has
stated that it wants to raise the price at which it sells its gas to
RosUkrEnergo (from $65 per 1,000 cubic meters to $100), otherwise it
will cut off supplies. It threatens to do this by September, at which
point the current 30bcm supply contract with Gazprom is expected to
be fulfilled.
Negotiations with Gazprom have recently broken down, and a Ukrainian
delegation immediately began talks to negotiate a new deal. Such a deal
would reduce Ukraine's dependence on Russian gas and break Gazprom's
monopoly on central Asian gas (though Ukraine will nevertheless have
to use Russian pipelines to transport the gas).
This unresolved dispute threatens to intensify in the near future,
with serious consequences to secure gas delivery through Russia and
Ukraine to Europe.
The saving grace in all this potential turmoil is Russia's chairmanship
of the St Petersburg G8 summit on July 15. Russia's desire to calm
tensions and prove itself a responsible energy leader is driving its
current stance.
And so, notwithstanding the focus of the current G8 summit, the next
few months will see feuds over the structure and price of major gas
contracts escalate, with potentially serious ramifications on the
security of gas supply.
From: Emil Lazarian | Ararat NewsPress
By EBR Staff Writer
Energy Business Review
July 6 2006
The January 2006 Russia-Ukraine gas deal has been temporarily extended
to the autumn; a temporary truce largely driven by Russia's position as
chair of the G8. There are two events on the horizon with potentially
serious implications for the reliability of gas supplies to Europe:
Yulia Tymoshenko's appointment as Ukrainian prime minister, and
Turkmenistan's decision to hike gas prices to Russia.
'Content Last year, Russia sparked a crisis in European gas supply
by seeking to unilaterally end a long-term gas contract with Ukraine
and raise prices to international levels. In November 2005 Russia
proposed a price rise from $50 per 1,000 cubic meters to $160, but the
following month it suddenly raised the price to international levels
(around $230 per 1,000 cubic meters). This was twice the amount paid
by Armenia, Georgia and the Baltic states, and much more than the
existing $50 special rate effectively reserved for pro-Russia former
satellites such as Belarus.
AdvertisementRather than phase-in price increases or go to
international arbitration as requested by Ukraine, state-controlled
Gazprom said it would simply turn gas supplies off on January 1, 2006,
if Ukraine did not comply. Ukraine did not comply and continued to
take gas out of transit pipelines pursuant to its original agreement,
bringing accusations of theft from Gazprom.
Some 80% of Europe's Russian gas is transported across Ukraine, and
when the taps did get turned off, seven European countries reported
30% drops in gas pressure within hours.
Russia under pressure
These events were bizarrely timed by Russia to coincide with its
chairmanship of the G8, with a specific focus on energy security. The
EU ratcheted up diplomatic pressure for the dispute to be resolved and,
immediately after the US weighed in, a deal was reached on January 4,
2006. This was accomplished by blending much cheaper Turkmen gas with
Russian gas, to produce an overall price to Ukraine of $95 per 1,000
cubic meters.
Gas prices under this new contract were scheduled to come up for
review on July 1. Up to the day before the deadline Russia had not
decided whether it would raise rates or not. At the same time Ukraine's
outspoken former prime minister Yulia Tymoshenko has been waiting in
the wings, making dramatic declarations about the need to scrap the
contract altogether. The brewing storm has been averted at the last
minute through an agreement between the departing administration in
Kiev and Moscow: the terms of the January agreement are to be extended
to the end of Q3 2006.
There can be little doubt that the 'energy security' G8 meeting
in St. Petersburg on July 15, at which Russia is the chair, is the
driving factor by this sudden capitulation by Russia and Gazprom.
This new agreement, however, is a truce and not a resolution of the
dispute. The task of setting in place a long term agreement remains
unresolved. To this end, two interwoven variables could yet combine
to create potentially serious disruptions in future gas supplies
to Europe.
The Tymoshenko factor
First, Ukraine's former firebrand prime minister Yulia Tymoshenko is
on the cusp of re-forming a government, and she has already called
for a revision of the Russia-Ukraine gas contract. The January
compromise gas deal was only possible because Ms Tymoshenko had
earlier been replaced as Ukraine's premier. During and after this
spring's national elections, she repeatedly called for the January
gas deal to be called off.
The returning Ms Tymoshenko is dedicated to forcing RosUkrEnergo out
of the Ukraine-Russia pact. In 2004, in the dying days of former
president Leonid Kuchma's government, this murky company secured
a sweetheart intermediary role carrying Gazprom-secured gas from
central Asia to Ukraine, through Gazprom pipelines, to sell on to
Ukraine's NaftoGaz Ukrainy.
The commercial rationale for RosUkrEnergo's role is unclear. But
the company's original involvement as monopoly gas supplier to
Ukraine was set up under President Kuchma's pro-Russia, pre-Orange
Revolution government, just before it orchestrated massive electoral
fraud in a bid to hold on to power through presidential candidate
Victor Yanukovich. The company is consequently seen by many, and most
importantly Yulia Tymoshenko, as a vestige of that regime. This has
direct implications for the security of gas supplies to western Europe.
Turkmenistan turns tables
Ironically, Russia is now in the position that Ukraine was last year.
Turkmenistan, having learned from Russia's hard ball strategy, has
stated that it wants to raise the price at which it sells its gas to
RosUkrEnergo (from $65 per 1,000 cubic meters to $100), otherwise it
will cut off supplies. It threatens to do this by September, at which
point the current 30bcm supply contract with Gazprom is expected to
be fulfilled.
Negotiations with Gazprom have recently broken down, and a Ukrainian
delegation immediately began talks to negotiate a new deal. Such a deal
would reduce Ukraine's dependence on Russian gas and break Gazprom's
monopoly on central Asian gas (though Ukraine will nevertheless have
to use Russian pipelines to transport the gas).
This unresolved dispute threatens to intensify in the near future,
with serious consequences to secure gas delivery through Russia and
Ukraine to Europe.
The saving grace in all this potential turmoil is Russia's chairmanship
of the St Petersburg G8 summit on July 15. Russia's desire to calm
tensions and prove itself a responsible energy leader is driving its
current stance.
And so, notwithstanding the focus of the current G8 summit, the next
few months will see feuds over the structure and price of major gas
contracts escalate, with potentially serious ramifications on the
security of gas supply.
From: Emil Lazarian | Ararat NewsPress