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At Large
A Severe Case of Gas
The story seems so simple. The Russians cut off gas supplies to Ukraine for not paying their gas bill. The European Union depends on Russia for 25% of its gas requirements of which 80% arrives via Ukraine's pipelines. Except, as in everything regarding Russia, it is not quite so simple.
To begin with, the entire history of Russian gas development goes back to the days of the Soviet Union and the broad expanse of the post-revolutionary Russian empire. The gas pipelines, pumping stations and storage facilities of the Ukraine originated with the development of the gas deposits of the Ukraine. As these deposits played out, the source of Soviet gas shifted to Siberian drillings, though their transportation infrastructure remained centered on the Ukraine.
With the breakup of the USSR, the increasing export of Russian and central Asian gas to Western Europe was dependent on the pipeline and storage structure of independent Ukraine through which the product still transited. The Ukrainians made money on their transportation and storage role and the Russians made money from their monopoly on the provision of gas to Ukraine and Western Europe. Here is where things become a bit more complicated.
Gazprom, the giant Russian energy company, controls the production and sale of Siberian gas and the transport of central Asian gas through Russia. Naftogaz is the principal Ukrainian instrument importing gas for their use. The actual supplier of this gas is UkrGazEnergo. This company is a joint venture of Naftogaz and RosUkrEnergo, a Swiss-based middleman that sells gas to UkrGazEnergo. And, just to be clear, RosUkrEnergo is 50% owned by Russia's Gazprom.
Here is where the tricky part comes in. The money said to be owed by Ukraine's Naftogaz to Gazprom must be paid first to RosUkrEnergo and then sent on to Gazprom. Fine, you say, send the money Ukraine (Naftogaz) owes to Russia (Gazprom) via RosUkrEnergo. Not so fast: Naftogaz is said to owe money to UkrGazEnergo -- which as noted earlier is a Swiss company jointly owned by Naftogaz and RosUkrEnergo, the one half Gazprom-owned corporation.
Behind all of this wonderfully complex business arrangement is the fact that Gazprom would like to own the entire pipeline that brings Russian and central Asian gas to Western Europe through Belarus and Ukraine. Moscow has gained a 50% ownership of the Belarus line, but so far has failed in regard to Ukraine. Any debt on gas deliveries to Ukraine therefore puts pressure on Kiev to rethink its stubborn refusal to negotiate the Ukrainian pipeline ownership with Gazprom.
The debt owed Russia by Ukraine for gas deliveries is claimed to be $2.4 billion. Kiev says that amount is incorrect. Anyhow, it says, it doesn't have the money. The International Monetary Fund, however, insists that Ukraine does have the money if it will consider transferring assets such as a portion of ownership of its pipeline. Back to square one.
To add to the complication is the fact that Swiss-registered RosUkrEnergo is a joint venture between Gazprom and the Ukrainian billionaire gas trader, Dmitry Firtash, and his holding company, Group DF. This latter organization is a haven for several of Firtash's high rolling friends. The Ukrainian prime minister, the dynamic Yulia Tymoshenko, has referred to RosUkrEnergo as "one of the corrupt intermediaries" involved in the Russia gas trade.
Ms. Tymoshenko, who before entering politics had made her fortune through ownership of an energy company, wants to cut out RosUkrEnergo and shift its gas supply contract to a more direct agreement between Naftogaz and Gazprom. Presumably this is what she and Vladimir Putin will talk about during their “emergency" meeting on January 17. President Medvedev's invitation for a summit meeting with EU leadership of gas import companies did not bring an enthusiastic reaction, but an EU Commission energy team has agreed to go to Moscow.
The accord to have EU monitors check on Russian gas transiting Ukraine has been frustrated by ill-defined protocols. The Moscow claim that the Ukrainians were pilfering gas destined for Europe has been denied, of course, by Kiev, and the gas spigot remains at "off."
Both sides continue to fling claims of perfidy at each other. The vice chairman of Gazprom stated that U.S. interests are urging on Ukraine. The International Energy Agency says Russia has lost its status as a reliable gas supplier. Meanwhile, the president of the European Commission suggested that the offending Ukrainian and Russian companies should be sued. The Balkans is freezing and the rest of Europe is expecting that it might. No, there's nothing simple in this energy politics brawl.
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Curly Smith| 1.16.09 @ 8:59AM
I, like the EuroWeenies in the Drudge headline "Europe baffled by broken gas promises", am simply stunned that the Communists would break a promise. Why such a thing hasn't happened before, has it? The argument isn't really about Ukraine, it's about Russia squeezing out Ukraine so it can directly, and solely, use the gas to freeze the EU into a more "cooperative" stance. If we get any more Global Warming, Russia's FlameMail will be very effective.
Keith W. Brown| 1.16.09 @ 1:07PM
We are US expats living & working in Bulgaria. Any fool that trusts the Russians deserves what they get. When they have you by your cajones, your heart & mind will follow which is exactly where we are at.
Surely, the Ukranie is at fault also. Yet, any nations so foolish to depend on the Ruskies for anything will be sorry.
Can you imagine the outcry if the US had turned off the gas? Massive worldwide demostrations...
Euros constantly brown-nose the Russsians simply because they are not the Americans. But the beauty of this all is that Russia is not exactly spreading good will throughout Euroland now. Quite the contrary.
Rest assured though, that the Euros will not learn their lesson. Just tune in a few years from now & you will see.
Dustoff| 1.16.09 @ 4:56PM
Maybe the EU should stop all this Greening junk and start drilling for their own.
Sorry folks, but your wind farms won't cut it.
I bet everyone is hoping for that global warming soon!
ccc| 1.16.09 @ 6:12PM
What would you have the Europeans do? Invade russia because they won't sell cheaply enough? Make more deals terrorist supporting dictators and hope that they play fair?
Either Europeans find the will to maximize the resources they have. Or follow the American path and throw a paniced tantrum every time a petrocrat turns the screws.
As for the russians, of course they will use energy dependence as leverage. Use what you have to get what you want, and make a profit if you can.
Alan Brooks| 1.17.09 @ 1:21AM
Russians cant help it they're pigs, they were born that way.
Deborah| 1.17.09 @ 5:06AM
Just another cautionary tale on energy and how a country (such as the U.S.) or a continent (such as Europe) must explore and develop in their own regions. The world of today runs on the development of fossil fuels, regardless of the futuristic dreams of alternative energy. When your energy needs are dependent on those such as Russia or Venzuela or Saudi Arabia or Iran, then you are subject to blackmail and dealing with a complicated system of thieves and crooks.
Alan Brooks| 1.17.09 @ 8:54AM
sins of the fathers too. Russians treated Ukrainians worse than any. the holodor: conserv est 5,000,000 casualties.
Mark Kaskin| 1.17.09 @ 1:02PM
All of Europe will wind up as vassal states of Russia and the Middle East, with both areas controlling EU energy and with the EU becoming at least 25% Islamic through rampant immigration from Islamic areas into the EU.
Shockedandawed| 1.17.09 @ 1:35PM
Happily ignoring the lessons of the Weimar Republic, the West has at best ignored but de facto humiliated the ex-Soviet state after losing the Cold War, and basically drove them in the arms of their former arch-rival China. So far so good, if it wasn’t for the natural gas reserves that we want to buy from them so badly. How badly, the Russians remind us of every winter, like in this example. Now, today energy costs are more or less affordable again, but we all know this will not last. Russia will be back on the global stage with gas as a carrot and still some nuclear moral pressure as a back-up stick.
I have seen more on this critical issue on Crunchreport.com.
Alan Brooks| 1.17.09 @ 2:45PM
whats wrong with the Chinese being in the arms of the Russians? the two wont hurt us-- they will be too busy brutalizing their own peoples.
Pingback| 2.4.09 @ 4:01PM
Ладушки.Net » Blog Archive » Posts about Russia as of 04/02/2009 links to this page. Here’s an excerpt:
Alex| 2.9.09 @ 3:29PM
Kharkov is going to host Euro-2012 games. The city will accept ten thousand fans from Europe. And none of them knows, that during 2007 year 10423 tuberculosis infected persons have died in Ukraine. Many of them have forgotten, that illness. Germany, Finland, Austria, Italy do not inoculate their citizenzs against this lethal disease.
Unfortunately, funds became insufficient and the Kharkov authorities made an original decision. Keeping within the limits of Euro-2012 preparation Kharkov reduces the number of tubercular departments. So, by March, 15th 345 places of 545 available will be reduced in the first Kharkov’s antitubercular clinic №1. But do not worry, it is a temporary situation: liquidation of last two hundred places and complete liquidation of the whole clinic will occur till the end of this year.
http://ua-ru-news.blogspot.com/2009/01/shvonders-struggle-with-crisis.html
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