A note from the translator: Russians can get clear information from a few remaining sources in their country. For example, here is an article by one of my favourite politicians, Vladimir Milov, published recently in one such brave source – Novaya Gazeta. In fact, I like this paper so much that I have bought subscriptions to it for a number of friends and acquaintances around Russia. This leads me to two hopes: 1) that my money (not much, really!) isn’t wasted and that they get the paper to the end of the year since I imagine it could be closed down at any moment by the neo-nazis in the Kremlin and b) that being the recipient of such a paper doesn’t get them arrested by those same N-N in the K under the vicious new legislation constantly being brought in to control the Russia’s unfortunate populace.
11 January 2009
Translated from the Russian by Dave Essel
This now yearly gas skirmish suits both the Russian and the Ukrainian élites because it moves the gas into no man’s land and increases profits at both ends of the pipe while allowing both parties to blame the political problems on each other.
Can a Gas War be Avoided?
I have come to the conclusion that Gazprom intended all along to cut off the flow of gas into the Ukraine.
Firstly, the Russian company voiced a number of demands one after the other, each time stating that it would turn off the gas if the demand was not met. The first demand was for the money owed by Naftogaz to be paid – not that this was even a debt to Gazprom but to intermediary companies. When the Ukraine agreed and set a payment date of just before the new year into order to close the books, Gazprom announced that it was not happy about the lack of an agreement on 2009 gas prices. This announcement came hard on the heels of the partners having seemingly reached agreement on a compromise price of $230-250 per 1000 cubic metres. Then, just before the New Year, Gazprom unexpectedly tabled a new price of $418 and followed this up by turning off the gas taps. Had Gazprom really wanted to avoid stopping its delivery of gas, the two sides could have reached compromise terms for January deliveries and continued negotiating. Secondly – and unlike the 2006 gas war – Gazprom had made technical preparations for turning off the gas.
Reasons for the Conflict
Both politics and economics are behind the conflict between Russia and the Ukraine. The political reasons are the most visible, however. The situation should be seen in the overall context of the Kremlin’s policies towards those post-Soviet countries which have chosen an “anti-Russian” course (for example, evincing the desire to join NATO). During Vladimir Putin’s presidency, some restraints was shown in our relations with our neighbouring states. However, after the August conflict with Georgia, Russia is prepared to act harshly and without a backward glance at the West.
Russia’s aims vis-à-vis the Ukraine are not such that they can be attained by military means. Russia evidently wants to put pressure on the Ukrainain élite, cause the formation of a pro-Moscow lobby (under Viktor Yanukovich or Yuliya Timoshenko) and as a result restore the Kremlin’s influence in the countries of the former USSR.
Two outstanding economic aims of the campaign are that Gazprom would like to increase its income from gas sales and also gain control over some Ukrainian enterprises in exchange for gas debt. There can be no doubt that it would like to regain control, to a greater or lesser extent, of the Ukrainian gas transport system via a consortium.
I don’t think that the consortium idea is all bad. The Ukrainian gas transport system is in a bad way, technologically speaking, but the issue has been politicised. The Ukrainians forced things into a dead end 18 months ago when they put a veto on letting international gas companies manage the system. That said, however, there is no reason why it should be Gazprom that modernises the Ukrainian pipeline network.
Yet another possible reason for the conflict is the sorry state of Russia’s gas supply. There simply is not enough of it and it can kept in reserve by turning off deliveries. In 2007 – when the winter was mild – Gazprom’s underground storage facilities were nearly empty by end January. Gas output has not increased in 2008 and we are having a cold winter. If Gazprom were to meet its obligations in full, those facilities would be totally empty by mid-January.
Europe, since it depends on Russian energy resources, is acting the observer in this matter and is unlikely to be able to influence the issue. After the Orange revolution, Ukraine wanted its pro-Western stance to lead to euro-integration but this idea was coolly received by a European Union which was not ready for further expansion. As a result, Kiev gets its material and moral support from Washington. Furthermore, the EU’s mild interest in the conflict results from Europe’s concentration on internal problems and the fact that as a result it has not been able to develop energy policies that would have helped avoid such situations.
Who’s Stealing Gas?
We have been hearing that Ukraine steals Russian gas for the last 15 years. However, it is only now that Gazprom has decided to put the matter to international arbitration and prove that theft has occurred. One one hand, the Ukraine may well be taking gas without sanction; on the other, there is much that is unclear in the 2002 contract governing the transit of Russian gas through the Ukraine.
For example, the contract defines the yearly volume of gas to be transported but does not break this down into monthly, weekly, or daily amounts. The Ukrainians can therefore easily claim that any gas withdrawn at one particular time will be replaced at a later date. Neither does the contract clearly regulate the matter of the gas needed to keep the system working – gas is needed to keep pumps and the compressor stations working. Naftogaz just a few days ago published a table showing how much gas had entered the Ukrainian system and how much left it. This table showed that approximately 50 million fewer cubic metres of gas were sent to Europe than had entered the system – gas needed to service the system. However, the Ukrainians assert that 126 million cubic metres of gas were needed for the purpose that week and that it made up the 70 million difference from its own storage capacity.
I would not put too much faith in those figures. However, unlike Gazprom’s noisy declarations, actual figures are quoted. Until some international body has investigated and reported, Russian officials ought to be forbidden from commenting publicly on the issue in order to avoid inflaming it further.
Gazprom is losing about $150 million per day in lost sales to Europe. Furthermore, last week Gazprom did not sell the Ukraine gas worth $200 million (using a price of $250 per 1000 cubic metres).
It is quite out of the question that Nordstream or South Stream can replace transit through the Ukraine, which carries 130 billion cubic metres per annum – 80% of Russian gas exports to Europe. Nordstream, the planned capacity of the first stage of which is 27.5 billion cubic metres, is intended to supply Russian gas to Northern European markets. Note that it is technically difficult to move large quantities of gas from Holland to, say, Greece because Europe does not have a suitable pipeline network. The South Stream project (capacity 30 billion cubic metres a year) has been put back due to lack of finance. The problem with it is that it has got pass through either the Ukraine’s or Turkey’s exclusive economic zone and neither country is likely to let it be built. It is therefore my opinion that that only way to solve this problem is to reach a long-term argument with the Ukraine.