Gazprom, a state-controlled Russian energy company, is the world’s largest producer of natural gas. |
Russia’s dispute with Ukraine over gas prices is now impacting other European nations whose gas shipments pass through Ukraine to places like Greece, the Czech Republic and Austria.
Gazprom, a state-controlled Russian energy company and the world’s largest producer of natural gas, reduced gas supplies to Ukraine after accusing the country of stealing 65.3 million cubic meters of gas since Jan. 1.
Gazprom recently increased its gas prices, which have long been a source of dispute with Ukraine. Worldwide, oil prices reacted to worries about Russian exports.
Steve LeVine covers foreign affairs for BusinessWeek and is a former correspondent with The Wall Street Journal and The New York Times. He writes at “The Oil and the Glory” about the reasons for the dispute.
Russia-Ukraine: A Market Dispute
Are the Russians and Ukrainians simply fated to go to the mat every year about this time, causing grief to their neighbors? Or is something else at work in their antagonism?
The philosophical answer is that, while it’s hard to imagine these two former Soviet states living as friendly neighbors any time soon, the current dispute is a separate matter.
It can be reduced to a difference of outlook: Do you expect oil prices to rise to $60 a barrel this year, or to drop back down to between $30 and $40 a barrel? (Oil has surged in the last two trading days to about $46 a barrel because of the fighting in Gaza.)
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. [...]
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.
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Photo courtesy of Flickr user basb under a Creative Commons license.
01/17/2009 :: 11:50:54 AM
valentine akishkin Says:
Valentine Akishkin
Russian entrepreneur
TIME TO AWAKE FROM TRANSATLANTIC ILLUSIONS
Bolstered by the Bush administration the EU has been rigorously digging itself into series of ungovernable brisances. Two coloured revolutions in Georgia and the Ukraine sponsored and adorned by transatlantic unity have brought nothing but confusion. Bush’s spate to expand NATO by including these two subversive handcrafted “democracies” was premeditated as an instrument to vie “resurgent” Russia; the whole evasion being enshrouded behind a veil of “honorable” purposes.
Not the least pertinacity was paid to either diagnose the consequences of hastily ushering these machinated political appendages into power or determine why the cheerleaders of these “democracies” so insistently sought entrance to NATO. In the first case the EU’s unscrupulous and unresisting demeanor, consecrated by US doggedness was humbly assumed by Saakashvili to be a blessing for his bloody swashbuckling assault of South Ossetia.
At the same time, the EU bestowed itself the role of an innocent, sinless bystander, whereas EU stolidity and disregard multiplied by US pandering was the fuse that instigated Saakashvili’s intervention of South Ossetia.
Today, Europe is facing its next self-pollinated Gordian knot based on the same quaint transatlantic doctrine, “Russia can never be right”. The present day “orange” political elite in the Ukraine; a regime that the Transatlantic Unity has so lovingly fostered has emerged with an “orange” interpretation of resolving financial problems. Apart from siphoning or bluntly saying sealing Russian gas, transatlantic fostering has brought Yushenko and his associates to the belief, similar to the case of Saakashvili, that there is no limit to unheeding maleficence as long as it implies harm on Russia. Blocking Russia gas supplies, crucial to Europe, found pardon in the “transatlantic agenda”, although it is only fair to say that the negative impact affected mainly on east European countries, some of which are not EU members, and others have little say in European affairs.
Ukraine’s blocking gas supplies to Europe is only a consequence of today’s toothless European policy following up “transatlantic fraternity” stipulating that support to any regime be offered as long as it opposes Russia. What better way would there be to contend Russia other than surrounding it with a military block or by showing how vulnerable its gas supplies were. The US plan of finding an alternative route for gas to Europe is scoring points supported by the Ukraine’s disrupting gas supplies to Europe. Immediate Ukrainian interests fall in unison to US long term aspirations and explain how Yushenko with a popularity rating of 2 % dares to harass both Russia and the EU.
Transatlantic patronizing of “colour” revolutions, the expansion of NATO or the installation of US anti rocket systems in Europe will not disgruntle “resurgent” Russia as it will at length backfire on Europe itself. Georgia has lost all hope of finding a way to integrate South Ossetia and Abkhazia and the Ukraine has become a territory of unpredictable political upheaval. The EU must understand that the time has come to put serious doubt on the Cold War reflexes that constitute today’s transatlantic agenda.