A gas station in Budapest.

Russia’s dispute with Ukraine over gas prices has impacted other European nations whose gas shipments pass through Ukraine. Hungarian imports from Russia were down more than 20 percent on Tuesday, but the country still has more gas than others cut off in the dispute — Hungary plans to deliver gas to Serbia, which has no gas reserves.

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.

Eva S. Balogh is a Hungarian academic and blogger who writes at “Hungarian Spectrum” about her country’s position in the gas dispute. 

Crisis after crisis: now it is gas

There is a Hungarian slang expression: “there is gas” (gáz van). It means there is big trouble. The big trouble now is that there is no gas. That is, there is no gas coming from Russia via Ukraine. Of course, the trouble would be greater if Hungary didn’t have enough reserves to survive for at least two more months. Other countries–Bulgaria, Slovakia, and Serbia, for example–are in much bigger trouble because they have practically no reserves. Serbia already turned to Hungary yesterday for help. The initial Hungarian answer was negative, but by today the Hungarian government decided that after all it could spare a couple of billion m³ of gas because yesterday Hungarian consumption was lower than expected. Also Hungary has some natural gas of its own and a smaller amount reaches the country from Austria as well. Thus while Bulgaria and Slovakia are entirely dependent on Russian gas, Hungary relies on Russian gas for somewhere between 50% and 75% of its needs. Today, for example, 4 billion m³ gas arrived from Austria. The problem is that countries in Eastern Europe that depend on Russian gas can’t really help each other because there are no pipelines between Romania and Bulgaria, or Hungary and Slovakia, or Romania and Hungary.

No one knows what the real situation is between the warring business partners, Russia and Ukraine. If one can believe the Russian ambassador to Hungary, there are four “faucets” that can be turned on or off. Three of these were shut off by Ukraine yesterday morning and only then did Russia move to shut off the one remaining “faucet.” The Ukrainians’ version of events, not surprisingly, is different. They claim that they would be most willing to send on any natural gas that arrives in their pipelines. But there is none. The Russians have shut off the flow of gas.

Then there are the two entirely different interpretations of the Russian-Ukrainian feud. There are those who claim that it is simply a business quarrel while others think that it is fundamentally a political issue. Russia is putting economic pressure on Ukraine to keep it within the fold. Ukraine, on the other hand, is looking westward; it wants to belong to NATO and eventually to the European Union. A Hungarian political scientist currently in Kiev views the crisis solely in political terms, a manifestation of Russia’s imperial aspirations. Even the Russian ambassador to Hungary admitted that Russia is unhappy with Ukrainian political ambitions. I’m inclined to think that Russia’s dispute with Ukraine is not solely economic. Russia’s loss of Ukraine must still be hard to swallow. After all, with the exception of a very brief period after World War I when Ukraine became independent, it was an integral part of Russia for over three centuries. Also there is a huge Russian population within Ukraine’s borders.

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Photo courtesy of Flickr user zsoolt under a Creative Commons license.

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.