6 February 2009

EU-Ukraine-Russian Gas Crisis in Retrospective: It's Just the Beginning

Last month, a price dispute between Russia and Ukraine triggered the shutting of the transit route through which Europe receives about a fifth of all its natural gas. The gas crisis was largely interpreted as resulting from a breakdown in negotiations between Russia and Ukraine over how much the latter would pay for its own gas supplies, as well as questions about who would provide the technical gas to operate Ukraininian compressor stations.

Yet under the surface of the unprecedented dispute is a looming energy crisis. Russia produces about 22 percent of world gas supply, and is believed to hold 30 percent of the world’s remaining gas reserves. In a prescient analysis in late 2008, Dr. Pierre Noel, Acting Director of the Electricity Policy Forum at the University of Cambridge, warned that: “Over the next 15-20 years, Gazprom faces serious supply challenges, and the international gas market is likely to experience considerable tightening.” He noted that the coming decades could see Europe facing “a gas supply crunch, leading to stagnant or even declining consumption.” Although the Russian Gazprom controls “the world’s largest gas reserves, Gazprom will find it difficult to maintain its current supply levels.” Noel reports that production from the “super-giant” west Siberian gas fields, accounting for most of Gazprom’s production, “is now in steep decline.” Maintaining production depends on the development of new fields on the Yamal Peninsula in northwest Siberia, which are set to come online in 2010. Yet most of the European gas industry argue “this is highly unlikely”, putting 2015 as a more realistic date. But the problem goes deeper than this:

“In fact, Gazprom’s production is already insufficient to meet all the company’s commitments. It depends on two other sources of gas – ‘independent’ Russian producers and imports from Central Asia, especially Turkmenistan – to make up the shortfall. This ‘bridge’ is supposed to supply Gazprom’s needs until the Yamal fields come online. But there is uncertainty over whether Gazprom will be able to source sufficient volumes from Turkmenistan, while independent Russian producers have little incentive to increase their production in the absence of access to Gazprom’s transmission network, which would enable them to reach consumers directly. Moreover, domestic gas consumption in Russia is growing, driven by economic expansion and a gas-intensive electricity mix. So there is at least a risk that Gazprom’s ‘bridge’ to Yamal could collapse. Industry assessments vary from a tight but manageable supply situation to an impending crisis.”

This background places in sharp focus the EU-Ukraine-Russia gas crisis. Indeed, just before the gas crisis Ukraine had signed a strategic accord with the US in December 2008, calling for the establishment of a US diplomatic post in Crimea where Russia’s Black Sea Fleet is based, as well as for “enhanced cooperation” in defence, security, trade and "energy security."

The incident must be understood as signifying the eruption of a major fault-line in future EU-US-Russian geopolitical contestation in the region for claims over access to increasingly scarce hydrocarbon resources. An analysis of data from the BP Statistical Review of World Energy 2008 by the open source intelligence firm Sanders Research Associates, found that Russian natural gas could well have already peaked in 2006, suggesting that the prolongation of delays in bringing online the new Russian gas fields could imply an EU gas supply crunch as early as 2015.

The gas crisis should be understood as a sign of things to come if Europe doesn't act to overcome its over-dependence on hydrocarbon energy sources. Instead we have deeply misinformed and speculative ventures to focus on nuclear power. Even Sweden, which had once declared its intent to become the world's first oil-free economy, is now scrapping its plans to invest in renewable energy technologies to build costly nuclear plants. The combination of continued fossil-fuel dependence mingled with the nuclearization of Western societies doesn't bode well, neither for global warming, long-term energy security, nor for public safety and issues of proliferation.

1 comment:

  1. Plus we should remember two important facts. At first, Ukraine will suffer losses because the price for using Ukranian gas pipe didn’t grow proportionally to the Rusiian gas price. Let’s make a simple calculation. Russia pays Ukraine $1,7 for transporting 1000 cubic meters of gas on 100 km. Average distance which is passed by Russian gas by our pipe aproximately 1100 km. Russia transports to Europe at least 110 milliards cubic meters of gas annually. So Ukraine gains about $2 milliards anually. And the lowest European price is $4 per 100 kilometers, so we could gain about $4,7 milliards. Accordingly we can say that Timoshenko complimented Putin about $2,7 milliards.

    How much gas could be purchased by these? 10-12 milliards of cubic meters at least. Timoshenko grants Putin more than the 50% of annual gas necessity of Ukraine. Receiving the increasing of prices and Ukraine’s obligation to buy technical gas by own cost, though at favourable prices.