Home' Trinidad and Tobago Guardian : April 10th 2014 Contents BG20 | THE ECONOMIST
BUSINESS GUARDIAN www.guardian.co.tt APRIL 2014 • WEEK TWO
Last year, when President Vladimir Putin of Russia was
bribing Viktor Yanukovych, then the president of Ukraine, to
turn down a trade deal with the European Union, one of the
sweeteners was cheap natural gas. The copious Russian gas
Ukraine burns through every year -- it is a profligate user of
energy -- would be priced at only $268.5 per thousand cubic
meters, which for 2013 s total of 28 billion cubic meters works
out at $7.5 billion.
Since February s revolution ousted Yanukovych, however,
gas has become a stick, not a carrot. On April 1 Alexei Miller,
the chief executive of Russia s gas giant, Gazprom, said that
the price of Ukraine s gas was going up by 44 per cent, to
$385.5 per tcm.
This is ominous news for Europe. Ukraine already owes
Gazprom $1.7 billion, according to Miller. If Ukraine continues
not to pay its bills---and, without outside help, it will---Gazprom
can cut it off.
Such a dispute need not, in principle, have any effect on
the gas that flows through Ukraine to other countries farther
west. If Gazprom reduces the flow of gas to reflect the fact
that Ukraine no longer has a right to its 28 bcm, however, and
if Ukraine takes some of that gas anyway, or if Gazprom shuts
down the pipelines going through Ukraine completely, Europe s
supplies will get hit.
Europe gets 24 per cent of its gas from Russia, and half of
that---80 bcm a year---passes through Ukraine. An argument
between Russia and Ukraine led to the pipelines shutting down
for two weeks in January 2009, to much consternation down-
In the short term of weeks to a few months, such a disruption
would be less damaging now than it was then. However, in
the medium term of many months to a few years, Europe
remains highly vulnerable to Russian control over its gas
supplies. This vulnerability is one of the reasons why Putin
thinks that Europe will not act decisively against him in retal-
iation for his annexation of Crimea, or for any further territorial
depredations he may have in mind.
It is a vulnerability that can, in time, be decreased, however,
and one which Russia would lose a great deal by exploiting.
At the moment a lapse in supplies would find the seasons
in Europe s favor. European countries do not depend on Russian
gas in the summer months, though they do refill their storage
facilities with it then. The mild winter of 2013/2014 means
that those stores are unusually full. Richard Mallinson of
Energy Aspects, a consultancy, says that EU countries have
36 bcm of gas in store, about 15 bcm more than at this time
last year. They could store twice that: The EU s total storage
capacity is 75 bcm.
It is a useful cushion, but a lumpy one. Some European
countries have lots of storage: Latvia has at least a year s worth.
Others, such as Macedonia or Moldova, have none. Thus ways
must be found to get gas from the places where it is stored
to the people who need it.
Europe s pipeline grid is not particularly well suited for this.
National gas companies long have disliked cross-border inter-
connectors. A free flow of gas means more choice for consumers
and thus lower prices. Pressure from the EU, however, notably
in the form of the "third energy package" of liberalisations,
and a growing concern since 2009 about the risks of relying
on Russian gas mean that more interconnectors have been
built, along with pumps that can reverse the flow in transit
Poland has been connected with the Czech Republic via
the small Stork pipeline since 2011. Work on a larger link, with
a capacity of as much as 10 bcm, will start before 2017. Slovakia
recently opened a pipeline to Hungary. Germany can now
send gas to Italy, as well as to Poland and the Czech Repub-
lic.If the political will to provide mutual support is there---a
big "if," since it was not apparent in 2009---the means to do
so are better than they were.
Estonia, Latvia and Lithuania are not connected to any
source of gas except Russia, though. Work could start on an
interconnector from Poland to Lithuania in 2018. Until then
Latvia s abundant storage provides some insurance against
strong-arming. Bulgaria also has a particular problem: It gets
almost all its gas from a Russian pipeline that crosses Ukraine,
and it has limited storage of less than two months consumption.
It is hurrying to build interconnectors to Serbia and to a planned
liquefied-natural-gas terminal in Greece.
Even good interconnection is a solution only for as long as
there are gas supplies to feed the interconnectors. If the gas
ceased flowing through Ukraine, where might more be found
after stores were depleted?
One answer is, surprisingly, Russia. If Russia were to shut
down the pipelines across Ukraine with the principal aim of
hurting Ukraine itself, though accepting mind-focusing dis-
comfort downstream as an added bonus, it probably would
continue exporting gas by other channels. One of them, the
Nord Stream pipeline on the Baltic seabed, to some extent
was built with this in mind. It was designed to get gas straight
from Russia to Germany, and thus give Russia the option of
cutting off its near neighbours while still serving its most
Now that interconnectors allow gas to flow south and east
out of Germany, though, Nord Stream could be something of
a boon -- all the more so because, at the moment, only around
30 bcm of its 55 bcm a year capacity is used. Assuming reg-
ulatory and commercial issues were resolved, and that Russia
was not actively seeking to make things worse, the other 25
bcm could make up a good chunk of the shortfall if supplies
through Ukraine were stopped.
Finding much more replacement gas, though, would be
Europe's tricky road away from Russian energy
Continued on Page 21
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