Shifting energy trends blunt Russia’s natural-gas weapon

a13-iconThe Washington Post reports: While Russia flexes its military might at its Black Sea naval base in Crimea, Moscow has another weapon that it has wielded against Ukraine in the past: natural gas supplies.

Russia provides more than half of Ukraine’s natural-gas needs and since 2006 has twice curtailed supplies in disputes over politics, price and late payments. Those supply cuts rattled countries across Europe that depend on the Russian pipelines that run through Ukraine.

But changes in the global trade in natural gas have blunted Moscow’s weapon, forcing the Russian pipeline monopoly Gazprom to cut prices worldwide and giving Ukraine slightly more bargaining power.

The boom in U.S. shale gas has left gas-exporting countries shopping for other customers. Europe, as it adds terminals to handle liquefied natural gas, will be able to offset its own declining production with supplies from countries such as Qatar. And in 2012, Norway’s Statoil sold more gas to other European nations than Russia’s Gazprom.

“Since the Russian supply cuts in 2006 and 2009, the tables have totally turned,” said Anders Aslund, a fellow at the Peterson Institute of International Economics who has advised Russia, Ukraine and Kyrgyzstan. Aslund said Ukraine once rivaled Germany as Gazprom’s biggest customer. Now, he said, “Gazprom’s challenge is to stay in the Ukrainian market.”

In December, Gazprom said it would discount the price paid by Ukraine, cutting it from about $11.50 per thousand cubic feet to $8.10. But that only brought Ukraine’s prices roughly in line with those being paid in other parts of Europe. Gazprom said it would review the price every quarter, meaning a new reset is possible at the end of March.

As clunky Soviet-era factories and mines have become more efficient or gone out of business, Ukraine’s domestic gas consumption has dropped nearly 40 percent over the past five years, cutting its imports from Russia in half, according to a report by Sberbank Investment Research. [Continue reading…]

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1 thought on “Shifting energy trends blunt Russia’s natural-gas weapon

  1. Steve Zerger

    Ever the cornucopian optimists, with perhaps some repressed nagging doubts. “Ukraine has reduced its consumption of Russian gas, which puts them in a less vulnerable situation”. Yes, it also make them colder and probably crankier. Russia faces the same problem as the US oil companies and energy producers everywhere. As collapse accelerates, and it currently appears most advanced in Europe and Japan, the price can’t be maintained at a level necessary to make extraction profitable. Forget about big new infrastructure projects, the physical capital (surplus energy) doesn’t exist. The tables have totally turned but not in the way Mr. Aslund thinks.

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