Putin scorns EU-Ukraine gas deal

[Baltic]

Russian Prime Minister Vladimir Putin has dismissed an EU-Ukraine gas deal as "unprofessional", saying Russia - the main supplier - had not been consulted.
"If Russia's interests are ignored, then we shall also be forced to start reconsidering the principles of our relations with partners," he warned.
On Monday, Ukraine signed a deal paving the way for $3.4bn (£2.4bn) of Western investment in its gas infrastructure.
Ukraine's president pledged to stamp out corruption in the gas industry.
The agreement comes after a price dispute between Ukraine and Russia in January led to a shutdown of gas supplies to much of Europe for weeks, causing severe shortages for millions.

Russia says it is postponing talks with Ukraine because of Monday's gas deal in Brussels. President Dmitry Medvedev said the talks, due next week, would take place only once Russia had clarified a number of issues.
Speaking in the Russian Black Sea resort of Sochi on Monday, Mr Putin said the deal was "at the very least ill-considered and unprofessional because discussing such issues without the main supplier is simply not serious".
Despite their bitter rivalry, Ukrainian President Viktor Yushchenko and Prime Minister Yulia Tymoshenko were both in Brussels for an international conference with the European Commission, the World Bank and other key lenders.
The EU gets 80% of its gas supplies from Russia via a network of more than 13,000km (8,060 miles) of Ukrainian pipelines, some of which are 40 years old.
Russia has already engaged Germany, Italy and several other EU states in alternative gas pipeline projects - Nord Stream and South Stream - that will bypass Ukraine.
Key among Ukraine's promised reforms was the independence of the authority in charge of the pipelines from the state-owned energy company Naftogaz, which one Western banker described as a big black box where money just disappears.



Gas war again? :|

[Flamming_Python]

What was the actual deal reached between the EU and the Ukraine?

All I hear is how much Putin is pissed off about it.

[tommy00]

http://www.lenta.ru/news/2009/03/23/putin/

В декларации Украина согласилась обеспечить прозрачность своего газового рынка, а также предоставить доступ заинтересованным компаниям к подземным хранилищам на территории страны

Perhaps a reason why Putin so upset.......

[Ulytau]

As i remember Turkiye and Russia speaking about just another pipe line at Black Sea for solving this problem too.

[Red_Rage]

http://www.lenta.ru/news/2009/03/23/putin/


Perhaps a reason why Putin so upset.......


Wasn't lack of transparency in Ukrainian gas industry one of the main concerns of both Putin and Medvedev during gas war #1?

[zg18]

Putin was angry because EU didn't honor energy chain between Russia and Europe (supplier (Russia) - transit (Ukraine) - consumer (Europe)) ,which is quite logical ,transit country and consumer countries can't make any relevant decision without Russia because it's chain ,it's interconnected.

[1curious]

I am still looking for those relevant details….The preliminary info does not shed much light on what’s going on deep under the surface. However, the core of the matter looks like early-stage maneuvering for control of Ukrainian pipelines.

In summary. Three parties were involved in January ‘gas war’: Russia, Ukraine, EU. Each party wants to prevent repetition of the conflict while ensuring maximum benefit for itself. Russia wants to sell without interruptions and therefore it needs a degree of control over those pipelines; Europe wants to receive gas without interruptions and therefore it wants some control over the pipes; Ukraine does not want to lose the ownership of its only national treasure - gas and oil pipelines.

Looks like the EU’s (understandable) prime concern for reliability of gas transit coincided with Ukraine’s orange leaders games to isolate Russia on political (rather than commercial) grounds.

Explaining… Russia was invited to the EU-Ukraine conference but was NOT asked to participate in drafting of the bilateral declaration for modernization of Ukrainian pipelines. Russia justly and reasonably pointed out that:

1. any additional capacity has to be coordinated with the source - Russia. It’s common sense because Russia may want to change its markets or not avail the needed amounts…
2. some legal provision of the EU-Ukraine declaration contradict current legal provisions of Russia-Ukraine transit contract.
3. EU investment into Ukrainian pipeline without Russia’s input can change transit tariffs already agreed upon by Ukraine and Russia
4. the Declaration de facto forces Russia to sell gas at the Russian-Ukrainian border. This contradicts existing long-term pricing contracts between Russia and its individual European customers.

In summary, Ukraine is trying to manipulate Europe’s insecurity by isolating Russia and at the same time appearing as a country genuinely cooperating with Europe.

Absurdity, shortsightedness and therefore complete futility of such games is obvious. Russia can't allow 50% of its GDP - gas sales - being totally out of its own control. No country would.

Hence Russia lodged a protest that most likely will be heard. If not, Europe will face another cold winter and will have to blame itself for its own stupidity.

I will add as I learn more...

[ting]

I think this is an interesting prospect. Lets say Ukraine gets to chose between getting gas from Russia or the EU(which is from Russia), who would you choose to buy from?

Russia can`t boycott it's biggest customer. I think Putin lost/is loosing some backroom diplomatic game and is throwing a fit as a last ditch effort to get his will.

The details will be interesting.

[zg18]

I think this is an interesting prospect. Lets say Ukraine gets to chose between getting gas from Russia or the EU(which is from Russia), who would you choose to buy from?

Russia can`t boycott it's biggest customer. I think Putin lost/is loosing some backroom diplomatic game and is throwing a fit as a last ditch effort to get his will.

The details will be interesting.

Well the problem is that in the long turn Europe can't allow to mess to much with Russia about gas, Russians are slowly but surely shifting their pipelines to the East (China, Japan, Korea and India) along with LNG terminals (Sakhalin project) ,that markets are the future for energy rich countries not Europe , unlike you're stance ,which i find wrong ,i think that Europe should do more to attach Russia for a longer period of time in gas sphere , some countries obviously are doing that on their own.

[1curious]

Ukraine can NOT choose where it gets its gas from. It can not get it from Europe because Europe does not have enough gas. It can only prostitute its pipelines to the highest bidder and it can not do it without Russia's input because Ukraine has to buy 80% of its gas from Russia.

[Red_Rage]

I think this is an interesting prospect. Lets say Ukraine gets to chose between getting gas from Russia or the EU(which is from Russia), who would you choose to buy from?

Russia can`t boycott it's biggest customer. I think Putin lost/is loosing some backroom diplomatic game and is throwing a fit as a last ditch effort to get his will.

The details will be interesting.


Who in Europe will buy at a market price and then re-sell it to Ukraine at discounted price?

Ukraine cannot afford gas at the same rate as rest of Europe pays... The country is on full time gas "welfare" program, which makes their anti-Russian stances all the more moronic.

[1curious]

As I explained in my post #7, the name of the game is not Ukraine's gas but Ukraine's pipelines. Having analyzed the January gas war (see apropriate threads) and the underhanded way Ukraine tried to avoid paying fair price and steal, I am convinced this is another round of political maneuvering designed to achieve the same - marginalizing Russia. A game that can not succeed because Russia is holding the cards and proved alert every time this was tried.

[Flamming_Python]

I think this is an interesting prospect. Lets say Ukraine gets to chose between getting gas from Russia or the EU(which is from Russia), who would you choose to buy from?

Russia can`t boycott it's biggest customer. I think Putin lost/is loosing some backroom diplomatic game and is throwing a fit as a last ditch effort to get his will.

The details will be interesting.

Ukraine cannot buy gas from the EU because the EU doesn't have enough to sell. As it stands the EU needs to import huge amounts from Russia. Your logic fails. Furthermore if Ukraine was to buy from the EU it will almost be at market price; which will be far more than the rates at which it is buying Russian gas.

Russia can boycott it's biggest customer rather more effectively than it's biggest customer can afford to boycott it's main supplier; as while doing so will cost Russia a huge amount of it's GDP, it will also lead to the majority of European industry closing shop overnight. Fortunately this dispute isn't about that, rather about what Europe thinks gives it a privileged position in the gas war; when in fact Europe has nothing to do with this.

[ting]

Well the problem is that in the long turn Europe can't allow to mess to much with Russia about gas, Russians are slowly but surely shifting their pipelines to the East (China, Japan, Korea and India) along with LNG terminals (Sakhalin project) ,that markets are the future for energy rich countries not Europe , unlike you're stance ,which i find wrong ,i think that Europe should do more to attach Russia for a longer period of time in gas sphere , some countries obviously are doing that on their own.

Building pipelines is expensive and time consuming. Russia will not have the necessary infrastructure in the foreseeable future. Europe is more focused on being green, and is well ahead in investing in alternatives.

European nations need a stable and dependable source. Supply from Russia is not stable or dependable.


Who in Europe will buy at a market price and then re-sell it to Ukraine at discounted price?

Ukraine cannot afford gas at the same rate as rest of Europe pays... The country is on full time gas "welfare" program, which makes their anti-Russian stances all the more moronic.

That is a good question. However how much would it be worth it for Europe to be able to control the pipelines from Russia? How much subsidies will be needed to support Ukraine? I think it would prove to be worth it.


Ukraine cannot buy gas from the EU because the EU doesn't have enough to sell. As it stands the EU needs to import huge amounts from Russia. Your logic fails. Furthermore if Ukraine was to buy from the EU it will almost be at market price; which will be far more than the rates at which it is buying Russian gas.

This is all hypothetical. Lets say an EU energy consortium takes over responsibility for the pipelines leading to Europe. Gas going west from the Russian border would be the result of EU/Russia negotiation. This has the benefit of avoiding the Ukraine/Russian "relationship" which is highly unpredictable and non transparent. This new transparency and predictability is of high value to the EU, and I would think subsidizing Ukrainian gas would be economically possible.



Russia can boycott it's biggest customer rather more effectively than it's biggest customer can afford to boycott it's main supplier; as while doing so will cost Russia a huge amount of it's GDP, it will also lead to the majority of European industry closing shop overnight. Fortunately this dispute isn't about that, rather about what Europe thinks gives it a privileged position in the gas war; when in fact Europe has nothing to do with this.

Sorry, the pain Russia would face is much greater than the EU would face.


EU production of primary energy
46% of total EU energy consumption
Nuclear energy 29.3%
Coal & lignite 21.9%
Gas 19.4%
Renewable energy 14.6%
Oil 13.4%
Other 1.4%
Net imports of primary energy
54% of total EU energy consumption
Oil & petroleum products 60.2%
Gas 26.4%
Other 13.4http://en.wikipedia.org/wiki/EU#Foreign_relations

Imported gas:

Gas:
40% of EU gas imports originate from Russia (30% Algeria, 25% Norway);
By 2030, over 60% of EU gas imports are expected to come from Russia with overall external dependency expected to reach 80%.http://www.euractiv.com/en/energy/geopolitics-eu-energy-supply/article-142665
According to these numbers 10.56 % of European gas imports comes from Russia. Meaning about 5-7% of the EU would suffer from a gas boycott.

While you say majority of industy would suffer, I say it's 5-7%.;-)

If you compare this to Russia's dependence of the EU as a customer, to the EU's dependence on Russia as a supplier, a boycott is not in Russia's interest.

The EU's dependence on gas from Russia is projected to rise. However the EU is not interested in being overly dependent on Russia since it's stability as a supplier is questionable(ukraine-russia gas row,. etc...).

From an environmental perspectice. Coal is dirtier than gas and gas is dirtier than wind, solar etc. If the choice is between being green or being warm, I think the avarage European will choose to stay warm.;-) Meaning coal will take up more of the slack not filled by renewables.

While you focus on privaliged position, I focus on stable supply. The "gas war" is affecting the EU, since when there is a squabble between Ukraine and Russia the EU finds it's gas supply becoming uncertain.

PS! As we don't know for certain what Putin is pissed about, this is of course speculation.

[HellToupee]

Green alternatives are not going to be able to replace fossil fuel dependency any time soon, you will need close relations to the supplier, especially with the rising competition for energy of the Asian countries.


According to these numbers 10.56 % of European gas imports comes from Russia. Meaning about 5-7% of the EU would suffer from a gas boycott.

According to that sentence "40% of EU gas imports originate from Russia " and the wiki "The EU currently imports 82% of its oil, 57% of its gas". Russian gas accounts for over 20% total EU gas usage, those first numbers you post thats total energy consumption across all energy's not just gas.

[ting]

Green alternatives are not going to be able to replace fossil fuel dependency any time soon, you will need close relations to the supplier, especially with the rising competition for energy of the Asian countries.

I think I explained this above.





According to that sentence "40% of EU gas imports originate from Russia " and the wiki "The EU currently imports 82% of its oil, 57% of its gas". Russian gas accounts for over 20% total EU gas usage, those first numbers you post thats total energy consumption across all energy's not just gas.

I'm talking about the effect of a gas boycott of the EU economy. 20% of the gas is not 20% of the energy.

I'm not sure if I am misunderstanding you or you are misunderstanding me though?

[HellToupee]

I think I explained this above.





I'm talking about the effect of a gas boycott of the EU economy. 20% of the gas is not 20% of the energy.

I'm not sure if I am misunderstanding you or you are misunderstanding me though?

you said
according to these numbers 10.56 % of European gas imports comes from Russia
lil different to saying 10.56% total energy imports

I would still think EU would suffer more, remember this % applies to a far greater population, also any doubts about security of supply also drive up the prices.

[ting]

you said
lil different to saying 10.56% total energy imports

:oops: I think I might need spoon feeding.

In any case Flaming Pythons statement about the majority of industry being hit by a gas boicott is false, which was the point. I still don`t see were I calculated totally wrong. But mathematics are not my thing.






I would still think EU would suffer more, remember this % applies to a far greater population, also any doubts about security of supply also drive up the prices.

What do you mean?
I might need more spoon feeding:oops: :lol:

[1curious]

Ting, I will make it short but not sweet...

Despite my general respect for your posts, and often good ideas, I have to say your knowledge of this subject is lacking badly and therefore your ideas, as I tried to explain quite patiently, are ridiculous.

Ukraine's and Russia's gas issues have been tied too intimately for too long for an amateur like you to understand.

[ting]

Ting, I will make it short but not sweet...

Despite my general respect for your posts, and often good ideas, I have to say your knowledge of this subject is lacking badly and therefore your ideas, as I tried to explain quite patiently, are ridiculous.


Thanks for the complement:grin:.

I'm sorry for not responding to your posts, I wasn't sure If they were directed at my posts. Also you appeared to view this through very pro Russian/anti Ukrainian prism. I try to view this more from an EU perspective.

If you wish I can respond to your posted points individually. I do find them interesting and enlightening. However they to me appear one sided. I feel that I have balanced this in that I have focused on what I believe could be the EU perspective.



Ukraine's and Russia's gas issues have been tied too intimately for too long for an amateur like you to understand.

Of course I'm an amateur, who is'nt? My impression is that the Ukrainians and Russians are to focused on their mutual animosity to be able to see the wider picture. The problem is that while they fight, Europe suffers.

[Red_Rage]

Of course I'm an amateur, who is'nt? My impression is that the Ukrainians and Russians are to focused on their mutual animosity to be able to see the wider picture. The problem is that while they fight, Europe suffers.


Again, dig deeper into the subject.

Animosity is not mutual ;) It mostly comes from Yushenko and Co, supported by whopping 7% population of hardcore nationalists/neo-nazis in Western Ukraine. Mixing business and revisionist history will make even most patient partners go ballistic.

Two hour yelling match between Timoshenko and Yushenko is a good indicator of who is really stirring up this mess.

[ting]

Again, dig deeper into the subject.

Animosity is not mutual ;) It mostly comes from Yushenko and Co, supported by whopping 7% population of hardcore nationalists/neo-nazis in Western Ukraine. Mixing business and revisionist history will make even most patient partners go ballistic.

Two hour yelling match between Timoshenko and Yushenko is a good indicator of who is really stirring up this mess.

Afaik both the foxy lady and Yushenko presented this proposal, so they must agree on something.

Anyway I try to avoid going into the bickering in the different power centers in Russia and Ukraine and in between them. Life is too short and IMHO all the EU cares about is a stable supply of gas.:lol:

[Flamming_Python]

:oops: I think I might need spoon feeding.

In any case Flaming Pythons statement about the majority of industry being hit by a gas boicott is false, which was the point. I still don`t see were I calculated totally wrong.

I was out of line when I said majority of industry, but considering the high proportion of Russian gas supplied to Germany and heavily industrialised Eastern European nations; as well as the predominance of gas use as a power source in heavy industry, a gas cut-off will take a huge toll nontheless. More over; industries depend on other industries. If some get shut down, it will have a knock-on effect on others.


But mathematics are not my thing.Quite ;)

[Herman the II]

I was out of line when I said majority of industry, but considering the high proportion of Russian gas supplied to Germany and heavily industrialised Eastern European nations; as well as the predominance of gas use as a power source in heavy industry, a gas cut-off will take a huge toll nontheless. More over; industries depend on other industries. If some get shut down, it will have a knock-on effect on others.


Russian gas makes 6-7 % of Germany's overall energy consumption. Additionally gas is almost irrelevant when it comes to producing electricity(->industry), its mostly used for heating private homes.

[ting]

I was out of line when I said majority of industry.

Quite ;)

Apology accepted:grin:

[Ebana Mat]

I think this is an interesting prospect. Lets say Ukraine gets to chose between getting gas from Russia or the EU(which is from Russia), who would you choose to buy from?


EU can't sell for less than its paying already. Current deal with Russians for Ukraine is still below market price. You think Ukraine's capable paying 1.5x the price? Even if gas for Ukraine will reach the mark comparable to that of EU, the latter would still have to retail with margin for profit.

As for control over the pipes - something tells me Russia wouldn't object much if main consumer, i.e. EU, would take over the Ukrainian gas distribution network, as it's highly unlikely for the Europeans to cut off gas for themselves in the future.

[ting]

EU can't sell for less than its paying already. Current deal with Russians for Ukraine is still below market price. You think Ukraine's capable paying 1.5x the price? Even if gas for Ukraine will reach the mark comparable to that of EU, the latter would still have to retail with margin for profit.

I'm more thinking of a deal were the income from the gas pipes covers the gas, with the EU paying the difference. Basically a possible subsidy for the Ukraine.



As for control over the pipes - something tells me Russia wouldn't object much if main consumer, i.e. EU, would take over the Ukrainian gas distribution network, as it's highly unlikely for the Europeans to cut off gas for themselves in the future.

If my understanding(theory) is correct, then this is what Putin is bitching about. The question is why?

I have a suspicion that Putin's goal is to control all gas pipelines into Europe, so Gazprom can make money off of the transporting of gas. This is what they do with all the Stans(their gas needs to go through Russia). Gazprom is in trouble now because they have focused to much on pipelines and not on developing gas fields. AFAIK it's questionable if they can produce enough gas to justify all the pipelines they are building.:roll:

[THESPEAR]

Gazprom is in trouble now because they have focused to much on pipelines and not on developing gas fields. AFAIK it's questionable if they can produce enough gas to justify all the pipelines they are building.:roll:

Developing more Gas fields is good, but how will you transport the gas if you don't have pipelines.

They will develope more Gas fields when they have ways to transport it. and making sure they will not have serious problems with transit countries.

[Telmar]

From what I have heard, the ukrainian network is in very poor condition and needs heavy investment.

The agreements might focus on that. There is a catastrophe scenario for Slovakia in which the gas would be cut not for commercial reasons but because of amajor infrastructure fault.

I guess that that securing these issues is part of energy security for the EU as well.

[Herman the II]

Russia-Ukraine talks postponed indefinitely over EU gas deal


http://en.rian.ru/world/20090328/120782151.html

[Red_Rage]

Main problem Gazprom is having with the deal can be outlined as following:

1) "...provide Ukraine with an ability to purchase gas - on its Western and Eastern borders"

It undermines Russia's long-term efforts to enter European "retail" gas market. Instead it is being offered a "wholesale" customer like Ukraine. Needless to say, profits from wholesale is a fraction of what Gazprom would get dealing directly on European market.

2) The second instant which has Moscow worried is the intention, which is noted within the deal, to separate Naftohas from its "daughter" UkrTransGas. Currently Naftogas (which reports negative profits) is responsible for actual gas purchases Ukraine makes, while the very-profitable "daughter" hadnles gas transfers to the West. Without profitable branch operational, Naftogas has no way to pay Gazprom. In case two companies separate, Russia cannot reposess the pipe as part of debt settlement, since two companies become completely unrelated. More so, the independence of UkrTransGas, costant observation by EU creditors , and new "transparent system for control and tariffs of gas flow" will most likely increase the price of transit. At the same time, Naftogas will continue its policy of not paying on time and asking for pricing breaks, while Gazprom will pay ridicolous transfer fees (paid to a different company[UkrTansgas], which will not take into account "breaks" given to Naftogas).

3) Third point that has Russia worried is increase in transfer capacity of Ukranian pipe netweork. This directly opposes Moscow's efforts to diversify gas transfer network with South and Nord Streams. Existence of EU-Ukranian monopoly on transfers makes Russia a dependant resource provider, which will have to dance to EU-Ukranian tune.

4) Vova Putin took Yulia's backstab very personally (who wouldn't?).



For now it's still a "declaration", however if deal is ratified then there will be a huge gas war.

[zg18]

Main problem Gazprom is having with the deal can be outlined as following:

1) "...provide Ukraine with an ability to purchase gas - on its Western and Eastern borders"

It undermines Russia's long-term efforts to enter European "retail" gas market. Instead it is being offered a "wholesale" customer like Ukraine. Needless to say, profits from wholesale is a fraction of what Gazprom would get dealing directly on European market.

2) The second instant which has Moscow worried is the intention, which is noted within the deal, to separate Naftohas from its "daughter" UkrTransGas. Currently Naftogas (which reports negative profits) is responsible for actual gas purchases Ukraine makes, while the very-profitable "daughter" hadnles gas transfers to the West. Without profitable branch operational, Naftogas has no way to pay Gazprom. In case two companies separate, Russia cannot reposess the pipe as part of debt settlement, since two companies become completely unrelated. More so, the independence of UkrTransGas, costant observation by EU creditors , and new "transparent system for control and tariffs of gas flow" will most likely increase the price of transit. At the same time, Naftogas will continue its policy of not paying on time and asking for pricing breaks, while Gazprom will pay ridicolous transfer fees (paid to a different company[UkrTansgas], which will not take into account "breaks" given to Naftogas).

3) Third point that has Russia worried is increase in transfer capacity of Ukranian pipe netweork. This directly opposes Moscow's efforts to diversify gas transfer network with South and Nord Streams. Existence of EU-Ukranian monopoly on transfers makes Russia a dependant resource provider, which will have to dance to EU-Ukranian tune.

4) Vova Putin took Yulia's backstab very personally (who wouldn't?).



For now it's still a "declaration", however if deal is ratified then there will be a huge gas war.

You will need to speed up building an energy network for Asian markets , expand LNG terminal capacity , Europe wants to remain main Russian market but as i said before Asian markets are future for energy rich countries and Europe's advantage as a main market that brings cash will vanish and greatly reduce it's role in energy chain between EU-Russia.