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Russia Is Slowly Turning The NatGas Tap Off To Europe | Zero Hedge

Russia Is Slowly Turning The NatGas Tap Off To Europe | Zero Hedge.

While Naftogaz (Ukraine’s gas pipeline operator) states that all gas transportation from Russia to Europe is running normally, Bloomberg reports that Russian natgas exports to Europe are declining.Shipments are down over 4% from the prior week and also lower to Ukraine. This ‘adjustment’ follows increased sanctions by the West as Medvedev’s notable statement this morning that Ukraine owes Russia $16bn.

NatGas output is tumbling

The good news:

Gazprom today said natgas transit to Europe via Ukraine, supplies for Ukrainian consumption  

But Pay Up…

Ukraine owes Russia $11b after collapse of 2010 deal, Russian Prime Minsiter Dmitry Medvedev says to President Vladimir Putin at Security Council meeting, according to transcript on Kremlin website.

 

Medvedev adds $3b Ukraine bonds bought in Dec., ~$2b debt to Gazprom for natgas supplies

 

NOTE: In 2010, Russia agreed to sell natgas at discount in exchange for extending lease to Black Sea naval port of Sevastopol in Crimea to 2042 from 2017

Or Else…

Russian natgas exports to Europe and Turkey, excl. former Soviet Union, declined to 405.3mcm as of March 22,  according to Bloomberg calculations based on preliminary data from Energy Ministry’s CDU-TEK unit.

 

Avg daily exports to region were ~457mcm in March, lower than yr earlier: calculations based on CDU-TEK data

 

Shipments March 16-22 were 3.04bcm, 4% decrease vs level in week ended March 15

It is too early to see a trend, but for now, the direction is not hopeful for Europe.

Furthermore, Gazprom has cut its Diesel output by the most in 7 months…

 

and then… (via NY Times),

Russia is now asking close to $500 for 1,000 cubic meters of gas, the standard unit for gas trade in Europe, which is a price about a third higher than what Russia’s gas company, Gazprom, charges clients elsewhere.

 

Russia says the increase is justified because it seized control of the Crimean Peninsula, where its Black Sea naval fleet is stationed, ending the need to pay rent for the Sevastopol base. The base rent had been paid in the form of a $100 per 1,000 cubic meter discount on natural gas for Ukraine’s national energy company, Naftogaz.

And if that’s not clear enough…

Russia Is Slowly Turning The NatGas Tap Off To Europe | Zero Hedge

Russia Is Slowly Turning The NatGas Tap Off To Europe | Zero Hedge.

While Naftogaz (Ukraine’s gas pipeline operator) states that all gas transportation from Russia to Europe is running normally, Bloomberg reports that Russian natgas exports to Europe are declining.Shipments are down over 4% from the prior week and also lower to Ukraine. This ‘adjustment’ follows increased sanctions by the West as Medvedev’s notable statement this morning that Ukraine owes Russia $16bn.

NatGas output is tumbling

The good news:

Gazprom today said natgas transit to Europe via Ukraine, supplies for Ukrainian consumption  

But Pay Up…

Ukraine owes Russia $11b after collapse of 2010 deal, Russian Prime Minsiter Dmitry Medvedev says to President Vladimir Putin at Security Council meeting, according to transcript on Kremlin website.

 

Medvedev adds $3b Ukraine bonds bought in Dec., ~$2b debt to Gazprom for natgas supplies

 

NOTE: In 2010, Russia agreed to sell natgas at discount in exchange for extending lease to Black Sea naval port of Sevastopol in Crimea to 2042 from 2017

Or Else…

Russian natgas exports to Europe and Turkey, excl. former Soviet Union, declined to 405.3mcm as of March 22,  according to Bloomberg calculations based on preliminary data from Energy Ministry’s CDU-TEK unit.

 

Avg daily exports to region were ~457mcm in March, lower than yr earlier: calculations based on CDU-TEK data

 

Shipments March 16-22 were 3.04bcm, 4% decrease vs level in week ended March 15

It is too early to see a trend, but for now, the direction is not hopeful for Europe.

Furthermore, Gazprom has cut its Diesel output by the most in 7 months…

 

and then… (via NY Times),

Russia is now asking close to $500 for 1,000 cubic meters of gas, the standard unit for gas trade in Europe, which is a price about a third higher than what Russia’s gas company, Gazprom, charges clients elsewhere.

 

Russia says the increase is justified because it seized control of the Crimean Peninsula, where its Black Sea naval fleet is stationed, ending the need to pay rent for the Sevastopol base. The base rent had been paid in the form of a $100 per 1,000 cubic meter discount on natural gas for Ukraine’s national energy company, Naftogaz.

And if that’s not clear enough…

The Peak Oil Crisis: Our Harsh Winter Continues

The Peak Oil Crisis: Our Harsh Winter Continues.

MARCH 19, 2014 7:15 PM
By Tom WhippleTwo weeks ago we discussed the impact that the polar vortex was having on our natural gas supplies and noted that our stocks of natural gas were already 500 billion cubic feet below where they should be for this time of year. Two weeks ago the forecasters were optimistic that the record winter of 2013-2014 was over and that things would soon be warming up.

It turned out however that the forecasts were wrong and yet more frigid weather poured down across the U.S., drawing down our stocks of natural gas and heating oil still further and interrupting the drilling and fracking of new shale gas and shale oil wells. New forecasts say that the abnormally cold weather is likely to continue through the rest of March and on into early April.

We won’t have the final figures on how much natural gas was drawn from our stocks this winter for another month, but it is starting to look as if our stocks, which normally range from a high of 3.8 trillion cubic feet to a low of 1.8 trillion, could fall to as low as 750 billion and that the total drawdown this winter will be close to 3 trillion cubic feet as compared to the normal 2 trillion. Since November the U.S. has been consuming an average of 91 billion cubic feet of natural gas each day which is 13 percent higher than the five-year average for this time of year.

The key question is whether this can be replaced in time for the next heating season or the ones after that.

In addition to increasing our consumption, the cold weather has also slowed our domestic production of natural gas. Our natural gas imports from Canada, about 7 billion cubic feet per day, are down about 10 percent from last year. It is even colder in Canada and they need their gas to keep warm before exporting any surplus to the U.S.

You will recall that our shale gas wells, which now supply about 40 percent of our total natural gas consumption, deplete very quickly so that many new wells need to be drilled and fracked each year just to keep production level. There are very few conventional gas wells being drilled these days and production of shale gas other than from the Marcellus shale in the Appalachians is nearly flat. The rapid pace our gas wells are depleting means that the U.S. now needs about 19 billion cubic feet per day of new gas production just to keep up with our annual average consumption of 71 billion cubic feet per day.

As a goodly share of this 19 billion cubic feet per day of new natural gas production must come from the mountains of Pennsylvania and West Virginia, it should be apparent that this location is not conducive to drilling and fracking during the cold and snowy winter months. A recent weekly EIA report shows natural gas production in the eastern U.S down by 30 percent from last year.

Last week the Department of Energy issued a report discussing how we are going to overcome this trillion cubic foot deficit in our natural gas stockpiles before the beginning of next November’s withdrawal season. The Department starts with the assumption that the drawdown is not going to be as bad as it currently seems and then posits that if everything goes right – higher production and lower consumption – we might be able to inject a record 2.5 trillion cubic feet into our storage caverns this summer. Even this will leave us about 500 billion cubic feet below where we would like to be next fall.

Natural gas consumption during the next seven months is problematic. If temperatures are unusually high, a lot of natural gas will go into electric power stations to keep us cool. If it is a cool summer, then we might have considerable surpluses that could be injected into our storage caverns. The relatively low price of natural gas, currently about $4.50 per million BTU’s, is another problem.

Some independent analysts say this is well below what it costs to produce shale gas these days and that producers are solvent only because they are making an effort to produce “wet” gas that contains valuable natural gas liquids such as propane which can be sold for enough to offset the loss on the “dry” gas which is what keeps us warm. Gas coming from the Marcellus shale, mostly in Pennsylvania, is generally dry so that there is a good chance that many producers are simply losing money on their natural gas production while waiting for higher prices that will allow profitability.

Looking ahead for the next few years, questions are starting to arise about the long-term sustainability of our natural gas production. This winter will leave us with a major deficit in our stockpiles which unless the weather cooperates is not likely to be made up in the immediate future. Unusually hot summers or cold winters will make rebuilding of inventories difficult or even impossible.

Thanks to the hype about the 100 years-worth of natural gas we are supposed to have in reserve, everybody seems to have an idea as to how to use this bonanza more quickly. Some want to send LNG to Europe so it can reduce reliance on Russian gas. This of course requires liquefaction facilities to make LNG that can’t become operational for many years. Our imports from Canada are shrinking. Our exports via pipeline to Mexico are increasing. Many want to convert our fleet of 18-wheelers to natural gas. The EPA wants to replace the dirtiest of our coal burning power plants with natural gas and there are those who believe that nuclear power plants are too dangerous to keep around.

If even some of these additional uses come to fruition before the end of the decade, our natural gas could become very expensive and even scarce.

16% of Natural Gas Consumed in Europe Flows Through Ukraine  |  Peak Oil News and Message Boards

16% of Natural Gas Consumed in Europe Flows Through Ukraine  |  Peak Oil News and Message Boards.

map of major Russia-Europe natural gas transit lines, as explained in the article text

Source: U.S. Energy Information Administration, IHS EDIN, and International Energy Agency
Note: Representations of international boundaries and names are not authoritative.

Europe, including all EU members plus Turkey, Norway, Switzerland, and the non-EU Balkan states, consumed 18.7 trillion cubic feet (Tcf) of natural gas in 2013. Russia supplied 30% (5.7 Tcf) of this volume, with a significant amount flowing through Ukraine. EIA estimates that 16% (3.0 Tcf) of the total natural gas consumed in Europe passed through Ukraine’s pipeline network, based on data reported by Gazprom and Eastern Bloc Energy.

Two major pipeline systems carry Russian gas through Ukraine to Western Europe—the Bratstvo (Brotherhood) and Soyuz (Union) pipelines. The Bratstvo pipeline is Russia’s largest pipeline to Europe. It crosses from Ukraine to Slovakia and splits in two to supply northern and southern European countries. The Soyuz pipeline links Russian pipelines to natural gas networks in Central Asia and supplies additional volumes to central and northern Europe. A third major pipeline through Ukraine (Trans-Balkan) delivers Russian natural gas to the Balkan countries and Turkey.

In the past, as much as 80% of Russian natural gas exports to Europe transited Ukraine. This number has fallen to 50%-60% since the Nord Stream pipeline, a direct link between Russia and Germany under the Baltic Sea, came online in 2011.

Natural gas flows through Ukraine vary by season, ranging from almost 12 billion cubic feet (Bcf) of natural gas per day in the winter to only 6 Bcf per day in the summer. An unusually mild winter in 2013 meant reduced natural gas flows through Ukraine and contributed to higher levels of natural gas storage in Europe (natural gas storage levels were 46% full as of March 13, compared to 23% full in the United States).

graph of Russian natural gas exports to Europe through Ukraine, as explained in the article text

Source: U.S. Energy Information Administration, International Energy Agency, and Eastern Bloc Energy

For more information, see EIA’s country analysis note on Ukraine.

Principal contributor: Alexander Metelitsa

IEA.gov

16% of Natural Gas Consumed in Europe Flows Through Ukraine  |  Peak Oil News and Message Boards

16% of Natural Gas Consumed in Europe Flows Through Ukraine  |  Peak Oil News and Message Boards.

map of major Russia-Europe natural gas transit lines, as explained in the article text

Source: U.S. Energy Information Administration, IHS EDIN, and International Energy Agency
Note: Representations of international boundaries and names are not authoritative.

Europe, including all EU members plus Turkey, Norway, Switzerland, and the non-EU Balkan states, consumed 18.7 trillion cubic feet (Tcf) of natural gas in 2013. Russia supplied 30% (5.7 Tcf) of this volume, with a significant amount flowing through Ukraine. EIA estimates that 16% (3.0 Tcf) of the total natural gas consumed in Europe passed through Ukraine’s pipeline network, based on data reported by Gazprom and Eastern Bloc Energy.

Two major pipeline systems carry Russian gas through Ukraine to Western Europe—the Bratstvo (Brotherhood) and Soyuz (Union) pipelines. The Bratstvo pipeline is Russia’s largest pipeline to Europe. It crosses from Ukraine to Slovakia and splits in two to supply northern and southern European countries. The Soyuz pipeline links Russian pipelines to natural gas networks in Central Asia and supplies additional volumes to central and northern Europe. A third major pipeline through Ukraine (Trans-Balkan) delivers Russian natural gas to the Balkan countries and Turkey.

In the past, as much as 80% of Russian natural gas exports to Europe transited Ukraine. This number has fallen to 50%-60% since the Nord Stream pipeline, a direct link between Russia and Germany under the Baltic Sea, came online in 2011.

Natural gas flows through Ukraine vary by season, ranging from almost 12 billion cubic feet (Bcf) of natural gas per day in the winter to only 6 Bcf per day in the summer. An unusually mild winter in 2013 meant reduced natural gas flows through Ukraine and contributed to higher levels of natural gas storage in Europe (natural gas storage levels were 46% full as of March 13, compared to 23% full in the United States).

graph of Russian natural gas exports to Europe through Ukraine, as explained in the article text

Source: U.S. Energy Information Administration, International Energy Agency, and Eastern Bloc Energy

For more information, see EIA’s country analysis note on Ukraine.

Principal contributor: Alexander Metelitsa

IEA.gov

Natural Gas: A Geo-Political Tool Or Modern Weapon?

Natural Gas: A Geo-Political Tool Or Modern Weapon?.

Fri, 03/14/2014 – 1:00am
Tom Kadala

 

The 2003 invasion of Iraq was a formidable maneuver that launched a 10+ year conflict. Today, President Obama is on the verge of another conflict in the Ukraine that involves Russia’s occupation of Crimea. Unlike Bush, however, Obama and Congress are eyeing natural gas exports as their weapon of choice to rein in Vladimir Putin from reclaiming territories along the perimeter of Russia. A geo-political tool to enable a global energy transformation or a modern weapon to settle disputes, natural gas has truly evolved.

Cleaner to burn but messy to legislate, natural gas from shale holds great promise for the US and the world. This relatively clean energy source has miraculously become the ideal bridge-fuel that society desperately needs to wean itself off its addiction to dirtier coal and oil. The rapid expansion of wells drilled since 2006 has given engineers plenty of valuable field data to improve upon yields and safety standards. From these field trials, amazing, breakthrough technologies have emerged.

Now into its eighth year, the US natural gas bonanza is no longer a nascent business for wild cat investors, its unprecedented success placing it front and center on the global stage. Presently at the helm, is the US who practically overnight, has gone from being a net importer that was often subjected to the whims of OPEC, to a net exporter. For a long time, Americans have always been taught to loathe their dependence on oil-rich countries. They often accused these oligarchs of using US oil payments to wage war against the same US freedom-fighting armies that protect their regions. With this recent change of the guards, however, Americans and their leaders are finding themselves in uncharted territory. The improved situation favors the US significantly but also leaves its leaders facing a tough dilemma.

To Prohibit or To Allow Exports
While the US can boast having the cheapest natural gas on the planet and the best technology to extract it, elected leaders in Congress must deal with two opposing issues: either to prohibit the export of US natural gas so manufacturers can create more American jobs or to allow exports to threatened US allies whose economies are constantly challenged by volatile energy prices. Already, the US’s offer to export natural gas to the Ukraine in response to Putin’s invasion of Crimea has prompted a strong reaction between both sides. Seen in this manner, one might contemplate the following question:

Could natural gas become the US enabler for global sustainable economic growth and world peace? …and if so, should it be implemented as a tool or a weapon?

There are three key benefits the US could gain from exporting its natural gas.

  • First, the US could stabilize energy prices globally for a long time. Stable energy prices would help remove a fundamental uncertainty that concerns investors. Keeping investors happy is important since they are instrumental in relieving government coffers of additional financial burdens.
  • A second benefit focuses on building global awareness on climate change. Just as the US has done to limit the use of their coal-fired power plants, other countries could be further encouraged to adopt similar environmentally friendly laws and best practices.
  • Finally, for countries seeking a free trade agreement with the US, natural gas exports could earn valuable trade concessions that could lead to integrated capacity-building among government institutions, a critical component toward establishing sustainable democracies worldwide.

These lofty expectations may be too high for even the US, considering that every new encounter will introduce more complexities and unknowns. We can only hope that US elected officials will recognize this once in a millennium opportunity and use natural gas as a tool rather than a weapon to steer the world toward a sustainable energy transformation strategy that follows a common set of internationally vetted guidelines and best practices.

Tom Kadala is an internationally recognized writer, speaker, and facilitator well-versed in economics, engineering,  technology, finance, and marketing. His views are regularly published by prominent  industry publications and also distributed to an exclusive list of contacts, some of whom he has met personally during his 20+ year tenure as the founder & CEO of Alternative Technology Corporation (ATC, Inc.). 

Siemens CEO Explains Why Russian Sanctions Will Never Happen | Zero Hedge

Siemens CEO Explains Why Russian Sanctions Will Never Happen | Zero Hedge.

With the UK rapidly backing away from sanctions against the Russians (and the Russians suggesting the confiscation of US and EU assets should sanctions occur), it appears President Obama is becoming increasingly isolated in his calls for sanctions. As the CEO of Siemens – Germany’s massive industrial conglomerate explains Russian natural gas provides “lifeblood” to western Europe and there is substantial “dependency.”

Via WSJ,

The head of German industrial conglomerate Siemens AG said he doesn’t expect European governments will press hard for sanctions against Russia in response to the Kremlin’s authorization to potentially deploy  troops into Ukraine.

Siemens President and Chief Executive Joe Kaeser was asked about the situation in Ukraine during an appearance at the IHS CERAWeek energy conference in Houston, Texas. He said it was important to remember that Russian natural gas provides “lifeblood” to western Europe and there is substantial “dependency.”

“Maybe the American people or the government or whoever raises their eyebrows can say how could the Europeans be so moderate on the debate over sanctions. Guess what? You don’t want to sanction anyone you depend on,” Mr. Kaeser said.

...

Mr. Kaeser went on to say the U.S. is in a better position to consider economic sanctions against Russia because of its recent surge in oil and gas production.

Siemens CEO Explains Why Russian Sanctions Will Never Happen | Zero Hedge

Siemens CEO Explains Why Russian Sanctions Will Never Happen | Zero Hedge.

With the UK rapidly backing away from sanctions against the Russians (and the Russians suggesting the confiscation of US and EU assets should sanctions occur), it appears President Obama is becoming increasingly isolated in his calls for sanctions. As the CEO of Siemens – Germany’s massive industrial conglomerate explains Russian natural gas provides “lifeblood” to western Europe and there is substantial “dependency.”

Via WSJ,

The head of German industrial conglomerate Siemens AG said he doesn’t expect European governments will press hard for sanctions against Russia in response to the Kremlin’s authorization to potentially deploy  troops into Ukraine.

Siemens President and Chief Executive Joe Kaeser was asked about the situation in Ukraine during an appearance at the IHS CERAWeek energy conference in Houston, Texas. He said it was important to remember that Russian natural gas provides “lifeblood” to western Europe and there is substantial “dependency.”

“Maybe the American people or the government or whoever raises their eyebrows can say how could the Europeans be so moderate on the debate over sanctions. Guess what? You don’t want to sanction anyone you depend on,” Mr. Kaeser said.

...

Mr. Kaeser went on to say the U.S. is in a better position to consider economic sanctions against Russia because of its recent surge in oil and gas production.

It Begins: Gazprom Warns European Gas “Supply Disruptions” Possible | Zero Hedge

It Begins: Gazprom Warns European Gas “Supply Disruptions” Possible | Zero Hedge.

We had previously warned that Putin’s “trump card” had yet to be played and with Obama (and a quickly dropping list of allies) preparing economic sanctions (given their limited escalation options otherwise), it was only a matter of time before the pressure was once again applied from the Russian side. As ITAR-TASS reports, Russia’s Gazprom warned that not only could it cancel its “supply discount” as Ukraine’s overdue payments reached $1.5 billion but that “simmering political tensions in Ukraine, that are aggravated by inadequate economic conditions, may cause disruptions of gas supplies to Europe.” And with that one sentence, Europe will awaken to grave concerns over Russia’s next steps should sanctions be applied.

 

It would appear this is the most important map in Europe once again…

 

 

Some recent history…

In late January, Ukraine asked Russia for deferral of payments for gas supplied in 2013 and in early 2014. President Vladimir Putin said Ukraine’s debt totalled $2.7 billion then.

and then…

On March 1, Gazprom’s spokesperson Sergai Kupriyanov said the gas holding could cancel its gas supply discount for Ukraine as its overdue debt for gas reached $1.5 billion. This figure includes debts not only for last year’s supplies, but also for the current deliveries.

 

The situation with payments is worrying,” said Andrei Kruglov, Gazprom’s chief financial officer.

Ukraine is paying but not as well as we would like it to. We are still thinking about whether to extend the pricing contract into the next quarter based on current prices.”

And now today…

Russia’s gas giant Gazprom said on Monday it did not rule out possible disruptions of gas supplies to Europe over Ukraine’s political situation.

 

Simmering political tensions in Ukraine, that are aggravated by inadequate economic conditions, may cause disruptions of gas supplies to Europe,” the monopoly said in its materials, adding that it would do its utmost to reduce export risks.

 

“We will further invest into other export-oriented projects such as South Stream and will enhance our LNG (liquefied natural gas) production and export capacity. We also increase our access to underground gas storage facilities in Europe.”

 

Andrei Kruglov, Gazprom’s chief financial officer, said at the moment Russia had been supplying gas to Ukraine according to schedule, although the latter failed to fulfil its debt obligations.

With that last sentence providing exactly the ‘real world’ cover Gazprom needs to cut its supplies “through” Ukraine and thus to Europe…

And, as The Guardian notes, this would…

not the first time Russia has used gas exports to put pressure on its neighbour – and “gas wars” between the two countries tend to be felt far beyond their borders. Russia, after all, still supplies around 30% of Europe’s gas.

 

In late 2005, Gazprom said it planned to hike the price it charged Ukraine for natural gas from $50 per 1,000 cubic metres, to $230. The company, so important to Russia that it used to be a ministry and was once headed by the former president (and current prime minister) Dmitry Medvedev, said it simply wanted a fair market price; the move had nothing to do with Ukraine’s increasingly strong ties with the European Union and Nato. Kiev, unsurprisingly, said it would not pay, and on 1 January 2006 – the two countries having spectacularly failed to reach an agreement – Gazprom turned off the taps.

 

The impact was immediate – and not just in Ukraine. The country is crossed by a network of Soviet-era pipelines that carry Russian natural gas to many European Union member states and beyond; more than a quarter of the EU’s total gas needs were met by Russian gas, and some 80% of it came via Ukrainian pipelines. Austria, France, Germany, Hungary, Italy and Poland soon reported gas pressure in their own pipelines was down by as much as 30%.

Short of an actual war, the consensus appeared to be, Europe’s gas supplies are unlikely to be seriously threatened (since Putin relies on those revenues)… that is clearly about to change with Gazprom’s comments.

As the following image from Agence France Presse (created at the end of last year) indicates, things are about to get a lot more problemati for Germany, France, and Italy…

It Begins: Gazprom Warns European Gas "Supply Disruptions" Possible | Zero Hedge

It Begins: Gazprom Warns European Gas “Supply Disruptions” Possible | Zero Hedge.

We had previously warned that Putin’s “trump card” had yet to be played and with Obama (and a quickly dropping list of allies) preparing economic sanctions (given their limited escalation options otherwise), it was only a matter of time before the pressure was once again applied from the Russian side. As ITAR-TASS reports, Russia’s Gazprom warned that not only could it cancel its “supply discount” as Ukraine’s overdue payments reached $1.5 billion but that “simmering political tensions in Ukraine, that are aggravated by inadequate economic conditions, may cause disruptions of gas supplies to Europe.” And with that one sentence, Europe will awaken to grave concerns over Russia’s next steps should sanctions be applied.

 

It would appear this is the most important map in Europe once again…

 

 

Some recent history…

In late January, Ukraine asked Russia for deferral of payments for gas supplied in 2013 and in early 2014. President Vladimir Putin said Ukraine’s debt totalled $2.7 billion then.

and then…

On March 1, Gazprom’s spokesperson Sergai Kupriyanov said the gas holding could cancel its gas supply discount for Ukraine as its overdue debt for gas reached $1.5 billion. This figure includes debts not only for last year’s supplies, but also for the current deliveries.

 

The situation with payments is worrying,” said Andrei Kruglov, Gazprom’s chief financial officer.

Ukraine is paying but not as well as we would like it to. We are still thinking about whether to extend the pricing contract into the next quarter based on current prices.”

And now today…

Russia’s gas giant Gazprom said on Monday it did not rule out possible disruptions of gas supplies to Europe over Ukraine’s political situation.

 

Simmering political tensions in Ukraine, that are aggravated by inadequate economic conditions, may cause disruptions of gas supplies to Europe,” the monopoly said in its materials, adding that it would do its utmost to reduce export risks.

 

“We will further invest into other export-oriented projects such as South Stream and will enhance our LNG (liquefied natural gas) production and export capacity. We also increase our access to underground gas storage facilities in Europe.”

 

Andrei Kruglov, Gazprom’s chief financial officer, said at the moment Russia had been supplying gas to Ukraine according to schedule, although the latter failed to fulfil its debt obligations.

With that last sentence providing exactly the ‘real world’ cover Gazprom needs to cut its supplies “through” Ukraine and thus to Europe…

And, as The Guardian notes, this would…

not the first time Russia has used gas exports to put pressure on its neighbour – and “gas wars” between the two countries tend to be felt far beyond their borders. Russia, after all, still supplies around 30% of Europe’s gas.

 

In late 2005, Gazprom said it planned to hike the price it charged Ukraine for natural gas from $50 per 1,000 cubic metres, to $230. The company, so important to Russia that it used to be a ministry and was once headed by the former president (and current prime minister) Dmitry Medvedev, said it simply wanted a fair market price; the move had nothing to do with Ukraine’s increasingly strong ties with the European Union and Nato. Kiev, unsurprisingly, said it would not pay, and on 1 January 2006 – the two countries having spectacularly failed to reach an agreement – Gazprom turned off the taps.

 

The impact was immediate – and not just in Ukraine. The country is crossed by a network of Soviet-era pipelines that carry Russian natural gas to many European Union member states and beyond; more than a quarter of the EU’s total gas needs were met by Russian gas, and some 80% of it came via Ukrainian pipelines. Austria, France, Germany, Hungary, Italy and Poland soon reported gas pressure in their own pipelines was down by as much as 30%.

Short of an actual war, the consensus appeared to be, Europe’s gas supplies are unlikely to be seriously threatened (since Putin relies on those revenues)… that is clearly about to change with Gazprom’s comments.

As the following image from Agence France Presse (created at the end of last year) indicates, things are about to get a lot more problemati for Germany, France, and Italy…

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