Russia cuts off gas to Ukraine  

The SMH reports that the Russians are playing hardball over price increases for gas to the Ukraine, causing some nervousness in Europe about possible supply interruptions - Russia cuts off gas to Ukraine.

Russia on Thursday cut off gas supplies to its neighbour Ukraine after failing to agree a new contract, sparking renewed concern over Europe's dependence on Russian-controlled energy resources. Major European consumers of Russian gas - most of which transits across Ukraine - reported no immediate impact on their supplies but the European Union expressed concern that the dispute had flared up yet again.

Russia's state-run gas giant Gazprom confirmed that supplies to Ukraine were shut off at precisely 10am (1800 AEDT) after the parties failed to agree terms for a 2009 contract to replace the old one which expired at midnight. "We have reduced the supply of gas to Ukraine by 100 per cent," Gazprom spokesman Sergei Kupriyanov told reporters.

Ukraine's gas company, Naftogaz, confirmed that the volume of gas it was receiving from Russia had dropped, but promised that transit of supplies meant for customers downstream in Europe would be guaranteed.

Gazprom's move recalled a similar cut-off in January 2006 that affected gas supplies to Europe, although this time, Ukraine and the EU say they have enough gas reserves to see them through the winter.

A Gazprom official said the flow of more than 300 million cubic metres per day of gas that transits Ukraine destined for clients further afield in Europe would continue unabated. Around a quarter of the gas used in the European Union - more than 40 per cent of the gas imported by the bloc - comes from Russia, 80 per cent of it moving in pipelines that pass through Ukraine. ...

The European Union's Czech presidency and the European Commission said in a joint statement that they were "concerned" by the turn of events. But Italy and Poland, two big consumers, said on Thursday they had no immediate problem with their Russian gas deliveries. Germany said precautions had already been taken to ensure supplies were not disrupted.

We see recently linked on TheOilDrum an article saying that Russia has "blundered" because... it relies on fossil fuel exports for money. The writer Steve LeVine is speaking too soon in saying that Russia is "in trouble". For one thing, he lacks perspective,

"Simply put, Russia is in trouble. Its much-ballyhooed $600 billion cash reserve base dropped by a quarter by Dec. 1, to about $450 billion, and even further since."

At least they have cash reserves, rather than having to borrow funds to do their spending. He goes on,

"The Putin era’s new generation of oligarchs, like Deripaska — men who obtained ownership of large parts of Russia’s industrial sector in the last few years — is lining up for a bailout from some $110 billion in foreign debt coming due next year. According to Bloomberg’s Yuriy Humber and Torrey Clark, that’s twice the debt owed in Brazil, China and India. The oligarchs are seeking some $78 billion in loans."

It is unclear why US$280 billion for the EU, or US$700 billion for the US, or US$255 billion for Japan, why these occasion no comment in an article where the much smaller amount of US$110 billion is presented as a dangerous thing.

Of course the Third World has a total debt of some $523 billion; readers may recall that a few years ago when the Third World asked for this debt to be delayed or written off, it was explained that doing this would cause financial chaos in the West; we can afford $1,235 billion for ourselves, but cannot afford $523 billion for them. We wagged our fingers and gave them a lecture about fiscal responsibility. Stop laughing, please, it's rude.

Apparently, tremendous debts are bad for Russia and the Third World and absolutely must be paid back as soon as possible, but tremendous debts are an unfortunate necessity for us in the West and we should pay them back... well, sometime later, no hurry.

LeVine, an American writing in an American magazine, also quotes Zachary Shore, an American, as speaking of Russia's "weak banking sector", and apparently is not trying to be ironic.

This sort of article shows how the West tries very hard to present itself as a brilliant success and the rest as a dismal failure. But Russia of course also has natural gas, and while oil's price has plummeted from near $150 in July to under $40/bbl this December, natural gas has halved rather than dropped by three-quarters; though as Lavine correctly notes, much gas is sold on long-term contracts, so spot prices don't reflect immediate conditions as much as with oil. Can Russia increase its gas prices to make up for loss of oil revenue? It seems that they think so.

Putin says "cheap gas" era ending

Mr Putin said the cost of extracting gas was rising sharply, therefore "the era of cheap energy resources, of cheap gas, is of course coming to an end".

The Gas Exporting Countries Forum (GECF) [a precursor to a natural gas version of OPEC] meeting in Moscow has agreed a charter and plans for a permanent base. [...]

The countries attending are Algeria, Bolivia, Brunei, Egypt, Indonesia, Iran, Libya, Malaysia, Nigeria, Qatar, Russia, Trinidad and Tobago, the United Arab Emirates and Venezuela. Equatorial Guinea and Norway are attending as observers. [...]

Officials at the meeting stressed they were not trying to set up a price-fixing cartel. [...]

Ukraine row

At the moment Russia remains locked in a dispute with Ukraine over non-payment of debts. Russia's Gazprom says Ukraine owes it $2bn (£1.4bn) and has warned it may cut off gas supplies next month if the dispute remains unresolved. [...]

So what do we have?

1. Russia's income from oil drops
2. Russia speaks of the possibility that gas will become more expensive
3. Ukraine is behind on its gas bills, and so Russia may cut their gas off, which - oh no! would cut off a good chunk of Europe, too - most unfortunate and I'm sure Russia would express many regrets.

They don't need an official price-fixing cartel with that happening. The EU will pay Ukraine's gas bill, and in the next round of gas contracts higher prices will be negotiated. Putin and Medvedev, following their checkmate of the West in the Caucasus where the EU was trying to diversify its oil and gas supplies, now want the EU to pay up.

This is the price the West pays for continuing to burn large amounts of fossil fuels. Russia is not blundering, we are.