Posted on 12/19/2005 4:57:43 PM PST by Tailgunner Joe
On Wednesday December 14 an event occurred which does not leave much space for doubts that the “gas blackmail” exercised by Russia has got nothing to do with the gas itself. The “Gasprom” stand with regard to the price of gas had undergone a miraculous change. The price that the Russian monopolist is demanding for its product has gone up from $160 per 1000 cubic meters to $230.
This means that a fair price is absolutely out of the question if to consider the Russian motivation in this matter. Simply because prices for such a commodity never undergo rapid changes, and no one is known to change a stand in business negotiations in such a manner.
That means that the gas pressure exerted on Ukraine is a part of the major battle that is going on behind the curtains, which is a battle for the world domination.
The Russian side is acting out of despair, and is trying to save the situation. One can only guess what Russia is aiming to achieve, and against whom the effort is directed. If to consider the possible gains for Russia, Ukraine has to face some rather unpleasant conclusions.
Playing Fool On 14 December 2005, 20 days before the New Year, Gazprom management has decided to reject a “compromising” price for gas for Ukraine in 2006 at $160 per thousand cubic meters and now is willing to charge the “market” price for $220-230 per thousand cubic meters. This indicates an end of the interim period for Ukraine.
“As the negotiations were in progress, the prices had been rising in Europe. Today it is obvious, that Ukraine has missed the moment when the market price constituted $160 for thousand cubic meters. If to take into account the dynamics of growth for the energy resources in the world markets, with regards to Ukraine… Commencing in 2006 the generally accepted formula is going to be used for all transactions, which would be based on the market conditions and the real market prices for oil based products”, - Olexandr Medvedev, the Deputy of Gazprom Managing Director, threatens according to the reports given by the mass media representatives.
Mr Medvedev could face some tough questions to answer after making this statement.
First of all, there is a question of which methods should be used to determine a so called “market” price on the market, where there is no such price by definition. The gas market is a monopoly, and gas transportation is a monopoly as well. Consequently there is no free market where sellers and buyers may interact, have free access to the commodity and thus determine the price. In Germany the manufacturers pay 200 Euros for the gas they consume, but the population pays 500 Euros (that is in the same country).
What is a market price for gas? One more example – December 14, 2005 at three o’clock 1 thousand cubic meters on the New York Stock Exchange (almost an ideal market) costs 14,60 per 1000 cubic feet, so more than 157 for 1000 cubic meters. This means less than 230.
Secondly, Gazprom has rejected an offer made by Turkmenistan to buy at a “market” price of 60 dollars. In other words, Gazprom is certain that the market price is less than 60 dollars. If to take into account transportation, the market price for Ukraine defined by the actual activities, not by the statements made by Gazprom, must be nearing $80-90.
Please pay attention, that the actions are a much more powerful signal for the market then any claims. So who are the spectators on the 230-dollar show?
Thirdly, no one changes their position so promptly and so insolently in business negotiations, no reputable company will ever do that.
This is more like the methods known as “the counter is working” used by racketeers in the beginning of the 90’s, when they made the victims pay using the following system: today you own us $100, tomorrow $200, the day after tomorrow $300. This position is unmotivated.
Had Ukraine accepted the Russian proposal and allowed the unilateral breach of the contract, Russia would have resorted to the same means claiming that in a few months’ time the prices would have gone up again and a new contract has to be written to supply gas at higher cost.
There are plenty of examples which demonstrate the artificial radicalism of Russian position, for instance, the arguments related to the increase in oil prices despite of the present tendency for these price to go down, but, perhaps, the Gazprom representatives are completely unaware of this fact.
However this is not so important. The most important is that Gazprom has received an order to pressurize until the maximum is reached, and to make a harsh proposal.
The aim of such tactics is far not the Gazprom’s income growth at the Ukrainian expense. The aim is clearly not limited to the gas sphere. At least it is more significant than the price pressure Ukraine has been submitted to.
A Hidden Threat There are two trivial reasons on which Russia’s hysteria is based. The elections is an obvious one. To display the major tension between the brotherly nations (that is how Russians and Ukrainians were referred to earlier), to accuse the orange powers in escalating hostility. To show how the opposition diplomacy such as Andrei Klyuev’s and Viktor Yanukovich’s voyages to Moscow release the tension, because those famous “hodoki” (walkers) are being listened to.
It is quite possible that the gas claims are going to be dropped triumphantly at the request of some Party of Regions or to arrange some other kind of a political theatre. However nothing is as simple as that.
In reality, to make enemies not only in the West, but in the East, which is highly reliant on gas, would mean to create more enemies than friends. Such Russian behaviour is “not by the book” (racketeer term meaning “not acceptable”) for Donetsk representatives, who would be the first on the list of those who will suffer from gas prices.
That is why strategically the gas manipulation turns out to be very expensive and in the political sense as well, not to mention the enormous damage to the economy. That is why this explanation of the Russian motivation is not a hypothesis that is likely to give answers to all questions.
The second motive is the background for North European pipeline (NEP) to be built. NEP is going to be laid on the bottom of Baltic see from Vologda region to the German coast and possibly further.
To jog the memory, its capacity -20 billion cubic meters of gas a year with view of expansion up to 55 billion during first few years of exploitation. For the comparison, the Ukrainian gas transport system capacity is approximately 140 billion cubic meters, and in reality it is not working at its full capacity, it is transporting 110 cubic meters a year.
This is not the only reason this joint Russian-German project does not look very promising from the economic feasibility perspective in the middle term.
The construction costs for NEP are quite substantial even now – up to 5-6 billion dollars. It is going to increase in the years to come.
Secondly, the possibility to obtain some economic gains from this project is rather remote. In the absence of large gas storage facilities, this project can’t be successful. Only the Ukrainian gas transportation system has such facilities, they have to be built in the north. How much it is going to cost is not clear at the moment, but the hundreds of millions figure is looming.
Finally, there are many political issues the project will face which means some additional construction costs.
Here is an obvious conclusion. The Russian hyperactivity regarding the Ukrainian gas issue is explained by the desire to create an alternative route to Europe, which is NEP. Under such circumstances any position, does not matter how hopeless it may seem, will do, and even more bloated prices could prove to be useful, because they show what really could be done to the damned Ukrainians if the NEP project goes ahead.
Until then the “Naftogaz Ukraine’s” monopoly for fuel transportation to Europe does not give the opportunity for all of the wishes of an “all embracing Russian soul” to become true.
This hypothesis has the right to exist. However Russians in their mass media are not promoting the topic of importance of NEP as a means of exerting pressure on Ukraine. Moreover, NEP is going to be built, does not matter what the circumstances are, that is why the “slaughtering” of Ukraine does not make much sense to Gazprom.
The key to understanding the harshness of the Russians lays in the manifestation of despair. Such a struggle is rooted in the fear of losing the neighbouring ally forever. And the question of Ukraine’s independency is not the major consideration here.
Russians are less scared of such developments because then they still can strike a deal with Ukrainian leaders. They have had a hunch that Ukraine is being influenced more and more by the USA which is the main geopolitical adversary of German-Russian alliance.
For Russia it is evident that there is a high likelihood of both gas and military agreements being denounced after the elections. This time the move is going to originate in Ukraine. Gazprom is going to have restricted access to the markets in Eastern and Southern Europe – this area will be dominated by Norwegian-American joint stock ventures.
The Russian military bases in Crimea are going to be at least neutralised by the NATO presence. Russian oil corporations are going to be ousted from Ukraine – some progress have been achieved by the American investors building an oil refinery in Brody.
The Odessa-Brody project is advancing without any extra efforts on behalf of the Ukrainian authorities. The necessary agreements with the Caspian region representatives as well as with Azerbaijan and Slovakia in Eastern Europe have been reached.
The presence of the Russian geopolitical adversaries in Ukraine is not so noticeable just yet, and their influence is not obvious. But the reaction of the Russian side (the country where the secret services are much more informed than any ordinary Ukrainian citizen) can only make it clearer that yet one more time the Ukrainian nation as well our northern neighbour is being ruled by the government that outlines the country’s course secretly and without people’s approval.
Thus, it is not the course itself which is a problem, but there are two unpleasant things happening. First one is the secrecy surrounding the decision making process, the second one is relying on the foreign forces that are alien. This does not agree with the main goal the new government has set out to achieve which is to give more influence to the people that inhabit the country.
Interesting...so is Ukrainian Pravda and instrument of the communists still or is it the ukranian state?
i also wonder about Gasprom..is the company where the founder was interested in going into politics and then was arrested on corruption charges and stripped of the company?
It would have been nice to think we didn't have to be concerned with that part of the world so much anymore.... sigh.
This Pravda has nothing to do with Russian Pravda and it's not owned by the government.
Well, on another thread it was that the Baltic bypass pipeline would become operational in something like 4 years. This means that Ukraine has about 4 years to achieve a measure of energy independence (coal, coal gasification, nuclear plants). Meanwhile they could jack up the transit fees Gazprom will have to pay for gas transit over Ukrainian territory.
Anwar and the Gulf of Mexico and more nuclear power plants are our answer, but this would require that the EPA be put out of political power and the cowardly politicians love power to much to stand in the gap for the conservative Americans they are supposed to represent.
Thank you.
Ukraine must accept that Russian companies are going to do whatever they believe is in their interest. Ukraine must likewise pursue its best interest.
What is the market price of Russian Gas? Its whatever the Russians can sell it for.
If they are selling at a higher price than what is available from other sources, they won't be able to sell it. Whatever price they ultimately agree to, Ukraine needs to pursue the building of whatever trade relations and whatever infrastructure are necessary in order to have an alternate supply. Any temptation to play with the price will end the day Ukraine has more than one source for its natgas supply.
As for Turkmenistan's inability to sell at $60, there is a problem. Turkmenistan is landlocked. Its only paths to market are through Russia and Iran, two competitors who have little interest in encouraging Turkmen production. The Turkmens desperately need the fabled Afghan pipeline to be built in order to free themselves from their present bottlenecked state. But despite the black-helicopter theories once bandied about, no one else cares.
This does show why the Baku Ceyhan pipeline was so necessary; the mere threat to build it forced Russia to learn to compete and partner in the oil business. The fact that it is now built will do wonders to limit mischief in the oil business. Turkmenistan and Ukraine both desperately need their own "Baku-Ceyhan", and they need it now.
Man, I thought this was about PV = nRT.
Funny, that's why I came here too.
The universal nerd constant.
= )
PV = nRT... '-}
Or is that "NMTA" (Nerdy Minds Think Alike) ?
So you agree that at a loss of over $3.8 billion a year, Russia should subsidize Ukraine's gas at $50 as it now stands? They were given a more then fair offer, a price well over $70 cheaper then what their neighbors pay and they turned it down. So why exactly should Russia suffer to support the Oranges?
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