It’s unusually cold in some parts of Europe and temperatures are expected to be especially harsh this coming weekend. This makes the following even more unfortunate than it would be otherwise: due to conflicts with Ukraine, Russia has cut off gas supplies to several countries some of which rely on Russia for the majority of their needs and have enough supplies for no more than a few days. There isn’t a ton of good coverage* about this out there (yet?), you can read up on some of it here and here (although some information in English already seems outdated when I compare it to reports in Hungarian papers, which presumably have more accurate updates for at least Hungary). Hungary has already shut down numerous industrial plants and has taken other measures to lower usage.
Let’s say you are a country and calculate that you have enough supplies for about three weeks. Your neighbor only has enough for two days and asks for your help. What do you do? (Judging from some of the reports, this isn’t necessarily a hypothetical.)
[*] Feel free to post links to additional coverage that you find helpful. New stories came up as I was writing this post, I suspect/hope that more will be available. (Don’t assume I didn’t search in the right places, there was very little on this when I first started looking for it earlier today. The only reason I even knew to look was a mention by my cousin in an email and a phone conversation later with my Mom. They are both in Budapest so they are following the details and seem to have more to go on.)
{ 36 comments }
Matt 01.07.09 at 9:07 pm
The New York Times article was longer and quoted more people
http://www.nytimes.com/2009/01/08/world/europe/08gazprom.html?_r=1&hp
But I can’t say I found it massively more useful. I don’t doubt that there are political elements involved on both sides. But things I’d like to know, and get no help at all from any of the published articles I’ve seen, include, 1) What are the contractual terms like for both the buying of gas by Ukraine and for the onward shipment? Are there set prices for given periods or are prices allowed to float? Is the transhipment price tied to the market price or set some other way? When can prices be renegotiated? All of these factors seem essential to evaluating the claims but are not even discussed in the articles. 2) Russia says that Ukraine owes huge late fees for payments for gas for last year. Is this true or even plausible? Are such terms set out in the contract? 3) Russia claims Ukraine was stealing gas meant for western Europe. Is there any independent or otherwise strong evidence for this?
What’s really annoying to me is that these factors are not even really touched on. We’re told that Russia says X or Ukraine says Y but not given any indication as to what’s true. This isn’t even just a “he said, she said” thing- surely there’s a fact of the matter, and even if all the paper could say is, “no independent sources can verify the Russian [Ukrainian] claims and Russia [Ukraine] refused to provide further evidence” that would still be worth something. Maybe more will come out later, but having followed the similar disputes in the past I doubt it. It seems to me, however, that you can’t know what’s going on here w/o knowing the answers to questions like these.
Eszter Hargittai 01.07.09 at 9:14 pm
Thanks, Matt. I agree that there are a lot of unanswered questions, which is why I found the overall coverage of the matter seriously lacking. Perhaps I wasn’t sufficiently explicit about this in my post, but a main reason I even posted about this was precisely to point out how coverage has been lacking. Several news sites have nothing on this whatsoever, others have coverage similar (or worse) to what I linked to (I didn’t mean to suggest I linked to everything I looked at, it was a lot of repetitions of similarly vague information).
Matt 01.07.09 at 9:34 pm
I agree completely, Eszter- it’s quite disappointing reporting on an important topic.
poemless 01.07.09 at 9:53 pm
Gobs of good coverage at The European Tribune:
The battle of the oligarchs behind the gas dispute:
http://www.eurotrib.com/story/2009/1/6/163017/5047
Russian gas and European energy policy – a reprise:
http://www.eurotrib.com/story/2009/1/7/65347/48261
Is Putin losing control?:
http://www.eurotrib.com/story/2009/1/7/144418/8607
Some links to debates on France24:
http://www.eurotrib.com/?op=displaystory;sid=2009/1/7/1178/11246
It’s mostly background and possible explanations of why it’s all heppening.
We were wondering if anyone has actual stories from end-users experiencing heating shutdowns?
novakant 01.07.09 at 10:21 pm
I only wish they would play these games in summertime.
Mikhail Emelianov 01.07.09 at 10:39 pm
Doesn’t this happen basically every year with new gas contracts beginning on Jan. 1st? Russia is clearly aiming to put pressure on Ukraine in a variety of ways, but since it needs the transit, it will all very likely to settle soon, unless it won’t and maybe then the coverage will reach some level of adequacy – Americans barely care about their own wars in Iraq and Afghanistan, I seriously doubt they will care about cold apartments in Budapest, no offense…
Tina 01.07.09 at 10:43 pm
German media did quite a bit of reporting, tonight, especially the daily news of Tagesschau and Heute, emphasizing there is no shortage of Gas for German households. They just reported that households in southeasst Europe are confronted with the freezing temperatures. In recent days news on TV had reported there is not enough pressure in the gas pipelines to Germany, so it is probably to calm people down. Here is an article by Spiegel. I was annoyed by the fact that the News on TV reported as if this escalation in january was accidental and had nothing to do with an expectable rise in demand for gas at this time of year. But German News reported in the same manner about the record high oil prices in summer of 2008, too.
Tina 01.07.09 at 10:44 pm
Link to Spiegel: http://www.spiegel.de/international/europe/0,1518,600007,00.html
poemless 01.07.09 at 10:55 pm
I posted a non-spam comment with a lot of links & I’m afraid it may be in a spam-filter somewhere. Can you check? Thanks. Sorry.
tadhgin 01.07.09 at 11:33 pm
I haven’t read all of poemless’s links, but this has been brewing for a while. My (actually quite well informed in this case) understanding is that leaving aside disagreement about the size of the debt between Ukraine and Gazprom, the Ukranians refuse to pay even what they admit they owe. The Russians have been much politic in this case in presenting their case to the EU, who whatever their misgivings about Gazprom are also running out of patience with the Ukraine.
Tom T. 01.08.09 at 12:51 am
What does Russia propose to do with the gas that it is not selling to Europe? Are there enough other customers to sell it elsewhere (how?), or are they just sitting on it?
Valdis Krebs 01.08.09 at 7:06 am
Eszter,
Thanks for bring this topic up. Since both of our families are from that region, it hits close to home. For me, it is also an interesting network problem — one of power and location and routing around bottlenecks. Here is my blog post about the network angle on this sad situation.
Daniel 01.08.09 at 7:13 am
Tom: good question, particularly as a significant proportion of Gazprom’s storage capacity is actually located in Ukraine.
Gabi Aanicai 01.08.09 at 9:10 am
I am living in Romania and I can tell you that the second gas pipeline that entered Romania was shut down today. Government officials are saying that the supplies will be enough for another two months, but even they are not sure what to do. Bulgaria is on a delicate spot as well, thinking of re-opening the Kozlodui nuclear powerplant.
Zamfir 01.08.09 at 9:23 am
Tom, from what I gathered, the Russians always give in to the Ukrainians, exactly for those reasons. They can’t store their gas, while the Ukrain has literally reserves to last until spring. They try every few years again, part out of power politics, perhaps also to get the EU to put pressure on Ukraine.
Th Eurotrib pieces suggest that internal politics within Ukrain and within Gazprom have more to do with it then an expectation from the Russians to actually get paid for their gas.
Alex 01.08.09 at 11:27 am
Also, the last row about this was resolved through the creation of this weird rent-seeking missile, RosUkrEnergo, which buys gas from Gazprom and resells it to Naftogaz. That’s all it does. The Russians contend it hasn’t paid; Naftogaz contend they paid RUE. The Russians blame Naftogaz. But ISTR RosUkrEnergo is half-owned by each party, or else by frontmen for each party. Presumably the purpose of its existence is to permit the directors of both parties to collect a turn on the deal for their own private benefit, and this was the quid pro quo for settling the last row.
Alex 01.08.09 at 11:34 am
Yes, 50% of it is owned by none other than Gazprom and the rest by a dodgy Ukrainian zillionaire. So indeed, they are accusing themselves of stealing their own money.
Eszter Hargittai 01.08.09 at 1:01 pm
Valdis, thanks for the network maps, very interesting to look at all of this from that perspective.
Mikhail 01.08.09 at 1:17 pm
There is a lot of coverage of the contract terms, etc, if you dig back to the news from the 2005/2006 New Year time – that’s when the last contracts were negotiated (those that Ukraine unilaterally declared null & void a few days ago).
To start off with the questions raised in the very beginning:
>1) What are the contractual terms like for both the buying of gas by Ukraine and for the onward shipment?
>Are there set prices for given periods or are prices allowed to float?
The prices are set for the duration of the contract with the exception of cases when a third party supplier (Central Asia for which Gasprom acts as a transiter) raises their prices. So, technically the price can only be renegotiated up.
>Is the transhipment price tied to the market price or set some other way?
The transit prices are set for the duration of the contract which is currently completely INDEPENDENT of the gas price for Ukrainian consumption and runs until 2011, I believe. The contracts are re-negotiated when their expire – the gas price is expired now, the transit will expire in 2 years time.
>2) Russia says that Ukraine owes huge late fees for payments for gas for last year. Is this true or even plausible?
>Are such terms set out in the contract?
Yes, True & plausible (Ukraine admitted and paid the debt of over 2 billion $). What remains are the fines & penalties – which are obviously standard in any contract and amount-wise realistic, given the admitted and already paid debt of over $2bn…
>3) Russia claims Ukraine was stealing gas meant for western Europe.
>Is there any independent or otherwise strong evidence for this?
Yes. After the last debacle in 2005/2006, Gasprom was ready and an independent European company was measuring gas entering Ukraine and leaving it – SGS was the name Gasprom mentioned. Besides, there are interviews with several heads of European national gas companies (I saw a couple on Euronews) that explicitly say that Ukraine cut their supplies.
mossy 01.08.09 at 1:35 pm
I live in Moscow, and the gas war is all we have been hearing about. I can tell you the official Russian version and various versions critical of the government. But I have to say that I have a lot of questions and absolutely no understanding of the industry in general and these specific contracts. I can give you my best shot, but it’s not going to be very good.
1) The contract between Russia and Ukraine ends on Dec 31, hence the “new year’s tradition†of quarrelling over the new contract. The Russians maintain that first Ukraine didn’t pay its debt, then it paid most of it; I believe Ukraine disputes the part of the debt they haven’t paid. The Russians maintain that Ukraine was stealing gas from the pipelines; on TV they showed gauges supposedly on the way into Ukraine and on the way out of Ukraine to prove the loss of gas. Serious-looking “independent observers†hovered over the gauges looking grim. I’m not sure if this is “proof†of pilfering. At first it looked like it (I think Europeans confirmed it). But on the other hand, the loss of gas might be what more knowledgeable people call “technical usage,†i.e., the transit country uses a certain amount of gas in transit to keep the pumps going (although I have no idea what this means). First Russia stopped sending “the amount Ukraine stole.†Then they stopped gas altogether. Both sides accuse the other of not showing up for meetings.
2) One commentator says that the problem is largely commercial. The gas in question is actually gas that Russia buys from Turkmenistan. Russia has a 6-month contract with Turkmenistan but a 3-month contract with Western buyers. The price of gas is falling and will fall more; right now Russia is losing money on the deal. To make up for that, they want to lock Ukraine into a year-long contract at today’s prices (or whatever they can get). It’s obviously not in Ukraine’s interest to do that, since they don’t want to be locked into a price that by the end of the year might be much higher than the “market price.†So it’s in Ukraine’s interest to drag out negotiations as long as possible. In the past, when Gazprom was raking it in, they could wait forever to get paid. Today, when they are supposedly hugely in debt (though absolutely no one can explain to me why they are in debt), they really do need the money.
3) Other commentators say that the problem is the middleman company (mentioned in other posts), a truly dodgy black box intermediary owned (as far as anyone can tell) half by Gazprom (Russian gas company) and half by Naftogaz (Ukrainian gas company), but rumored to have been set up to allow sizable kick backs to Putin and Yushchenko. In this version of “the source of the problem,†it’s folks on the Ukrainian side who either want to get in on the deal or end the deal. Or some internal fight about pay offs.
4) In 2008 Ukraine paid about $180 for 1000 cubic meters of gas. They proposed a price hike to $201 for 2009. The Russians have been tossing around figures like $450. Journalists on the Russian side keep writing that Western countries are paying around $500 and so the $201 proposal is laughable. Commentators against the Russian side say that Germany, for example, pays $280, and that the Ukrainian price (as a transit country) is traditionally figured as the end-user price less X amount for transit, and that by that calculation, the price for Ukraine ought to be about $225. In this version, the $450 is laughable and the $201 is either a reasonable opening bid or a reasonable price, given the fact that the price of gas will inevitably fall over the course of the year. I don’t know where to find the definitive source for the prices European countries pay. And the Russian side says that the transit fee is a separate contract, so I don’t know how to judge this. However, Russia sells gas to Belarus for $110, so it isn’t as if they don’t make concessions to neighbors.
5) No one understands why Russia turned off the gas yet again. Even the pro-Russian commentators say it makes Russia look bad, especially since Ukraine supposedly has enough reserves to last until spring and the only people they are hurting are their European buyers.
6) Ukraine is on Russia’s bad list, which means that there is a constant media barrage of Bad Things About Ukraine: documentaries about how Ukraine provided arms to the Georgians; reports on how the Ukrainian Orthodox Church wants to break away from the Moscow Patriarchy and put the souls of its flock in jeopardy; reports on political mess of the “orange revolutionâ€; reports on discrimination against Russian speakers; reports on the mass rallies against NATO – the list goes on and on. For months and months, there hasn’t been a day without extensive news coverage of one or more of the atrocities in or committed by Ukraine. Russian newscasters refuse to adopt the Russian equivalent of “in Ukraine†instead of “in the Ukraine,†as the Ukrainians wish (that is, Russians use a grammatical form that makes Ukraine a territory rather than a country). Commentators and Russian politicians often state that “The Ukraine doesn’t exist [as a separate country].†There is huge Russian support for Crimea being “given back†to Russia, which makes the Ukrainians crazy. So although I personally think that there are multiple sources of the problem (some purely commercial, some probably connected to graft), part of it is surely Russia’s attempt to either make Ukraine look bad or cause Ukraine problems. And part of it is Ukraine trying to do the same thing to Russia.
So that’s what I know; much of it is gleaned from sources that may or may not be credible.
dave 01.08.09 at 1:35 pm
So if, as it would seem from the foregoing, the economic/legal dimension of the dispute is pure bullshit, are we left to consider whether its prolongation/reiteration does not in fact have geopolitical intentions? Or is that Russophobia?
Mikhail 01.08.09 at 1:53 pm
A couple of additions to mossy’s post.
Ukraine wants to pay about half of what most European countries are paying for gas. Which is “interesting”. :) The prices for gas will not fall that far – gas is a much more necessary product than oil – without gas a lost of countries will not hold out for more than a few days! Which I find amazing – talk about dependency!
Belorus pays a much lower price for gas for a very simple reason. Not because they are “friends”, but because they sold their gas transit pipeline system to Gasprom and got discounts. This is something Ukraine adamantly refuses to do…
***Ukraine is on Russia’s bad list, which means that there is a constant media barrage of Bad Things About Ukraine: documentaries about how Ukraine provided arms to the Georgians; reports on how the Ukrainian Orthodox Church wants to break away from the Moscow Patriarchy and put the souls of its flock in jeopardy; reports on political mess of the “orange revolutionâ€; reports on discrimination against Russian speakers; reports on the mass rallies against NATO – the list goes on and on. ***
As far as I can tell, none of these things you mention are untrue – which means the media reports what it’s supposed to report – the news… ;-) It’s not Russia’s fault Ukraine produces mostly “bad news”, is it?
Mikhail 01.08.09 at 2:06 pm
poemless:
I find the links to European Tribune to be not illuminating in the least – it’s all pure speculation any numbers or facts behind it. It’s nice to build theories, but without facts they have nothing to do with reality. Sorry.
Matt 01.08.09 at 2:19 pm
Thanks for the info on the contracts, Mikhail.
Mossy said, _In the past, when Gazprom was raking it in, they could wait forever to get paid. Today, when they are supposedly hugely in debt (though absolutely no one can explain to me why they are in debt), they really do need the money._
Gazprom is a funny company. For a while they sold almost all of their export gas to a funny company no one had ever heard of named Itera. Itera became one of the biggest gas companies in the world from nothing, and while owning nothing. All very mysterious, especially since Gazprom sold its gas to Itera for very low rates and then Itera sold them for normal rates. Of course this hurt Gazprom’s finances. It turned out that Itera was owned mostly by the family of the former CEO of Gazprom. This guy, who was a Yeltsin crony, was replaced by a Putin crony, Alexi Miller, who is now still a top guy (maybe the top- it’s hard to keep up) at Gazprom. So, shady business deals designed primarily to ship Gazprom (and so Russian state) money into the hands of politicians and away from everyone else are standard parts of any Gazprom operation. It’s not a normal business, or even a normal state-run business, but a personal money-making operation for connected Russians (and Germans, in the case of the despicable Gerhard Schroder.)
Dr. Minorka 01.08.09 at 2:33 pm
“Your neighbor only has enough for two days and asks for your help. What do you do? (Judging from some of the reports, this isn’t necessarily a hypothetical.)”
This is what happened. Serbia (no reserves) turned to Hungary for help. First they were refused, but today : “Hungary to give Serbia 1-2 m cubic metres of gas today – PM ”
http://www.portfolio.hu/en/cikkek.tdp?k=2&i=16653
A good, honest decision.
mossy 01.08.09 at 2:40 pm
Mikhail, what is your source for Europeans paying about $500? The only thing I can find is this: “The spokesman for Germany’s E.ON Ruhrgas energy company, Helmut Roloff, told VOA that the $280 figure mentioned by President Yushchenko is a reasonable estimate of what Germans pay for Russian gas.”
Yeah, Ukraine could probably cut a good deal if it would sell Russia its pipeline. But not everyone thinks that Russia having a total monopoly over gas transit is a good idea.
franck 01.08.09 at 2:44 pm
***Ukraine is on Russia’s bad list, which means that there is a constant media barrage of Bad Things About Ukraine: documentaries about how Ukraine provided arms to the Georgians; reports on how the Ukrainian Orthodox Church wants to break away from the Moscow Patriarchy and put the souls of its flock in jeopardy; reports on political mess of the “orange revolutionâ€; reports on discrimination against Russian speakers; reports on the mass rallies against NATO – the list goes on and on. ***
As far as I can tell, none of these things you mention are untrue – which means the media reports what it’s supposed to report – the news… ;-) It’s not Russia’s fault Ukraine produces mostly “bad newsâ€, is it?
I’ve never seen any credible reports of discrimination against Russian speakers in Ukraine – half of the population of Ukraine are fluent Russian speakers. There are documented cases of discrimination against non-Russian speakers in Ukraine, almost all of which occur in Crimea (since the autonomous government there is strongly against non-Russian language education and civic life) and the far eastern provinces.
franck 01.08.09 at 2:46 pm
Sorry, I should have edited the above posting better. Only the last paragraph is mine, the second is Mikhail’s, and the first is mossy’s.
Mikhail 01.08.09 at 3:21 pm
Gas Prices in Europe:
http://www.cbs.nl/en-GB/menu/themas/industrie-energie/publicaties/artikelen/archief/2007/2007-2187-wm.htm
mossy 01.08.09 at 3:57 pm
But Mikhail, those are the consumer prices, not the prices the European companies buy the gas for.
Mikhail 01.08.09 at 4:34 pm
Fair enough. Here then:
http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-QA-08-047/EN/KS-QA-08-047-EN.PDF
In natural gas 1 Gj=26.8 cubic meters, and 1 Euro=1.37 USD, so for example, we get that Euro Area industry pays about 10 Euro per GJ = 10*(1000/26.8)*1.37 = 510$/100 cubic meters… take away local taxes and surcharges and you’ll get about 450$.
Stuart 01.09.09 at 1:00 am
Mikhail, that is industrial consumers, who unsurprisingly pay about the same as households more or less. What is being discussed is wholesale prices.
FromUkraine 01.11.09 at 3:59 pm
You may be interested to read Putin’s explaination (english)
http://premier.gov.ru/eng/events/1656.html
There is also an interesting story about Naftogaz (in russian and ukrainian)
http://www.2000.net.ua/print?a=%2Fa%2F61152
in short : Ukrainian Naftogaz is about to default and at the same time it owes a lot money to Gazprom (and Gazprom owned bank? according to another source), but ukrainian govertment wants to take all actives from Naftogaz (including infrastructure etc), make it bankrupt and leave Gazprom with nothing. Also they will organize another company instead of Naftogaz using Naftogaz actives and will have Gazprom to deal with another company with no old contracts etc. Actually this is a deception and raidering. That’s why Russia is so angry and wants to get money as soon as possible. At least this is my understanding of the situation.
BTW, Timoshenko signed a protocol with her own additions after it was signed in Moscow. So there is no valid protocol again.
FromUkraine 01.11.09 at 5:27 pm
Mossy, speaking about “stolen gas” or “technical usage”, we should look at their transit conract where it’s written that transit country should use it’s own gas for “technical usage” or pay for it. They can’t use european gas and at the same time get money for transit. Transit has to be provided by Ukraine at her expense
The middleman company you are speaking about (RosUkrEnergo) is owned by Gazprom (50%) and two individuals from the ukrainian side – Firtash (45%) and Fursin, it doesn’t owned by Naftogaz.
What about gas prices offered by Russia to Ukraine, it was $250 first and even less before if there would be no delay with payments and agreements, but Ukraine didn’t pay it’s debts in time and created this awful situation, so discounts are not available anymore.
> No one understands why Russia turned off the gas yet again.
We in Ukraine understand it good enough. The gas (a big amount first) just didn’t go through Ukraine. There are independet observers invited by Gazprom who fixed it.
Many ukrainians suppot Russia in this conflict. It’s a pity that Russia didn’t get an agreement from Ukraine to allow observers to look at Nafogas documents according to the signed protocol. We here in Ukraine also would be interested to look where the money go to if Naftogaz buys gas from Russia for 179 and sells it here in Ukraine for 320 and became a bankrupt with it.
poemless 01.12.09 at 6:48 pm
Mikhail,
I’m sorry the links were of no use to you. I only posted them because I saw the note in the body of the post about providing links.
FWIW, the author used to work for Gazprom and has written extensively on the perennial Russia-Ukraine gas spats (incl. his PhD). I agree that it is a lot of speculation regarding the current events, but at least it is well-informed, nuanced speculation. The history, though, is not speculation but observation.
mossy 01.13.09 at 7:13 am
I discovered that the reason it was so hard to find out how much, say, France pays for gas is that it’s the Big Commercial Secret. As is the “work” of the intermediary corporations. If you speak or read Russian, you can spend all day and night reading and listening to commentators and journalists, who are spending all their waking hours reading web sites and documents, and talking to their sources, trying to figure out what’s going on. But it’s a black box. All you get are more or less credible versions.
The problem, boys, is that for the folks in Europe, they don’t really care whose fault it is. All they know is that for about four years, Russia and Ukraine haven’t been able to get it together to sign a long-term agreement. And that regardless of who is to blame, they didn’t get their gas because Russia didn’t send it. Russia looks bad. And if this was in part a ploy — or in part used as a ploy — to crank up the work on Nord Stream that would be a Russian-controlled pipeline, the ploy backfired. Because the shivering babushki in Sofia and Belgrad — those Slavic, Orthodox friends of Russia — think “you can’t trust them Russians.”
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