Ukraine Rejects Putin's Eleventh-Hour Gas Offer

Dec. 31 (Bloomberg) -- Ukrainian President Viktor Yushchenko rejected Russian President Vladimir Putin's proposal to delay a fivefold increase in natural gas prices for three months, likely leading OAO Gazprom to stop supplying the fuel to the former Soviet republic on New Year's Day.

``We can't accept a price of $230'' per thousand cubic meters, Ukrainian government spokesman Valentyn Mondrievsky said in a telephone interview from Kiev less than two hours after Putin's offer was broadcast on Moscow-based Gazprom's NTV television network.

``We support Russia's proposal to switch gas prices to the market, but the price shouldn't look like economic pressure,'' Yushchenko said in an e-mailed statement.

State-run Gazprom, which supplies about one quarter of Ukraine's gas and uses the country's pipelines to supply a quarter of western Europe's, plans to shut off supplies to Ukraine at 10 a.m. tomorrow if the nation doesn't agree to pay $230 per thousand cubic meters, up from $50 now. The dispute pits Putin against Yushchenko, who is trying to orient Ukraine more toward western Europe in defiance of the Kremlin.

Both sides have said Gazprom's exports to western Europe won't be affected by a cut off, which is scheduled to be shown live on various Russian state-run channels, including NTV.

Four-Month Supply

Dmytro Marunich, spokesman for NAK Naftogaz Ukrainy, Ukraine's national oil and gas company, said the country was prepared for supplies to be cut. ``We expect Gazprom to cut off the supply to Ukraine tomorrow if the Ukrainian government doesn't offer Russia anything,'' he said via telephone today. ``Ukraine's ready for that.''

The nation has about 23 billion cubic meters of gas stored in underground tanks, Naftogaz Chief Executive Oleksiy Ivchenko, said in October.

That's about four months supply at the current rate of consumption, according to Ivan Diyak, head of the country's Gas Union. Ukraine uses about 76 billion cubic meters of gas a year, Diyak said yesterday. It receives about 28 billion cubic meters from Gazprom, he said, some of which is re-exported. More than half of the total comes from Turkmenistan, fuel that flows north around the Caspian Sea in pipes owned by Gazprom.

Turkmenistan has agreed to sell Ukraine 40 billion cubic meters in 2006 at the same rate Gazprom now charges -- $50 per thousand cubic meters -- Yushchenko said last night. Turkmenistan, the second-largest natural-gas producer in the former the former Soviet Union, had sought to increase the price to $60 per 1,000 cubic meters, from $44 now.

Prices

The dispute with Ukraine occurs as Russia and Gazprom, which owns about a sixth of the world's gas reserves, plan to end subsidies for former Soviet republics and move toward a free market for gas. The company, Russia's biggest by market value, loses money on domestic sales because the government caps prices to help fight inflation and subsidize households.

Yushchenko has said Ukraine is prepared to switch to market prices, though not as quickly as Russia wants. ``What Russia expects for its gas ``is completely unacceptable'' and ``economically groundless,'' he said in a televised address the nation on Dec. 30.

``Why does Turkey pay $100 per thousand cubic meters, the Baltic countries pay $110, the Caucasus pays $100, and Ukraine, which is Russia's closest neighbor, must pay $230?'' he said. Duh. You defeated Putin's goon a year ago

Yushchenko last week rejected an offer from Putin to loan Ukraine $3.6 billion to help meet the higher price, saying his country doesn't accept ``alms.''

Ending Subsidies

Gazprom charged consumers in western European countries including Germany and Italy an average of $135 per thousand cubic meters in the first nine months of 2005 and expects that average to almost double to $255 in 2006. It plans to sell about 151 billion cubic meters of gas in western Europe in 2006, up from an expected 145 billion in 2005, Deputy CEO Alexander Medvedev said in November.

``Gazprom is moving to market principles in working with all importers of Russian gas'' Deputy CEO Alexander Ryazanov said last week in a statement announcing a gas agreement with Belarus, with which Russia is planning a political union. Gazprom agreed to hold prices at $46.68 per thousand cubic meters in exchange for more control over the country's pipelines.

The pricing dispute also has a political element to it. Yushchenko became Ukraine's president in 2004's so called Orange Revolution. He is seeking to orient the nation more closely with western Europe and less toward Russia. He is seeking membership in the European Union and the North Atlantic Treaty Organization. Russia is opposed to those objectives.

`Political Decision'

Andrei Illarionov, a former Putin adviser who resigned last week to protest what he said was a Kremlin-led clampdown on ``economic freedoms,'' told Ekho Moskvy radio today that the ``political decision'' to punish Ukraine with a steep rise in gas prices was the ``last drop'' in his decision to quit.

``It was proposed to me to participate in the war, not as an observer, commentator, but as a participant, a propagandist who should explain why the decision to increase gas prices and everything that is being done in our bilateral relations should be considered liberal economic policy,'' Illarionov said.


quote.bloomberg.com/apps/news?pid=10000006&sid=a57eYQmj0d6k&refer=home

Yup.  The Soviet Union, er, I mean "Russia", also entered into a contract with Turkmenistan to buy a shitload of natgas from them, just a couple of days ago.  Notice that Turkmenistan is Ukraine's alternate supplier, and moreover, that since Russia exports natgas, there's absolutely no reason for Russia to be buying a shitload of it from Ukraine's second source other than to exert control over Ukraine.  Putin is clearly trying to squeeze Ukraine *hard*.

Never trust a man who's last name reminds one of farts.

Ukraine should shut down the pipelines crossing its territory then.  

No gas for us, none for Western Europe either.  Eat into GAZPROM's profits huge too.

What's Russia going to do, invade?  That'd really raise the ire of Europe.

Not to mention Ukraine has nukes.

When you got em by the balls....squeeze.  

Quoted: Not to mention Ukraine has nukes.

Not any more.  Ukraine voluntarily disarmed.  So did Kazakhstan.

If you meant nuclear power plants, well, they used to have Chernobyl. . . .  But that got completely shut down about five years ago.  Maybe they'll reactivate the three functional reactors again now.

The market will come up with a solution.  As long as there's money to be made, human ingenuity will come up with an alternate energy source.  Price increases are nothing but inflation.  As alternatives become economically feasible, people will just switch to the new source, and everything will be fine.

There's plenty of coal, and the damned liberals in Europe keep the oil companies from drilling.  My cousin used to work in the gas fields of Norway and he said that there's huge gas fields there that aren't being exploited because of teh damned socialists.

There have never been physical shortages of critical commodities anywhere in the world!  The Ukraine has never suffered a lack of any kind of commodity, and never will, because the market always operated freely and justly.

The Black Sea Fleet is home ported in a Ukranian port.  Russia seems to have forgotten that.

I'd seize it.

Quoted: The market will come up with a solution.  As long as there's money to be made, human ingenuity will come up with an alternate energy source.  Price increases are nothing but inflation.  As alternatives become economically feasible, people will just switch to the new source, and everything will be fine. There's plenty of coal, and the damned liberals in Europe keep the oil companies from drilling.  My cousin used to work in the gas fields of Norway and he said that there's huge gas fields there that aren't being exploited because of teh damned socialists. There have never been physical shortages of critical commodities anywhere in the world!  The Ukraine has never suffered a lack of any kind of commodity, and never will, because the market always operated freely and justly.

still, the increased cost of fuel will affect their economy negatively and not the economies of their neighbors.  I'd hardly say the free market will help them here.  artificial pressures negate the free market.

Quoted: Quoted: Not to mention Ukraine has nukes. Not any more.  Ukraine voluntarily disarmed.  So did Kazakhstan. If you meant nuclear power plants, well, they used to have Chernobyl. . . .  But that got completely shut down about five years ago.  Maybe they'll reactivate the three functional reactors again now.

Oops!  Small mistake.

en.wikipedia.org/wiki/List_of_countries_with_nuclear_weapons

Ukraine - signed the Nuclear Non-Proliferation Treaty. Ukraine inherited about 5,000 nuclear weapons when it became independent from the USSR in 1991, making its nuclear arsenal the third-largest in the world. It transferred all of these to Russia by 1996.  However recent news has surfaced that due to a clerical error, Ukraine may still possess several hundred warheads which were not accounted for in the armaments repatriation move 14 years ago. In any case, even if Ukraine does possess these weapons, they are technically missing and not in a deployed state or any part of Ukraine's defense posture.

What's a few hundred nuclear warheads among friends, anyway?

Cutting off energy supplies has led to some interesting conflicts in the past...

Quoted: Ukraine should shut down the pipelines crossing its territory then.   No gas for us, none for Western Europe either.  Eat into GAZPROM's profits huge too.

In the middle of winter?  That would go over great with your entire population.

Quoted: The market will come up with a solution.  As long as there's money to be made, human ingenuity will come up with an alternate energy source.  Price increases are nothing but inflation.  As alternatives become economically feasible, people will just switch to the new source, and everything will be fine. There's plenty of coal, and the damned liberals in Europe keep the oil companies from drilling.  My cousin used to work in the gas fields of Norway and he said that there's huge gas fields there that aren't being exploited because of teh damned socialists. There have never been physical shortages of critical commodities anywhere in the world!  The Ukraine has never suffered a lack of any kind of commodity, and never will, because the market always operated freely and justly.

If you haven't noticed, this is a political battle resulting from the Orange Revolution and Moscow losing the corrupt Russian minority puppet that ran the Ukraine for it.  It's an example of the free market being denied for ulterior, political reasons. Your sarcasm is stupid and illustrates your lack of understanding what  free market advocates argue for.

Guys, it's Bush's fault. He told Putin to what to do, and Cheney is Bush's puppet master, who really answers to Karl Rove!

This will only work as long as the US "peace lobby" and the Democratic Party keep us from invading and destroying the Islamic Republic of Iran.

Its not just Ukraine Putin is trying to squeeze, its all of Europe.

From my understanding of the original article, the Ukraine is paying far below going market prices, and the Russians are expecting them to pony up now.  What's the matter with that?

Quoted: From my understanding of the original article, the Ukraine is paying far below going market prices, and the Russians are expecting them to pony up now.  What's the matter with that?

The back of beyond

There's a roundup of the circumstances surrounding the dismissal of Putin adviser Andrei Illarionov at Pajamas Media. Illarionov was one of the obstacles in the way of Putin's total control of the Russian oil resource which the Russian President wants to use as a lever on the Ukraine and Continental Europe. The principal agency for controlling Russian oil supplies -- and adjusting its influence -- will be Gazprom, which has a surprising new executive on board. According to a Washington Post article dated December 10, 2005, "Former German chancellor Gerhard Schroeder landed a job Friday as board chairman for a Russian-German gas pipeline that he championed while in office, a post that deepens his already close relationship with the Russian government and President Vladimir Putin. ... Alexei Miller, the chief executive of Gazprom, the Russian energy giant that holds a majority stake in the pipeline partnership, said the Schroeder-led board would be involved in 'reaching all strategic decisions on all areas of the company's activity.'"

To wiggle off the Russian hook, Europe is looking to bringing oil through a pipeline from Iran, which Dr. Zin calls the Pipeline to Trouble, "But in hitching its energy star to the Islamic Republic, Ukraine runs the risk of endangering the new diplomatic and economic bonds it has begun to build with Washington in the wake of the Orange Revolution. Iran is steadily emerging as America's cardinal strategic challenge in the post-Saddam Middle East." China, which is becoming more energy dependent by hour is also looking to obtain oil supplies from Central Asia, but wants to keep its lifeline out of the clutches of the Russian Bear. Stratfor says " All told, the Chinese plan aims to connect half a dozen pieces of independent infrastructure -- some Soviet-built, some Chinese-built, others built by yet other entities -- then reverse the flow of some of them and cobble together a new export corridor stretching from Kazakhstan's oil-rich Caspian basin through a series of western- and central-Kazakh oil zones, and ultimately into China proper. For the first time, China will have a source of imported energy not vulnerable to such pesky things as U.S. aircraft carrier battle groups."

Commentary
There was always something odd about calling OIF a "war for oil". Oil from the Middle East has been shipped through established marketing channels for decades. OIF is unlikely to alter those arrangements. Perhaps the real war for oil, in the sense of a struggle for arrangements that do not yet exist is over the reserves in Central Asia. In that struggle Russia has the key advantage of geography. It lies right across the Eurasian landmass and the petroleum roads of the 21st century must pass within or close to her borders. The future oil fields are redoubts of the Islamic fundamentalism and the traditional arena of the Great Game power rivalry between Russia, China and the leading maritime power, once Britain, now the United States.


posted by wretchard at 5:06 AM | 130 comments  

Quoted: Never trust a man who's last name reminds one of farts.

Never trust a man who used to be a KGB agent.  One of Putin's top officials just quit because he sees the government going back to totalitarianism.

Quoted: Quoted: Ukraine should shut down the pipelines crossing its territory then.   No gas for us, none for Western Europe either.  Eat into GAZPROM's profits huge too. In the middle of winter?  That would go over great with your entire population.

Those pipelines should spring leaks and Ukraine should naturally collect any leaked product. It's only to protect the environment of course.

Quoted: Quoted: Quoted: Ukraine should shut down the pipelines crossing its territory then.   No gas for us, none for Western Europe either.  Eat into GAZPROM's profits huge too. In the middle of winter?  That would go over great with your entire population. Those pipelines should spring leaks and Ukraine should naturally collect any leaked product. It's only to protect the environment of course.

How bout we just get rid of the murderers who are currently running Iran, and thereby remove the whole set of circumstances that gives Putin this kind of power to begin with?

Quoted: How bout we just get rid of the murderers who are currently running Iran, and thereby remove the whole set of circumstances that gives Putin this kind of power to begin with?

How about we just invade Canada and give all of their oil to Ukraine??  Makes about as much sense as blaming Iran for Vladimir Putin's dictatorial tendencies. . . .

Quoted: Quoted: How bout we just get rid of the murderers who are currently running Iran, and thereby remove the whole set of circumstances that gives Putin this kind of power to begin with? How about we just invade Canada and give all of their oil to Ukraine??  Makes about as much sense as blaming Iran for Vladimir Putin's dictatorial tendencies. . . .

It's not a matter of blaming Iran for anything in Eastern Europe.. It's a matter of cleaning up two messes at once