EU-Ukraine-Russian Gas Crisis in Retrospective: It's Just the Beginning

[reprehensor]

by Nafeez Mossadeq Ahmed - Friday, February 06, 2009

Last month, a price dispute between Russia and Ukraine triggered the shutting of the transit route through which Europe receives about a fifth of all its natural gas. The gas crisis was largely interpreted as resulting from a breakdown in negotiations between Russia and Ukraine over how much the latter would pay for its own gas supplies, as well as questions about who would provide the technical gas to operate Ukraininian compressor stations.

Yet under the surface of the unprecedented dispute is a looming energy crisis. Russia produces about 22 percent of world gas supply, and is believed to hold 30 percent of the world’s remaining gas reserves. In a prescient analysis in late 2008, Dr. Pierre Noel, Acting Director of the Electricity Policy Forum at the University of Cambridge, warned that: “Over the next 15-20 years, Gazprom faces serious supply challenges, and the international gas market is likely to experience considerable tightening.” He noted that the coming decades could see Europe facing “a gas supply crunch, leading to stagnant or even declining consumption.” Although the Russian Gazprom controls “the world’s largest gas reserves, Gazprom will find it difficult to maintain its current supply levels.” Noel reports that production from the “super-giant” west Siberian gas fields, accounting for most of Gazprom’s production, “is now in steep decline.” Maintaining production depends on the development of new fields on the Yamal Peninsula in northwest Siberia, which are set to come online in 2010. Yet most of the European gas industry argue “this is highly unlikely”, putting 2015 as a more realistic date. But the problem goes deeper than this:

“In fact, Gazprom’s production is already insufficient to meet all the company’s commitments. It depends on two other sources of gas – ‘independent’ Russian producers and imports from Central Asia, especially Turkmenistan – to make up the shortfall. This ‘bridge’ is supposed to supply Gazprom’s needs until the Yamal fields come online. But there is uncertainty over whether Gazprom will be able to source sufficient volumes from Turkmenistan, while independent Russian producers have little incentive to increase their production in the absence of access to Gazprom’s transmission network, which would enable them to reach consumers directly. Moreover, domestic gas consumption in Russia is growing, driven by economic expansion and a gas-intensive electricity mix. So there is at least a risk that Gazprom’s ‘bridge’ to Yamal could collapse. Industry assessments vary from a tight but manageable supply situation to an impending crisis.”

This background places in sharp focus the EU-Ukraine-Russia gas crisis. Indeed, just before the gas crisis Ukraine had signed a strategic accord with the US in December 2008, calling for the establishment of a US diplomatic post in Crimea where Russia’s Black Sea Fleet is based, as well as for “enhanced cooperation” in defence, security, trade and "energy security." ...

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http://nafeez.blogspot.com/2009/02/eu-ukraine-russian-gas-crisis-in.html