Gas crisis unfolding quickly

Events in the Russia–Ukraine gas crisis are unfolding quicker than I anticipated. A major reason why gas pressures in European countries [fed by pipelines passing through Ukraine] dropped so precipitously today is that, apparently, no Turkmen gas was pumped from Turkmenistan to Ukraine by Russia. Gazprom have acknowledged that they ‘delivered short’ today, and hurriedly promised to deliver more gas, probably because of some serious behind-the-scenes arm-twisting by Germany and other European countries.

Approximately 36 Bcm [billion cubic meters] of Ukraine’s annual gas consumption is from Turkmenistan, 20Bcm is from domestic gas fields, and 23Bcm is from Russia, much in lieu of cash transit payment. Ukraine exports about 5Bcm.

Worryingly for Ukrainians, a Gazprom spokesman announced yesterday that that all 15 Bcm of gas to be exported from Turkmenistan in the first quarter of 2006 belong to Gazprom. [Details at http://www.rferl.org/featuresarticle/2006/1/FA73C033-A756-4E69-B9C1-350D35F9A531.html ]

A few days earlier Gazprom said that it purchased a big chunk of the total Turkmen gas production for 2006, increasing its imports fourfold from that country, perhaps to make up a shortfall in its own projected production targets. This, together with limited pipeline capacity from Turkmenistan westward, could spell big trouble for Ukraine and deepen the gas crisis even further.

The Ukrainian Ministry of Foreign Affairs has released an uncompromisingly worded statement [which can be read in English at http://www.mfa.gov.ua/mfa/en/publication/content/4977.htm ] putting its side of the disagreement. It accuses Russia of “aiming to exert economic pressure, blackmail, and, ultimately, destabilize the Ukrainian economy and disrupt Russia’s gas supplies to consumers in EU countries”.

The Ukrainian Cabinet has today appointed Ukrainian Parliamentary speaker Volodymyr Lytvyn as a Deputy Chairman of Ukrainian State oil and gas company Naftogaz Ukrainy. Lytvyn was also Parliamentary speaker under former President Kuchma, and the former head of the Kuchma’s Presidential Administration. He is a seasoned ‘fixer’ who is well acquainted with Putin and his Kremlin staff, as well as President Niyazov of Turkmenistan.

For a good insight into the mind of Putin and those pulling the Gazprom strings check out an interview with Andrei Illarionov, the Russian President’s key economic adviser who resigned this week. It's in the current “Time” magazine at http://www.time.com/time/world/printout/0,8816,1145192,00.html He says, “Russia has made it plain it wants Ukraine's gas transporting system. Then, Gazprom says, the prices will go down. This is the same usage of an energy weapon, as OPEC did in November 1973, when they placed the U.S. and Holland under oil embargo for siding with Israel. Prices skyrocketed; Saudi Arabia enjoyed a couple of years of fat profits. Then, the U.S. and other Western countries improved their economies, and adjusted to new prices, while per capita income in Saudi Arabia has sharply dropped since. A country that is prepared to wield energy weapons must know that it is going to lose in the long run. History gives an unequivocal answer to where Russia will slide, should it embark on this road”.