The touted sentiment in the talks about Ukraine is that countries need to stand by Ukraine and help her survive the current onslaught by Russia. That could be right. But there is the gas perspective.
Russia supplies about more than 25 percent of Europe’s natural gas; some 60 percent of Ukraine’s consumed gas comes from Russia and Ukraine is also struggling to with debts and owes Russia’s Gazprom about $2 billion arrears and the debt is growing daily. Gas supplies from Russia help keep former Soviet states on its apron strings. For instance, in September 2013, Dmitry Rogozin, Russia’s Deputy Prime Minister threatened to cut off Moldova’s gas supply during the winter if the country continued on its pro-EU economic course.
Obama, G7 throw their weight behind Ukraine
President Barack Obama has thrown Washington’s weight firmly behind Ukraine in its stand-off with Moscow. Obama welcomed Arseniy Yatsenyuk, Ukraine’s interim premier to the White House and appeared by his side as both leaders sternly warned Russia that Ukraine would not surrender its sovereignty. He repeated that Moscow would face unspecified “costs” if Russian President Vladimir
Putin does not back down, and rejected a bid to hold what he called a “slapdash” referendum in Crimea.
The G7 industrialized nations urged Russia “to cease all efforts to change the status of Crimea contrary to Ukrainian law and in violation of international law.” In a joint statement, G7 said that “the annexation of Crimea could have grave implications for the legal order that protects the unity and sovereignty of all states.” European leaders will meet at a March 20 to 21 summit to witness the signing of what German Chancellor Angela Merkel said would be an historic EU-Ukraine association agreement.
Double-edged sword
Russia supplies about one-third of Europe’s natural gas and more than half of that gas travels through Ukraine as key pipelines pass through Ukraine to Slovakia, and then on to Germany, Italy and Austria.
Twice over the last decade, in 2006 and again in 2009, Russia switched off the Ukrainian pipes amid pricing disputes between Kyiv and Moscow. The result was gas shortages in several European countries creating a humanitarian emergency in parts of the Balkans and economic problems in countries such as Hungary and Slovakia. Since then, Europe is working to wean itself off Russian supplies by developing alternative sources such as shale gas. The current fiasco might help to speed up that process. For instance, Halliburton will soon start fracking in Poland and Royal Dutch Shell will start hunting for natural gas in Ukraine by 2015. Germany has also found alternative energy sources in Norway and Algeria.
Russia needs European energy demands. It is making roughly $100 million a day from hydrocarbons and oil and gas trade accounts for half of Russia’s annual export revenue and more than half of Russia’s federal budget. Gazprom is a huge cash cow for the Russia as it exports gas worth about $66 billion a year, roughly 13% of total Russian exports of $515 billion. They also account for 5% of tax revenues.
United States has argued that Russia’s dependence on gas revenues makes it unlikely that the country will cut off supplies to Europe. Thus, there is this notion that Russia has more to lose than Europe at the moment
US gas to the rescue?
United States does not export natural gas yet. But there are growing calls for US to loosen the export restrictions especially with the hope that if Washington puts more gas on the market, it can cut Russia down to size. Already, four Central European nations are urging the United States to boost natural gas exports to Europe as a hedge against the possibility that Russia could cut off its supply of gas to Ukraine. Ambassadors from Hungary, Poland, Slovakia and the Czech Republic made their appeal in a letter to House Speaker John Boehner. A similar letter was expected to be sent to Senate Majority Leader Harry Reid. The letter from the four nations is asking American congress to support speedier approval of natural gas exports. The ambassadors say the unrest in Ukraine has revived Cold War memories, and energy security threatens the region’s residents daily.
US gas can’t fix Ukraine right now
To export gas across continent, it requires turning it into a liquid which entails chilling it to minus-260°F. The gigantic machinery and cooling towers required for liquefying the fuel costs billions of dollars, and each plant takes several years to build. Though some United States’ companies have gotten permits to build new terminals, but these massive projects are time-consuming to construct. The dwindling amounts of US LNG that leave the country right now are shipped to Japan from an aging plant in Alaska.
The first major LNG export plant may not start shipping gas from Louisiana until late 2015.
And then, Russian gas is much cheaper for Europe. It costs Russian LNG terminals just 40 cents per million British thermal units for the gas they turn into liquid while in US; it is about $4 or more. Thus the economics of it is simple; American companies might find themselves at a disadvantage hawking LNG in Europe.
FRANK UZUEGBUNAM
