The end of Putin’s gas bluff

putlergas Putin

 

2015/06/29 • Analysis & Opinion

Article by: Vitaliy Portnikov

For several consecutive months Gazprom functionaries have been trying to convince Ukraine and the world that gas transit through Ukrainian territory was a closed issue. The decision  to build the “Turkish Stream” had been personally approved by Vladimir Putin, thus demonstrating the seriousness of Russian intentions.

Gazprom therefore advised Europeans to consider building gas pipelines from the borders of Turkey — since European clients supposedly would have no other alternatives for obtaining Russian gas. And when the representatives of the European Commission tried to point out to the Russians that current contracts did not provide for such insolence, Moscow began to openly mock the critics who refused to understand that the Ukrainian train had left forever. The reluctance of European countries to extend the mythical gas pipeline from Turkey was explained by political pressure on Russia. The argument was that these countries wanted to keep Russia dependent on Ukraine, contrary to common sense.

Now, after all these self-assured statements, President Vladimir Putin has instructed the Gazprom head Alexey Miller to hold talks with Ukraine on continuing the transit of Russian gas through Ukrainian territory after 2019. Miller, of course, is trying to pretend that Gazprom retains its tough position and would never agree to unfavorable conditions. But one should remember that as recently as several days ago no one in Gazprom wanted to hear anything at all about any conditions for the negotiations. There would no transit (through Ukraine) and that was it!

What happened? Nothing special. That is precisely the crux of the matter. All the declarations claiming that Gazprom can dispense with Ukrainian transit have been no more than bluffs. And the issue is not even the ability of the Russians to supply gas while ignoring Ukrainian pipelines, but in the fact that there is no need to ignore them. The desire to shut down the Ukrainian  transit was politics. Because from the economic point of view it is not clear why billions of dollars need to be wasted on constructing routes that duplicate the existing ones. Especially since it is impossible to fill the new pipelines completely with crude oil anyway.

As a result of dropping oil prices, the European energy policy, and competition, times are not easy now at Gazprom. The Russian budget also leaves little room for throwing billions into a bottomless pit. In this situation Putin can only look reality in the eye and shed a tear. The gas bluff is coming to an end.

Translated by: Anna Mostovych
Source: Radio Liberty

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  • Rods

    Russia is going to have to get used to being just another supplier in the gas market as the US and other global LPG facilities become available and countries like the UK start tapping into their vast onshore gas reserves.

    They are not only going to have to compete on price and cost of supply but also shed all of their political baggage as well or their current customers will use other suppliers.

    This is without even thinking about the post-carbon energy age we are gradually moving into and our ever increasing energy efficiency. Many countries have every tightening energy efficiency building regulations where we are moving towards having zero net energy building efficiency.

    • Dagwood Bumstead

      Lithuania opened an LNG terminal in December 2014 and forced Gazprom to cut its price considerably. This alone paid for the terminal. Poland is completing a terminal near Stettin and this will be in operation before the end of the year. Guess what- the gas these terminals handle/will be handling isn’t/won’t be Russian gas. This means less $$$ for the dwarf’s private account, and less for the war chest. The Lithuanin terminal currently handles about 25% of Lithuania’s total consumption, but it potentially can handle about 90% of the consumption of all three Baltics- meaning even less $$$ for the dwarf.
      The Baltics are small customers, but losing themeven partially will definitely hurt. If nothing else, the dwarf is a master at alienating customers.
      The dwarf wants to lay a new pipeline parallel to Nordstream, but it will only cost a lot of cash- which is in short supply- for no commercial benefit. Its only benefit would be political, which is the only reason for Nordstream in the first place.
      The UK’s North Sea gas production is falling, but there are potential new fields in the British sector of the North Atlantic continental shelf and north of the Shetlands. The current gas price may make it uneconomical to exploit them at present, though.

  • puttypants

    Ukraine needs to stop playing these games with Russia. They need to look at more alternative as much as possible and conservation.

    • Dagwood Bumstead

      They should have started that 10 years ago when Yushchenko became president, but his 5 years in office were wasted. Yanukovich at least did show some intelligence in this matter by signing agreements with Chevron and Shell to explore the possibilities of the country’s shale gas deposits, though in the end nothing came of this.
      Ukrainian energy efficiency is dreadful, but improving it to the level of that of Poland would almost totally eliminate the need for the dwarf’s gas.

  • Murf

    It’s amazing how much things can change.
    Gazprom tried to make Ukraine pay $485.
    Now they are happy to get $236.
    The Ukrainian people should be thanking someone.

    • Dagwood Bumstead

      They should thank the US for the shale oil and gas revolution, which sharply reduced US demand for foreign LNG and oil. Result: increased supply on the world market with little increase in demand and thus lower prices.
      It may get worse for the dwarf if the negotiations re the Iranian nuclear programme are successful. This would mean lifting of sanctions against Iran,meaning it can legally export oil. Result: more oil and gas on the world market and yet another drop in prices. Iran’s economy is in a shambles because of the sanctions and it will sell every barrel of oil and every cubic metre of gas it can to get cash.
      It would seem that it will be a buyer’s market for quite some time, something the dwarf won’t like at all. He will have to forget about making his ambitions come true for the foreseeable future.

      • Murf

        Not even Russia is cutting production.
        All the US has to do is say they thinking bout allowing exports of raw crude and the price will drop further.

        • Dagwood Bumstead

          The problem is that many of the oil producers need cash desperately, not only Russia. Venezuela is a prime example; Chavez spent huge amounts of money on welfare programmes which his successor Maduro has to maintain to stay in power. For that he needs oil prices of around $130 per barrel, but that level won’t be reached soon, if at all. So the only alternative is to increase proudction in an already saturated market. Nigeria is another, here much of the income from oil disappears due to widespread corruption. Iran also needs cash badly.

          Saudi Arabia can live with current prices and in the past usually cut production to keep prices high, but it won’t this time as it doesn’t want to lose market share.
          So Putin can’t cut production because he would immediately lose market share to others who can’t or won’t cut production- and lose income, both the state’s and his own and his cronies’.

          • Murf

            You gotta love a buyers market. If you are a buyer that is.

  • Vol Ya

    Europe and Ukraine simply must stop all purchases of
    russian oil and gas now. There are plenty of alternate sources of natural gas. It is insane to be sending hard currency to their enemy. Let the russians drown in their natural gas and worthless rubles.

  • Michel Cloarec

    Another tactic without strategy from the ” leader of the world economy” the chinese will laugh at him mr Gazprom , your gas is leaking !