Monday, January 02, 2006

Energy Wars - The Russian Natural Gas Crisis

Carrying through on their threat, Russia cut off natural gas supplies to the Ukraine, after price negotiations fell through. Russia's energy giant, Gazprom wants a quadrupling of prices, which Ukraine has thus far refused.

This has meant a great deal of uncertainty in Europe, since Ukraine is a key conduit to the West, and brought back memories of a dozen war games gone bad in the now halycon days of the Cold War. Russia has also accused Ukraine of diverting gas meant for other countries in Europe, further fueling the crisis.

Several European countries have reported problems and looming shortages in the low days of winter. Hungary, Slovakia and Norway are all facing a crunch. President Viktor Yushchenko flatly contradicted Moscow's claim that gas from the Central Asian republic was no longer reaching his country via Russian pipelines.

The Ukraine's other key gas supplier is Turkmenistan. Most countries like Germany and the UK are not taking sides in the gas war, possibly due to fears of retaliation. Germany imports 35 per cent of its total natural gas from Russia.

The cut-off of Russian gas to Ukraine was not an overnight decision. Russia's state-owned Gazprom wants Ukraine to immediately start paying normal market prices for natural gas. Critics of the Kremlin relate this fracas to the Orange Revolution of 2004, which aspired to take Ukraine out of the sphere of Russian/Putin influence. Ukraine is heavily dependent on Russian energy supplies, and it's GDP has fallen signficantly since 1991. There has been significant economic growth in the 21st century, primarily due to steel exports to China. Ukraine de-nuclearized post the Soviet Union, the only country, apart from South Africa to have done so.

Natural Gas is the next battlefield in the global energy war. The biggest natural gas field is located in Urengoy, Russia, with a reserve of 170 TCF, In comparison, the next largest gas field is probably the Slochteren in the Netherlands, with 66 TCF. The rise in oil prices has made natural gas seem attractive, but it remains to be seen which is the lesser of the two evils.

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