Tuesday, May 02, 2006

Gazprom Hints at Face-Off With Belarus

Associated Press Business News: Gazprom Hints at Face-Off With Belarus

Surely was good of Gazprom to wait until immediately after Lukashenko was elected to press Belarus for a price increase. It couldn't have been political, could it?

Now that Lukashenko will remain in power for 5-years and the smoke has settled from the Belarus elections, we now see the kid gloves coming off.
An official at Russia's state-controlled gas monopoly hinted that a New Year face-off over gas prices with Ukraine, which led to a temporary supply drop to Europe, could be repeated if neighboring Belarus does not agree this year to a threefold price hike.

Pro-Moscow Belarus is the only ex-Soviet republic relying on Russian gas that did not get a gas price hike from Moscow last year. It now pays the rock-bottom price of roughly US$47 (euro38) per 1,000 cubic meters.

Gazprom is asking for a minimum hike to US$145 (euro116) per thousand cubic meters of natural gas for 2007, said Sergei Kuprianov, OAO Gazprom's top spokesman.

"I wouldn't want to celebrate the New Year in a car or in the office," Kuprianov said on the Ekho Moskvy radio station, referring to the spat with Ukraine that escalated through December and ended with supplies being cut to Ukraine on Jan. 1.

"The reason we are starting the talks now (with Belarus) is so that we can complete them in good time," Kuprianov said.
Gazprom negotiation = Pay. Now. Or else.

And again, for those who feel "the West" makes a big deal out of these price increases, it isn't the question of the increases. Russia™ - that is Gazprom - is asking for market prices. Rather, it is the methods and timing that smacks of brute force and political manipulation. It isn't even a subtle sort of thing that leads to conspiracy theories months and years later - it is rather flagrant.

16 comments:

Lyndon said...

So flagrant it's a little refreshing, in a way - after all, how many big-money enterprises in today's Russia are as transparent as Gazprom/the gov't's jerking around of its neighbors?

The silver lining here is that energy costs will go up and these countries will finally have to modernize some of the industries (e.g., Ukrainian steel) which had been enjoying ridiculous and inefficiency-generating subsidies since the breakup. Plus, every time Russia raises the gas price, it gives away that much more of its leverage over these countries - except to the extent (and a frightening extent it is) that Russia has leverage over all of Europe as the gas supplier-in-chief.

It is screwed-up, and the regular people suffer, which is the horrible part, but at the end of the day it's at least a tiny step towards Russia's normalization of its relationship with Belarus, Moldova, and Ukraine - though of course the politicized timing of it is really breathtakingly brazen. Hopefully it will turn some of the Russian-oriented elites in these countries (and they exist in all three countries in differing amounts) away from the former imperial power once they realize that Russia doesn't necessarily have their interests at heart.

The Moldovan (and Georgian, presumably) wine war is going to have a similar effect - Moldovan vintners are going to have to look for other markets, and they may even discover that markets to the West are more profitable than the Russian market they've been selling to out of inertia (or because of kickbacks) all these years.

W. Shedd said...

Yes, I understand your point about it being refreshing in a sense. However, it plays a bit like a fart at a tea party. Russia/Gazprom says they are unfairly singled out, because everyone farts, which is true. In polite society though, people try to sneak their farts.

Coarse analogy and perhaps an exaggeration - but I think it is the issue.

And yes, I think there can be a positive outcome as long as those nations served by Gazprom take alternative steps. OPEC caused similar measures in the US in the 1970s (although they never had to shut off the oil in order to achieve that).

I've been surprised that Moldovan and Georgian wines haven't been imported and marketed more in the US even before this.

I also thought this business from Putin about other countries attitude towards the Russian language was a bit brazen. I tried to imagine similar words coming out of Bush's mouth while in Costa Rica, for example. It is not an exact parallel, but it does seem to me that these nations have a right to speak their native tongues, now that they are sovereign nations. I know that ethnic Russians in Kyrgyzstan, for example - feel that Kyrgyze tongue requirement for certain jobs is designed to exclude them. But to me, it seems they are attempting to impose their language onto another nation.

andrei said...

To put it plain and clear - Gazprom must shut up, deliver natural gas on prices and conditions EU (and Ukraine) state. Forget about profits and shareholders well being. And as a reward American and European noble public will pretend as if they don't notice Gazprom's farting. You see Bush meets Aliev the Azeribashi and doesn't even notice that the guy stinks.

W. Shedd said...

I wouldn't say Gazprom should "shut up" and do what the EU tells them.

But not threatening your customers might be hospitable.

What Gazprom and Russia are calling "energy security" the rest of the world calls "blackmail".

I would equate Gazprom's words with a mafia thug that comes to your little store and suggests that you pay them for "security".

'It would be wise for you to do so, my friend, what would you do if someone broke your windows, or you were mugged outside your store, or heaven forbid - your store might catch on fire.'

This style of big business has become popular in Russia, but in the West we do tend to frown upon threats as a part of doing big business. The threat and risk in business deals is always there, but you don't come out and make your threat so plain. It takes the corporate board-room into thuggery. You might feel this is a fine distinction to make, and I can understand your point, but I can only tell you that the distinction exists and Gazprom and Russia have touched off real concerns in the EU for their brazen flaunting of such threats.

Hiring PR consultants will do very little to put a shine on such a turd. The Russian government seems to have this mistaken idea that it is all misperception and better communication of their ideas will improve their image. But I think Gazprom and the Russian government are perceived clearly.

andrei said...

The Golden Billion and the rest of the world is not the same. Don't forget about it. It would take 10 times more resources then the earth can produce if the rest of the world would have the same level of life as the US.
Stop driving SUV's and this will solve the problem.

W. Shedd said...

SUV's don't run on natural gas. Gazprom sells natural gas, remember? There are enough Hummers in Moscow for you to know this.

Natural gas is used for electricity and to heat homes and businesses. This is required in the winter. January 1st is in the middle of winter. Putin announces Gazprom will shut off gas to Ukraine in the middle of winter. For comparision's sake, even in the raging capitalistic US, it is against the law for utilities to shut off the power or heat for months of unpaid bills in the winter.

And yes, the rest of the world calls this blackmail. China would call it blackmail. India would call it blackmail. And all of Europe (the people who buy Gazprom gas) are calling it an attempt to extort as well.

Your comment about energy consumption in the US is non sequitur. No doubt, the US uses a great deal of energy. I would gladly have seen the trillions of dollars being spent in Iraq spent in the US for alternative energy sources and promotion of alternative technologies, but that didn't happen and isn't being discussed here at this time. The US is also the worlds largest and most productive economy. That requires energy. However, the US doesn't buy from Gazprom and are unlikely to buy significant quantities from Gazprom in the future.

To summarize: Natural Gas. Russia. Gazprom. Europe. Heat. Electricity. Not used in SUVs. Blackmail.

andrei said...

China pays on average 280 USD per 1000 cm. India 310. Iran sells gas MINIMUN 210 USD. If Russia sells gas to China, let's say. for 190 USD China would never call it blackmail. China will be happy. Ukraine today pays 95 USD and is hysterical about evil Russia. Lithuania will pay 130 USD and again goes hysterical. Germany pays 240 USD and is HAPPY. Because Norway sells gas for 650 USD and Britain selss it at 400.
How much eo you personally pay for gas?

W. Shedd said...

My understanding is that Ukraine buys natural gas from Gazprom at $230 per 1,000 cu m since January of this year. This is per a May 1, 2006 RIA Novosti article. Gas price in Ukraine had been $50 per 1,000 cu m before the first of the year.

But again, blackmail isn't crying about the price. The blackmail aspect of it is the shutting off of gas completely. You seem to ignore that aspect of it and come back to price. Nobody debates contracted market prices and Russia's right to charge what the market will support. It is the threats and methodology of enforcing prices that constitutes blackmail. Currently, Russia's idea of "energy security" sounds very much like blackmail - contract with us long-term while gas prices are at a record-high price ... or else something very bad might happen to you, my European friend.

I don't buy natural gas directly, couldn't tell you what the market price is in the US in dollars per cu m. You can examine what natural gas is trading at however.

http://www.bloomberg.com/energy/

Anonymous said...

Mr. Shedd,

It would benefit for you to know the fact that gas price negotiations between GazProm and Naftogaz
Ukrainian state gas monopoly) were dragging on from the summer of 2005 and with the break in August continued until February 2006.
More than enough leeway, methinks.

In addition Ukrainian side was red-handedly caught stealing gas from the pipe by an independent international audit firm.

So, please save us all your falsehoods.

Igor

W. Shedd said...

What exactly was your point, Igor? And what falsehoods are you citing? That because Ukraine and Gazprom had been negotiating, it was ok for Putin to make a dramatic New Years political statement, and shut off the gas? Or are you suggesting that little stunt didn't really happen? I was in Russian for New Year's and watched the staged television event myself - it was obviously designed to make Russian's giggle and smile at getting some "revenge" (for perceived slights) upon Ukraine.

As for "stealing" gas - you had better define your terms and cite your "independent" audit reports. If they were paid by Russian firms, of course they are not "independent" ... I hope you are not so naive to believe otherwise. Ukraine was certainly reselling gas as a commodity - but how can you steal something when only as much product is put into pipe, as is to be sold on the other end? Further, I believe Russia's gas and petroleum infrastructure is so antiquated, as to make it nearly impossible to determine how and why product losts are occuring ... making a real audit like counting liters of water that you bail with a seive.

Gazprom is a company controlled by the Russian state, formed by the seizure of Yukos assests, which were package and resold/controlled by agencies under the thumb of the Russian government. Gazprom has since been used as a political and economic weapon by the Russian government - there is no disputing those facts. Putin's smiling New Year's surprise (and it was a surprise, no matter what you say about prior "negotiations") was pure blackmailing energy politics. You really didn't say anything that counters that in anyway.

Lastly, we are discussing how Russian and Gazprom miscalculations are being perceived in Europe - surely you aren't going to also start telling Europeans what they are thinking when they watch such antics?

So, spare me your biased Putin ball-washing. He and Gazprom have definitely misplayed their hand thus far in regards to the EU and Russian gas. He also acts as much from misplaced Russian pride as from a well-reasoned strategy.

Anonymous said...

>What exactly was your point, Igor? And what falsehoods are you >citing?

The point was to expose your analogies for what they are - half truths at best.

>That because Ukraine and Gazprom had been negotiating, it was ok for >Putin to
>make a dramatic New Years political statement, and shut off the gas? >Or are you suggesting that little stunt didn't really happen? I was >in Russian for New Year's and watched the staged television event >myself - it was obviously designed to make Russian's giggle and smile >at getting some >"revenge" (for perceived slights) upon Ukraine.

Ukrainians were warned and given plenty of time to negotiate.
Instead of doing it in a good faith, they stalled, lied and then resorted to common thievery.
It would be ridiculously to expect Russia to subsidize Ukraine even under the condition of good relations let alone
while she's talking about joining NATO. Let NATO help her out with the bills.
After all if you want to sleep with a girl you can't insist that your ex should keep supporting her, eh?


>As for "stealing" gas - you had better define your terms and cite >your "independent" audit reports.
>If they were paid by Russian firms, of course they are not >"independent" ...
>I hope you are not so naive to believe otherwise.

Does it mean that all audit firms in the west are just covering their client cooking the books?
Give me a break, I expected at least an intellectual honesty here...
The audit firm was from Switzerland, they showed on live TV that the one quantity of gas was at the entry to Ukraine, but another at the exit. Btw, Ukrainian side acknowledged it later.


>Ukraine was certainly reselling gas as a commodity - but how can you >steal something when only
> as much product is put into pipe, as is to be sold on the other end? >Further, I believe Russia's gas and petroleum
>infrastructure is so antiquated, as to make it nearly impossible to >determine how and why product losts are occuring ...
>making a real audit like counting liters of water that you bail with >a seive.

I am sorry, this is so absurdly pathetic I am not going to comment...


>Gazprom is a company controlled by the Russian state, ....

This is irrelevant to the discussion at hand
But I personally don't see what's wrong with a state taking back a PART of what was stolen from it. The fact that welfare of these people who stole it is a major concern of a "democratic West" speaks volumes.


>Lastly, we are discussing how Russian and Gazprom miscalculations are >being perceived in Europe - surely you aren't
>going to also start telling Europeans what they are thinking when >they watch such antics?

Europe actually has a choice in gas sources: Russia, Algiers or Iran.
Wait, Iran is probably out, ops.
Anyways, the problem wasn't Gazprom (it's not like it was extorting Europeans) it was Ukraine that showed itself as a totally unreliable transit country. That's why Germany is sticking with a new pipeline - they don't want to be left at the mercy of the transit thieves.



>So, spare me your biased Putin ball-washing.

Bias is a prejudice in a general or specific sense, usually in the sense for having a preference to one particular point of view or ideological perspective.
I will let the public decide who has a prejudice here...


>He and Gazprom have definitely misplayed their hand thus far in >regards to the EU and Russian gas.

While PR-wise it wasn't ideal, it's the deeds that count at the end...
Money talks, BS walks...

>He also acts as much from misplaced Russian pride as from a >well-reasoned strategy.

He acts out of self-interest, actually. I know you got used to Yeltsin days, but all the good things come to an end...

Regards,
Igor

Anonymous said...

Another thing that I find beyond hilarious:
Russia subsidizing Ukraine was bad, since it allowed the influence and Russia cutting Ukraine off is bad too.
You can't win these days ;)

And please who is a naive person here saying that countries don't use trade to get influence?
Surely not me.
Russia's fault that it's becoming a rather quick learner in the world of democratic capitalism
and the teacher (US/EU) is concerned - lol!

W. Shedd said...

Using trade to get influence is a completely different and more subtle thing - than blatant threats. Apparently this point was completely lost on you.

And yes, audits paid for by a company are not independent. This is true of almost all research - sponsors expect results that suit them. You throw around naive rather loosely, yet you expect Gazprom to write a check for something that doesn't suit them?

As for Russia's gas infrastructure condition - I only cited well known facts. One of the reasons Russia is pressuring for cash now, is for much needed improvements in pipeline, refinery, and wellhead infrastructure. There alternatives are 1) foreign investment (which doesn't entirely suit Russian goals) and 2) cash for gas futures. "Energy security" with the EU is essentially gas futures at a fixed price.

Putin's little New Years display wasn't from wounded pride? Spare me ... his little smile as he stuck it to Ukraine was all too evident and all too personal. Are you the only Russian who wasn't giggling at screwing Ukraine that day? It was a short-sighted strategy - cutting off the nose to spite the face.

As for your business that Ukraine had plenty of warning - you'll have to dig up the warnings from the Russian gover.. oops Gazprom ... to Ukraine, that the gas will be cut off on New Years Day.

What? You mean there weren't any? So what is this nonsense about plenty of time for warning and negotiations?

As for your statements that Ukraine has shown itself to be an unreliable transit country, blah blah blah - Such nonsense! What Ukraine has shown is that it is not a dog on a leash! The reason for the Baltic Pipeline has little to do with Ukraine, and more to do with Poland (another dog off the Russian leash). With the Baltic Pipeline, Gazprom/Russia could cut off gas supplies to Poland independent of Western Europe. Perhaps you need lessons in geography as well as politics and economics.

As for Gazprom extorting Europeans - the entire point of the discussion (which you seem to be deliberately missing) is the actions of yesterday (Ukraine's New Year Surprise, trade sanctions with Moldova, Georgia) are indications of possible future behaviors (Gas blackmail in winter against Europe) and keys to understanding Putin's "energy security" schemes. You are trying to muddy the waters and obscure the discussion, but Russia/Gazprom/Putin's aggressive use of energy as a political weapon is the topic. The fact that you find it normal says quite alot about the mafioso-style big business tactics that have become the norm within Russia. That has nothing to do with being a "quick learner" - Russian's still appear blind to how these actions are viewed outside their own nation and shocked by responses from the rest of the world.

Anonymous said...

>Using trade to get influence is a completely different and more subtle thing - than blatant threats. Apparently this point was completely lost on you.

we must be living in the different worlds, because Cuba is still under embargo and there are multitude of other examples

look up the meaning of the 'H' word (hypocrisy)


>And yes, audits paid for by a company are not independent. This is true of almost all research - sponsors expect results that suit them.
>You throw around naive rather loosely, yet you expect Gazprom to write a check for something that doesn't suit them?

This is just laughable. So you don't trust ANY audits? Do you check your own gas meter as well, just in case the local gas company doesn't fleece you?


>Putin's little New Years display wasn't from wounded pride? Spare me ... his little smile as he stuck it to Ukraine was all too evident and all too personal. Are you the only
>Russian who wasn't giggling at screwing Ukraine that day? It was a short-sighted strategy - cutting off the nose to spite the face.

the fact that GazProm followed through on it's warning did please a lot of folks (and Putin himself) - so what?
You seem to incapable to follow the simple logic: the goods have to be paid for.


>As for your business that Ukraine had plenty of warning - you'll have to dig up the warnings from the Russian gover.. oops Gazprom ... to Ukraine,
>that the gas will be cut off on New Years Day.
>What? You mean there weren't any? So what is this nonsense about plenty of time for warning and negotiations?

OMG, you are saying Ukrainians weren't warned of Jan 1 deadline? If so there is nothing to talk about - I do not argue with religious folks....


>As for your statements that Ukraine has shown itself to be an unreliable transit country, blah blah blah - Such nonsense! What Ukraine has shown is that it is not a dog on a leash!
>The reason for the Baltic Pipeline has little to do with Ukraine, and more to do with Poland (another dog off the Russian leash). With the Baltic Pipeline,
>Gazprom/Russia could cut off gas supplies to Poland independent of Western Europe. Perhaps you need lessons in geography as well as politics and economics.

Ukraine showed that it willingly steals the gas which transits through it's territory.
I repeat that's why Germany (despite Poland's and Baltics hysterics) is working on the pipleine with Russia.
I see you have nothing to say about it.
Ideally every customer should have it's own delivery system so in case of non-payment it could be cut of without disturbing the paying one.
A very simple idea.

Oh, and I am supposed to be sorry that Russia has found a leverage in the form of energy in this very democartic world were countries are "liberated"
and threatened left and right by the messianic maniac. Where joining trade organization (WTO) conditioned upon the political demands. And etc, etc.
Spare me your guile.

W. Shedd said...

Cuba is under an American trade embargo for pointing nuclear weapons at the US, from just a few miles from our borders. I wasn't aware that Georgia, Moldova, Ukraine, Poland, Lithuania, Latvia, and Estonia had done the same. Last time I checked, they had merely disagreed with Russia.

Don't trust any audits? Not sure how you got this - I wouldn't call an audit of Company A, that was paid for by said Company A, "independent" ... because it isn't.

Germany and Russia are building a pipeline that costs $6 billion more than a land route through Ukraine and Poland, because Russia wants the ability to exert political pressure upon Poland (and Ukraine) when required and Germany wants control of Russian gas that enters the EU. The idea of Ukraine as an "unreliable" transit partner is pretty laughable - the Baltic pipeline can not and will not replace other land routes. I hope you are not suggesting otherwise.

Russia unfortunately hasn't found leverage - they just have a hammer. Because they have swung it a few times these last few months, they will find trading partners more reluctant and more protective of their own interests in the future - which isn't desirable for Russia. I'm afraid the Russian government hasn't shown the ability to be so subtle or reliable as to encourage foreign governments to put all their eggs in the Gazprom basket.

This business about Ukraine still gas is pretty hysterical though. Ukraine resold gas as a commodity, as was their right under prior agreements. How exactly do you steal gas anyway? A certain volume of gas is put into the pipeline and a certain volume comes out on the other end. Given the outdated state of Gazprom's network, there will be system losses.

The only recorded event of Ukraine "stealing" gas was January 2006, when Russia cut off the entire supply of gas allocated for Ukraine. Rather than have millions freeze to death, Ukraine continued to heat homes and buildings, and there were shortfalls on the Western European end of the pipeline. Was Putin so naive as to believe that Ukraine would let their families freeze when he made his dramatic New Years annoucement?

As for your idea that every nation should only get the gas that is paid for - perhaps you are unaware that utilities don't generally shut off energy supplies (particularly in the middle of winter), just for being annoyed with price negotiations? In fact, as I stated elsewhere - in the US it is illegal for a utility to shut off electricity or heat to a household for non-payment in the wintertime. We are very barbaric and coldly capitalistic here, but at least we don't freeze out women and children for getting behind on payments.

Anonymous said...

Cuba is under an American trade embargo for pointing nuclear weapons at the US, from just a few miles from our borders. I wasn't aware that Georgia, Moldova, Ukraine, Poland, Lithuania, Latvia, and Estonia had done the same. Last time I checked, they had merely disagreed with Russia

Wow! Dastardly Cubans, how dare they to try to protect themselves from Bay of Pigs II.
And they still have those pesky missiles aimed, did you sleep last 40 plus years?

Anyway, have a good life in this comfortable little imaginary world you build for yourself, try not to get hurt when it's wall will come down crushing when Reality knocks on it's door.

All the best.