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19.03.08
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Avoiding The Inevitable
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By Dmitry Babich
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The three Central Asian gas powers’ (Turkmenistan, Kazakhstan and Uzbekistan) sudden decision to start selling their gas at “European” prices as of January 1, 2009, puts Russia and to an even greater extent Ukraine in a very difficult situation. According to expert estimates, this means that the price of Central Asian gas at the borders of Russia and Kazakhstan will be no less than $350 per one thousand cubic meters (currently, this price is just $140 per one thousand cubic meters of Turkmen gas, $145 for Uzbek gas and $180 for Kazakh gas). Taking into account transit expenses, Ukraine will have to pay $370-$380 instead of the current $179, the price obtained by Kiev following two months of difficult negotiations with Moscow when the Russian gas monopoly Gazprom threatened to cut gas supplies to Ukraine twice.
“The biggest loser is Ukraine,” commented the Russian daily Vremya Novostei. Right after Gazprom’s “defeat,” widely publicized in Ukrainian mass media, the country is facing the possibility of an energy price hike, which can make a large part of Ukrainian industry irrelevant. When Russia first started talking about selling gas to Ukraine at a higher price three years ago, experts said that a price of $300 per one thousand cubic meters would bring the Ukrainian steel industry, located mostly in the Russian-speaking eastern regions of Ukraine, to a standstill. This is why the former Prime Minister Viktor Yanukovych, widely seen as a lobbyist of Ukraine’s industrial east, prided himself on cajoling a price of $179 in 2007.
In the early 1990s, Kiev tried to play the Central Asian gas-exporting dictatorships (primarily Turkmenistan) against Russia, easily abandoning its commitment to democratic values. Ukrainian Presidents Leonid Kuchma and Viktor Yushchenko both made visits to “the father of all Turkmen” (Turkmenbashi) Saparmurat Niyazov, the president of Turkmenistan, showering him with all kinds of praise and behaving in a much less belligerent way than during their visits to Moscow. The result was an agreement on Ukraine getting a “mix” of Russian and Central Asian gas, which until recently was supplied by a shady company called RosUkrEnergo, headed by Ukrainian businessman Dmitry Firtash.
“In fact, Ukraine never got a mix, but purely Russian gas,” commented Vladimir Zharikhin, Deputy Director of the Moscow-based Institute of CIS Countries. “The Turkmen gas was consumed by Russian households before it even reached the Urals, and subsequently the same amount of Russian gas went to Ukraine.”
Now that the Central Asian states seem to be establishing a cartel of their own, Ukraine’s old tactic of pressuring Russia in the hope of being bailed out by Central Asian gas powers may backfire. Until now, Kiev resisted Russia’s attempts to stop subsidizing the Ukrainian economy by cheap gas supplies, using two well-known threats. The first one was raising the prices for Russian gas transit to the EU countries. The second one was claiming that Ukraine could get its 50 billion of cubic meters of gas per year directly from the Central Asian states. But both of these threats no longer seem to be effective.
Ukraine’s threat to raise the transit price for Russian gas from $1.7 to $9.3 per 1000 cubic meters, transported via 100 kilometers of Ukrainian territory voiced in January, sounds frivolous due to this absurdly high amount. “I think the price of $9.3 is a ludicrous invention of [the Ukrainian gas distribution monopoly] NaftoGaz ,” said Vladimir Saprykin, the Director of energy programs at the Kiev-based Razumkov Research Center. “There is no bigger price anywhere in the world. Such a suggestion is damaging Ukraine’s global prestige.”
The hope of getting cheaper gas from Central Asia does not seem real either, now that the three Central Asian states agreed to require the “European” price for their gas. Even the much publicized Western-supported projects of building a Trans-Caspian pipeline, which would allow bringing the Central Asian gas to the territory of Ukraine and further to Poland and other countries, seem to be losing momentum. The Ukrainian “leg” of this project, the Odessa-Brody pipeline that is supposed to take Caspian gas to Polish Gdansk, has a slim chance of launching operations any time soon, according to expert opinion.
“Odessa-Brody is a loss-making project now,” said Mikhail Krutikhin, the Editor-in-Chief of the “Russian Energy” magazine. “Ukraine can transport Central Asian gas via this pipeline only at a great loss for itself, even given the current prices for this gas. And it can only get much worse when the prices double in 2009, as expected.”
Given this situation, Ukraine President Viktor Yushchenko’s and prime-minister Yulia Tymoshenko’s foreign policy aimed at speedy integration of Ukraine with NATO, coupled with complete disregard for Russia’s interests and legacy in Ukraine, may be even more damaging for Ukraine than before.
“Ukraine should have paid more attention to maintaining good relations with Russia; it should have avoided the alienating moves it is making now,” said Zharikhin. “After all, ties connecting Ukraine to Russia are much stronger than ties connecting it to Central Asia. Why should Uzbekistan and Turkmenistan, which are not in the best of shapes economically, subsidize Ukraine, which is actually richer than them?”
The new Central Asian price list puts Gazprom in a difficult situation too. The 58-60 billion cubic meters of Central Asian gas that Russia annually purchased from Central Asia remains an important supplement to Russia’s own resources. However, during his meeting with Gazprom’s CEO Alexei Miller on Monday, President Vladimir Putin let it be understood that Russia would not try to force its Central Asian partners to lower the “European” price to a more acceptable level. Instead, Putin encouraged Miller to use the remaining eight months before the date of January 1, 2009, for negotiations with Ukraine. |
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