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Post Will Russia Cut Off Europe's Gas?
Created by John Eipper on 09/27/14 7:19 AM

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Will Russia Cut Off Europe's Gas? (Randy Black, USA, 09/27/14 7:19 am)

John Eipper (see Bienvenido Macario, 26 September) opted to ask Bob Gibbs, "Does Europe still depend as much on Russian gas as it did two or three years ago?"

I'd like to offer my two cents. The short answer is no. Nor is the EU in as precarious a position as it was in 2009 when Putin did pretty much the same thing. Putin's threats on the gas supplies to the EU were pretty much political grandstanding.

But, as of about noon Friday (26 Sept) Dallas time, the European Union brokered a deal between Russia and Ukraine whereby the International Monetary Fund will help Ukraine with their debt payments to Russia. Thus, it would seem that this matter is moot, according to The New York Times.

However, without doubt Putin was feeling as much economic pressure to find a solution as was Ukraine and the EU.

According to many sources, including Forbes (5 May 14), 84% of Russian's oil exports and 80% of its natural gas went to the European Union annually in recent years.

Annually, that's tens of billions of dollars in annual income for Putin's Russia that they really can't afford to lose considering the fragile nature of the currently weak Russian economy. According to an April Bloomberg Businessweek article, gas and oil sales to Europe account for 10 percent of gross domestic product.

If case you're thinking about Russia selling its gas to China, at a far lower price than it charges Europe, there's the small matter of the $50 billion pipeline and infrastructure that must first be built. It's not even designed yet.

Where will Putin get that money if he cuts off his nose to spite his face with the European Union? Plus, the natural gas for China is from Russia's fields in the Far East and are thus not really an option as it relates to the threats to cut off the EU.

Coupled with sagging economic growth, a weak currency and rising capital flight, "Russia needs money from its energy exports more than ever," (said) Neil Shearing of Capital Economics in London. (Bloomberg, 11 April 14)

Moreover, my studies of these matters, including my conversations with WAISer Bob Gibbs during our visit to Sequim, Washington in August and some local Texas energy types, indicate that an even larger problem is the immense task of shutting down the Russian gas and oil production and the related jobs, pipelines and all the rest of the moving parts involved within Russia.

While it's theoretically possible to shut down a gas well or a group of them, what about the tens of thousands of gas wells, facilities, pipelines and all the rest that would likely be involved if Putin cut off the EU? And then there are the investors.

By shutting down the supplies to Europe, the net impact would "reinforce European efforts to diversify" (their options for supplies). This from Global Energy and National Resources' Director Will Person.

"You have to remember the (oil and gas giant) Gazprom is one of the backbones of the Russian economy and the gas industry is a very fragile business," Temuri Yakobashvili, said on Tuesday, adding that Russia was facing a very different environment than 2009. "You don't do stupid things more than once." Yakovashvili is a Senior Transatlantic Fellow at the German Marshall Fund.

With Putin nursing a sick Russian economy, that last thing he needs is to stop the flow of billions of Euros, money that flows into Russia and is all likelihood is keeping Russia afloat, to paraphrase Carol Matlack of Bloomberg Businessweek.

http://www.forbes.com/sites/christophercoats/2014/03/05/russia-cant-afford-to-use-natural-gas-as-a-weapon/

http://www.nytimes.com/2014/09/27/world/europe/russia-ukraine-gazprom-deal.html

http://www.businessweek.com/articles/2014-04-11/putin-could-stop-selling-gas-to-ukraine-dot-heres-why-he-wont

http://www.ft.com/intl/cms/s/0/c03b931a-31c6-11e4-a19b-00144feabdc0.html

JE comments:  Putin needs the money, Russia needs the jobs, and the capitalists wouldn't stand for shenanigans.  Randy Black has put Putin's latest "gas tantrum" in excellent context.


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  • Will Russia Cut Off Europe's Gas? (Robert Gibbs, USA 09/28/14 3:40 AM)

    To answer Bienvenido, John, and others on this topic, I really cannot add too much to Randy Black's thorough explanation (27 September) of the stakes and situation regarding Russia's threat to cut off EU energy supplies.  But perhaps I can add some emphasis as to why I believe this is a bluff, and a very dangerous bluff at that.



    1. First and foremost, Russia has become a petroleum economy, no less so than Saudi Arabia. As I pointed out during last October's conference in Adrian, a major Russian economist claimed that "the whole Russian economy is on life support, with two tubes Gazprom and Rosneft."  (The economist then ran off to France and asked for asylum.)  It is true that they are awash in hydrocarbon energy (gas and oil). The problem is they have to sell it, and their only real customer at present is the EU--thus if Putin is truly contemplating an embargo on EU energy, then he will at best be entering into a vast and very dangerous game of economic chicken.



    There is also the impact such a situation might have upon Putin's Oligarchs, as they might replace him in order to save themselves and prevent massive instability within the Russian government.



    2. While it is true that EU is dependent upon Russian energy, they are not as dependent as they were in 2009. Oil is fairly fungible and natural gas is becoming more so, especially regarding suppliers as LNG suppliers and producers. Ports from Hamburg to France and elsewhere in EU are able to keep EU supplied, albeit at emergency levels, for some time. Right now Germany and Hungary are supplying Ukraine with cheaper Russian gas. Note that Hungary, under threat from Russia, has began to halt gas shipments to Ukraine. There is also the major changes that have occurred in the energy business in exploration, production, and transportation of hydrocarbon energy. There are pipelines--the Trans-Anatolian pipeline that should come on line possibility next year and the reintroduction of the possibility of fracking in Central Europe.



    3. The world of hydrocarbon energy is constantly changing, especially in the last seven years, more than many realize. It is a vastly changing and fluid world of costs, undreamed-of production, and vast amounts of new and re-energized deposits. The whole field is expanding so fast that it is difficult, sometimes impossible, to find knowledgeable and experienced personnel not only as engineers, drillers and roughnecks, but, as welders and metal workers and a host for other fields. As Randy stated when we discussed this, there is also the problem of storage along with the difficulty of shutting down and migrating personnel. Ukraine was not only Russia's energy transit nation for most of Central Asia, it is also a major storage nation for vast quantities of Russian natural gas.



    4. Though there are vastly more points to raise, the final one I would forward is to suggest that this is a Putin bluff. Owing to the current production (especially in the US and Canada), Texas intermediate light sweet crude is running well south of the $100 a barrel. Russia (and by the way most petroeconomies) needs to maintain its fiscal-year budget and next. For Russia this is a double whammy, as they bundle their gas prices into the price of oil, and natural gas prices are falling at the same time.



    5. Finally, by way of example, I feel compelled to comment on Massoud Malek's claims regarding US interest and plans to dislodge Syria's President based on a 2013 story in The Guardian. The story was based upon a 2006-7 (published in 2008) Rand study of the Middle East generally and the US dependence. The world has changed (especially the energy world), and the US is almost totally independent of Middle Easter oil.  By 2016 most say we shall be an exporter. Also, the idea that Assad's rejection of an Iranian/South Pars pipeline is, by implication, the reason the US chose to bomb Syria is too absurd to even debate. The pipeline, while technically feasible, would even then be a very dubious investment, and there were and are so many alternatives, not to mention Iran's lack of international financing for this pipeline.  Moreover, there is the utter distrust and suspicion amongst the principals, not to mention their mutual animosity described so well by by A. J. Cave in her postings. This is, was, another pipeline pipe dream.



    John, yes you are correct the Ukraine was (is) paying a much higher rate for natural gas from Russia, even in a era where the price is plummeting.  The last I heard and cannot confirm was that the Russian wanted over $500 per MCM (thousand cubic meters)



    The long answer here is: Randy is correct.  If the Russians keep pushing it the resulting instability might back fire on them.  The real point here is simple the EU need gas, Russia has gas, but, Russia needs to sell its gas and its only real customer is EU.


    JE comments:  Thanks, Bob!  We are getting a clear picture that Putin's threats in '14 don't have the teeth they did in '09.  One question:  do any oligarchs exist that are powerful enough to remove him?


    Putin would surely love to triangulate demand for Russian gas between Europe and China, but there is the little matter of getting it there (to China).  Eugenio Battaglia (next) addresses this question.


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  • Will Russia Cut Off Europe's Gas? (Eugenio Battaglia, Italy 09/28/14 4:12 AM)
    I wish to thank Randy Black for his instructive post (27 September) about Russian gas.

    However, according to reports from Limes (an Italian geopolitical studies magazine), the deal signed by Putin with China was necessary for him following the Ukrainian crisis. The cost of furnishing the gas has dropped to U$350-380 for 1000 cubic meters.  Initially China did not want to pay more than $340. Russia is trying to extract a higher price, but probably $350 is the correct one.


    By the way Steve R. Weissman, a veteran of the Berkeley Free Speech Movement, has written, after his previous book on Ukraine, a detailed article, "Meet the Americans who Put Together the Coup of Kiev," in Reader Supported News, 25 March 2014.


    Contrary to what Randy wrote, Limes states that the project that will supply the gas from Siberia is a Chinese project, practically in its entirety. The most important thing is that China has supplied the money to build the structure based on the future gas supply, so carrying out the project can be easy and quick.


    Until May there were good reasons for which Russia and China could not be friends. For instance, Chinese immigration in Siberia could be a future problem, but thanks to the "farsighted" West, China and Russia are now close friends.


    Europe still badly needs the Russian gas, and according to some reports they cannot rely on expensive US gas, as the new fabulous shale gas is very controversial and seems to last very little. As previously stated, there are no facilities to bring enough gas from the US to Europe. Consider also that thanks to the above-mentioned "farsighted" vision of the West, at present the gas from Libya is practically no longer arriving.


    JE comments: Who can fill us in further on Chinese-Russian relations at the present? (I almost saw myself writing the alliterative "Sino-Soviet," which has a far better ring to it.)


    Even if China has set aside the money for a pipeline, how "quick and easy" is it to build anything across Siberia?



    Finally, I wonder if our colleague John Torok in Oakland knows Steve Weissman.  Here's the link to the Kiev coup article:


    http://readersupportednews.org/opinion2/277-75/22758-meet-the-americans-who-put-together-the-coup-in-kiev

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