Russian freeze prompts fresh crisis in gas supply

[HenryTo]

Natural gas crisis emerging in Europe as we speak. Since Christmas, the U.S. has been experiencing warmer-than-normal weather. Should temperatures get cold again, then domestic natural gas prices can easily spike back to above $10/MMBtu.
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Russian freeze prompts fresh crisis in gas supply
By Carl Mortished, International Business Editor

A SUDDEN drop in Russian gas deliveries to southeastern Europe yesterday provoked an energy crisis in Italy as Gazprom struggled to meet domestic demand in the face of intense frost in Russia.
The gas export squeeze, which reduced supplies by 25 per cent in Hungary and Bosnia and by 5 per cent in Austria, emerged after Gazprom had cut off Ukraine on New Year’s Day in a row over prices and will aggravate concern about Europe’s growing dependence on Russian gas.

British Gas gave warning of a “domino effect” yesterday as the wholesale price of gas for February delivery soared 16 per cent to 82p per therm.

Mark Clare, managing director of British Gas, said that there was no danger of supply shortages in Britain as little Russian gas reaches the UK, but he gave warning of price consequences. He said: “This is impacting other countries in Europe, and because the UK is reliant on gas imports from the Continent, there is an effect on the UK wholesale gas market, building an anxiety premium on prices, which were already at record highs.”

As temperatures in parts of Russia plunged to minus 50C yesterday, Gazprom raised its domestic deliveries by 40 per cent and its export volumes by 7 per cent. However, gas industry experts said that the pressure drop in Hungary, Italy and the Balkan states was a result of the removal of 40 million cubic metres of gas from export pipelines through Ukraine.

The unplanned removal of gas was not opposed by Gazprom, despite the showdown on January 1, when the Russian utility cut off supplies to the former Soviet republic in a dispute over Gazprom’s demand that Ukraine pay European prices for its gas.

In Italy, industrial gas consumers were cut off as ENI, the Italian energy company, experienced a 5.4 per cent drop in pressure at a time when gas demand is peaking because of cold weather. Claudio Scajola, the Italian Industry Minister, called an emergency meeting with leading energy firms to review Italy’s gas supply. “We are increasingly becoming aware of our excessive or total dependence on energy sources from other countries,” he said. Italy has a no-nuclear policy.

Patrick Heren, a gas industry expert and publisher of the Heren Report, said that Russian gas supplies often “wobbled” in winter at the Ukrainian border, the main Russian export route. He said: “This has more to do with the extreme size of the Russian gas network and the difficulty in maintaining pressure when it is very cold and demand is high. The gas is in Siberia, but most of the demand is in Western Russia and Europe.”

Ivan Plachkov, the Ukrainian Energy Minister, admitted yesterday that Ukraine was partly responsible for the drop in exports to Europe: “We have reached agreement with our partners at Gazprom. We have cut shipments to Europe by something like 40 million cubic metres per day.”

Ukraine’s tapping of the export pipeline exposes a dilemma for Gazprom, which wants to be a reliable supplier to Europe but cannot satisfy everyone when demand is acute without cutting off its neighbour.

For European gas consumers, the outlook is higher prices, Stephen O’Sullivan, an analyst at UFG, the Moscow brokerage, said. “If the clearing price is not Russian pipeline gas, it is liquefied natural gas from Qatar.”

[HenryTo]

The terms of the Nord Stream pipeline have been finalized:

http://online.wsj.com/article/SB125743139771530815.html?mod=WSJ_hpp_sections_business

[rffrydr]

Coal. Germans, in the midst of carbon crusade, just went ahead and started building. Was non-issue last year with (global warming?) mild winter and big LNG port deliveries. This "infrastructure of the seas" has greatly developed with Qatar and other gas-rich mid-easter having laid out heavily in good times. And, finally, there is the price.

Methinks the Ruskies have killed the golden goose.
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Today is the Tomorrow you worried about Yesterday!

[Stephan]

It is a big discussion in Europe; in the same time the north stream pipeline is built which would only benefit Germany and Russia. Poland and Sweden are not to happy with it, but I see, perhaps these details are too much into detail. Nonetheless, since the Northstreampipeline is approved the Russian pressure on Ukraine is taking place: Kiev has now to pay Western prices for its gaz which is the double of the old prices. In the last winter and the winter 2006/7 Russia decreased the delivery of gaz for the unpaid amount. But the Ukraine held the certain amount back to use for it itself and Bulgaria as several other states, which had paid for it, were forced to stand the cold.
In this context one has to see the Nabucco-pipeline: To diversify the dependence from foreign states, although it is quite uncomfortable to invest in a project which is mainly dependent of Iranian gaz, it is more a thing diversification than of real independence. By the way it also in the interest of the Eastern countries of Europe that are afraid of a German-French axis.

[HenryTo]

Simple - line up supplies in the Caspian Sea and build a pipeline that bypasses Russia:

http://www.spiegel.de/international/business/0,1518,635921,00.html

Note the Nabucco Pipeline will only have a marginal impact (as its capacity is only equivalent to 5% of European consumption), however.

[HenryTo]

The IEA states the obvious. I am not sure what the EU policy could be aside from importing LNG or reverting to heating oil. Any takers?
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Russia no longer reliable gas supplier-IEA
Thu Jan 15, 2009 9:51am EST

MADRID, Jan 15 (Reuters) - Russia has lost its status as a reliable gas supplier to Europe after European Union states were cut off for days from Russian gas, the International Energy Agency (IEA), said on Thursday.

The agency advises top industrialised countries on energy policy.

"With this move Russia casts a very dark shadow on being a reliable gas supplier to Europe," IEA Chief Economist Fatih Birol told a conference in Madrid.

"The Russia-Ukrainian gas crisis is another wake up call to EU countries to restructure their energy policies."

An EU-brokered deal had been supposed to get supplies of Russian gas moving to Europe via Ukraine on Tuesday despite the pricing impasse, with international monitors in place to ensure Ukraine was not siphoning off gas, as Moscow has alleged.

But it failed to break the deadlock and the row continues to disrupt supplies to 18 countries, forcing factories to shut down and leaving householders shivering in bitter winter cold..

EU monitors said no gas was flowing from Russia to Europe via Ukraine at all on Thursday morning and frustration is growing within the EU at the failure of Russia and its former Soviet vassal Ukraine to resolve the row.

Russia said on Thursday Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Tymoshenko would meet for talks on Saturday.

[HenryTo]

Thanks Odysseus, for your take. And hope you had a great New Year's!

Instead of both sides standing down, the dispute is now intensifying, as Gazprom has now halted all natural gas shipments to Europe via Ukraine:

http://www.bloomberg.com/apps/news?pid=20601087&sid=abXv4IhpebWQ&refer=home

[Odysseus]

The Ukrainian Government has been stealing gas for at least a dozen years. What's worse is that they don't even pay world price for the gas they 'formally' use.

If Russia delivers the necessary and contracted gas to Europe and only 75% arrives, then is it not obvious where it went?

Ukraine is a torn country. The sooner the EU and the US recognize this, the sooner there will be common grounds for mediation. Eventually Russia will annex everything east of the Dneiper including Crimea. Bank on it.

Regards
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Psychic with Alzheimers. I can predict what I will forget.

[HenryTo]

Natural gas crisis redux - as the EU (finally) slams Russia for its handling of the gas dispute with the Ukraine. Austria loses nearly 50% of its natural gas supply:
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Natural gas shortages slam some European nations
Tuesday January 6, 10:09 am ET
By Maria Danilova, Associated Press Writer
Natural gas shortages slam some European nations, Ukraine and Russia to hold talks on dispute

KIEV, Ukraine (AP) -- A natural gas crisis loomed over Europe on Tuesday, as a contract dispute between Russia and Ukraine shut off Russian gas supplies to six countries and reduced gas deliveries to several others.

At least two Bulgarian cities were totally without gas, and nations like Turkey were turning to Iran to bolster their supplies.

In a sharp turnaround, the European Union blasted Russia and Ukraine, saying the sudden cutoff to some of its member countries was "completely unacceptable." Just a day ago, the EU was trying to downplay any problems from the gas dispute.

In response, Russia and Ukraine agreed to hold new talks on the contract dispute over Russian natural gas that travels to Europe through Ukraine's pipelines. The two neighbors are locked in a dispute over pricing and overdue payments. Russia cut off supplies to Ukraine on Jan. 1 but had promised to keep gas moving to Europe.

The head of the Ukrainian gas company Naftogaz, Oleh Dubina, said he would travel to Moscow on Thursday for new talks. He made the decision after speaking to Alexei Miller, chief executive of Gazprom, Russia's state-controlled monopoly gas supplier.

"Given the crisis situation, we are ready to start talks at any moment," said Gazprom spokesman Sergei Kupriyanov.

Wednesday is Orthodox Christmas, a holiday in both Russia and Ukraine.

The energy dispute sharply escalated Tuesday when six countries on the other end of the pipeline network running from Russia through Ukraine reported a complete shutoff. Russia supplies Europe with about a quarter of its gas, 80 percent of which is shipped through Ukraine.

Bulgaria, Greece, Macedonia, Romania, Croatia and Turkey all reported a halt in gas shipments. Croatia said it was temporarily reducing supplies to industrial customers and urged consumers to use gas sparingly in their homes. Bulgaria said it had enough gas for only "for a few days."

Bulgaria's President Georgi Parvanov said the country could start immediate preparations to relaunch Unit 3 of its Kozlodui nuclear power plant. The aging two 440-megawatt reactors were shut down two years ago, and Parvanov said one of them could be opened within a month.

Two cities in eastern Bulgaria, Varna and Dobrich, were left with no natural gas supplies on Tuesday. In Varna, on the Black Sea coast, the shortage left 12,000 households without central heating amid freezing temperatures.

Turkey's Energy Minister Hilmi Guler confirmed the gas cutoff and said the country was trying to compensate with supplies from other sources including another Russian pipeline beneath the Black Sea.

During a similar dispute between Ukraine and Russia in 2006, which lasted just three days, several West European countries saw their gas supplies drop by 30 percent or more. That crisis led to criticism of Russia as an unreliable energy partner and spurred talk of finding ways to diversify Europe's energy supply.

Up to Monday, the EU has said that the dispute would not affect consumers in the coming weeks. The sudden drops Tuesday, however, increased the diplomatic pressure to find a solution.

In a strongly worded statement, the EU complained that gas had been cut "without prior warning and in clear contradiction with the reassurances given by the highest Russian and Ukrainian authorities to the European Union."

Other countries lost significant amounts of gas as well. Austria lost 90 percent of its normal Russian gas supplies on Tuesday -- about half its total supply. It said it had three months' gas reserves but called an emergency meeting at its Economy Ministry.

In Slovakia, gas importer SPP AS was considering declaring a state of emergency Tuesday after its gas deliveries from Russia were down by 70 percent.

The Czech Republic and Hungary also reported significant supply drops. The Czech gas company RWE Transgas said it expects only 25 percent of its normal supplies Tuesday from Russia, while Hungary predicted its cut would be greater than the 20 percent it saw on Monday.

Moscow and Kiev, meanwhile, blamed each other. Naftogaz said Gazprom had sharply reduced its shipments to Europe through pipelines crossing Ukraine, triggering the cuts. Gazprom accused Ukraine of stealing gas shipments intended for other nations.

Kiev denied it was stealing Russian gas. It said was using some of its own gas as fuel to transport the rest of the Russian gas to Europe. Naftogaz says Gazprom is obliged to provide this gas but is refusing.

Gazprom said it was sure it could provide Europe with enough gas.

"We are confident that we will be able to get through this situation without any damage to the gas production and transit system," deputy chairman Alexander Medvedev was quoted as saying by RIA-Novosti. "The only issue is gas transit to Europe through Ukraine."

On Monday Gazprom said it would cut the amount of gas it ships to Europe through Ukraine by 65.3 million cubic meters, or about 20 percent -- the amount it accuses Ukraine of diverting from its transit pipeline network over recent days.

Poland was considering limits on deliveries to heavy industry, even though so far Russia has compensated for shortfalls through Ukraine by shipping extra gas to Poland through a pipeline in Belarus.