Sunday, March 9, 2014

Ukraine: A Natural Gas Primer - With a Few Other Items

The US Media's "Meat Handed" Coverage on Ukraine
The Tea Bag Circus from KeyStone XL Pipeline to Putin's Manhood

Naturally, MeanMesa has been transfixed with the modern day  "Oberammergau Passion Play" heralding the old Soviet Union's wet dream fantasy of resurrection as a tediously worn, maudlin drama across Crimea and the freshly invaded Ukraine.  In its typically dispassionate -- if not heretical -- coarseness, the American media, firmly obedient to its oligarchic owners, has officially begun to portray the bloody affair in the predictable athletic metaphors.

That is, palatable metaphors as disgustingly shallow as the puddle of "heart felt tears" shed by a runner up for high school prom queen. 
Everyone here already expected the Congressional Tea Bags to be magically transported to a breathless, gasping, 1954 anti-Soviet propaganda mode long before so much as a even a single disparaging word emerged from their twisted, hate filled throats, but it turns out that the usually stuporous hill billies in the GOP base were also prepared to be quite satisfied by the dazzling time travel trip back into historical Cold War irrelevancy.

Happily, this time this bunch has embarrassed themselves so exquisitely that not even the "nuance challenged" American electorate could possibly miss the gaff.  MeanMesa can take up this hilarious, most recent offering from the "domestic tea bag peanut gallery" in another post.

However, running through every vein of the poor tattered story, a common thread emerges. Relentlessly, the barely informed, mouth breathing pundits masquerading as "news anchors" have repeated the same dismal prognosis as their make up gradually melted in the studio follow up lights.

Putin will shut off the natural gas valve, and the rebellion will be over in a few hours.

As expected, right in the center of this fray the US media predictably roared right "off the tracks."  Even the so-called "legitimate" alphabet networks almost instantly positioned themselves -- and their "news" editorial management -- one millimeter left to the more rational side of NewsCorp's rancid territory.

As usual, the manipulative US media instantly coughed up another "cat's hairball" with its own adolescent version depicting the hopeless drama of the Soviet Bear crushing the daringly brave Ukrainians.  Of course, anywhere beyond the hill billies' picnic table, this script fell embarrassingly short in both depth and accuracy. 

Interestingly, two grotesque, unexpected right wing PR gambits which emerged from the stew in the cloud of hastily prepared propaganda may help make MeanMesa's point here.

First, the tea bag media "mouth junk" experts such as Palin, O'Reilly and Limbaugh [along with a few lunatic fringe politicians...], have revealed a bizarre "admiration" of Putin's reckless decisiveness.  Even given this crowd's on-going love affair with thugs of all ilk, this specific case turned out to be no more than this week's character assassination attack on the President.

Note to Putin:  "These wing nuts are NOT your friends.  They may actually be crazier than you are."

Second, the same zany crowd has proposed that the KeyStone XL pipeline and a future wet dream of LNG shipments to Germany are a "solution" to Europe's threatening reliance on Russian gas.  No problem.  They have also attributed the Russian Federation's suddenly emboldened attitude on...wait for it...Benghazi.

Naturally, all this purposely depressing, artificial fog and fury also led MeanMesa to wonder if -- or when -- the newly hatched, petulant Soviet Messiah would punish Ukraine by shutting off Russian gas.  In practically no time these geriatric fingers were at the GOOGLE, snooping around here and there, trying to "get a grip" on what was real and what was "otherwise."

So let's take a look at some of the more interesting reporting MeanMesa's GOOGLE search turned up on the topic.

An Overview of Natural Gas in Ukraine
 It's always a good idea to start out with the "big picture."

Gas Consumption in Ukraine

Ukraine remains a major gas consumer, ranked thirteenth in the world and fifth in Europe. Heavy industry is the largest consumer of natural gas in Ukraine (accounting for 40% of domestic consumption) followed by households (over 30%) followed by communal heating systems supplying both government buildings and residential properties (20%). It is estimated that 9% of gas is wasted.

Consumption levels have fallen from 118 bcm in 1991 to less than 55 bcm in 2012.

Naftogaz stated that on 17 December 2013 that only four Ukrainian Oblasts (provinces) made regularly payments for natural gas.


Despite its own production of natural gas Ukraine still has to import about 80% of its natural gas needs. After 2008 the Ukrainian volume of imports of natural gas dropped.

Traditionally Ukraine imports natural gas mainly from Turkmenistan and Russia (about two-thirds of its gas in 2012). Since November 2012 Ukraine is diversifying its suppliers of imported natural gas. On 9 January 2014 Ukrainian Energy and Coal Industry Minister, Eduard Stavytsky, stated that Ukraine (at that time) will buy only Russian natural gas "because it's currently the most profitable."

Prices of import

After 2004 Russia began to steadily raise the price of its natural gas supplied to Ukraine, it wanted to eventually bring it in line with the rates paid by other European states. Until 2005 Ukraine was charged $50 per 1,000 cm; since then the price has risen to $426 per 1,000 cm in 2012. In January 2013 Ukraine paid $430 per 1,000 cm. There have been disputes over prices that lead to several economic conflicts with Russia since 1990.

After 2008 a rapid increase in price has raised Ukraine's annual cost of gas imports; from less than $4 billion in 2005 to $14 billion in 2011 and 2012. Natural gas is Ukraine’s biggest import at present and is the main cause of the country’s structural trade deficit.

On 9 January 2014 Naftogaz and Russia's Gazprom signed a supplement to the Russian-Ukrainian gas contract, setting the price of natural gas for Ukraine in the first quarter of 2014 at $268.5 per 1,000 cubic meters. In the 17 December 2013 Ukrainian–Russian action plan it was agreed that the cost of Russian natural gas supplied to Ukraine would be lowered to $268 per 1,000 cubic metres (this price was more than $400 in December 2013).

 Read the entire article [link] WIKI: Natural Gas In Ukraine.

Putin's Natural Gas "Arsenal"
Some of this ammo seems to have gotten wet...
Shifting energy trends 
blunt Russia’s natural-gas weapon

By Steven Mufson, Published: February 28 
 Updated: Saturday, March 1, 6:19 PM

[Read the original Washington Post article here. ]

While Russia flexes its military might at its Black Sea naval base in Crimea, Moscow has another weapon that it has wielded against Ukraine in the past: natural gas supplies.

Russia provides more than half of Ukraine’s natural-gas needs and since 2006 has twice curtailed supplies in disputes over politics, price and late payments. Those supply cuts rattled countries across Europe that depend on the Russian pipelines that run through Ukraine.

But changes in the global trade in natural gas have blunted Moscow’s weapon, forcing the Russian pipeline monopoly Gazprom to cut prices worldwide and giving Ukraine slightly more bargaining power.

The boom in U.S. shale gas has left gas-exporting countries shopping for other customers. Europe, as it adds terminals to handle liquefied natural gas, will be able to offset its own declining production with supplies from countries such as Qatar. And in 2012, Norway’s Statoil sold more gas to other European nations than Russia’s Gazprom.

“Since the Russian supply cuts in 2006 and 2009, the tables have totally turned,” said Anders Aslund, a fellow at the Peterson Institute of International Economics who has advised Russia, Ukraine and Kyrgyzstan. Aslund said Ukraine once rivaled Germany as Gazprom’s biggest customer. Now, he said, “Gazprom’s challenge is to stay in the Ukrainian market.”

In December, Gazprom said it would discount the price paid by Ukraine, cutting it from about $11.50 per thousand cubic feet to $8.10. But that only brought Ukraine’s prices roughly in line with those being paid in other parts of Europe. Gazprom said it would review the price every quarter, meaning a new reset is possible at the end of March.

As clunky Soviet-era factories and mines have become more efficient or gone out of business, Ukraine’s domestic gas consumption has dropped nearly 40 percent over the past five years, cutting its imports from Russia in half, according to a report by Sberbank Investment Research.

Domestic consumption might drop further if Ukraine trims the generous subsidies it gives households using natural gas, although so few households are paying their bills that it might not matter. “People will go from not paying the lower price to not paying the higher price,” said Thane Gustafson, senior director of Russian energy for the consulting firm IHS CERA.

The gas subsidies and delinquent payments lie at the center of Ukraine’s economic problems and tension with Moscow. Even if residential customers paid up, the Ukrainian state energy company, Naftogaz, would lose money on those sales. That contributes to its failure to keep up payments to Gazprom, which on Feb. 3 said Naftogaz owed $3.3 billion for deliveries over the previous 13 months. Naftogaz’s losses will grow as it sells in the battered local currency and buys gas priced in dollars, Sberbank noted.

“An inefficient and opaque energy sector continues to weigh heavily on public finances and the economy,” the International Monetary Fund said, noting that energy subsidies reached 7.5 percent of Ukraine’s GDP in 2012. “The very low tariffs for residential gas and district heating cover only a fraction of economic costs and encourage one of the highest energy consumption levels in Europe,” the IMF said in December.

In the long run, Ukraine could boost domestic production. Late last year, it signed shale gas accords with Chevron and Royal Dutch Shell; each will invest $350 million in five-year exploration programs and $10 billion for development in the western part of the country, Ukrainian officials have said. However, Chevron, whose block covers 1.6 million acres, said drilling hasn’t started. It still needs to iron out an operating agreement with its partner, the mostly state-owned firm Nadra Oles’ka, said Chevron spokesman Kent Robertson.

The ousted government had also been negotiating with a group led by Exxon Mobil, which wants to explore for oil and gas in a deep-water block in the Black Sea. In January, as protesters thronged the square in the heart of Kiev, Kevin Biddle, Exxon Mobil’s vice president for Europe, traveled to the city to negotiate.

Now, the upheaval of the past two weeks has thrown Ukraine’s gas strategy into greater confusion. “There is no government and there are no agencies to do business with,” said Simon Pirani, senior research fellow at the Oxford Institute for Energy Studies. “How high up the list of priorities it is is anyone’s guess.”

“We remain hopeful that negotiations . . . can resume at the appropriate time,” Exxon Mobil spokesman Patrick McGinn said.

Even if the deals with foreign companies advance, Ukraine will need to import about half of its gas needs, meaning that relations with Gazprom remain important.

In past years, Russia tied its natural gas prices to crude oil prices, but as gas supplies grew more plentiful and crude oil prices soared, customers resisted. In 2012, many European industrial users and power plants switched to coal, and Russia agreed to renegotiate. The link between gas and oil prices has been severed for about half of Russia’s gas sales. Gazprom also agreed to eliminate contract clauses that said a country such as Germany could reship Russian gas only with Gazprom’s approval.

As a result, Ukraine ended up paying more than Gazprom’s customers in Germany, and last year Ukraine imported small quantities of natural gas from Germany and Hungary through pipelines in Slovakia and Poland, experts say. Germany buys gas from a variety of countries, but rerouted Russian gas has effectively been undercutting other Russian gas.

“Ukraine has reduced its consumption of Russian gas, which puts them in a less vulnerable situation. Also the hardest part of winter is over. And there is a fair amount [of gas] in storage,” said a senior Obama administration official who spoke on the condition of anonymity because of the sensitivity of the issue. “Ukraine is obviously still in a precarious situation,” he added, “though very different from what it was in 2009.”

 EU Competing With Putin
Can anything stop the Russian Bear?  Maybe...

EU leaders draw up plans to send gas
to Ukraine if Russia cuts off supply

Paul Lewis and Suzanne Goldenberg in Washington, 
Ian Traynor in Brussels and Terry Macalister in London
 The Guardian, Friday 7 March 2014 13.33 EST

Europe braced for possible battle with Moscow after Gazprom threatens to cut off gas supply if Ukraine does not pay bill

Natural Gas Flow Through Ukraine [image source]
EU leaders are rapidly drawing up plans to send some of their stocks of Russian gas back to Ukraine and other eastern European countries that need it, if Vladimir Putin reacts to western sanctions over the Crimea crisis by starving the continent of energy.

Russia’s largest gas producer, Gazprom, said on Friday that Kiev had missed a deadline to pay $440m for gas received in February and threatened to cut off the country’s supply if it did not make the payment.

Gazprom provides Ukraine with around half its gas, and other countries in eastern and southern Europe, including Poland and Greece, reportedly have low stocks of gas.

Although Gazprom said the threat to Kiev would not affect the supply to the rest of Europe, western leaders are steeling themselves for a possible battle with Moscow over energy supplies. At least half of the Russian gas that is piped to Europe passes through Ukraine.

Gazprom last cut off supplies to Ukraine in early 2009, leading to a slump in the supply of Russian gas to Europe. “Either Ukraine makes good on its debt and pays for current supplies, or there is risk of returning to the situation of early 2009,” Gazprom CEO Alexei Miller said on Friday, adding that Ukraine now owed $1.89bn in unpaid bills.

The move to consider reversing Russian gas flows comes amid growing pressure in Washington to exploit the huge boom in US gas – extracted through fracking technologies – to begin global exports, providing a counter-weight to Moscow’s influence.

Although it is the largest producer of natural gas, the US does not currently export its supplies, and the construction of a handful of export terminals will not be completed until at least 2015. But Barack Obama’s administration considering moves to accelerate a drive to export its energy, weakening Putin’s leverage in the future.

In Brussels on Thursday, European leaders engaged in detailed discussions about the feasibility of switching the flow of gas in eastern Europe’s pipelines. Storage reserves in Europe, particularly Germany and Hungary, which have ample supplies, could be used to pump gas back towards Ukraine.

José Manuel Barroso, the president of European Commission, said energy security was an early priority for Ukraine, adding: “We are looking in the short term at the gas transmission network to ensure that reverse flows with the European Union are fully operational.”
A project to modernise Ukraine’s gas transmission infrastructure forms part of the EU’s $15bn promised aid package to Kiev, with an initial loan possible in the near future. A European Commission memorandum specifically states it will seek to enable “reverse flows” of gas to Ukraine, ensuring they can be “operationalised as soon as possible."

Such a move would likely occur first through Slovakia, and EU officials are pressing Slovakia and Ukraine to quickly sign an agreement that would enable gas to be piped in the opposite direction if the need emerges. Additional “reverse-flow corridors” could be introduced through Bulgaria and Romania, or Croatia and Hungary.

A senior German official briefed on Thursday’s meeting told the Guardian that Berlin was ready to help. “Our gas storage tanks are well filled after a mild winter and we stand ready to assist Ukraine in securing its energy supply including working on reserve flows.” 

However, European officials and energy experts concede there are doubts over whether it would be technically possible to transfer sufficient gas through the continent, west to east, if Russia decided to restrict its supplies for a significant period of time. While short-term assistance through the summer months could help, western Europe would not have the capacity to supply neighbours in the east for an extended period of time.

Speaking on the condition of anonymity, one senior executive said reversing gas flows would be an extremely complex move. “This is not easy to do. Certainly the Gazprom export pipeline is built to move gas only in one direction, and it would involve a lot of time and money to reconfigure for imports,” the executive said. “You would also have to get the agreement of dozens of commercial and other organisations. It is not going to happen.”

Europe imported 155bn cubic metres (bcm) of gas from Russia in 2013, about 30% of its overall gas demand, according to Wood Mackenzie, an Edinburgh-based energy consultancy. Ukraine is the key transit route for Russian gas to Europe, with around 50% piped through the country in 2013.

Gazprom insists exports remain stable, and is desperate to avoid a repeat of the Russia-Ukraine “gas wars” of 2006, 2008 and 2009.

In Washington, there is a growing appetite to retaliate against Russia with a long-term, strategic acceleration in energy exports. Exporting US gas obtained through fracking would be controversial among environmentalists, Democrats, and US industries reliant on cheap energy, the price of which would be expected to rise if supplies were being piped abroad.

Republicans, backed by gas producers such as ExxonMobil, have for years been pushing to dramatically increase gas production to enable export trade, and are using the crisis in Crimea to argue for swift action by the Obama administration.
US gas production is projected to rise 44% by 2040, according to the US Energy Information Administration, and producers have been pressing the Obama administration to expand exports of natural gas.

The Republican leader of the House, John Boehner, used an an op-ed in the Wall Street Journal on Friday to call on Obama to “dramatically expand production of American-made energy” and make US supplies of natural gas available to global markets.

The Department of Energy as approved six applications to export domestically approved applications for terminals to export liquefied gas; five are in Texas and Louisiana, and one in Maryland. A further 24 applications are pending and Boehner and other top Republicans are calling on the administration to expedite their approval. “The ability to turn the tables and put the Russian leader in check lies right beneath our feet, in the form of vast supplies of natural energy,” Boehner said.

The Obama administration appears receptive to moving to undercut Moscow’s hold over the energy sector. White House press secretary Jay Carney said this week that while the Department of Energy is approving terminal requests on a case-by-case basis, the US would look for ways to wean Ukraine from its “dependence on Russian gas.”

A senior US official said the State Department was supportive of introducing substantial gas exports abroad as a move to counteract Russia’s influence.

Carlos Pascual, a former American ambassador to Ukraine, who leads the State Department’s Bureau of Energy Resources, told the New York Times that opening global markets to US exports “sends a clear signal that the global gas market is changing, that there is the prospect of much greater supply coming from other parts of the world.”

Ukraine: Today and Tomorrow
A common sense approach

Worldwide, Ukraine was 8th top nuclear electricity producer in 2009 generating 46.7% of domestic electricity generation from nuclear.  Additionally, the country has a significant hydroelectric generation capacity.  [Read more: WIKI: Energy in Ukraine ]  The country also has a significant reserve of producible coal -- separated roughly between the current Eastern and Western geopolitical regions.

A likely scenario, at least if "Putin's pain" doesn't careen into an even more destructive tantrum, is that Ukraine will receive both emergency gas and emergency money from interested parties outside the Russian Federation.  Whether or not Crimea is to be "re-assimilated" into the autonomous control of Kiev, the energy pinch from a Putin imposed natural gas embargo is survivable.

That doesn't mean it will be comfortable.  It only means that it will be "doable."

MeanMesa strongly suggests that a good portion of the inflowing emergency assistance be applied to weatherization.  This would create jobs and reinvigorate the stagnant economy more quickly than any more complicated sort of foreseeable "economic development" strategy.  Improvements in residential insulation efficiency would respond directly to the natural gas crisis.

If too much natural gas is being used, it is reasonable to reduce consumption as quickly as possible.  Along the way something akin to Roosevelt's WPA could place teams of Ukrainian youth to work installing insulation and increasing heating efficiency in residences and public buildings.

Economies improve when lots of people are working.  Ukraine's economy has the potential of becoming quite robust, and putting thousands of Ukrainians to work will be a good start.

MeanMesa's second suggestion is to apply available resources to agricultural infrastructure.  This can begin with rehabilitating and modernizing, leaving massive projects for later.  It is time for Kiev to invest very energetically in boosting exportable food production to insure its future economic health and growth.

God speed.

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