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Page added on March 4, 2014
Gazprom Threatens to Disrupt Gas Supplies to Europe
Russian-controlled natural gas giant Gazprom has threatened to disrupt gas supplies to Europe following warnings by John Kerry and others that harsh economic sanctions could be imposed on Moscow, as the Ukraine crisis threatens to spiral into a trade war.
“Simmering political tensions in Ukraine, that are aggravated by inadequate economic conditions, may cause disruptions of gas supplies to Europe,” the company announced today.
Although the monopoly said it would attempt to reduce export risks, Gazprom’s chief financial officer Andrei Kruglov cautioned that Ukraine had failed to fulfil its debt obligations. This followed Gazprom spokesperson Sergai Kupriyanov’s warning on Saturday that Ukraine would see its account with Gazprom canceled as a result of an overdue tab of $1.5 billion dollars.
Although the warning of a gas disruption to Europe is not being characterized as political payback, it would be naive to think otherwise. The Financial Times describes Gazprom’s monopoly as a “formidable weapon to deploy against Ukraine,” noting that, “conflict with Russia would imperil one of the transit routes for gas to Europe” and lead to higher prices.
Despite being partly privatized, since 2005 the Russian government has held a controlling share in Gazprom. Moscow is currently embroiled in a standoff with Ukraine and Europe over its military occupation of Crimea, a situation British Foreign Secretary William Hague today described as the “biggest crisis” to face Europe in the 21st century.
Gazprom’s announcement follows vehement threats made by U.S. Secretary of State John Kerry to “isolate Russia economically,” crash the rouble and impose other crippling sanctions.
Behind the alarming military maneuvers that have raised tensions since the overthrow of Ukraine’s democratically elected government, a more complex deep state agenda is being played out in the context of energy.
The recent improvement in fracking technologies has opened up eastern Europe to major oil companies such as Chevron, who have been very active in western Ukraine, Poland and Romania over the last two years, signing agreements to commence drilling operations in these countries
“The development of gas fields in these regions poses a direct competitive threat to the near-monopoly currently held by the Russian national oil company, Gazprom,” writes Charles Hugh Smith. “This sets up a scramble for energy, where western Ukraine, Poland, Romania and the EU have powerful financial incentives to develop energy sources outside of Russian control, while Russia has an incentive to secure energy resources and assets in Eastern Ukraine and Crimea.”
Gazprom (ie Moscow) fears that US-based multinational gas and oil firms will displace their monopoly by drilling new wells and selling to Germany and other Gazprom customers at cheaper prices.
“The extent to which US-based multinational oil and gas firms are directly displacing Russian enterprises in supplying the EU is remarkable. Chevron and Exxon are very prominent in the emerging offshore and shale plays,” writes Smith’s source.
“I think the imminent threat of Ukrainian shale gas development is a factor in forcing Putin’s hand over the EU trade deal. Putin’s regional Great Power ambitions are backed entirely by strong arm hydrocarbon diplomacy. Putin’s domestic political position equally rests on stable and elevated hydrocarbon prices to fund the state budget.”
While there are undoubtedly a number of different military objectives being pursued on both sides of the conflict, an important facet that has been largely ignored is the west’s bid to eviscerate Russia’s ability to set natural gas prices and in turn reduce NATO’s dependence on Gazprom in pursuit of the wider agenda to geopolitically isolate Moscow.
21 Comments on "Gazprom Threatens to Disrupt Gas Supplies to Europe"
Plantagenet on Tue, 4th Mar 2014 2:21 am
If Russia won’t supply the EU then the US will have to intensity frakking in order to export NG and supply the EU
Its WIN! WIN!
bobinget on Tue, 4th Mar 2014 3:50 am
#1) There will be no excess gas to export. Certainly not in RELIABLE commercial quantities. Don’t forget we already export gas to Mexico. If we somehow did develop more gas it would necessarily be at world prices to keep US companies from bankruptcy.
What if as some climatologists predict, winters like the one we are enduring this year become the new normal?
Sit tight and wait 200 years to find out.
2) the article in question is obviously dated.
Southstream http://en.wikipedia.org/wiki/South_Stream
Nord Stream
http://en.wikipedia.org/wiki/Nordstream
hillco on Tue, 4th Mar 2014 4:28 am
Sure, they can freeze in the dark for a few years while that happens. Watch the U.S. get on its high horse, realize it is up there all alone and then have to climb down again. Could someone who considered consequences of their words and actions actually be elected today?
ulenspiegel on Tue, 4th Mar 2014 5:48 am
What a shitty propaganda piece. Dear author, get the hard facts first.
1) To threaten AFTER a warm winter with NG storages well filled is stupid.
2) Russia depends on gas exports.
3) Pipelines chain producer to certain customers. This can not be changed in a few years.
4) Energy intensity decreases in Europe.
5) Global LNG capacities grow until 2020.
The problem for Russia is, that still more than 50% of the exports run via Ukraine, therefore, civil war there will hurt Russia.
Until 2018 this situation will not change.
The US shalegas volume will not change the global situation dramatically.
Northwest Resident on Tue, 4th Mar 2014 6:10 am
Russia is going to lock down Ukraine and Crimea. American politicians are going to follow their scripts, calling for sanctions, economic penalties, denouncing naked aggression, blah blah blah. John McCain and other Republicans are going to use this opportunity to portray the situation as “Obama’s weak leadership”, right on queue. European political leaders are going to either keep quiet or take a more nuanced position in public, exactly as they are doing, because they know that they have to keep working with Russia. Among all the media hype and all the political and conspiracy theory conjecture, one fact remains solid. Europe needs Russian’s gas as much as Russia needs to sell that gas to Europe. They are locked into a symbiotic relationship — together, they’ll keep BAU going for a while longer, apart, BAU crashes in all of Europe and drags the rest of us down with it. What we’re seeing is just a lot of politicians running amok on the world stage, spouting their lines, playing their roles, creating messages that have intended effects that we can only guess at. Behind the scenes, perpetrators of unrest in Ukraine are going to be hunted down like dogs, and normality will return. If not — if Ukraine really does get out of hand and erupt in violence — the global economy will take a punishing blow to the head, and then, game on. I don’t think anybody is ready for that just yet.
Davy, Hermann, MO on Tue, 4th Mar 2014 11:45 am
I agree N/R. Witness Syria and all the Hoopla about that fiasco. Who really won in Syria? Your Anti Americans here will pounce on that statement. The reality is always much more subtle and different. You may think Putin won (notice it is Putin not Russia) in Syria but in an important economic sense he is saddled with supporting a regime that is broke. And for what a base that may be mildly useful for the Russian military. Look at Chechnya and Georgian region and the subsidies that keep that region relatively quiet. How about the Belarus that gets Russian helps out so they are under the Russian thumb. These may not be major commitments individually but in summation they add up. Throw in a new Ukrainian situation. Russia has just taken on a new protectorate at minimum in Crimea. At worst the Ukraine falls apart in civil war and Russia gets the eastern part to administer. I am seeing large dollar signs here. Russia may have significant natural resources but it is a 3rd rate economic power. It can afford far less than one might think on the surface. You also need to understand the vulnerability of the Russian economy to the commodities market. I might add a very bad situation currently with China having the hiccups. N/R made a good point that this pony song and dance is bad for business in a time when business is bad. When leaders realize their worry over the economy is more than their worry over national pride and empty political ideas they will do what it takes to quiet this down. It will still have to play out on the ground. On the ground you are dealing with raw emotions that are just as likely to be irrational as rational. Ukraine is huge country with a large population. As far as recent crisis this is potentially the biggest for many years as far as what is at risk. The energy stability of Europe alone is huge. I might add Ukraine is a regional bread basket that no one can afford to see in civil war. We are talking a significant shock to the world’s wheat supply. I place my money on this blowing over with the current realities remaining. To change the current realities would require much blood and treasure. I don’t see the economic sanctions ether not in a time of extreme global economic risk. Sanctions are purely bluster IMHO at this moment. If sanction happen they will be of no consequences like no G8 vacation in Sochi.
Arthur on Tue, 4th Mar 2014 1:52 pm
Europe needs Russian’s gas as much as Russia needs to sell that gas to Europe. They are locked into a symbiotic relationship — together, they’ll keep BAU going for a while longer, apart, BAU crashes in all of Europe and drags the rest of us down with it.
Wise words. Actually a little oil & gas shock could be very beneficial in the long term, because it would force Europeans to take the energy problem even more serious than they do now. The ‘winter’ as already over, it feels like spring already, the Crimean Spring.lol, so, let’s have it, Wlad. Just shut off the pipeline and blame the Nazi’s from Lvov.
You may think Putin won (notice it is Putin not Russia) in Syria but in an important economic sense he is saddled with supporting a regime that is broke.
Putin’s rule in Russia is unchallenged, and he is basically freed of the western Ukrainian burden. He has European fools to carry the burden of 3 more Greece’s.
FarQ3 on Tue, 4th Mar 2014 1:57 pm
Do you think that the Russians may suddenly require all oil/gas exports to be paid for in roubles? That’d a huge chunk of the market and a big dent on US foreign exchange.
Davy, Hermann, MO on Tue, 4th Mar 2014 2:02 pm
FarQ3 pretty obvious at least for the moment Russia needs Dollars and Euro’s and not Roubles. Not many uses of a Rouble in world trade currently.
Davy, Hermann, MO on Tue, 4th Mar 2014 2:18 pm
Freed of the western Ukraine Arthur yes but Putin will have his hands full bank rolling his new protectorate of Crimea with the potential for eastern Ukraine a huge undertaking. If you think the eastern Ukraine will be easier to support than the western Ukraine I beg to differ. Eastern Ukraine may be more prosperous but not by much. In any case the Ukraine is still in one piece. It will not benefit either side if the Ukraine splits in a civil war. Putin has said as much in his press conference today. He is wary of sanctions and the huge costs of a military adventure in eastern Ukraine. The Crimean adventure was relatively cheap. I am sure there were contingency plans in place long ago for just such an action. They already have the infrastructure for up to 25,000 troops in the Crimea with only 16,000 there currently. I think we are at a de facto arrangement with Ukraine proper in opposition hands and Crimea a Russian protectorate. The threat of Russian involvement will keep the west and Ukraine from drastic action. The Russian will avoid a more costly adventure embroiled in a Ukrainian civil war.
Arthur on Tue, 4th Mar 2014 2:52 pm
The Crimean invasion is a no-brainer, the population is Russian and wants back. Nobody want to see his own country treated like a gift, but that’s what happened under Chrustchov. And then there is Sevastopol. The rest of the Ukraine is different and I do not want to assume that Putin is eager to do some Ukrainian land-grabbing if he risks a major international conflict.
But the problem is within the Ukraine itself. The east always was dominant and now all of a sudden the ‘provincials from Lvov’ have taken over. It is as if farmers from Tennessee have taken over Washington. The ultra-nationalists want to forbid the Russian language in the entire Ukraine. Here’s where the fun stops for the Russian Ukrainians. Countries have fallen apart for less. Nobody in Belgium forbids the Flemish to talk Dutch and the Walloons French. Yet the Flemish want to leave Belgium (for money reasons).
And it is like in Syria… it doesn’t matter if 90% of the population wants to see a united Syria. If 10% does not and is determined to break-up the country, chances are it will happen.
The Ukraine is a strange country anyway, with almost zero history of independence. A split up would be preferred, if it wasn’t so messy.
Davy, Hermann, MO on Tue, 4th Mar 2014 3:01 pm
Yea Arthur the language issue will be a major headwind to a peaceful resolution to this situation. I imagine considering the Ukraine’s need for economic support from all parties involved we will see the ultra-nationalist backing down from anything radical. Things are not stable yet but all parties have quickly backed off dangerous confrontational action. If anything what remains is political buster and maneuvering
rockman on Tue, 4th Mar 2014 5:07 pm
OK…not picking on anyone in particular. But folks need to wrap their minds around oil patch time lines: if the US et al gave the Ukes, Poles et al hundreds of $billion of FREE MONEY it would take decades to replace the Russian gas. And that’s assuming the reserves are there to develop. And if by some unimaginable circumstances this happens Russia would have developed significant NG transport to China long before the “shale gas revolution” kicks in.
Yes: Russia needs to sell NG. But losing sales for a while won’t cripple them. But how would the Ukraine and The EU consumers of Russian NG fair if zero Russian NG were delivered NEXT winter? NATO can’t justify military action against Russia (not that they ever would for other reasons) just because Russia won’t sell the NG they OWN.
This is starting to remind me of the old joke about a dumb terrorist: holding a gun to his own head he yells: “Don’t move or I’ll shoot. Putin needs do just one thing to bring about the deaths of many thousands and suffering to millions of his adversaries. And that is to do nothing…like not exporting oil/NG for a short period of time.
So who do you think can go longer without blinking?
Davy, Hermann, MO on Tue, 4th Mar 2014 5:47 pm
True Rock! I have been watching the financial side of all this and it is hilarious. We need more crisis like Ukraine for good market days. The market dropped a decent amount when the crisis broke now it is roaring forward today well past the drop point the other day. I think more and more it is economics that are trumping politics. We are in a profit driven world of connected global elite. These folks are not interested in what is bad for business. Maybe this is a good thing in the sense that greed is a brake on stupidity. You can be sure Madam Merkel is not going to let this Russian sanction business get too far along. Germany is highly connected to Russia and vice versa. Merkel speaks fluent Russian and Putin fluent German. Both leaders have an East German experience. Putin in the KGB there and Merkel early years were in East Germany. Merkel greatly admires Catherine the Great and Putin Czar Nicholas I. Sounds like a match made in heaven!
Northwest Resident on Tue, 4th Mar 2014 7:59 pm
Davy — “The Markets” are relieved and delighted that Russia has stepped in and returned Ukraine to more-or-less normal. Once all the hooligans and disturbers of the peace have been hunted down and rounded up, and a heavy dose of fear instilled in the remaining non-Russian population, then Ukraine will effectively be deemed “back to normal” and BAU in Europe and Russia can proceed as before. In America, the neocons are being told by their superiors to STFU and stop rocking the boat. Soon, we will witness a major peace initiative between Putin and Obama, a full on diplomatic breakthrough (snicker). In the end, everything returns to the way it was, except there are a few less neo-Nazi instigators walking free in Ukraine and a few less neocons in America looking to relive their glory days of the cold war — in other words, this time, the bad guys lose.
Davy, Hermann, MO on Tue, 4th Mar 2014 8:17 pm
It amazes me how in our society the immense complexity dwells side by side with such simpleton human nature and human ignorance. That nature quite often being on the dark side. It is scary having dangerous toys in the hands of school yard bullies. That is what world leaders turn out to be in the end.
rollin on Tue, 4th Mar 2014 11:36 pm
It’s stupid to threaten the neighbor that holds the valve on your energy. Best to make happy talk or just grumble a little, unless of course the PTB of Europe want it to come crashing down.
Makati1 on Wed, 5th Mar 2014 12:59 am
China will buy all the Russian oil and gas, and pay in gold or whatever. Russia is not going to let the Crimea get out of their control and China is on their side, not the West’s.
As for the EU, I don’t think they will survive this event if Russia cuts off the gas, which could be blamed on ‘Terrorists’.
Kenz300 on Wed, 5th Mar 2014 3:07 pm
Europe needs to be less reliant on fuels from Russia. This has been known for decades.
Every country needs to develop a plan to become more self reliant. Moving to local, decentralized power sources will help. Local energy production with local jobs can help reduce the need to rely on unstable sources.
Wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste can all be produced locally.
Every local landfill can be converted to produce energy, biofuels and recycled raw materials for new products.
Big oil and gas wants centralized power sources and control. It is time to move away from them and the centralized power sources. Local energy production is better for the economy and the security of Europe.
Nony on Wed, 5th Mar 2014 3:15 pm
Russia has the right to withhold their gas. Sure. But Ukraine also has the right to control pipelines that move through their country! After all, look at Keystone…we don’t take orders from Canada.
What disturbs me is the Germans colluding with Russia to partition Ukraine just to keep their gas prices down. Then again, we saw how they cut Poland up. Well, at least they had some fight back then. Now, they are just sort of weakling rationalizing worms.
Davy, Hermann, MO on Wed, 5th Mar 2014 3:33 pm
I wonder does the US have the right to withhold our grain exports. Maybe we as Americans should remind the world the reality of our existence is global cooperation. The withholding of vital resources will reverberate through the system leading to all countries experiencing potential shortages. In a complex global interconnect economic system there are unintended consequences that set loose contagions from certain actions. The contagions show up in other outwardly unrelated areas but areas that have relation through their connection to the whole.