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Page added on August 29, 2014

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The Russia-Ukraine standoff looks to the energy needs of winter

Public Policy

In this month’s excerpt from Platts Energy Economist, Ross McCracken looks at the winter energy implications of the Ukraine-Russia divide.

Regardless of Russian denials, Moscow is clearly providing direct support for the separatists in eastern Ukraine. Reports Thursday were numerous of tanks, armored vehicles and rocket launchers being deployed in the region, not to mention the earlier capture by Ukrainian forces of ten Russian soldiers 12 miles inside Ukrainian territory. There  is no other source for the rebels’ weaponry–and according to some reports, personnel–than the Russian army.

The rise of increasingly overt Russian support comes after a period in which Ukrainian forces have registered significant success in reducing the territory held by the separatists. The conclusion has to be that Russian President Vladimir Putin cannot accept defeat in eastern Ukraine. To do so would be seen as an abandonment of Ukrainian Russians, puncturing the projection of Russian power in the region, so clearly demonstrated by the annexation of Crimea in March.

The result will be an escalation of the conflict, with the fiction that this is not a war between states but a civil conflict, increasingly hard to maintain.

In any escalating conflict, there is the temptation to use larger and larger weapons. One of those weapons is energy. A recent Platts analysis of Ukrainian gas imports from Europe and Ukrainian  domestic production indicates that Kiev will not be able to reach the minimum level of 20 Bcm of gas in storage by October 15 required to ensure European gas supply over winter. In addition, disruption to Ukrainian coal production as a result of the fighting means that coal stocks are also currently insufficient for the high-demand winter period. (Poland’s coal miners are incidentally sitting on a large stockpile of unsold coal that they cannot shift in their own market).

There are a number of possibilities. Ukraine, despite an agreement with the EU not to do so, could siphon off natural gas supplies destined for Europe  in the face of domestic shortage. This was the justification used by Russia’s Gazprom for cutting European gas supplies during the pricing dispute of 2009.

Kiev could itself block the gas transits as a means of putting pressure on Moscow and forcing greater EU engagement, regardless of the self-inflicted costs this would incur. A bill allowing Kiev to impose just such sanctions on Russian was passed by the Ukrainian parliament in August.

A Russian invasion of eastern Ukraine remains a possibility. It appears that Moscow will not come to the table until it has the military position it wants on the ground. The gas weapon could be deployed by either side in an attempt to force a settlement, either to secure military gains or to in an effort to prevent the other side achieving them.

Some kind of disruption to European gas supplies this winter looks increasingly likely. On its current trajectory, the Ukraine crisis looks set to wreak further damage all round: to the Russian, Ukrainian and EU economies, to EU-Russian energy relations; to Russian oil production in the long term as a result of sanctions; and to territorial security in central and eastern Europe.

platts



12 Comments on "The Russia-Ukraine standoff looks to the energy needs of winter"

  1. Makati1 on Fri, 29th Aug 2014 8:43 pm 

    More unsubstantiated BS from Platts…

  2. MKohnen on Sat, 30th Aug 2014 12:52 am 

    Ignoring all the stupid assumptions and propaganda of this article, it comes down to this: If Russia can’t sell its oil and gas to the EU, or give it away to the Ukraine, Russia still has it. Russians won’t freeze, and Russian industry can keep right on going. When the EU can no longer stand it, it will have to negotiate with Russia for FF’s, and probably at a higher price. So for Russia, it’s short term pain, long term gain. For the EU, it’s lose/lose. Same for the Ukraine. With the whole global situation I think one could sum it up to: whoever has the energy will fare much better than those who don’t.

  3. Makati1 on Sat, 30th Aug 2014 7:20 am 

    MKohnen, you are correct. This whole affair is about the Russian resources that the greedy USSA wants to control and plunder, at any cost. Even chancing a nuclear war.

    One of the problems of s democracy is that the incompetent eventually rise to the top. For instance: Bush Jr and Obama.

  4. Davy on Sat, 30th Aug 2014 7:58 am 

    MK, get a grip a globalized world does not operate that way. It is not a black and white picture it is a multicolored picture. Maybe 60 to 100 years ago this thinking would have been reasonable but not today. A large part of Russia’s economy from manufactured products, vital services, food, vital parts, and consumables is imported. Oil prices will collapse in a serious contraction. Russian imports and exports will likewise falter as part of a globalized collapse. The Russian economy will likewise collapse. If you think Russia will come out of this unscathed because it has energy resources is simplistic. It takes many resources to run a complex economy. If the world does not get a grip soon on the dangers of a fracturing BAU globalism then this end is near. I have no need to elaborate on the American and Western issues. The American talk here is excessively dedicated to anti-American topics and comments mostly by expats and or non-Americans. We have Americans discussing American issues here but generally in a balanced way not the blame game. The sooner the blame game ends the sooner the globalized world will come together to mitigate the greatest crisis man has ever faced.

  5. Davy on Sat, 30th Aug 2014 8:03 am 

    It is so simplistic to always talk nuclear war and how the US wants to start one. It is simplistic to say the US is plundering the worlds resources when the global world is an economy based on trade and exchange. I have seen nowhere a global gift economy benefiting the US. If anything the US is doing the heavy lifting with world security. If you say this is the problem well the rest of the world needs to man up and come up with a workable security arrangement. The naked truth is the rest of the world is incapable of securing the world without the US.

  6. JuanP on Sat, 30th Aug 2014 9:30 am 

    The whole article is a load of crap, but the author manages somehow to reach the right conclusions for all the wrong reasons.
    I agree that this conflict is escalating and will continue to do so. I also agree that Ukraine, Europe, and Russia are paying a heavy price, which in my opinion was what the American government wanted. I think the American gov has had some significant tactical victories at enormous global strategic costs, but they don’t understand the cost part of the equation and think they are winning.
    The way I see it is nobody wins here, we are all losers.

  7. JuanP on Sat, 30th Aug 2014 12:44 pm 

    “The consumption of natural gas in Ukraine reduced in July by 30.3 per cent compared to July 2013, according to the country’s State Statistical Committee. The consumption of oil has fallen by 23.3 per cent compared with last year – and so has the consumption of coal, with figures showing a reduction by 25.9 per cent.” Russia Today

  8. edboyle on Sat, 30th Aug 2014 3:34 pm 

    Lots of problems here. Novorussia will expand until it takes kiev. Perhaps the govt. will flee before then as freezing in the dark with no running water is no fun for anyone and riots will ensue everywhere. Every time they win a major battle against the kiev regime, poroshenko accuses russia of involvement which leads to sanctions and counter-sanctions. By the time the rebels reach kiev there will be zero trade with russia as poroshenko will get asylum in the westand say that a million russian troops marched down main street to the parliament. This will be stated in all western media as fact and be the basis of a declaration of war or similar althoih no russians are present except asidealistic volunteers along with french, spanish, etc. I wonder what west ukrainers will do. Will they accept peace for a separate state along dnieper river? Will they have a choice? Will novorussia ecome arussian province? Will western russian relations be permanently damaged? We can look at yugoslav war as basis for discussion. It is clear that west is not going to win this war and will lose long-term dollar dominance and military trade dominance, etc. We see how bad it went in iraq, afghanistan, lybia, syria, now ukraine. But what about western economic problems caused by less dollar flows and less trade for europe increasing recession, destabilizing europe and , making right wing and left wing win elections, splitting eu and nato. Usa loses the more aggressive it gets, thrashing around. Unfortunately we all go down with washington politics.

  9. MKohnen on Sat, 30th Aug 2014 6:08 pm 

    Davy,

    My comment never mentioned America at all, and I certainly never stated that Russia would come out unscathed. If anyone, anywhere thinks their country will come out unscathed, they are hooked on some serious drugs! Russia’s economy, like all economies, will most certainly suffer. And probably to a greater extent, at least for the short term, than the US’s. But the fact that the countries with energy will fare better than those without should also be a given. If the US imported the majority of its FF’s from hostile countries, would you still be telling me that the US would fare better than the countries it gets its fuel from? Obviously the EU’s energy dependence on Russia is an Achilles’ Heal.

    I absolutely cannot agree with the statement ” If anything the US is doing the heavy lifting with world security.” The US is the Number 1 fomenter of war on this planet. Tell the people of Afghanistan, Iraq, Syria, Libya, Iran, Russia, China, etc. about how the US is somehow protecting their security. Canada, sure. US security is why Harper and Baird can sound so macho and threatening toward the Russians. If the US didn’t have our back, we’d have to behave a lot more civilly and use more diplomacy. And if things get pushed too far, both these guys will be quickly whisked to some NORAD bunker with the promise to return and “lead” whoever is left. But “the world” most certainly finds no pax in Pax Americana.

  10. Davy on Sat, 30th Aug 2014 8:29 pm 

    MK, You may not agree with my statement on global security but maybe the dysfunctional nature of the world’s security situation would not be so bad if the rest of the world stepped up to the challenge. The US is in the damned if they do damned if they don’t situation. If the rest of the world took a larger role the US would not be so dominant. The world is changing now to a polarizing multipolar world so the US security situation is going to change with that reality for the better let’s hope. I never said What the US is doing is right what I am saying there has to be a security effort or a vacuum develops. I also find your list of countries dubious in the reference. (Afghanistan, Iraq, Syria, Libya,) are failed states. Iran, Russia, China are no poster girls as a references to the US.

  11. Makati1 on Sat, 30th Aug 2014 8:38 pm 

    Davy, the world would have had a lot more “security” if the US never existed. Certainly if they had not meddled for the last 100 years in every country they could. The US is the rogue nation. Plunderers and pirates big time. The real terrorists of the planet. Only self-centered Americans believe different. The USSA wants war, a big one and they will die trying to get it … or, if they get it, will die in the exchange of nukes.

  12. JuanP on Sun, 31st Aug 2014 10:29 am 

    An interesting Russian scholarly perspective on the evolution of Russia’s foreign policy since the end of the Soviet Union.
    http://eng.globalaffairs.ru/number/Transformation-of-Russias-Foreign-Policy–16706

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