Russia-Ukraine Tensions Still Loom for Europe’s Producers
LONDON (ICIS news)--The inherent tension between Russia and Ukraine suggests that last month’s gas supply agreement may not be the end of their long-running dispute, according to an industry consultant on Wednesday.
“Although I’m sure gas will now flow fine for 2009, the big question is what will happen this time next year,” said Mark Spelman, global head of strategy at consultancy Accenture.
“With a difficult economic outlook, a weak Ukrainian economy, combined with a presidential election and Russia’s desire to push through prices similar to those in the rest of Europe, I suspect there could be some brinkmanship in the discussions ahead.
“We are not out of the choppy waters yet,” said Spelman.
A matter of weeks after Russia’s Gazprom – the world’s largest gas company – stopped the transit of gas through Ukraine, a 10-year deal was struck to resume supplies.
The deal, signed on 19 January, included the caveat that pre-payment would be required if Ukraine failed to pay for its gas on time in the future.
Both parties also agreed to switch to the European price formula.
Disruption of gas supplies had caused particular problems for fertilizer producers in central and eastern Europe.
The impact of the supply squeeze was, in some cases, severe. Central and eastern European countries bore the brunt of the restrictions, with Slovakia, Austria, Hungary, Slovenia, Poland and Bulgaria particularly affected.
The dispute also sent shockwaves throughout the rest of Europe.
Even in western Europe, where most natural gas is sourced from Norway, the cutbacks had an impact.
European producers – predominantly fertilizer producers – that rely heavily on gas feedstock have been caught in the crossfire of the price wrangle between Russia and Ukraine, which dates back almost two decades.
The recent Russia-Ukraine dispute again highlighted the EU’s dependence on Russia and the network of pipelines that run through Ukraine.
“I think we’ve got at least a decade of gas dependence ahead before some of the alternatives [such as nuclear and renewables] can be ramped up,” said Spelman.
“There's been a lot of talk since the last crisis in 2006; the reality is that we haven't been able to accelerate the diversification away from Russian gas and its shipment through Ukraine,” he said.
“There has not been enough speed or urgency, and I think this crisis will result in a new EU approach, which might perhaps help us move from bilateral discussions with the Russians rather to a more coordinated, pan-European approach.”
Only last November the European Commission published its Strategic Energy Review, which emphasised the importance of ensuring energy security.
It outlined numerous recommendations, including building energy solidarity among EU member states and an action plan to secure sustainable energy supplies in the EU.
There are also several major pipeline projects underway that should mitigate any future disputes.
The planned Nord Stream project will ship gas under the Baltic Sea from Russia to Germany, while the South Stream pipeline will run under the Black Sea from Russia to Bulgaria.
In addition, the Nabucco pipeline will run 3,300km from Turkey to Austria, via Bulgaria, Romania, and Hungary.
However, with each of these projects some years from completion and energy requirements increasing, it has never been more important to strengthen the relationship between Russia and Ukraine.
“Obviously the most important thing was to get the gas flowing again but the question remains whether the deal has addressed enough of the fundamentals to sustain itself,” said Spelman.
“There needs to be ongoing pressure to make sure that the agreements that have been hammered out do stick, and that we are quick to anticipate some of the issues that may arise.”
“Although I’m sure gas will now flow fine for 2009, the big question is what will happen this time next year,” said Mark Spelman, global head of strategy at consultancy Accenture.
“With a difficult economic outlook, a weak Ukrainian economy, combined with a presidential election and Russia’s desire to push through prices similar to those in the rest of Europe, I suspect there could be some brinkmanship in the discussions ahead.
“We are not out of the choppy waters yet,” said Spelman.
A matter of weeks after Russia’s Gazprom – the world’s largest gas company – stopped the transit of gas through Ukraine, a 10-year deal was struck to resume supplies.
The deal, signed on 19 January, included the caveat that pre-payment would be required if Ukraine failed to pay for its gas on time in the future.
Both parties also agreed to switch to the European price formula.
Disruption of gas supplies had caused particular problems for fertilizer producers in central and eastern Europe.
The impact of the supply squeeze was, in some cases, severe. Central and eastern European countries bore the brunt of the restrictions, with Slovakia, Austria, Hungary, Slovenia, Poland and Bulgaria particularly affected.
The dispute also sent shockwaves throughout the rest of Europe.
Even in western Europe, where most natural gas is sourced from Norway, the cutbacks had an impact.
European producers – predominantly fertilizer producers – that rely heavily on gas feedstock have been caught in the crossfire of the price wrangle between Russia and Ukraine, which dates back almost two decades.
The recent Russia-Ukraine dispute again highlighted the EU’s dependence on Russia and the network of pipelines that run through Ukraine.
“I think we’ve got at least a decade of gas dependence ahead before some of the alternatives [such as nuclear and renewables] can be ramped up,” said Spelman.
“There's been a lot of talk since the last crisis in 2006; the reality is that we haven't been able to accelerate the diversification away from Russian gas and its shipment through Ukraine,” he said.
“There has not been enough speed or urgency, and I think this crisis will result in a new EU approach, which might perhaps help us move from bilateral discussions with the Russians rather to a more coordinated, pan-European approach.”
Only last November the European Commission published its Strategic Energy Review, which emphasised the importance of ensuring energy security.
It outlined numerous recommendations, including building energy solidarity among EU member states and an action plan to secure sustainable energy supplies in the EU.
There are also several major pipeline projects underway that should mitigate any future disputes.
The planned Nord Stream project will ship gas under the Baltic Sea from Russia to Germany, while the South Stream pipeline will run under the Black Sea from Russia to Bulgaria.
In addition, the Nabucco pipeline will run 3,300km from Turkey to Austria, via Bulgaria, Romania, and Hungary.
However, with each of these projects some years from completion and energy requirements increasing, it has never been more important to strengthen the relationship between Russia and Ukraine.
“Obviously the most important thing was to get the gas flowing again but the question remains whether the deal has addressed enough of the fundamentals to sustain itself,” said Spelman.
“There needs to be ongoing pressure to make sure that the agreements that have been hammered out do stick, and that we are quick to anticipate some of the issues that may arise.”
By Andy Brice (source: www.ICIS.com)
