Wednesday, January 14, 2009

Europe is still gasless

Almost as soon as natural gas from Russia started flowing into pipelines bound for Europe, Ukraine cut off the supplies, continuing the energy crisis that has gripped much of Central and Southern Europe for two weeks now.

Ukraine admitted to shutting down their pipeline network, blocking Russia from shipping gas to Europe, after Russian gas company Gazprom imposed "unacceptable conditions" on Ukraine. Between the charges flying back and forth between Russia and Ukraine, it's hard to figure out what exactly is going on, but it seems like the hold up now is over something called ‘technical gas’.

Think of trying to drink through a straw - you need to exert a certain amount of pressure to get the liquid to flow. The same is true of pipelines - they need a certain pressure to work. But Ukraine's pipeline network isn't in great shape and loses pressure over distance, so to ship gas in it you need to pump in an additional amount, called ‘technical gas’, to maintain a constant pressure from one end of the network to the other. For the network in Ukraine, this is working out to be about 7% of the total amount shipped. Gazprom wants Ukraine to pay for the technical gas, since Gazprom says it stays in Ukraine and that they ultimately use it; Ukraine thinks the technical gas is a cost Gazprom should absorb as the price of using their network.

So the taps are closed again. Europe at this point is fed up with the whole situation - Serbia is reporting that their electric grid is straining under record demand as people use electricity for heat rather than gas, Hungary issued its first-ever smog alert in Budapest as people switch from clean-burning natural gas to oil to keep warm, while other countries report they have less than two weeks of natural gas left in their reserves (in the middle of winter, of course). They are demanding that Ukraine and Russia come to an agreement to end the standoff once and for all.

And while Russia has been bearing the brunt of the ill will over the gas dispute so far, it seems like Europe is starting to give Ukraine an equal share of the blame. Slovakian Prime Minister Robert Fico said, “Ukraine is losing the trust of European partners because of its behavior.”

Past the shipment agreement, Russia and Ukraine still need to negotiate a separate deal for Gazprom to supply Ukraine with gas for them to use domestically.
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