Rome BURNS: Russia to raise Ukranian natural gas prices

Robert Rand, BURN Editor

Just around lunchtime today, Dmitry Medvedev, the Russian Prime Minister, sat down to chat with Aleksei Miller, the head of Gazprom, the Russian state gas monopoly.

“So how’s it going?” Medvedev began, according to a transcript of the conversation released by the Russian government. “Anything interesting happening? Anything good going on?”

“We’re exporting 162 billion cubic meters of gas to Europe,” Miller said, adding that in 2013 more than half of that volume flowed through pipelines that transit Ukraine.

The transcript didn’t say whether the men were smiling.

Moscow shut down those pipelines during a pricing dispute with Kiev in January, 2009, causing widespread wintertime fuel shortages in Europe during a time of peak demand.

Miller’s statement seemed designed to remind the European Community that it could happen again if the West, in response to Russia’s seizure of Crimea, leveled sanctions against the Kremlin.

The EU imports nearly a third of its natural gas requirements from Russia.

After a bit more chit chat from Miller, Medvedev got to the point of the meeting.

“So let’s talk about current events,”  Medvedev said. With theatrical understatement he continued: “How are relations with Ukraine? Are there any new problems going on, or is everything as it was in the past?”

Following the revolution in Maidan square, of course, very little between Ukraine and Russia remains the same except for the fact that the Kremlin supplies Kiev with some 70 percent of its natural gas requirements. Russian President Vladimir Putin cut the price of that gas by nearly one-third late last year in a deal that convinced the deposed Ukrainian president, Viktor Yanukovych, to step back from establishing closer economic and political ties with the EU. That move triggered the political revolt that sent Yanukovych fleeing to Russia, where he remains.

Miller went on to tell Medvedev that Ukraine, whose economy is crashing, is 1 billion 529 million dollars behind in its natural gas payments to Russia.  “Ukraine hasn’t fulfilled its obligations,” Miller said. “Gazprom has decided not to extend the subsidy beginning the first of next month.”

Medvedev was ready with a reply.

“He who doesn’t pay his bills must understand that there will be negative consequences,” he said.

The Russian prime minister and Gazprom chief executive met in a town called Gorky, outside Moscow. Gorky means “bitter” in Russian. It’s not clear whether the venue was intended deliberately to underline the Kremlin’s mood regarding developments in Kiev.

Afterwards, the Russian government’s Twitter feed reported the news:

pravitelstvo_logo

Правительство России ‏@Pravitelstvo_RF  5h

«Газпром» с апреля отменит льготы на газ для Украины в связи с неисполнением Киевом обязательств по контракту http://bit.ly/1eQpHeU

 

“From April Gazprom will curtail favorable gas pricing for Ukraine in connection with Kiev’s failure to fulfill contractual obligations,”  the tweet said.

Just as this registered on social media, U.S. Secretary of State John Kerry was in Kiev, voicing Washington’s support for the new Ukrainian government and, as the saying goes, putting money where his mouth is. Kerry offered 1 billion dollars in loan guarantees to help offset the price rise in Russian gas.

In related economic news, the ruble fell to a record low against the dollar yesterday in reaction to developments in Ukraine.  With more value for the American currency, it would be a good time to visit Russia if you were inclined to do so.

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Rome BURNS: The Ukraine-Russia Conflict Flows out of an Energy Pipeline

Pipeline mapRobert Rand, BURN Editor

In Europe, during the sub-zero winter of 2009, a nasty energy pricing dispute between Moscow and Kiev prompted Vladimir Putin, the Kremlin leader, to cut off natural gas exports to Ukraine, which receives 70 percent of its gas from Russia.

On the sidelines of that quarrel stood the rest of Europe, which depends on Moscow for nearly a third of its natural gas requirements. Since 80 percent of that gas flows through pipelines in Ukraine — pipelines that were decommissioned by Putin’s action — much of central Europe was affected, with supplies either reduced or completely cut off at a time of peak demand. It was the European Union’s worst ever energy crisis.

“It’s freezing cold outside,” one resident of Sarajevo, Bosnia-Hercegovina, told the BBC at the time. “Our gas heating stopped working…. We wear as many clothes as we can and wrap ourselves in blankets.”

“We are beginning to feel the effects of the gas cut-off,” said a man in Budapest, Hungary. “Now it’s cold inside as well as outside….  Last night we called a repairman about the heating but he said that he is getting calls from everyone and there’s nothing he can do about it.”

Now, five years later, Moscow and Kiev are at it again, this time with loaded pistols.  The revolution that toppled Ukraine’s pro-Russian leadership ostensibly caused the faceoff. But behind the current conflict — behind the rapidly breaking news of troop movements and threats of war — is an energy security problem that could again entangle all of Europe if the Kremlin decides to lash out.

The reason: Russia remains a Goliath-like provider of natural gas to Ukraine, and to a lesser extent, to the West. In other words, Vladimir Putin controls a rather large on/off energy button. If so inclined he could use it.

Here in a nutshell is what’s at stake, neatly articulated by Edward Goldberg, a professor at Baruch College, in an interview with thefiscaltimes.com:

“The reality today is that Russia supplies 31 percent of EU gas imports, 27 percent of crude oil imports, 24 percent of EU coal imports, 30 percent of total EU uranium imports, and is the EU’s third-largest supplier of electricity. In turn, the EU is not only easily Russia’s largest trading partner, but it is the market for 88 percent of Russia’s oil exports, 70 percent of its gas exports, and 50 percent of its coal exports.”

It’s worth remembering that energy was the point man in the ongoing Russia-Ukraine affair. Late last year, Kiev was prepared to move closer to the EU, economically and politically. That was a popular idea in much of  Ukraine. But Russia, whose interests in Ukraine go back many centuries, objected. Putin wooed Kiev by promising to reduce the price of natural gas by a hefty one-third. Ex-Ukrainian president Viktor Yanukovych agreed and pivoted away from the EU. That’s when the revolution found its footing and Maidan rose to the level of Tiananmen as one of history’s most famous squares. Within two months, the pro-Russian Yanukovych was gone. And the EU was voicing support for the government that replaced him.

The Kremlin has accused the EU of seeking a sphere of influence in Ukraine.  As of this writing, nobody in Putin’s camp has publicly threatened to retaliate by cutting off EU energy access. But over the weekend, as Moscow seized control of Ukraine’s Crimean peninsula, a spokesman for Gazprom, Russia’s state gas company, warned that Kiev is likely to lose the gas discount promised by Putin. Another Russian energy official said it would be “stupid” to extend the discount under current conditions.

If developments in Ukraine continue to escalate and the EU and U.S. respond with sanctions against Russia, it’s possible that Moscow could shut down the pipeline of energy exports to Europe as it did in 2009. Since that time, however, thanks in part to the growth of U.S. shale gas production, there are alternate gas suppliers around, and a Russian cutoff probably wouldn’t sting as much.  But if Vladimir Putin does use the energy weapon against the West, memories of that cold winter five years ago will fade in the face of something that will look more like another Cold War.

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The Global Energy Mix and Policies

 On this page, you can find energy information about the world’s most populated countries: China, India, the United States, Indonesia, Brazil, Pakistan, Bangladesh, Nigeria, Russia, and Japan. For fossil fuel information about any country, see online tables here.

A nation’s sources of energy hinge on so many factors, from what’s naturally available to geography, political history, and relative wealth.

Even though energy demand is increasing rapidly across the globe, the International Energy Agency estimates a fifth of the world population lacks access to electricity, and a whopping 40 percent of people still use traditional biomass – like wood chips – for cooking. People who live without the energy infrastructure of electricity depend on portable petroleum fuels, manure and methane gas produced from manure, wood, grass, and agricultural wastes. Because these sources of energy are informal, it’s difficult to track and include them in statistics.

World electricity and energy demands are escalating. Countries are expanding energy investment to non-fossil sources like biofuels, wind, solar, and geothermal. At the same time, they are competing to secure access to coal, natural gas, and petroleum both at home and abroad.

 

Nowhere has rapid energy growth been more conspicuous than in the world’s most populated country, China. While most countries saw moderate energy growth in the same period, this Asian nation doubled energy use in less than a decade – see graph – and surpassed the United States in total energy use in 2009, according to International Energy Agency estimates. Until 2009, the United States lead the world in total energy consumption, though not per person consumption, for decades. For a list of the top 30 countries by total energy consumption see here.

Meanwhile, less than 42 percent of people in Africa had electricity at home in 2009. South Asians seemed better off than Africans that year, at 62 percent, but the real story is much more diverse. Nearly 100 percent of Chinese had access to electricity, while in Burma, only 13 percent had access. Worldwide almost 78 percent of people had access to electricity in 2009, according to the International Energy Agency.

 

ENERGY IN THE WORLD’S MOST POPULATED COUNTRIES

 

CHINA (Pop. 1.3 billion)

Between 2008 and 2035, China may triple its electricity demand, adding power plant capacity equal to the current U.S. total, the International Energy Agency projects in one scenario of the 2010 World Energy Outlook.

China is the world’s most populated country and also the world’s largest energy consumer. China gets most of its energy from coal, 71 percent in 2008. China is also the world’s biggest coal producer but only third, behind the United States and Russia, in coal reserves.

In 2008, China generated another 19 percent of its energy from oil, which it imported from all over the world, more than half came collectively from Saudi Arabia, Angola, Iran, Oman, Russia, and Sudan. China used to export its oil, but by 2009 automobile investment was expanded by so much, the country became the second largest oil importer (United States is first).

China is in hot pursuit of securing as much oil as possible, as the nation’s reliance on imported oil is growing far more rapidly than its oil production. Several powerful, national oil companies provide the domestic oil, both from on and off-shore sources. Furthermore, China has purchased oil assets in the Middle East, Canada, and Latin America, and it also conducts oil-for-loan exchanges with other countries, $90 billion worth since 2009, according to the U.S. Energy Information Administration.

Only a small proportion of China’s energy comes natural gas, produced domestically and imported in liquified form, but that may change as prices lower and liquified natural gas terminals are constructed.

China is the world’s biggest user of hydroelectric power, which made up 6 percent of energy and 16 percent of electricity in 2009. The country’s Three Gorges Dam, the world’s largest hydroelectric project, is expected to begin operating in 2012. Nuclear power accounts for only 1 percent of total consumption. However, China’s government predicts it will have seven times its current nuclear capacity by 2020.

A homemade oven. West Bengal, India, 2009.

Detailed data on energy in China can be found here.

 

 

 

 

 

 

INDIA (1.2 billion)

India is the world’s largest democracy. Though India’s population is close to that of China’s, it is only the world’s fifth largest energy user, behind the United States, China, Russia, and Japan.

Like China, India’s electricity comes mostly from coal. However, India doesn’t have enough electricity for everyone, and only 65 percent of the population has access to electricity.

Instead, many Indian use fuels at home for lighting and cooking. A 2004-2005 survey by the government found more than 40 percent of rural Indians used kerosene instead of electricity for home lighting. The same survey showed that for cooking, 74 percent of Indians used firewood and wood chips, 8.6 percent used liquified petroleum gas, 9 percent used dung cakes, and 1.3 percent used kerosene.

India produces oil domestically, but like China, the rate of India’s increasing oil consumption far outstrips its production. India therefore has to import oil; in 2009 its most significant sources were Saudi Arabia, Iran, Kuwait, Iraq, the United Arab Emirates, Nigeria, Angola, and Venezuela, in descending order.

India doesn’t have the electricity capacity to serve its population but aims to add many thousands of megawatts in the near future.

Like China, India has nuclear power, with 14 nuclear plants in operation and another 10 in planning, the reactors purchased from France and Russia.

 

UNITED STATES (300 million)

Until China recently outpaced it, the United States was the biggest energy consumer in the world, though per capita use isn’t the highest but in the same range as several developed countries worldwide and less than the per capita use in Canada. The United States relies on petroleum, coal, and natural gas, as well as a small part nuclear, hydroelectric, and various non-fossil sources. The Unites States has significant oil, coal, and natural gas reserves, as well as the potential for significant investment in solar, off and on-shore wind, and biofuels.

The mix of fuels that provide electricity varies widely from region to region. Find a map of fuel mix by U.S. region from the Edison Electric Insitute here.

For more U.S. information:

-Fossil fuel use in the United States, go here.
-U.S. greenhouse gas emissions and energy here.
-U.S. sources of energy, see here.

 

INDONESIA (250 million)

Indonesia is an archipelago of more than 17,000 islands — 6,000 are inhabited — and it is home to 76 active volcanoes and a significant undeveloped geothermal capacity, estimated at 28 gigawatts, about as much total electricity capacity as Indonesia had in 2008.

Indonesia’s energy demand is growing rapidly, split between coal, natural gas, and petroleum sources. Traditional sources of energy like wood and agricultural waste continue to be used, particularly in rural areas and remote islands, and the International Energy Administration estimates these fuels provide about a quarter of the country’s energy.

Indonesia exports coal and natural gas. In the past, the country also exported more oil than it used, but as of 2004 that balance changed. By 2009, the country suspended its membership in the Organization of Petroleum Exporting Countries (OPEC) because it was using so much of its own oil.

 

BRAZIL (200 million)

Tropical Brazil is the largest country in South America both in area and population, and it is the third largest user of energy in the Americas, after the United States and Canada.

Made from sugar cane, Brazil’s ethanol production is the world’s second largest, after the United States, which makes ethanol from corn.

Brazil produces almost as much petroleum as Venezuela and produces slightly more fuel than it consumes.

While Brazil depends on oil for other energy applications like transportation, the country gets an astounding 84 percent of electricity from hydroelectric dams. Brazil also has two nuclear power plants.

PAKISTAN (190 million)

Pakistan has limited access to electricity and energy sources, and its rural population still relies on gathered fuels like wood for heating and cooking.

In 2009 around 60 percent of the population had access to electricity, far better than its neighbor Afghanistan, at just 15 percent. Nonetheless, even with access, most of the population can’t rely on electricity unless they are wealthy enough to own generators. Pakistan suffers from lengthy blackouts, even in its cities, in part because of poor transmission infrastructure and widespread electricity theft. The situation is also aggravated by lack of capacity planning, insufficient fuel, and irregularities in water supply for hydroelectric.

In 2010, angry citizens protested violently after lengthy blackouts — as long as 18 hours according to Reuters — plagued the country. That summer, Pakistan has nowhere near enough electricity for its peak needs, which were roughly 25 percent more than its total production capacity. The widespread blackouts crippled the country’s textile industry, its biggest source of exports, and some reports suggest that hundreds of factories were shuttered as a result of sporadic power.

Meanwhile, several proposals for gas pipelines through Pakistan have yet to get solidified, including one from Iran to Afghanistan (which is opposed by the United States).

 

BANGLADESH (160 million)

Like nearby Pakistan and India, with which it shares cultural and political histories, Bangladesh also suffers from electricity shortages. Only 41 percent of Bangladeshis had access to electricity in 2009, according to the International Energy Administration.

Most of the electricity in this delta nation is generated from natural gas, with smaller amounts each from oil, coal, and hydroelectric sources. More than 30 percent of the country’s energy comes from biomass, agricultural wastes, and other combustible, renewable materials.

In 2011, Bangladesh signed a contract with oil company ConocoPhillips, allowing off-shore drilling for natural gas, despite internal protests that insisted Bangladesh should keep more of the gas for its own. The agreement gives 20 percent to Bangladesh.

 

NIGERIA (160 million)

Nigeria is Africa’s most populous country, and it is world famous for its oil, most of which is exported for sale by huge foreign oil companies like Royal Dutch Shell, ExxonMobil, Chevron, ConocoPhillips, Petrobras, and Statoil. Roughly 65 percent of government revenue comes from the oil sector, and around 40 percent its oil exports are sent to the United States. Nigeria also holds the largest natural gas reserves in Africa.

Extensive oil development has wreaked havoc on Nigeria’s ecology. Oil spills have polluted Nigeria’s water, affecting both fishing and agriculture. Much of Nigeria’s natural gas is flared rather than being collected and sold for fuel. Flaring involves burning off naturally-occurring gases during petroleum drilling and refining, resulting in  environmental degradation, greenhouse gas emissions and loss of revenue.

Even though Nigeria is fossil fuel-rich, only 47 percent of the population have access to electricity, and less than a fifth of energy in that country came from petroleum and natural gas in 2007, reflecting the widespread use of more traditional fuels like wood. Nigeria only used 13 percent of petroleum it produced in 2009.

 

RUSSIA (140 million)

Russia has significant wealth in fossil fuels, including the largest natural gas reserves and the second largest coal reserves, after the United States. In 2009, Russia produced more oil even than Saudi Arabia, mostly from Western Siberia. In 2009, Russia exported far more oil than it used, and 81 percent of its exports went to Europe, notably the Netherlands and Germany.

Russia is also the third largest consumer of energy in the world.

The country has a well-developed pipeline system to transport oil from remote regions, a system which is almost entirely controlled by a single state-run company, Transneft.

Like Nigeria, Russia flares gas in the process of drilling and refining oil, and in 2008 Russia flared more gas than any other country in the world, 1,432 Bcf of natural gas, more than double Nigeria’s output and equivalent to the annual greenhouse gas emissions for 1.4 million passenger cars, according the calculator on the U.S. Environmental Protection Agency website and data from the U.S. Energy Information Administration.

Russia operates 31 nuclear reactors, half of which employ a similar design to the ill-fated Chernobyl plant in the Ukraine.

 

JAPAN (130 million)

Japan doesn’t have significant fossil fuel resources, one reason that much of its electricity industry relies on nuclear power. It is the world’s third largest user of nuclear power.

Japan is the world’s third larger oil consumer, and it does produce some oil domestically. However, it also imports a lot of oil and natural gas, the later in the form of liquified natural gas, or LNG. Almost half of its energy came from imported oil in 2009, and just 16 percent of Japanese energy came from a domestic source.

Japan also invests heavily in foreign oil, including in the United Arab Emirates, the Congo, Algeria, Russia, Australia, Papua New Guinea, Brazil, Canada, the United Kingdom, Vietnam, and Indonesia, to name a few.

As of June 2011, Japan is still recovering from a massive earthquake and tsunami that devastated its northeast coast on March 11, 2011, forcing the shutdown of several nuclear reactors as well as damaging refineries, oil and gas generators, and electricity transmission infrastructure.

Japan imports most of its oil from the Middle East: Saudi Arabia, Iran, Kuwait, the United Arab Emirates, and Qatar together supplied 77 percent of imports in 2009.

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