The Finch Formerly Known As Gold

2 January 2006

Hand over the BTUs and no one gets hurt

Natural gas supplies from a pipeline running from Russia into western Europe have dropped by more than a third, and the Russians claim that Ukraine, whose quota has been cut off by Russia for nonpayment, is stealing the gas.

Gazprom, the Russian gas monopoly, supplies about one-quarter of the gas used in western Europe; Italy, France, Austria, Slovakia and Hungary report they're getting 24 to 40 percent less than expected. Ukraine denies that it's siphoning off the gas, and contends Moscow is trying to punish Kiev for seeking greater ties to the West by quadrupling the price of gas.

Even the higher price — $230 per thousand cubic meters, or about $6.51 per thousand cubic feet — is roughly comparable to the rates paid in the European Union, and a bit lower than the current price in the US.

Update: The US has weighed in on the issue. Says Sean McCormack of State:

Such an abrupt step creates insecurity in the energy sector in the region and raises serious questions about the use of energy to exert political pressure.

As we have told both Russia and Ukraine, we support a move toward market pricing for energy but believe that such a change should be introduced over time rather than suddenly and unilaterally.

McCormack apparently did not define "over time."

Update, 3 January: The Russians aren't backing down, but they've turned the gas back on.

Posted at 9:03 AM to Family Joules

Chaz, knowing ukrainians, this sounds more like the real story.

Posted by: Tat at 9:25 AM on 2 January 2006

I can't say I'm particularly surprised. (If quadrupling the price only brings it up to the extant market price, surely Kiev had a sweetheart deal of some sort going.) And bribes are a routine cost of doing business, apparently.

Posted by: CGHill at 9:50 AM on 2 January 2006