Monday, January 02, 2006

More on the Russian-Ukrainian gas dispute

I was overly optimistic that the Russian-Ukrainian game of chicken over gas would come to an end with seconds left on the clock to spare; it also seems that scenario #2--a symbolic day of gas supplies shut off followed by a new agreement--is also not likely to come to pass. (See earlier postings on December 29)

It appears that Moscow's twin hopes--discrediting the Orange Revolution and reviving support for the Baltic Pipeline System that bypasses Ukraine and other east-central European countries in favor of direct supplies to Western Europe via Germany--are now being threatened because the question of European dependence on Russia is being put back on the agenda. The Scotsman is reporting "The (British) Department of Trade and Industry was warned at least four years ago that relying on imported gas would render the British economy vulnerable to disruption from Russia" and that a forthcoming energy review "is also expected to call for clear rules on gas imports to ensure that no one supplier becomes vital to Britain's needs. That could mean constructing new pipelines and other supply routes from nations including Canada, and regions including North Africa and South America." (By the way, this tracks with Barry Lynn's recent essay in the Winter 2005/06 issue of The National Interest that the global economy needs to diversify sources of supply of both raw materials and finished goods).

Meanwhile, one wonders about the consistency of support for free-market remedies in the U.S. government. Iraq's oil minister resigned after criticizing the IMF advice which led the government to triple gasoline prices, effectively ending subsidies. At the same time, the U.S. State Department statement on the Ukraine-Russia gas crisis calls for market pricing to be introduced gradually. The theory in Iraq was that sudden price liberalization would cause Iraqis to save fuel and not depend on subsidies; interestingly, some Ukrainians saw a silver lining in the Russian demands--if not entirely pleased by the timing!, seeing a sudden price hike as a way to introduce efficiency and over time cut the country's dependence on Russia.

I'd be very surprised if any natural gas from Canada ended up being exported as LNG to the UK, given that prices are around $11 per million Btus in the North American market right now, and the already-existing transportation infrastructure for Canadian exports to the U.S.

Libya, though, now that sanctions have been lifted, has a real potential to increase its role in supplying Europe. There is still quite a bit of geologically-interesting acreage in Libya that is unexplored, or at least hasn't been explored with the most modern technology.
The thing that scares me is how they can use this producst as a politicial tool. eergo, my fears about relying on imports.
Raymond B
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