Ruminations on Russia

Konstantin of Russia Blog fame keeps up his attack on asinine western reporting of Russian gas politics via Snarling Winnie-the-Pooh, meanwhile Edward Lucas (who as the resident Economist correspondent was the best counter-cylical indicator possible) steps in with invective rather than analysis (link via A Step At A Time) which is cut and pasted at the bottom for your edification. Before I lose you in Edward's alphabetic rant, some other pointers: Andrew Jack, previously Moscow-based FT reporter and author of Inside Putin's Russia, acknowledges that there may be two sides to the story (and then fails to mention Ukraine's theft of European gas).

There are some indisputable facts that should be laid out before an analysis is made. The failure to do so by most journalists and bloggers is usually because the facts inconveniently do not fit with their analysis:

• Russia produces more and exports more natural gas than any other country - 22% of total world gas production, 24% of world total gas exports (Canada the next largest exporter has 13% share of the market)
• Europe is dependent on FSU (Russia really) gas supplies and is not willing to replace its dependence on Russian gas in favour of more expensive gas from N. Africa (next essay - compare and contrast the security of energy supply from N. Africa and Russia) and it failed to invest in alternate sources of power when it had the time to do so.
• The leaders (sic) of Europe, Russia and the USA prefer to talk in cold war terms at each other rather than with each other (except for Gerhard Schroeder who will listen to anything you say as long as it comes in a paper bag.) This creates the rather unedifying spectacle of cold war hysterics over economics.
• During the Ukrainian gas crisis and following Russia cold snap Gazprom and other gas intermediaries did not default on any gas delivery contracts to western Europe (did you notice GAZP being sued by any large banks which have secured GAZP's borrowing through long-term off-take agreements). Another essay title - Is gas a commodity if it's supply is less than demand?
• The cost to Russia of switching customers from Europe to whoever and wherever are significantly higher than any political benefit to be gained from doing so that this whole discussion is moot.
• China, India, Japan and S. Korea would also like guaranteed supplies of oil and gas and are willing to pay for them; sometimes upfront and generally without too much criticism of Chechnya.
• Just because you want it does not mean that you can have it. You may remember that lesson from when you were a kid in a toy shop? Certainly seems to have been forgotten by western Europe's leaders (again excepting Gerhard Shroeder - though he prefers his cash in brown paper bags.)
• Russia has to pay transit fees to Ukraine et al for pipelines crossing the their territories
• Ukraine et al may only take gas which they have contracted for and for which they pay.
• GAZP is increasing production at 2-3% p.a. Each incremental TU of gas increasingly expensive/less profitable than the last and will stay that way until GAZP is a. more efficient and less corrupt and b. its current large development projects come on line in 5+ years.
• European demand is forecast to be ahead of GAZP production increase for the next 5 years.

You can draw your own conclusions from the above facts and they are facts (except the bits about Schroeder.) Here's my take:

Russia is, rightly, using energy as an instrument of foreign policy and then behaving like a white Nigeria by ensuring that the cash passes through a spectacularly non-transparent get rich quick scheme.
Europe is screaming like a badly behaved kid in a toy shop deprived of what it believes is its birth right - perpetual access to gas at the same price as it gets piped in to my over-heated apartment; meanwhile ignoring its long-term energy security policy.
The Orange revolution is not an excuse to steal gas (oh and btw it (the Orange thing) had nothing to do with democracy - millionaires versus billionaires/ukrainians versus ethnic russians)
Gas is the not the next water - it's not a war - it's barely even politics.

So what? Go long nuclear power plant constructors and GAZP manager's wealth managers. Short GAZP and journalists ability to produce analysis based on a coherently argued set of facts. More controversially - go long alternate Russian gas producers?

Here's Edward's crap

It sounds boring, but it could hardly be more important. So here's a quick guide to the gas wars.

A is for Armenia: a Russian ally trying to break ranks and buy gas from neighbouring Iran - busting the Russian gas monopoly. Will Russia allow it?

B is for the Baltic gas pipeline, Russia's expensive new plan which is aimed at keeping Western Europe hooked on its gas, while bypassing former captive nations like Poland and Ukraine.

C is for China. Russia's planned pipelines to China will create a choice of customers, while European countries will have only a monopoly supplier. Worried? You should be.

D is for diversification. If you buy your gas from just one source (eg Russia), you are a hostage. Go figure.

E is for "Energy Security", which means paying more for energy now in order to guarantee secure supplies later. A nice idea, with few takers F is for France: the country that has cleverly stuck to nuclear power, giving it an enviable dose of energy security.

G is for Georgia, which is now facing a de facto energy blockade after "terrorists" blew up the gas pipeline from Russia. Georgia earlier refused to sell its transit pipeline to Russia.

H is for Hungary, which earlier also had a nasty shock: despite its left-wing government's Russia-friendly policies, it still suffered a nasty hiccup in its gas supplies in the new year.

I is for intermediary companies that broker Russian gas sales to the former empire, such as the infamous, murkily owned, Rosukrenergo. No honest company needs these. When you see or smell one, run fast.

J is for Japan, which loves LNG: diversification is so much easier if you are rich.

K is for Khantsy (and Mantsy) the miserably treated and soon to be extinct ethnic minority, related to the Hungarians, who are the indigenous people in Russia's gas-rich western Siberia. None of the petro-roubles goes to them.

L is for Liquefied Natural Gas, available by the tanker-load from lots of different countries, creating elasticity, clarity and choice.

M is for Moldova, the most shamefully ignored victim of Russia's gas war. Russia is trying to grab its gas company.

N is for Norway, a nice safe source of Western gas, from which many Poles now wish they'd built a planned pipeline five years ago.

O is for Oman, another nice safe, plentiful faraway source of LNG.

P is for pipelines. They come from Russia, destroy competition and create monopolies and corruption. Avoid them if possible (see LNG)

Q is for Qatar, another source of LNG.

R is for renewable energy. Like energy security, a nice idea with no takers at the current price.

S is for Slovakia, where Russia has gobbled up the local gas pipelines.

T is for Turkmenbashi, the dictator of Turkmenistan. If he would agree, a pipeline across the Caspian Sea and Caucasus would solve all our problems. Our pigs would fly too.

U is for Ukraine, whose energy deal with Russia is unravelling already.

V is for Vladimir Putin, the man who has unleashed, albeit clumsily, Russia's energy weapon.

W is for weather - Russia's recent feeble excuse for a dip in supplies to its European customers.

X is for xenophobia (as in Russia's punishment of its former satellites).

Y is for Yamal, the Russian pipeline through Poland. Russia ran a telecoms cable along it - without informing the Polish authorities.

Z is for Zzzzzzzzz, the sound that you get once you start talking about dull but vital subjects like gas...

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