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Will Ukraine Power Game Raise EU Energy Prices By 100%?

Politics / Energy Resources Mar 23, 2014 - 07:20 PM GMT

By: Raul_I_Meijer

Politics

If I were a citizen of the European Union, especially of either the more eastern countries or of Britain, I’d be getting worried right now. I wouldn’t be so sure that what the Boys from Brussels are concocting is in my best interest. It’s one thing to hear the leadership declare that when it comes to gas, Putin needs Europe more than the other way around, but is that really true or is that war talk that may even be based primarily on a lack of knowledge and/or competence? And if the EU bluff pans out wrong, what are going to be the consequences for the people in the EU? As in: how fast and now much can prices rise?


I know that gas exports from Russia have gone down a little bit, but I also know that doesn’t mean they can come down by whatever extra percentage we would wish at whatever point in time we would like. And I have the idea that beating Putin, at anything at all, seems to have become much more of a priority than energy safety or the economically most advantageous deals. And that carries the risk that while at some point Putin may have to do without X percent of oil and gas income from Europe that he may have counted upon, the Europeans themselves may end up paying much more for their energy, because there are simply no such things as endless supplies of oil and gas in the world.

Much of the change in natural gas imports that Europe envisions seems to be focused on LNG. And while there is an overcapacity in European LNG import terminals, supply in the world markets started to dwindle in 2012, as a major shift was underway towards Asia at the same time. China wants a lot of gas, and even if its economy sputters, that demand is not going to diminish, not if the Middle Kingdom is serious about tackling the crippling smog in its cities, which calls for a huge from coal to natural gas powered plants.

Japan’s natural gas demand has gone up enormously in the aftermath of Fukushima, and though there’s cautious talk of reopening some of the nuke plants closed since, for the foreseeable future natgas is the only viable option for the Rising Sun. And Asia is more than Japan and China: nations like India, South Korea, Taiwan, they all want more gas, and they all want it in the form of LNG. So where is the increase going to come from that Europe is talking about? Your guess is as good as mine.

We shouldn’t be surprised if Brussels counts on a main shale gas boom, of course, if you look at Barroso and Van Rompuy the first thought that comes to mind is: what do they know when it comes to energy, they’re gullible enough to go hook line and sinker for whatever data the industry feeds them, and the “promise money” is in shale today. Insane subsidies could already be had even if it never goes anywhere, and they’ll go even more insane now that “anything but Putin” is the overriding objective.

For Ukraine, the prize turkey that is the symbol of the European fight against Putin (for which I can’t shake the feeling that it is nothing but a goal-seeked battle for the unelected revolving door EU cabal), and for the Ukrainians, the first bills will land in the mailbox soon. The Yats government has announced a 40% rise in energy prices, while the price for Russian gas the country pays may soon double to $500 1,000 cubic meters. Of course we saw that Ukraine severely cut Russian gas imports starting February 1, three weeks before Yakunovych was ousted, and even more on February 24, 2 days after the ouster. Not that we know what they replaced them with.

Russia launched another bombshell over the weekend, saying that the deal with Ukraine for use of its fleet hosting Black Sea port, which was linked to gas prices, is now invalid, and not only does the country owe $2 billion in gas payments, but another $11 billion in discounts it has already enjoyed are now deemed invalid, since the deal ran to 2017. That means Kiev owes Moscow $13 billion. And Kiev is broke. So who’s going to pay up? Brussels? Not every likely. Washington? Even less likely.

That means that when people say Russia would never dare cut off Germany, they should keep in mind that if and when Europe would try to use reverse flow in its pipelines to supply Ukraine with gas Russia first sold to Germany or other EU nations, Putin has a very strong case to say that he’ll only continue selling to Berlin if they guarantee they won’t pump it back to Kiev, or he can either cut off Germany or take the case to an international court.

Some Europeans seem to count on US LNG shipments to make up for Russian gas, but that’s a pipedream (or rather, not even that). The US has one active LNG export terminal, it’s in Alaska and it supplies Asia. There are quite a few applications for additional terminals, but they will take too long to be sanctioned and come on line to make any difference in international trade. Plus, Japan and China may simply outbid Europe for the gas.

All in all, things don’t look good for the average citizen of either Ukraine or Europe. They can all expect enormous raises in their energy bills. That will be partly due to the inevitable consequences of dwindling resources, but it will be greatly enhanced by the power games the US and EU have been playing lately on Putin’s doorstep. And for those parties the power game is far more important than the increase in energy costs it results in for their people.

The EU/US leadership (and the energy giants that prod them on) lost on the Black Sea port they coveted so much. But they still have the Ukraine pipelines, which they will now use where they can to thwart Putin. That may well be the most dangerous play, since Putin will never accept losing control over the pipelines Russia itself built and paid for. That could be a premise to war. And maybe that’s all Brussels and NATO are waiting for. Don’t be surprised if they hastily make Ukraine a NATO member overnight one of the days. Because under NATO rules, when one member is under threat, or is being invaded, all other members have to come to its rescue. It looks like a chess game still. And Putin’s not a bad player.

The people of Ukraine and many EU nations look set to be sacrificed in the “bigger” power game and can “look forward to” much higher energy prices. Energy giants will get giant subsidies to build alternative projects that look set to fail, both in shale and in LNG.

One thing that snows under so far is that energy bills that skyrocket 40% or more, especially in countries that are already in dire straits, tend to lead to protests and fast changes in governments. So don’t be surprised if the EU/US sign fast and furious deals with the Yats people they themselves installed, before the latter get voted out in an actual election. The EU/IMF/World Bank troika deal that Yanukovych refused has apparently already been resurrected.

Whatever trouble comes, our leaders will count on being able to blame it all, in public opinion, on Putin. Who, if he can sign a new big gas deal with Beijing and Tokyo, won’t care too much. It’s when the west tries to interfere with Russia’s access to Ukraine pipelines that Putin will react. Interestingly, the South Stream pipeline seems to already have been cancelled, the one project that would make it easier to get Russian gas to Europe without involving Ukraine, ostensibly because Putin cronies were involved in the construction.

It’s all Ukraine now, with an unelected government, and an energy chief who was arrested a few days ago on the same corruption charges Yulia Tymoshenko was detained for, who made billions on Russian gas imports and is likely to be Ukraine’s next leader.

The only victim? The people. And while that may sound like just another familiar story, just wait till “the people” means you, and your energy bills go up 100%. Here’s looking at you, Britain.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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