Ukraine Crisis: What a Gas!

There are some people – or institutions – that can’t help but look at the bright side of things. Over in Eastern Ukraine, seven European military officers working for the OSCE have just been put out for display at a press conference, unconvincingly insisting “We are not prisoners of war, we are guests of [Sloviansk] Mayor Ponomarev”; the Economist writes [subscription required] “Every day, incident by incident, the situation is deteriorating and moving towards major armed conflict of one form or another.”

Not to worry, though, at least if you read the Netherlands’ leading business newspaper Het Financiele Dagblad: The Ukraine crisis also has its winners. The lede:

The drift since the crisis in the Ukraine has been: Europe has to become less dependent on Russian gas. Who can profit from that?

Oh, a number of organizations can profit, and journalists Gijs den Brinker and Mathijs Schiffers have the run-down.

  • Energy companies: Did you know: natural gas is still relatively expensive in Western Europe, at least in comparison to coal. It is therefore somewhat harder to sell, and always more difficult to store. But gas is still easier to transport – and now there is renewed demand for it, precisely in the direction from which its flow is now threatened, i.e. from Ukraine. Germany’s RWE, cited here (but there are others), one of Europe’s biggest energy companies, will be pleased to sell it back to the Ukraine if needs arise, surely with a suitable mark-up.
  • Terminal owners: Specifically, liquified natural gas (LNG) terminal owners. More specifically still: Rotterdam’s GATE (“Gas Access to Europe”) LNG terminal. The Economist is on this again, with a superb article from their Charlemagne columnist [subscription required]. GATE basically represented a huge gamble into the future, by the Dutch government working together with the energy-trading firm Vopak, when it came on-line back in September, 2011 at a cost of €900 million. That gamble is hardly working out today, two-and-a-half years later, as it is operating at only 10% capacity.

    That will certainly change should conflict with Russian shut off the natural gas tap from the East, now running at 140 billion m3 a year – at full tilt, Rotterdam’s GATE terminal can process 12 billion m3 per year of LNG coming from elsewhere.

  • Then there are the Frackers: Hydraulic fracturing in order to gain more oil and gas out of the ground is highly controversial in Europe, for well-known reasons. (I’d prefer to drink than to set fire to what comes out of my water-tap, thank you.) Indeed, so far actual fracking – as opposed to prospecting/planning for it – is banned in most EU states, and the EU Commission’s Energy Directorate is having a hard time coming up with any common policy towards it.

    A burning need for new energy supplies after a Russian shut-off could cast things in a very different light. According to Den Brinker and Schiffers, the fracker chorus is already starting to warm up at the prospect. Strangely, though, the only experts they quote on this subject are British (including a skeptical warning from what the authors call “The Oxford University for Energy Studies” but what must rather be the Oxford Institute for Energy Studies*).

  • Finally, the extra-European gas suppliers: Norway**; Algeria; the US; etc.: these would supposedly supply the gas to make good any Russian cut-off, if the price was right. Of course, the first two are best-placed to do so; even the Netherlands could get involved, “in theory” – there was a substantial natural gas find in the North during the 1970s, but now production restrictions mean that in practice little more can be expected from there.

    Then there is the US, fracking-land extraordinaire, which Den Brink and Schiffers claim is now awash in natural gas. In an earlier entry I discussed how the Eastern European states most likely to be immediately affected by any Russian gas cut-off have already asked Washington to prepare to ship some of that their way (likely via Rotterdam), but in the meantime experts have piped up with a panoply of both infrastructural and regulatory factors standing in the way. Even this FD piece speaks of things truly starting to flow only “over several years.”

Seasoned observers of Putin’s previous attempts to blackmail Europe over gas supplies – often in connection with a dispute with Ukraine – will note that he took care to do so during wintertime, when his cut-off could truly bite and actually leave good EU citizens shivering in their homes. That timing has been thrown off this time, by the “Maidan” revolution in Kiev that set this crisis in motion, so that Europe has some months to work with.

Nonetheless, that 140 billion m3 of Russian gas per year seems a mighty huge number, whose BTUs are likely not so easily replaced. (Again, contrast that with the 12 billion m3 max yearly throughput at Rotterdam.) There is still German and Polish coal, yes, but we don’t like to use it; and ever since Fukushima Europe’s largest economy, Germany, has been busy with Die Wende, the Turning, i.e. shutting down its nuclear plants completely out of safety concerns. Even granting a business newspaper like the FD its natural focus, the prospect seems likely that Europe’s coming energy worries will have to do with a lot more than just questions of profit.

*Earlier in their piece Den Brink and Schiffers mention potential gas-shipment problems through “the border between Slovenia and Ukraine.” There won’t be any such problems – because there is no such border! They surely meant Slovakia, but not to worry: George W. Bush also confused those two countries at one of his press conferences way back when. (If you click through to the article you might see Slowakije instead: I tweeted a warning to Mr. Den Brink!)

** Apologies to my esteemed Norwegian readers for calling their country “extra-European” – but you did vote twice to reject the EU!

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