TPT March 2009

Oil & Gas News

The heating season may be over, but the mid-winter suspension of Russian gas deliveries to Europe still rankles When, on 21 January, during the bitter European winter, it was announced that Russian gas supplies had been restored to the greater part of Eastern and Central Europe, the immediate response was gratitude. To whom, or what, was as difficult to establish as it was to positively identify the villain of the piece. Two weeks after furnaces went cold in the latest edition of a row between Moscow and Kiev over the price and shipment of fuel, probably the broadest expression of sentiment was some variant of ‘a pox on both your houses.’ The judgment of the European Union – which imports about a quarter of its gas from Russia – is that the episode has damaged its relations with both countries. The president of the European Commission, Jose Manuel Barroso, said it was “utterly unacceptable that European gas consumers were held hostage to this dispute between Russia and Ukraine.” If the back story is not easy to comb out, the resolution is clear enough. When agreement was reached on the prices and methods whereby Ukraine would buy Russian gas and ship it to Europe, the suspended flow was resumed to consumers in Austria, the Czech Republic, Slovenia, Croatia, Serbia, Bosnia, Turkey, Macedonia, Hungary, Slovakia, Bulgaria, Moldova, and Greece. Short of war, how many disagreements between two neighbours can have affected so many others – and at such a remove? The compromise reached on 20 January enabled both sides to declare victory. Russia’s Gazprom, the world’s largest extractor of natural gas, gained its objective of compelling Ukraine pay ‘market prices’ for its product, which will be linked to the European average. But Ukraine achieved a 20 per cent discount for the duration of 2009. Other terms include a one-year freeze on transit fees charged by Ukraine and the elimination of a controversial trading intermediary.

Writing in Business Week ( ‘Lessons from the Russian Gas Dispute,’ 21 January), Moscow bureau chief Jason Bush observed that the long-term impact of the dispute will go far beyond the immediate implications for relations between Russia and Ukraine. While there are similarities with a previous such contretemps, in 2006, Western energy experts emphasized that the recent dispute was more significant, both in itself and for the European energy market. Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, told Business Week: “This has been the most serious security event in relation to gas that has ever happened in Europe. It cannot be allowed to happen again.” One of Mr Bush’s respondents speculated that the dispute might galvanize the European Union into taking bolder steps toward reforming its internal energy market. “The single most effective step the EU could take would be to integrate its energy markets,” said Kash Burkett, energy and utilities analyst at Datamonitor, in London. “If we had a single market, and a single consumer demanding action from Gazprom, Europe would have far more leverage over both Gazprom and Kiev.” The world’s main energy forecaster sees anaemic growth, if any, in oil consumption The International Energy Agency has said that oil demand may recover somewhat this year, although at a slow pace, as the global economy turns the corner in the second half. The adviser to industrialized nations sees consumption growing by 0.5 per cent, or 400,000 barrels a day. But in its last monthly report for 2008 the Paris-based IEA hedged even on that modest forecast. “Clearly, if we are now heading for a prolonged and global outright recession, then the 0.5 per cent global oil demand growth we now envisage for next year may not materialize,” the report, issued 11 December, read. And other energy forecasters have painted an even bleaker picture of oil markets in 2009. The US Energy Department has predicted that global consumption will probably fall by 450,000 barrels a day. If so, this would mark the first time in over three decades that demand has declined in two consecutive years. At the New Year, the world’s idle production capacity stood at its highest level in six years: nearly 5 million barrels a day. Just days before the scheduled 1 January startup, Kuwait’s government on 28 December cancelled a $17.4 billion joint venture with US petrochemical giant Dow Chemical after Kuwaiti lawmakers raised objections that could have led to a political crisis in the oil-rich state. In a statement carried by the state-owned Kuwait News Agency (KUNA), the Cabinet termed the venture, K-Dow Petrochemicals, ‘very risky’ in light of the global financial crisis and low oil prices. KUNA said the contract was cancelled by the Supreme Petroleum Council, the country’s highest oil authority. Dow (Midland, Michigan), one of the world’s largest chemical companies, and Kuwait’s Petrochemical Industries Co, a subsidiary of the Kuwait Petroleum Corp, had conceived the partnership as a means toward a larger share of the global chemicals market. But A joint venture with Dow Chemical is scrapped by Kuwait

Photo courtesy of Radyne

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M arch 2009

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