Cheap Shale May Trigger New Russian-Ukrainian Gas War

By Guest Column —— Bio and Archives September 10, 2011

Comments | Print This | Subscribe | Email Us

Ukraine on Thursday threatened Russia with unspecified "consequences" if it doesn't lower the price of its natural gas supplies, raising the stakes in an increasingly tense pricing dispute between the two neighbors. The ultimatum was likely to draw alarm in European capitals, because a previous pricing war between the two countries led Russia to halt supplies to Ukraine, which caused shortages for customers across Europe. Prime Minister Mykola Azarov said Kiev will make one more attempt with Russian officials to revise the 11-year supply contract signed in 2009. If that doesn't happen, "without a doubt, all the responsibility for the consequences will lie with those leaders who won't listen to our reasoning," he said in a speech at a university in Kiev. --Business Week, 8 September 2011

Russia and Ukraine are in tough talks to avoid what could be their third gas war in five years. Alyona Getmanchuk, director of Kyiv’s World Policy Institute, says Gazprom contracts tie Russian gas prices to world oil prices. World gas prices are low as shale gas production has soared in the United States, taking the U.S. out of the market as an importer. Companies in Greece, Germany and Italy are seeking to cut the link between gas and oil prices - and to bring Russian gas prices down to world levels. With billions of dollars at stake, Kyiv’s Getmanchuk believes that another gas war is in the cards. –-James Brooke, Voice of America, 9 September 2011 Poland’s domestically produced shale gas should be competitively priced compared to gas imported from Russia, a Polish official said Thursday. Poland relies heavily on Russia to cover its gas needs, importing about two-thirds of its total annual gas consumption from Russia’s OAO Gazprom. The state-controlled Russian supplier uses a price formula indexed to the prices of crude oil, while the trends for both commodities on international markets have recently diverged. --The Wall Street Journal, 8 September 2011

British exploration firm 3Legs Resources has reported that gas is now flowing from its shale-gas well in Łebień, Pomorskie voivodship. --Warsaw Business Journal, 9 September 2011 Brussels intends to draft European Union-wide rules on tapping shale-gas reserves, Energy Commissioner Guenther Oettinger said on Friday, in the face of environmental concerns. --AFP, 9 September 2011 Obviously, Gazprom, the world’s largest gas producer is not going to be pleased that a new, abundant form of gas supply has been discovered in America. Shale drilling has the potential to meet a large amount of US needs over the coming years. And this has come at a time when Gazprom was planning to develop an extremely expensive, remote and icy field in the Barents called Shtokman specifically to supply the US. So how does Gazprom react? Under threat, it’s gone into battle against shale on all fronts – cooking up as many reasons as it can why the technology is an ugly prospect. At a press conference in London this week, a long row of impassive Gazprom executives watched as their head of export, Alexander Medvedev, sharpened his knives against shale. –Rowena Mason, The Daily Telegraph, 12 February 2010 For decades, political commentators have been lamenting America's lack of an energy policy. That's no longer true. Under Barack Obama, the U.S. has adopted a very clear energy policy: obstruct and even vilify the coal, oil and natural gas industries while lavishing subsidies on unreliable and expensive sources like solar, biofuels and wind energy. --Robert Bryce, CNN, 9 September 2011