Wednesday, November 4, 2009

Eurasian Energy Briefs

by Roman Kupchinsky

The Russian gas monopoly Gazprom, which is being pressured by its European customers to change the current pricing policy for gas which is linked to oil prices, received an unexpected measure of support from the Chinese government.

The government in Beijing declared that the linkage between oil and gas prices remain in place. However, many experts believe that this is mostly a symbolic declaration because in the ongoing negotiations between China and Gazprom, the most that Gazprom can expect is a 10-15 percent price increase above the current price of gas sold to China of $269/1,000 cubic meters.

Sinopec, the Chinese oil and gas company, announced on October 31 that the price of gas should remain linked to oil and diesel prices and announced that the price of gas will rise on the Chinese domestic market.

Pressure from Gazprom’s European customers however, has forced Gazprom management to react to their demands and promise unspecified changes in the existing pricing scheme.

Some analysts believe that the Chinese side rushed into supporting the Russian pricing scheme in order to hasten deliveries of gas from the Russian West and East Siberian gas fields. However, it is unrealistic to believe that gas from both regions will be available in the near future. The West Siberian fields can come on line earlier since they already have the needed infrastructure to support deliveries of 30 billion cubic meters/year.

Russian gas and Ukrainian politics are being mixed once again in the traditional cat and mouse game between Moscow and Kyiv.

Russian Prime Minister Vladimir Putin told the leadership of the United Russia party on October 30 that “It appears that we will have problems with payment for our energy once again” Putin told the party leadership. The Russian Prime Minister refered to his phone conversation with Ukrainian Prime Minister Yulia Tymoshenko during which she allegedly complained that Ukrainian President Viktor Yushchenko is blocking payments for Russian gas.

Putin added that Ukraine has the needed funds to pay and could use its gold reserves, valued at $27-28 billion. He quoted an unnamed IMF expert who stated that it was possible and correct for Ukraine to pay Russia from these gold reserves.

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