More on the crisis in Ukraine

by Robert Maynard

An article was posted on True North, which quoted the National Review in pointing out that the problem in the Ukraine has its origins in Moscow and is trade related: “Ukraine would today be enjoying the shabby peace of economic stagnation and despair if the Russian president had not imposed sanctions on Ukraine’s agricultural produce and threatened wider measures unless President Yanukovych abandoned a modest free-trade deal with the European Union.”   This article, by the Global Warming Policy Foundation, goes into more details regarding Putin’s problem with that trade deal.  Russia fears what the article refers to as the “shale gas revolution”, which has the potential to free Ukriane from depending on Russia for energy:

Natural gas was the origin of the crisis in Ukraine. The country serves as a transit point for about 6 billion cubic feet per day of Russia’s natgas exports into Europe. That’s about 2.2 trillion cubic feet per year, or 14% of Europe’s total supply.

More than just serving as a middleman for Russian gas, Ukraine is like the dealer who got hooked on his own supply. Under the terms of its last supply deal, Gazprom agreed to sell gas to Ukraine at $7.70 per thousand cubic feet, a 33% discount to what European customers pay (but a big premium to U.S. gas prices of roughly $4.50 per mcf). Moscow even agreed to gradually buy $15 billion of new Ukrainian bonds, to keep the country from defaulting on other debts.

Yet even at that discounted price, Ukraine has had a tough time paying Gazprom’s invoices. Earlier today Russia suggested that if Ukraine didn’t pay its $1.5 billion gas bill Gazprom might just shut off the valves and renege on those price discounts. Since 2006, Putin has twice cut off the gas to Ukraine, most recently in 2009.

Edward Chow at the Center for Strategic and International Studies, wrote in this essay last December that Ukraine’s being “addicted to cheap gas … has blocked the modernization of its industry, economy and politics.”

Ukraine has been a junkie for Russian gas. Putin clearly had no problem with that; it is in Russia’s interest to keep Ukraine and Europe hooked on Russian gas at prices just low enough to quash incentives to drill and frack for shale gas. Russia’s state-run news and propaganda outlets have for years disseminated articles critical of fracking and supported opponents of the technique, despite its 50-year track record of proven efficacy and scant mishaps.

Even Ukraine’s ousted President Yanukovich, despite his dealmaking with Russia, had clearly acquiesced to pressure to explore Ukraine’s other energy options. Last year Ukraine signed natural gas exploration deals with Royal Dutch Shell as well as Chevron, which pledged to invest as much as $10 billion if adequate supplies of shale gas were found. The government said it hoped the two companies’ projects would add more than 50% to Ukraine’s current domestic natgas supply. Ukraine could hold more than 40 trillion cubic feet of recoverable shale gas, enough to satisfy decades of demand.