Shifting energy trends blunt Russia's natural-gas weapon - The Washington Post - 0 views
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As clunky Soviet-era factories and mines have become more efficient or gone out of business, Ukraine’s domestic gas consumption has dropped nearly 40 percent over the past five years, cutting its imports from Russia in half, according to a report by Sberbank Investment Research.
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Domestic consumption might drop further if Ukraine trims the generous subsidies it gives households using natural gas, although so few households are paying their bills that it might not matter. “People will go from not paying the lower price to not paying the higher price,” said Thane Gustafson, senior director of Russian energy for the consulting firm IHS CERA.
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Even if the deals with foreign companies advance, Ukraine will need to import about half of its gas needs,
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“An inefficient and opaque energy sector continues to weigh heavily on public finances and the economy,” the International Monetary Fund said, noting that energy subsidies reached 7.5 percent of Ukraine’s GDP in 2012. “The very low tariffs for residential gas and district heating cover only a fraction of economic costs and encourage one of the highest energy consumption levels in Europe,” the IMF said in December.
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Now, the upheaval of the past two weeks has thrown Ukraine’s gas strategy into greater confusion. “There is no government and there are no agencies to do business with,” said Simon Pirani, senior research fellow at the Oxford Institute for Energy Studies. “How high up the list of priorities it is is anyone’s guess.”
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Even if residential customers paid up, the Ukrainian state energy company, Naftogaz, would lose money on those sales
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In 2012, many European industrial users and power plants switched to coal, and Russia agreed to renegotiate.
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The link between gas and oil prices has been severed for about half of Russia’s gas sales.
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Gazprom also agreed to eliminate contract clauses that said a country such as Germany could reship Russian gas only with Gazprom’s approval.
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As a result, Ukraine ended up paying more than Gazprom’s customers in Germany, and last year Ukraine imported small quantities of natural gas from Germany and Hungary through pipelines in Slovakia and Poland, experts say. Germany buys gas from a variety of countries, but rerouted Russian gas has effectively been undercutting other Russian gas.