Endless gasby Michael Hammerschlag

29.04.2010 | Weekly.UA


At first glance, the Sevastopol-gas discount deal with Russia set off alarms, that the Yanukovich government really is giving away the store to Russia: swapping 25 years of residency for the Black Sea Fleet for a 30% or $100 discount, whichever is less, in Russian gas from the $330/1000 CM (kM3)  Yulia negotiated in Jan 2009.

At second inspection it seemed clever- Russia gets nothing for 7 years while Ukraine gets an immediate $1-3 billion/year break in intimidating world gas prices, breathing space in which to put its financial house in order. Many things could happen in 7 years; Putin could retire, or be hit by a bus.

A third look and it doesnt seem that great- Tymoshenkos gas deal was terrible, locking Ukraine into the 6 month-delayed oil-linked price at the exact moment of world highs in mid-2008: $150/barrel oil, and $500/kM3 gas- the $330 agreed to is the highest price in Europe, despite Ukraine being on Russias doorstep.

The world is now awash in natural gas, because of an explosion in US production from shale rock (by injecting water into the layers and fracturing them open)- that increased 4-fold since 1990 and now accounts for over 50% of all US gas production. Poland also is just tapping huge new fields (est. 1.36 trillion  M3)  that could increase Europes reserves by 47%. America pays only $145/ kM3, and England as little as $181, while Gazproms Europe average is $296. Given Ukraines proximity to Russia, pipeline transport fees are negligible to here compared to Western Europe, so that would drop a fair world price to maybe $250/ kM3 or less, making the claimed discount illusory. While long-term gas prices are bound to rise because of Chinas and Indias burgeoning appetites, over the short term- maybe 5 years- prices should drop.

At fourth inspection, it probably is moot, because all deals here, especially on gas, are written in sand and will probably be renegotiated in a year or 2- in business, the Rukrainian people have little penchant for permanence. They (POR) think in (the) short term, says Mohyla political scientist Olexiy Haran, they need to solve economic issues now, they need to have a loan with the IMF.

3000 Orange forces rallied in protest of the deal at the Rada April 24th, and will try again Tuesday, when the deal comes up for an accelerated vote. Unconstitutional, says Haran. But the Rada now ringed by Yanukovichs Party of Regions blue tents, so some street struggles may be in the offing.

Most Ukrainians have reacted with aplomb to the permanence of a foreign military base, banned by the Constitution:  according to Interfax  61% said they would not object to the bases staying on if Russia gave Ukraine economic preferences, 22% were opposed. Yanukovich is speaking of holding a referendum on the deal, but strangely sees the BSF as one of the guarantees of security among the countries of the Black Sea basin. Stopping those Ottoman slave traders, perhaps, or restive Romanian gypsy pirates? Putin-pummeled Georgian President Saakashvili was more dour, Putin doesn´t make any secret of trying to restore some kind of Soviet empire... Ukraine  has been fixed.

More dangerous is if the proposed Ukrainian pipeline takeover consortium (1/3 Russia, 1/3 Europe) is the next part of this deal, likely considering the wildly divergent statements from the Kremlin on the issue. This really has the potential to compromise Ukraines sovereignty and territorial integrity- once Russia owns the pipelines, couldnt they station troops along them to guard against terrorism?

Putin come Monday to inspect his newly pacified province, or in his words, to revel in the commonality of interests and historical aims, the feeling of comradeship.. between the two peoples.


Michael Hammerschlag (Hammernews.com) has spent 1.5 years in Kyiv, and 2.5 in Russia. His articles have appeared in the New York Times, International Herald Tribune, Seattle Times, Providence Journal, Columbia Journalism Review, Honolulu Advertiser, Capital Times, Media Channel, Scoop; and Moscow News, Tribune, Guardian, and Times.

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