The Annual Gas Crisis: Will January 2009 Be the Worst Ever?

[David Rochlin]

It looks like it might develop that way. 
Ukraine is behind about $2 billion on energy payments.
They want the new arrangement to drop below the current deal, due to lower oil prices and the global economy, because Ukraine actually can't afford even the current price, let alone that:
  Russia wants to raise the  current $179.50 price to between $250 and $300. (can they be serious?)
But, Russia wants the money more than ever.  $250 is the Market price in the Euro zone, and Yuschenko has agreed to let prices go up to market.  Of course Tymoshenko now has the authority to make the gas deals.
 Ukraine has a legitimate gripe, that gas should not be a higher price on lower demand.  Unfortunately, Ukraine has done little to diversify energy supplies in the last few years, through incompetence, failing to develop offshore resources with (maybe) enormous potential.  Sometimes I am suspicious that Russia might have meddled to prevent development of oil and gas resources, in Ukraine.

   It is a cold Winter this time, and it seems like the stage might be set for both parties to play hardball.

On the other hand, Russia does need the money, and Ukraine does hold some cards.  Access to Western Europe, most of the market for gas, for Russia, Turkmenistan and partners will go through Ukraine.  Russia not in such a good position to lose this cash flow, just now, with cash reserves declining to support the Ruble.
  Russia is quick to ask for a Western European price for gas, but slow to offer to pay Ukraine a Western European rate for international transport of the fuel.  This might only encourage Ukraine to take a tougher stand though.

I haven't happened to be in Ukraine when the gas was shut off.  I might be there this time, if it does happen in January.

[Carlusha]

I don't believe Yushenko has any say regarding gas prices. The IMF stipulated that subsidies to the end user should be removed as this was a drain on the country's reserves.

[David Rochlin]

I don't believe Yushenko has any say regarding gas prices. The IMF stipulated that subsidies to the end user should be removed as this was a drain on the country's reserves.

   I guess you are saying that Ukraine will or has already raised prices of gas to factories and apartment buildings, enough to substantially pay closer to the price for gas that Russia demands?
You are correct.  I did mention that Tymoshenko has the authority to negotiate a deal on behalf of Ukraine.  Yuschenko has made promises though, perhaps he had no authority to fulfill them (as often is the case.)

[Carlusha]

In my opinion, David, we will have to wait and see what Tymo has agreed with her friend in Moscow. However, I am almost certain the prices are to be raised - phased through until mid-2010. Bear in mind, even though Ukraine was receiving heavily subsidised gas from Russia, the government in turn subsidised the amount the customer had to pay. It is this second subsidy that the IMF wants to remove. In other words, the amount the customer pays must be based on what Ukraine has paid for the gas in the market.

[David Rochlin]

In my opinion, David, we will have to wait and see what Tymo has agreed with her friend in Moscow. However, I am almost certain the prices are to be raised - phased through until mid-2010. Bear in mind, even though Ukraine was receiving heavily subsidised gas from Russia, the government in turn subsidised the amount the customer had to pay. It is this second subsidy that the IMF wants to remove. In other words, the amount the customer pays must be based on what Ukraine has paid for the gas in the market.

Market prices for consumers will ultimately be a positive thing, because it would encourage conservation and discourage waste.  However, the immediate implications of a market price for gas, could be drastic.  Most Ukrainian apartments are not exactly well insulated.  I mean, they have thick cement, that's pretty much it.  They have single pane windows, big ones.  Then consider that a lot of electricity is produced by gas fueled generators.
In the U.K. the average gas and electricity (combined bill was forcast to be about $1500 for the whole year estimated in January this year.)  So the average apartment owner might be paying $125 per month for energy without subsidies and with a Euro zone price for gas.  Sound about right?
Can Ukrainians adjust to paying that much for energy?

[clanholmes]

At 5.50 a GJ, this crisis maybe a good thing for Ukraine

[Carlusha]

Most Ukrainian apartments are not exactly well insulated.  I mean, they have thick cement, that's pretty much it.  They have single pane windows, big ones.  Then consider that a lot of electricity is produced by gas fueled generators.
In the U.K. the average gas and electricity (combined bill was forcast to be about $1500 for the whole year estimated in January this year.)  So the average apartment owner might be paying $125 per month for energy without subsidies and with a Euro zone price for gas.  Sound about right?
Can Ukrainians adjust to paying that much for energy?

The average UK gas bill is £510.60, while electricity bills are around £453.24, according to a study by research firm JD Power. Say, GBP 950, so your $1,500 is about right, giving $125 a month.

The average or probably the majority of Ukrainian households would struggle to pay that. Sorry, K, I need to refer to wiki. Wikipedia provides us with the average salary per oblast in Ukraine but, focusing on the total average, we see UAH 1,883 per month which, at the official NBU comical rate, comes to around $250 a month. Imagine paying half one's salary for energy?

[David Rochlin]

  Kind of a related issue that I am curious about is the efficiency or lack thereof, of the municipal steam plants that many Ukrainian cities use to heat the older buildings.  Most of these are gas fired steam plants.  The water is heated and circulated through pipes and pumped through radiators located in apartment buildings, supplying hot water as well. 
   How efficient is this method of heating compared to furnaces or boilers at a building or in an apartment.  A huge amount of heat has to be lost, between the boiler and the apartment, radiating out of the pipes.  But, there is a certain efficiency gained from using one central boiler instead of heating water at many locations in small home, water heaters. 
  I am not sure what percentage of apartments have this sort of heating, or how this affects the actual cost of energy Ukrainians would have to pay, if their bills are marked up to reflect real, unsubsidized  costs.
   Ultimately, a Ukrainian energy bill might be even more than a UK bill, because you have to add the cost of the uninsulated apartments and this (possibly) inefficient way to get heat to many of them. 

[richardm]

In Ukraine every apartment Ive ever lived in has been very warm in winter, and of course I had no control over the temperature as it was administration controlled.

To answer your question David, a few years ago when the gas was turned off by Russia the temperature in my apartment felt a bit cooler for those few days until the deal was actually struck and the gas was turned on again, if there is a longer period of shut off I havent a clue how long the heat will remain in the apartments.

[David Rochlin]

In Ukraine every apartment Ive ever lived in has been very warm in winter, and of course I had no control over the temperature as it was administration controlled.

To answer your question David, a few years ago when the gas was turned off by Russia the temperature in my apartment felt a bit cooler for those few days until the deal was actually struck and the gas was turned on again, if there is a longer period of shut off I havent a clue how long the heat will remain in the apartments.

 


That's interesting, that you have heat a few days, after the gas is shut off.  I do remember reading that Ukraine has considerable storage capacity, and Ukraine kept a lot of Gas intended for Western Europe, during that year's crisis.  Probably there was some gas in several cities in Ukraine, after Russia turned it off.  They were probably trying to make it last.  I have been sort of speculating about what I would have to do if there was no heat during my visit.  On one trip to Odessa, I stayed in a two hundred year old apartment  on Vorontsovsky Alley, near the famous "Optical illusion" building.  That apartment had a built in wood stove, sort of like the one described in the novel "The Master and Margarita." 
Moving to an apartment with a stove like that, might be a cool backup plan.  I bet the chimney would be plugged though.

[Carlusha]

If the worst comes to the worst, all the electrical retailers sell those oil-filled radiators and electric fan heaters. These are cheap and cheerful but at 2 or 3 kw per hour, that might prove a little expensive for a solution.

Bring extra socks and your normal Canadian thermal underwear. A glass of horilka with your coffee also works wonders!

[richardm]

There was also the fact that Ukraine continued to siphon gas from the pipe in those few days, so I guess that combined with a limited reserve saw them through those troubled days!

[David Rochlin]

If the worst comes to the worst, all the electrical retailers sell those oil-filled radiators and electric fan heaters. These are cheap and cheerful but at 2 or 3 kw per hour, that might prove a little expensive for a solution.

Bring extra socks and your normal Canadian thermal underwear. A glass of horilka with your coffee also works wonders!

A Kerosene /oil heater might do the trick, but if there were really, really no gas... well probably the Electric utility in Odessa uses a gas turbine generator, right? 
  Warm clothes are never a bad idea, but I would probably just buy them in Odessa if I need them.  Probably I can buy a full shipping container of them, for kopeks, by January...

[David Rochlin]

There was also the fact that Ukraine continued to siphon gas from the pipe in those few days, so I guess that combined with a limited reserve saw them through those troubled days!

Some Ukrainian cities were fine through that crisis, but other ones were in an emergency situation, had little or no heat at all.  I think quite a few people died.  Maybe fewer though, than would have been killed in a softer Western country, where people actually expect the government to protect them.

[Carlusha]

If the worst comes to the worst, all the electrical retailers sell those oil-filled radiators and electric fan heaters. These are cheap and cheerful but at 2 or 3 kw per hour, that might prove a little expensive for a solution.

Bring extra socks and your normal Canadian thermal underwear. A glass of horilka with your coffee also works wonders!

A Kerosene /oil heater might do the trick, but if there were really, really no gas... well probably the Electric utility in Odessa uses a gas turbine generator, right? 
  Warm clothes are never a bad idea, but I would probably just buy them in Odessa if I need them.  Probably I can buy a full shipping container of them, for kopeks, by January...

No idea about the heater although that would be feasible if you knew where to source the correct kerosene or oil. As for the containers, most of these would appear to be of Chinese origin and therefore not up to the hard winter here. The Turks in 7km market sell the thinsulate ranges of clothing.