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Published 13th January in The
Japan Times
By David Howell
Gas as a Political Weapon
LONDON- What did the Russians hope to achieve? Their recent threat , now happily
averted, to cut off natural gas supplies to Ukraine unless it paid four times
the price instantly was bound from the start to backfire.
For one thing, it was a threat which could not be carried out. Ninety percent of
the gas which Russia supplies to Western Europe under contract (which is about a
quarter of Western Europe’s daily consumption) passes through pipelines across
Ukrainian territory. All the Ukrainians had to do, if Russia cut supplies, was
turn a couple of valves and divert gas intended for the West to their own
consumers, claiming that it was theirs by right.
The explanation can only be that the threat was nothing to do with commercial
factors and everything to do with the desire of Russian policy-makers to punish
Ukraine for turning more to the West under its new leader ,Mr.Yushchencko.
If so, it was a remarkably ill-thought-out move, since the only result in the
longer term can be to weaken trust in Russia as a reliable energy supplier.
Prolonged and assured trust is absolutely essential in energy supplies, and
nowhere more so than when it comes to piped gas. This is because once the
pipeline is built and laid there has to be an assurance for every hour of every
day for years ahead that gas from a specific reservoir will flow. This is not
only to justify the cost of laying the pipeline in the first place but because
in the case of natural gas the pipeline has to be kept filled (although the
pressure can vary somewhat) otherwise it becomes extremely dangerous.
Continental Europe decided several decades ago, even before the end of the
Soviet Union, that it could rely heavily on Russian gas, piped from Siberia , as
a key component in its energy supply mix. When the contracts were first signed,
one or two voices were raised, including that of Margaret Thatcher, arguing that
this was a dangerous move. But such doubts were dismissed on the grounds that
even in Communist days the Russians were scrupulous adherents to commercial
bargains.
In the years that followed, with the end of the Soviet empire and with Russia
turning capitalist, these doubts were given even less weight. The gas, said the
optimists, would always come through.
Meanwhile gas consumption in Western Europe soared as privatisation of
electricity generators led to the replacement of massive old oil-fired or coal
fired generating stations by smaller and highly profitable gas turbine
generating plants, which could be built much more quickly and therefore pay back
the initial investment to increasingly happy shareholders.
Britain, too, shared in this gas demand bonanza, raising its proportion of
electricity supplied from burning gas from one or two percent in the early
nineteen eighties to around thirty percent today. This is on top of the very
widespread use of gas for domestic cooking and heating, now involving some two
thirds of all households in the country. Gas usage has been further encouraged
by the argument that although it is a finite fossil fuel in emits far less
carbon dioxide when burnt than oil or coal and is therefore environmentally
preferable.
The North Sea ‘natural gas’ discoveries in the nineteen-fifties and -sixties on
the UK Continental shelf kept Britain well supplied until very recently. But
gradually these have run down and now the British buy in their gas from a
variety of sources, notably the Norwegians , but also the French, the Germans
and the Dutch.
This in effect re-integrates British gas supplies with the giant Continental
grid which in turn relies so heavily on – yes – the Russians. So despite the
Thatcher warning of years ago Britain has ended up in almost the same position
as its neighbours, relying, albeit indirectly, on Russian commonsense and trust
to keep the pipelines going westwards full at all times.
Some experts, while recognising the dangers of relying too much on one source ,
whether for political or security reasons, have argued that all will be well
because Europe, Britain included, can turn to frozen gas, the so called Liquid
Natural Gas or LNG, which can be shipped into domestic terminals from such
suppliers as Algeria and Qatar in the Persian Gulf.
In the recent cold weather in Europe , and with more and more oil users turning
to gas as the oil price rocketed, this seemed the best new avenue for regular
supplies – a pattern on which of course Japan has relied for many years past.
But imagine the dismay when it turned out that huge LNG-carrying carriers, bound
from the Gulf for Northern Europe, were suddenly diverted to the United States
East Coast by more attractive price offers. The full consignment of LNG expected
at one major UK terminal , specially constructed for the purpose, never arrived.
The lessons from this experience are only just sinking in. But the implication
is clear. Just as there is now a faint question mark over the reliability of
Russian gas supplies , so there is a question mark over the frozen gas
alternative. Either future contracts will have to be made a lot tighter , and
less dependent on short-term market price fluctuations, or the British will need
to look elsewhere for their safe gas supplies.
Luckily, there is another alternative on the doorstep. The Norwegians have been
finding more and more gas, in huge volumes, on their side of the North Sea which
they are very happy to sell direct into the British system on the basis of very
long term contracts. All that is needed is a good pattern of pipelines to convey
the gas from these great new North Sea fields into the British grid. These are
now hurriedly being completed.
The British can then heave a small sigh of relief and leave the rest of Western
and Central Europe to get as much reassurance as they can from the Russians.
But the Russia-Ukraine incident makes one thing notably clearer than before.
There are a lot of politics in gas.
Ends
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