- Ukraine got dirt cheap gas from Russia
- Russia wanted to raise price, and the asking price is reasonable
- Ukraine controls the pipeline from Russia to EU, Russia is obligated by contract to deliver gas to EU's door, so it is hijacked by Ukraine now (illegally)
- Russia could sue Ukraine, but its negotiation position could only improve if it has alternative to fulfill its contact obligation to EU
- Most western media are sympathetic and biased toward the Ukrainian view. All I got were incomplete or biased info. As a result, it took me a while to figure this out. Below is how I got this.
I keyed in "Ukraine Russia gas price" dispute, I got 2890 entries (NYT, BBC, CNN)
"The dispute centers on Gazprom's politically influenced pricing system. Ukraine, through a deal arranged under former President Leonid D. Kuchma, has been paying $50 for 1,000 cubic meters of gas, reflecting Russia's practice of providing discounted energy to former Soviet nations still in the Kremlin's orbit...Gazprom, has proposed charging $220 to $230 for 1,000 cubic meters, in line with prices in Europe. Mr. Putin has offered a $3.6 billion loan to Ukraine to help cover the costs, a gesture variously seen as pragmatic or patronizing." - NYT
- "Ukraine, which currently pays $50 per 1,000 cubic metre, has said it is prepared to phase in world prices gradually and can only raise its payment to about $80 for now." - BBC
I googled a bit, I was left frustrated. All I got is the market price in MMBTU
- The most recent price Dec average traded on NYMEX and Henry Hub is $13.418/MMBtu, Nov/05 average was $11.649 (oilenergy.com)
- A chart here show similar price
Because it is difficult to transport gas, the price could vary by as much as 10-25% for different location. For simplicity I would assume Ukraine should get 20% discount (suggestion welcome) due to its proximity so the "fair market price" should be $379.
Ukraine also insists that it should get a 15% cut for passing the gas through its border to other countries that Russia export to. If we assume for every cubic meter Ukraine buys there is one cubic meter Ukraine helps transport via its pipelines, the fair price should then be $322.
Russia's asking price is $220-230 per 1000 cubic meter. From this calculation it seems to be a very reasonable deal.
Update (Jan2): according to BBC, GAZPROM'S 2006 TARIFFS PER 1,000 CUBIC METRES OF GAS
- Ukraine: US$230
- Belarus: US$47
- Armenia and Georgia: US$110
- Lithuania, Latvia, Estonia: US$120-125 (NYT)
- Moldova: US$160 (NYT)
- Romania: US$280
- Average EU charge: US$240; US$255 according to timesonline (this number is dubious, I expect EU price to be higher than Romania's, due to distance and affordability. According to Oil & Gas Journal, "in the 1970s, the United States had established an embargo on certain supplies to the Soviet Union after the Soviet invasion of Afghanistan. However, several European countries anxious to receive gas supplies from the USSR agreed to supply pipes and compressor stations to complete the needed pipeline infrastructure. Those European contractors - mostly from West Germany, Italy, and France - were to be compensated by supplies of Soviet ga.")
Update Jan 3 : Russia re-opened supply to Ukraine, because by contract it has the responsibility to deliver gas up to the former USSR border (point B in the map below, source). EU would sue Russia, not Ukraine, if it does not get its gas. So Ukraine succeeded in hijacking the gas pipes in its border. Ukraine's position is strong, until Russia can use the Poland/Belarus branch to bypass Ukraine. Meanwhile, Russia can sue Ukraine for stealing the gas, but that still leaves Russia in an awkward situation.
The map below is from NYT, if ther is indeed an artery running from A to B. Russia has a way to bypass Ukraine to Slovakia. Romania and Moldova would still be cut off, but EU would be reconnected in a couple weeks through some reconfiguration of the pipes.
When one reads this piece from Times and this from NYT. The NYT essay looks like the worst WSJ editorial and full of biased views. One has to wonder, perhaps Oxbridge are still much better institutes than Harvard-Yale?
Update Jan 4: Ukraine gets a good deal at $95/tcm effectively ($230 - cost of transport at $1.6/100km/1tcm).
- It is significantly lower than any other country except Belarus. This shows how much clout Ukraine has due to its geographic location.
- This also sort of dispel the myth of Russia bullying Ukraine (because a reasonable deal was reached).
- The deal will be valid 5 year, after that Russia will have alternative route and new contracts from Russia will only guarantee to its own border.
- "Ukraine will pay 230 usd per 1,000 cu m over five years, while the transit price for Russia gas through Ukraine to European customers will rise to 1.6 usd per 1,000 cu m per 100 km of pipeline from the existing 1.09 usd...[Ukraine said it] will end up paying 95 usd per 1,000 cu m for a combination of 'Russian and Asian gas' "
- A simple calculation: for every cubic meter Ukraine consume, it delivers 14 cubic meter to EU, if one assumes the pipe artery is 700 km long. ((230-95)/1.6/7). However, the actually situation may be complicated because $95 effective price includes "Asian" gas from Turkmenstan/etc.