Russia signs Hungary onto new natural gas venture and cuts supply to the Ukraine by half after dispute breakdown.

Russia’s gas giant Gazprom has cut natural gas supplies to the Ukraine by first 25 percent and then cut another 25 percent following breakdown in negotiations for Ukraine to pay an outstanding debt.

The Ukraine is a transit for natural gas to Europe and last time there was a dispute Europe’s gas supplies were cut by 40 percent. This time both parties have given assurances that gas will not be cut to the rest of Europe. Ukraine will use its reserves internally and so limit the effects on its customers. At present 60 percent of gas to Europe passes through the Ukraine pipeline.

It is disputes such as these that have encouraged a number of new ventures to bring certainty of supply to the rest of Europe. On Monday, Russia signed an agreement with Hungary to join Russia’s South Stream gas pipeline project to transport Russian natural gas across the Black Sea to the Balkans and on to other European countries. This is aimed to avoid the transit problems with some countries like the Ukraine. Ten billion cubic units are expected to come online from 2013 and will compete directly with the EU/US venture Nabucco which will pipe gas from central Asia via Turkey and comes online in 2011.

It appears that Russia is keen to maintain its dominance in the gas market and that this new project, crossing the Black Sea, is a way to challenge the Nabucco venture which is trying to deliver natural gas to the EU by bypassing Russia.

With the challenge of limiting greenhouse gas emissions these projects will take on greater importance in the future and hence the scramble to secure supplies that are dependable and direct. Russia, as the major player in the market wants to maintain the status quo as well as asserting its power over smaller players.

By this first act of the new president Dmitry Medvedev, Moscow is showing that the aggressive foreign and energy policy will continue.

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~ by abstraktbiblos on Tuesday, 4 March, 2008.

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