Saturday, 26 July 2014

Why “those who don't know history are doomed to repeat it”?

These widely known words belong to Edmund Burke, British political theorist and philosopher of 18th century. Some people keep him in memory especially in the USA as MP of the British Parliament arguing in favor of American colonists against attempts of the government of King George III to strengthen the royal power.

As before there are many cases in a modern world proving the truth of Edmund Burke's words. And it seems to me we can see one of particularly extraordinary case when we consider development of relations between Europe and Russia in the gas field that began as far back as the Soviet Union times.
Scanning the past we have to realize that for more than 40 years ultimately overpassing all political contradictions and collisions of interests energy always remained the theme number one within relations between Europe and Moscow. In fact, it all commenced in the 1960s when despite a prolonged state of cold war the representatives of energy sector from West Germany and the USSR started negotiating the very first gas contract.

At those times they shaped a concept of signing a long-term agreement between West Germany and the Soviet Union envisaging supplies of super-diameter steel pipes and other equipment for construction of pipeline that overall had to be paid back by natural gas transported from Western Siberia to Europe. In this regard that long term agreement remained in history under the name of "gas for pipe". In 1960 under that long-term agreement Soviet trade organizations placed orders for super-diameter pipes at German manufacturers. However in April 1963 Bundeskanzler of West Germany Konrad Adenauer put under a ban implementation of the agreement arguing that it's fulfillment "threatens security of Germany".
The government of Western Germany followed recommendations of the Coordinating Committee for Multilateral Export Controls (CoCom) and referred to "interests of allies security". This decision resulted in abnormal losses - in consequence of breaking the contract for shipments of steel pipes company Mannesmann lost from 80 to 100 mln Deutsche Marks. Krupp company suffered the same significant losses.
It was known widely about a distinct role of the US politicians who demanded that their NATO allies should wind up cooperation in the gas field. It was argued among other reasons rather seriously that in case of war actions the pipelines from the USSR might be applied for providing Soviet tanks with fuel.
Refueling tanks directly out of a long distance pipeline?! You hardly can imagine something like that even for a science fiction film, can’t you?

Much later in 1969 when for the first time Bundeskanzler Willy Brandt headed the German government the eastern policy of West Germany changed significantly. Next year already after 10-month negotiations three agreements were signed according to which USSR was obliged to deliver annually 3 bcm of natural gas. The German party represented by company Mannesmann undertook obligations of paying for received fuel by means of shipments of 1,2 mln ton steel pipes necessary for construction of gas pipeline to the West. By the way this volume of pipes correspond to 1,5 thousand kilometers of pipeline but in the whole the construction needed 4,5 thousand kilometers. In return company Ruhrgas from Essen purchased Soviet gas.
As a result of that barter agreement "gas for pipes" called then as the East-West "deal of the century" because of its scales a commercial scheme "transport infrastructure and finance in exchange for gas" was fulfilled for mutual benefit. In total the construction of three pipelines was implemented including Orenburg - Western border, Urengoy - Pomary - Uzhgorod and Yamburg - Western border. All of them are in operation up to now continuing supplies of Siberian gas to Europe.

However, as you aware it was far from the end of the history of political pressure on relations in the field of gas between Europe and the Soviet Union. Yet another severe impact happened in 1980s when the US pressure on West Germany constituted in order to prevent further development of relations in the field of gas. As it was pointed out the Soviet Union needed financial resources for military purposes and especially for expanding an invasion into Afghanistan.

Regardless of the consequences reasonable economic interests and common sense of our European politicians prevailed over these arguments and in 1981 company Ruhrgas and Soviet organization Souzgasexport made a new contract that envisaged shipments to West Germany 8 bcm gas annually from 1984 till 2008. Nevertheless under the US pressure a ceiling of 16% was imposed in respect of the share of Soviet gas within annual consumption in West Germany.

Further relations with Russia in the field of gas went on expanding both in West Germany and in other European countries. Now share of gas from Russia within a total annual volume of the EU consumption accounts for about 30%. Diversification of routes of gas supplies to Europe has developed too. In November 2011 direct shipments of gas to West Germany from Russia via Nord Stream pipeline were started bypassing transit countries what as many of us realize should increase security of supplies. And in the beginning of 2014 German company Europipe had got a contract with regard to supply 330 thousand ton of steel pipes for offshore section of South Stream pipeline costing about 500 mln Euro.

Meanwhile do not forget what we are speaking about - ultimately the times of political spin in gas relations have not remained yet behind in the past. It's not possible for me and obviously for you as well to imagine that nowadays politicians may seem to see "Russian tanks... on pipe". However, as before energy relations are conditional upon different political circumstances. Is there a rational point for us in that a timeworn tendency is prevailing to use energy relations tried-and-true in the past for building political leverage.

Why aren't we able to see new attempts of ignoring economic feasibility obviously existing at different levels - from a macro level of dozens of European states further to levels of dozens thousand of enterprises and many hundred thousand our households? For somebody probably it sounds like why aren't we able to see the back side of the moon!?

Meine Damen und Herren, having read the story would you please switch on the light around, on this occasion don't save energy as usual and try spotlighting your answer on as always challenging question:

Why that we don't learn from the lessons of history as a matter of fact often is the most important of all the lessons that history has to teach us?

Tuesday, 15 July 2014

Why the Ukrainian court has changed its orientation?

Do you think that an orientation change concerns human beings only, their rights and freedoms that should be protected by court as one of the basics of our highly democratic society? As to our secular traditions you are absolutely right.

Meanwhile it appears that there is a country quite near where not human beings but judicial authority reverses orientation of court judgments towards opposite ones when a legal decision "guilty" is replaced to the same extent decisive court sentence "unguilty". By the way there are less than three and a half years between these court decisions.

Now you unlikely would be surprised at me if I am saying that this story is about modern Ukraine where in October 2011 Kiev’s Pechora district court accused ex-Prime Minister Yulia Tymoshenko of exceeding her authority when signing gas supply contracts with Russia in January 2009. The court decision was as much as ruthless. As the prosecutors demanded Yulia Tymoshenko was sentenced for 7 years of imprisonment and a fine of about USD 200 million. According to the court it was an amount equals to a financial loss that Ukraine had sustained through an unprofitable gas contract. So this court decision was aimed at undermining her political prestige as the leader of Ukrainian opposition and at raising doubts about a legitimacy of gas contracts signed with Russia in 2009
In recent years several European countries and NGOs for protection of human rights have publicly evaluated this court decision as an example of selective justice and an act of politically motivated prosecution. Advocacy of Mrs. Tymoshenko stepped up to a high international level when the EU postponed further development of the association agreement and the agreement on the creation of a deep and comprehensive free trade area. Then European leaders presumed that these agreements would not be ratified unless Ukraine would not correct this stark deterioration of democracy and the rule of law.
Now it should be noted that on 14th April this year there was an end of that prosecutory story when the Supreme Court of Ukraine closed so called "gas deal" for absence of a crime in the considered activity. And some days ago the Supreme Court of Ukraine brought a full text of verdict of not guilty for ex-Prime Minister of Ukraine, the leader of the All-Ukrainian Union "Fatherland" political party Mrs. Tymoshenko.
But what about the "gas deal" itself? Probably nobody would be surprised at such a "reverse move" of the Ukrainian court and drastic changes of its orientation that obviously revealed the situation within internal political processes of Ukraine.

Insofar as the "gas deal" is concerned neither me nor anybody else has to be doubt that the decision of the Supreme Court of Ukraine practically recognizes indisputability of the gas contract between Russia and Ukraine, is not it?

However, in fact, in despite of putting on the shelf the "gas deal" prior to that accusing Mrs. Tymoshenko, in the same way as before Ukraine is trying to challenge the validity of the gas contract of 2009 by which the debt of Ukraine for gas supplies only in November and December last year amounts to USD 1,45 bln. Even our highly respected politicians from Brussels actively taking part in the three-sided talks with the EU, Ukraine and Russia up to now could not influence over payments under the gas contract.

Why is it possible in the country, which is eager to join the EU, and willing to reach our standards including legal system as well? Why is it admissible to change court decisions on political grounds at the same time avoiding a fair fulfilment of the undertaken commercial obligations?
And yet whether will it be the only precedent if Ukraine integrates into the EU? If no than why?

Tuesday, 8 July 2014

Shale revolution. Why USA practice does not suite Europe?

There is a rising spout of debate regarding shale gas in Europe. Is shale revolution possible in Europe?

Technology and ecology 
Directional drilling and hydraulic fracturing are used in shale gas industry. Please check this video for the technology description.
Shale gas is quite expensive. The cost of shale gas production is several times greater than the cost of production of conventional gas.

Devon Energy in the U.S. initiated industrial production of shale gas in the early 2000s. Due to significant increase of shale gas projects U.S. have become the world leader in natural gas production. After more than 10 years of active wells fracturing there are disastrous consequences for the environment and groundwater. People that live near the fields are particularly skeptical about shale gas. Residents tell their true stories in these documentaries:

In America there are rising concerns regarding shale gas industry. Scientists from Cornell University concluded that at least 20% of the earthquakes in recent years in Oklahoma, are related to shale gas wells and use of hydraulic fracturing at the wells. According to researchers, the activity at these sites may cause tremors in a radius of 35 kilometers.

Shale gas in Europe 
There are significant shale gas reserves in Europe. France, Germany, Switzerland, Czech Republic, Romania, Bulgaria and many other countries imposed a moratorium on shale gas projects. But in Poland and Ukraine U.S. companies actively promote shale projects.

In late 2011, ExxonMobil drilled in Poland two test wells, but in 2012 turned the project, stating its unprofitability. Shell and Chevron in 2012 won the contract to develop wells in several regions of Ukraine. Recently, the son of U.S. Vice President Joe Biden Hunter Biden joined the Ukrainian oil and gas company Burisma. One gets the impression that the Americans plan to sell to Europe Ukrainian shale gas. However, why should people and environment suffer? Why Ukrainian authorities do not protect Ukrainian communities? 

In Europe, there are rising concerns about shale gas. European Energy Commissioner Guenther Oettinger said in interview to B.Z. Am Sonntag this Sunday that shale gas would provide only 10% of Europe gas demand. 

We can say that the dream of a shale revolution like the one in the U.S. will not come true in Europe. Some countries prohibit shale gas production because of huge negative environmental impact. Some others cannot find profitable shale projects because of high cost of production. Only in Ukraine shale projects are developed. Environmental issues and community health are disregarded by geopolitical strategies and transnational companies’ profits. This is weird. After all, we consider Ukraine as a part of Europe. However, we see evidences that speak of Ukraine as a colonial country. 

Why is it happening?

Thursday, 3 July 2014

Why might a monopoly status be interpreted differently?

Why might a monopoly status be interpreted differently?

A monopoly means a single supplier in a market and it is no good at all. A monopoly is that stops development. A monopoly is that...

However, properly speaking what is it a monopoly in terms of law and market? As you understand, I am going to talk about an energy market and to be exact it is about the European gas market.
In recent time, all of us have heard a lot about a monopoly of Russian gas at the European market. I myself as all of us perceive this statement such as an axiom. However, the events with South Stream pipeline project have made me more deeply consider that definition. Here are a number of questions such as: what kind of monopoly? Whose monopoly?  On the other hand, monopoly for what? According to Eurogas statistics in 2013 Europe consumed 462 bcm of natural gas where supplies from Russia accounted for 161 bcm. Deducting the volume of gas imported by Turkey, it amounted to about 29% in overall volume of EU gas supplies. Whether it is possible to consider 29% market share as monopolistic one? I am not sure ... But if yes then how we should define Norwegian Companies having 29% market share as well.

So is it a monopoly or not? In recent time we, Europeans are listening to the US in all ways (especially in energy sector). And how is it determined by the US legislation? In the US a company is deemed a monopoly if its share of the market accounts for 50% or more percent. Therefore, we are drawing a conclusion from that - neither Russian nor Norwegian companies do not enjoy a monopoly position at the European gas market.

Let's see what is going on with a transit of gas coming to Europe? As to Norwegian gas everything's alright. The gas supplies are carried out via several countries.
But what about the transit of gas from Siberia? Here you are - my questions are appearing, obvious questions. In 2013 Russia delivered for exports in total 161 bcm of gas including 85 bcm of gas transmitted via Ukraine that amounts to 53%. In other words according to the US legislation mentioned above, it is an example of monopolies in their pure form! Where is logic then?

From one hand, Russia with 29% of gas supplies to Europe is blamed in monopoly position. And, from the other hand, despite of an unreliable, outdated and in fact unmanageable Ukrainian GTS we grant the right to Ukraine to be a monopolistic transit country. At the same time, there is not any security assurance and clear evidences of that we will not be freezing next winter.

Why is an attitude to monopoly diametrically opposed?

Tuesday, 1 July 2014

Why do I take a pen, sorry, a keyboard, once again?

Last time I wrote that there are no routes distinctly specified for exports in the Ukrainian GTS because this gas transmission system was developed in such a way that the task of gas supplies to Europe conflicting with the task of providing internal gas consumers. However, recent events have revealed that this conflict situation is not the only problem for European countries consuming Russian gas transmitted via Ukraine.

On 17 June 2014, there was an explosion at the part of the gas pipeline in Poltava region (Ukraine) providing gas supplies to Europe. Different explanations of this accident were made public from a terrorist attack aimed at discrediting of Ukraine as a reliable transit operator up to an ordinary technical breakdown.
Meanwhile there is a question whether that breakdown is an ordinary one? Official name of this gas pipeline "Urengoy-Pomary-Uzhgorod". Now reviewing a background information of that pipeline we can see that the pipeline was built in 1982 -1984 or 30 years ago. Referring to the same background information, at those times the Khartsyzsk plant produced for the pipeline "Urengoy-Pomary-Uzhgorod" double polyethylene coating pipes. A normal operating life of these pipes are 12 years. However, I would like to refer to the Ukrainian information agency says: "Governor of Poltava region Victor Bugaychuk announced that the gas pipeline been in a critical condition. There are 11 repair patches in that part (of the pipeline - my comment). Naftogaz refused to provide financing for repair works”.

And now your attention is necessary: strategic pipeline to Europe built 30 years ago with exceeded time limit coating has never been under repairs!!! The question is how many such unsafe pipelines in Ukraine are in use for supplies of gas to Europe.

As you understand, I am asking rhetorically while the answer to that question does not grant any optimism.
Somebody will oppose that there were no termination of gas supplies to Europe yet. Yes, that is correct, but it takes place during summer because of seasonal underutilization of other pipelines' capacity. Moreover, do you imagine what will happen in winter season?

However, it looks as if Mr. Yatsenyuk has found an opportunity of obtaining finance for repairs and upgrading of gas transmission system. It is assumed to create a company - transmission system operator where 49% would belong to Americans (remember the younger son of US Vice President Joseph Biden...) as well as European investors and Ukraine will possess the rest of 51%.

It is an interesting proposal. In fact, are American and European investors ready to put their money into the Ukrainian GTS? According to different estimates the total amount is in range from 2,5 to 17 billion USD which could burden the European gas consumers. Meanwhile the upper figure is already comparable with the costs of the luckless South Stream project which is under construction based on modern technologies and pipes produced in Europe and is free of transit risks. I fully agree with the President of Austria who supported South Stream project implementation and made possible for Austria to feel securely in energy matters.

I do hope that you understand why?.