Russia Gas Exports and the West

According to Russian leaders, after the demise of the USSR in 1991, when Russia was in disarray under Gorbachev and Yeltsin, Europe and US leaders, brushing aside historic Russian geo-political interests as irrelevant, took geo-political advantage by steadily expanding NATO and the EU into East Europe, even aiming to include Ukraine, the Motherland of Russian culture, using the mantra of “spreading peace, prosperity, liberty, democratic values, the rule of law, and economic opportunities throughout an integrated Europe”.

Several years ago, following EU mantra, and at the urging of several members, the EU Commission, with support of the US and NATO, decided to start negotiations with the Kiev government, led by President Yanukovych, to have Ukraine within the sphere of the EU. However, the EU was insisting on unacceptable reforms as a condition for financial aid. Yanukovich, becoming impatient, decided to deal with Russia instead, and Putin responded with an aid package of $15 b, plus a gas price reduction from about $385.5/1000 cm to $268.5/1000 cm, plus buying $3 billion of Ukraine bonds. But the Ukraine media had played up enticing visions of future prosperity with the EU, and played down the pain to get it. As a result, the rather ignorant people demonstrated and rioted, with covert CIA input, which ultimately led to Yanukovich having to flee to Russia to save his life!! If the EU Commission had been less naïve, less beholding to US geopolitics, i.e., politically more astute, it would not have embarked on this ill-conceived, expensive “venture”. It reminds one of  “A Bridge Too Far”.

http://consortiumnews.com/2014/03/27/the-danger-of-false-narrative/

There was no need for Europe to over-rapidly burden itself by adding these East European countries, create problems in EU economies, AND create anxiety in Russia, Europe's most-necessary trading partner.

These policies were partially inspired by the remnants of the Cold War mentality to constrain Russia, keep it in some kind of box, which will not work, as Russia has the natural resources the rest of the world cannot do without, and its military is ample to prevent China, the US, and Europe from controlling/grabbing those resources.

Former German Chancellors Schmidt, Kohl and Schroeder think the EU Parliament should launch a “putsch” against the EU Commission to assert its power. Says Schmidt: "The latest example is the attempt of the European Commission to annex Ukraine, and also to try to draw in Georgia and Moldova. Just a reminder: Georgia lies outside of Europe. This is megalomania, we have no business being there."

NOTE: Adding Ukraine to the EU means millions of unemployed and low-paid Ukrainians will have EU passports and be able to travel and work anywhere in the EU-28, adding to the burdens of already-struggling households and businesses in the EU-28.

NOTE: The results of the May 2014 EU Elections for Parliament indicate voters want the EU to be less complex, less intrusive, less expansionary, less concerned with geo-political meddling, and more concerned with economic growth and job creation.

http://www.eubusiness.com/news-eu/germany-politics.w2d

http://www.spectator.co.uk/features/9163581/putin-is-making-the-wests-co...

http://www.bloomberg.com/news/2014-05-16/ukraine-crisis-resembles-europe...

The economies of the East European countries were nowhere near ready to play by West European rules. Other nations, such as Greece, should have had to make much more extensive reforms before being added. That became obvious to everyone AFTER the 2008 collapse, although, this must have been known in Athens, Brussels and the European Central Bank.

This expansion occurred despite Russia being told in 1991, only East Germany would be added to NATO. But East European countries were eager to join NATO to ensure Russia would not re-invade them at some future time. The NATO expansion required these countries to restructure their military sector, before becoming NATO members, and to restructure their economies before becoming EU members.

NOTE: Regarding economic growth and spreading prosperity, the Russian economy significantly outperformed the Euro area. When Yeltsin resigned on 31 December 1999 and Putin took his place, the Russian GDP (PPP, international dollars) increased from a low of $925 billion at end 1998 to $2,560 billion at end 2013, a growth rate of 7%/yr.

http://en.wikipedia.org/wiki/File:Russian_economy_since_fall_of_Soviet_U...

NOTE: Economic growth of the EU-18 has stagnated since the start of 2014, even without any impact of sanctions. The GDP is in billion euro, the growth is in % from the prior quarter.

..........................2013 GDP...........1qtr2014................2qtr2014

Germany..............2,738......................0.7.........................0.2

France.................2,060.......................0.0.........................0.0

Italy.....................1,560......................-0.1........................-0.1

Spain...................1,023......................0.4.........................0.6

Netherlands.............603.......................0.4.........................0.5

Total....................7,984

Rest of EU-18........1,595

Total EU-18...........9,579.......................0.2.........................0.0

Russia...............................................-0.3........................N/A

GDP Growth of Countries qtr to qtr

http://www.tradingeconomics.com/russia/indicators

NATO and EU Excessive Expansion into Europe: For at least the past 25 years, Europe and US leaders, aiming for one big happy family of European nations, engaged in geo-political overreach by “advising” how to implement “color revolutions” in Georgia, Ukraine, etc., and trying to expand NATO to Georgia, Moldova and Ukraine (which aims to cut off Russia from the Black Sea), and trying to expand the EU with free trade agreements with Georgia, Moldova, Ukraine and Armenia (which aims to impose a tariff wall for Russian exports to these countries).

It appears the US is covertly helping the Kiev government to suppress popular uprisings in eastern Ukraine:

- In April 2014, the White House confirmed that CIA director John Brennan had visited Kiev as part of a “routine” trip to Europe, in a move condemned by Moscow. At present, dozens of CIA and FBI agents are “advising” the Kiev government regarding suppressing popular uprisings, per German media reports.

- The Kiev government hired about 400 elite mercenaries from the notorious US private security firm Academi (formerly Blackwater), which is usually used by the CIA for “Black-Ops”, to provide “professional backbone” to the Ukrainian military operation against pro-autonomy activists in southeast Ukraine, per German media reports. The “Bild am Sonntag” newspaper, citing a source in German intelligence circles, wrote Sunday that Academi mercenaries are involved in the Kiev military crackdown on pro-autonomy activists near the town of Slavyansk in the Donetsk region.

http://news.yahoo.com/cia-fbi-agents-advising-ukraine-government-report-...

http://rt.com/news/158212-academi-blackwater-ukraine-military/

Bringing Ukraine under NATO and EU influence would mean the Russian navy stationed in the Crimea since 1783 would be replaced with a NATO navy, and the transit of Russian natural gas exports to Europe would be under the control of others and “defended” by NATO. Both would be completely unacceptable outcomes for Russia, which likely was foreseen by Europe and US leaders, but unwisely brushed aside as irrelevant. 

Russia’s suspicions of NATO and EU ambitions in East Europe should be understood, as France invaded Russia in June 1812; Japan in 1905; the US with 8,000 troops in 1918 – 1920 (attempting to overthrow the communists); Japan in 1939 (Manchurian-Mongolian frontier), Germany in June 1941.

http://thediplomat.com/2012/08/the-forgotten-soviet-japanese-war-of-1939/

It may be economically unwise for Europe to follow the US geo-political strategy of pulling into the Western orbit additional states on Europe’s periphery “eager to join NATO and the EU”, the hidden agenda being to contain Russia. Events in Georgia, resulted in Russia annexing South Ossetia and Abkhazia in 2008, and events in Ukraine, an impoverished state run by a kleptocracy for at least 25 years, resulted in its elected president having to flee to Russia, and Russia annexing the Crimea in 2014.

EU Excessive Expansion Adversely Affected Economic Growth: EU leaders in Brussels are hardly in a position to engage in expensive geo-political games, as they are confronted with a long-overdue reset of their expansionist/command-control policies, that aim to “homogenize” diverse European cultures according to Brussels’ vision of an integrated Europe, including the free movement of unskilled laborers from poor EU members and even from outside Europe to more prosperous EU members, where they are provided with jobs, housing, and payments from various social programs.

These Brussels-inspired policies have led to 12% unemployment, increasing budget deficits, increasing private and public indebtedness, decreasing buying power of consumers, and a decade of near-zero economic growth requiring historic-low interest rates and quantitative easing by the UK and European central banks. EU leaders should attend to EU problems, instead of emoting over some minor impoverished sections of Ukraine that are of little value to the EU.

NOTE: A similar reset is overdue regarding Brussels’ ineffective, expensive renewable energy policies aiming to unite Europe to be "the shining beacon fighting global warming” for all to follow, as almost all EU-28 countries are not rich enough to follow Germany's wasteful RE programs.

http://notrickszone.com/2014/04/27/angela-merkels-vice-chancellor-stuns-declares-germanys-energiewende-to-be-on-the-verge-of-failure/

http://theenergycollective.com/willem-post/338781/high-renewable-energy-...

Punishing Russia With Sanctions: For US geo-political reasons, the EU, et al, have been “coerced” by the US to impose sanctions on Russia. The main reason for this folly is the US, EU, and NATO do not want Russia to “have” Ukraine in its “orbit”, whereas the EU needs impoverished, deadbeat, corrupt Ukraine like another hole in the head.

As a result of recent Ukraine events, a number of EU-28 leaders in Brussels, London, Berlin, etc., wanting to “punish” Russia with sanctions, have stated they will seek ways to reduce their increasing dependence on Russian gas, whereas several other EU-28 leaders, more dependent on Russian gas, have stated they fear the economic impact on their economies.

In 2013, EU-28 exports to Russia were $152 b and imports $264 b, total trade $416 b, and US exports were $11.26 b and imports $26.96 b, total trade $38.22 b. Some elements in the US government (mostly militarist, neo-con bureaucrats in State, Defense and conservative legislators in the Congress who built their careers on "fighting Communism/containing Russia"), seeking further geo-political advantage over Russia, have been pushing for strong sanctions, because the US has little to lose, whereas most EU-28 countries are willing to go along with weak sanctions, because they have very much too lose; with the full impact of sanctions yet to come, the EU already has an economic growthrate of ZERO!! Shooting oneself in the foot?

Russian Response to Sanctions: Russia finally retaliated with sanctions including a ban on most food imports, and will likely retaliate regarding limitations of flights over Russian territory and imports of consumer goods, cars, airplanes, etc., this at a time when many EU economies are reeling and struggling.

Russia is rapidly encouraging its own food sector to increase domestic food production, and negotiating with friendly nations to increase their food exports to Russia. It is highly likely food exporters in the EU, et al, will not get back into the Russian food market anytime soon, if ever.

As Russian plans for increasing its gas exports to Europe may not be fully realized, because of recent events, its likely response will be to increase LNG production, with help of Exxon-Mobil, et al., and find additional business, energy deals, military contracts and political alliances with friendly countries in other areas of the world. The world cannot do without Russia’s resources.

Effectiveness of Sanctions: The US and EU “punishing” Russia with sanctions is unlikely to work, as Russians see themselves as a great superpower, with a strong military, that requires its geo-political interests be treated with due respect. Sanctions, while causing some economic inconvenience in Russia and straining its international relations, and making the EU and US feel good “doing the right thing”, would not change Russia’s behavior, but rather unite it as a people. Putin’s approval rating is well ABOVE 80%.

Putin: "Russia is being presented with what is almost an ultimatum: 'Let us (the West) destroy this part of the population that is ethnically and historically close to Russia and we will not impose sanctions against you'. This is a strange and unacceptable logic."

Sanctions would certainly add up to a major adverse long-term, economic impact on Europe (already heavily indebted, and in near-zero-growth mode, and with 12% unemployment, etc.), and a relatively minor impact on the US. Sanctions would divert scarce capital and other resources from more useful purposes, as is shown below.

In fact, the US would gain relative to a weakened Europe and Russia, but all three would lose relative to East Asia, as the net result would be a further weakening of the West’s competitive position with respect to East Asia. A negotiated outcome resulting in a win for all three would be the preferred course of action. See Putin’s speech of March 18, 2014 in below URL.

http://eng.news.kremlin.ru/news/6889

http://rt.com/business/us-eu-russia-sanctions-590/

NOTE: On May 20, 2014, Russia and China:

- Signed a $400 b contract for 38 bcm* of Russian gas for 30 years, starting in 2018, ultimately 60 bcm.

- Agreed China to pre-pay about $25 b for future gas delivery and invest about $20 b in pipelines in China.

- Agreed Russia to invest about $50 b for developing gas fields and pipelines in Russia.

- Agreed to increase bilateral trade from $90 b in 2013 to $200 b in 2020.

- Agreed to use the ruble and the renminbi for various transactions, i.e., bypass the dollar.

*Assuming a buildup period from 0 bcm at the start of 2018 to 38 bcm at the start of 2022, the price will be about $400 b/(28 yrs x 38 bcm) = $376/1000 cm, slightly less than the about $387/1000 cm Europe paid in 2013.

EU Delaying Tactics Regarding Nord-Stream and South-Stream: The US, UK, NATO, EU aim to keep Russia in a policy box (a Cold War leftover), where it is allowed to deliver resources to the world (a la the Middle East, etc.), as much as possible on EU terms, and pay for them by buying industrial goods and services as much as possible from the EU.

Russia has made huge investments in the infrastructures to deliver these resources and does not want the EU/Brussels to write onerous rules about how they should be delivered, making these investments less efficient, which lowers their value, which adversely affects the GDP and well-being of Russia.

Russia wants to bypass deadbeat/corrupt Ukraine ASAP, and stop gas deliveries to Ukraine unless paid in advance, and Europe should help Russia do so, in the interest of a more secure gas flow.

Instead of helping, Europe is:

- Adding regulatory barriers regarding the partially-completed Nord-stream, which runs from Vyborg, Russia, under the Baltic Sea, to Greifswald, Germany, 1,222 km, 2 lines are built, ultimately 4 lines, each 27.5 bcm, and

- Delaying the construction startup of South-stream, which is planned to run from Beregovaya, Russia, under the Black Sea for 925 km, to Varna, Bulgaria, and another 1,400 km into Europe, ultimately 4 lines, each 15.75 bcm.

Nord-stream’s annual capacity of 55 bcm is identical with OPAL’s and NEL’s combined capacities of 55 bcm. OPAL and NEL are fed from Nord-stream at its landing site, Greifswald, which is also their common starting point. The pipelines that are within Germany.

An existing Ukraine bypass is the Yamal-Europe pipeline, 4,196 km, rated capacity 33 bcm. Gas from eastern Siberia transits, via Belarus and Poland, to Germany, etc.

EU Third Energy Package: The EU's so-called Third Energy Package has become as a major stumbling block for Gazprom. The package was proposed by the European Commission in September 2007 and adopted by the European Parliament and the Council of the European Union in July 2009. It entered into force on September 3, 2009. The Package mandates network ownership unbundling rules. This means:

- Gazprom, both a producer and a distributor of gas, cannot simultaneously OWN production capacity and its transmission network, and

- Gazprom cannot to be the exclusive shipper, as non-discriminatory access by third parties to the pipeline needs to be ensured.

Ukraine Unreliable for Gas Transit and Storage: Gas is usually stored in depleted gas fields, salt cavities and aquifers.Ukraine has significant gas storage capacity. Below is a list of gas storage capacities:

Russia.......................94 bcm..............22 sites

Ukraine......................32 bcm..............13 sites

EU28 total...................78 bcm............123 sites

Ukraine would like to earn, besides gas transit fees (which are declining), also gas storage fees, and is angling to have Europe more fully utilize its storage capacity to “secure” Europe’s gas supply. Europe and Russia, to safeguard their own interests, will likely want to avoid that trap, based on:

- Past and current events regarding Ukraine’s non-payments of gas, and

- Ukraine’s blackmailing Russia for below-market price discounts, and

- Ukraine's stealing of transit gas meant for Europe, and

- Ukraine's decrepit gas infrastructure, and

- Ukraine essentially being bankrupt.

- Ukraine’s government unwillingness to humanely manage Ukraine’s ethnic diversity.

NOTE: Ukraine’s transit fee is about $3/1000 cm/100 km, or $3,000,000/bcm/100 km. Assuming the average distance traveled via Ukraine is 800 km, that revenue (paid by Gazprom to Ukraine) was about  (86.1 bcm, transit flow) x $3,000,000/bcm/100 km x 800 km = $2.066 b in 2013.

NOTE: From the Russian border, via Ukraine, to the major hub in Baumgarten, Austria, 1,800 km, the transit fees total about $50/1000 cm. The 2013 average gas price of about $387/1000 cm Russia charges Europe includes the $50/1000 cm transit cost to that hub.

http://www.encharter.org/fileadmin/user_upload/document/Dickel/090325_St...

http://www.bloombergview.com/articles/2013-12-30/putin-s-deal-is-no-gift...

Future Russian Gas Supply to Europe: Europe’s domestic gas production from existing fields has been declining and this trend will continue. Europe has been reducing its imports of high-cost LNG. Both supply reductions have been offset by increased imports of low-cost Russian gas. Accordingly, Russia has been planning to increase its gas exports to Europe from 162.4 bcm in 2013, to 173 bcm in 2020, to 198 bcm in 2035.

In 2013, Russian gas flow to Europe via Ukraine was 86.100 Bcm and to Ukraine 25.84 bcm, for a total of 111.94 bcm, and bypass flow was 162.4 – 86.1 = 76.3 bcm via Nord-stream (to Germany), Blue-stream (to Turkey), etc.

Without the Ukraine events, Russia would have been the likely supplier of that increase. By 2035, the Russian supply would have been about 76.3 bcm via existing bypasses + 72 bcm via Nord-stream + 50 bcm via South-stream = 198.3 bcm, excluding Ukraine, all of which would have bypassed Ukraine.

Russia, because of unpaid bills, would also supply about 26 bcm for Ukraine’s needs, via other EU countries, which would reverse-flow it to Ukraine. In 2035, total Russian supply would be 198.3 + 28 = 224.3 bcm.

If Europe, to “punish” Russia, were to significantly reduce its Russian gas dependency by about 2024 (it could not be done earlier), Europe would have to:

- Increase domestic gas production from shale by about 35 bcm, plus

- Increase its imports of high-cost LNG by about 113.970 bcm, to

- Offset an estimated domestic gas production decrease of 35 bcm, plus

- Limit Russian imports to about 50% of Russian projections, or 224.3/2 = 112.2 bcm, which would be bypassing Ukraine, because Europe, to further “punish” Russia, would not allow Nord-stream to be completed beyond 2 lines, and not allow South-stream to be started.

In Europe, it would take tens of billions of dollars of capital investments and at least 10 years before any significant supply of shale gas and LNG would occur, PLUS it would raise gas prices by at least 50%. All that, and much more for other Ukraine development/integration purposes, would be needed to add dead beat, corrupt, dysfunctional Ukraine to the EU/US/NATO orbit!! See US cost estimate below.

Ukraine's Unpaid Gas Bills: Ukraine is a notorious non-payer of its debts to Russia. According to Russia, Ukraine owes Russia $17 b for past purchases of reduced-price gas related to naval base rental in the Crimea, and another $18.5 b ($7.1 b for 2012, $11.4 b for 2013) due to take-or-pay provisions under a 2009 gas contract, for a total of $35.5 b, plus about $3.5 b for unpaid gas bills by end May 2014. Also, Russia holds $3 b in Ukrainian government bonds.

The amount is far greater than the estimated $17.1 b bailout the International Monetary Fund has approved for Ukraine; Russia, a member of the IMF, also voted in favor. The IMF likely will closely supervise Ukraine's use of the funds, as some of it likely would end up in Swiss bank accounts. Some of it will be used to pay Russia for past and future gas deliveries, some of it will be used to pay bondholders, such as banks, insurance companies, etc. The IMF loan will also unlock additional funds worth $15 b from other donors, including the World Bank, EU, Canada and Japan.

http://news.yahoo.com/putin-warns-europe-ukraine-gas-debt-131524410--fin...

In the past, after Russia’s patience was exhausted, gas flow through Ukraine was partially halted in 2006, 2008 and 2009, but Ukraine's corrupt government illegally took, for its own use, gas destined for Europe, causing shortages in Europe. Unless Europe guarantees payment, Russia will gradually stop gas flow through Ukraine, as it continues to augment the existing pipeline capacity that bypasses Ukraine; it would be absurd to deliver more gas to corrupt/deadbeat Ukraine and not get paid for it. Concurrent, Europe will have to rebuild its pipeline capacity to mesh with Russia's, and to supply Ukraine with gas.

COLD WAR PEACE TREATY IS LONG OVERDUE

Whereas the Cold War existed from about 1945 to 1991, a peace treaty was never negotiated and signed. Russia withdrew from East Europe and NATO, led by the US, and the EU filled the geo-political vacuum; Russia lost, the West won.

However, it appears the West has encroached too far, even to the detriment of Europe’s future, as recent trends have shown. NATO and EU aggrandizement by governments in Brussels, Berlin, Washington, Paris and London needs to be reined in. Wiser heads need to prevail. Europe and US leaders should finally realize Russia no longer will allow itself to be exploited, as are other gas and oil exporting nations, such as in the Middle East, etc. The NATO and EU encroachment policy since 1991, has reached its limits and outlived its usefulness.

A Cold War peace treaty would have considered, and accommodated, Russia’s historic geo-political interests, and would have engaged Russia to diversify the production of goods and services of its economy, instead of disdainfully treating Russia as just another “petro-state” and as just another consumer of European goods and services, a la the Middle East, etc.

THE HIGH COST OF REPLACING RUSSIAN GAS IMPORTED BY EUROPE WITH US GAS

The Cheniere Sabin Pass LNG Project, Cameron Parish, Louisiana, on line in 2017/2018, will convert a total of 2 bcf of gas/day, or 20.674 bcm of gas/yr to LNG. Europe’s imports from Russia were 162.400 bcm in 2013. At least 8 such export facilities, at a cost of about $80 billion, plus LNG vessels, at a cost of about $28 billion, for a total of $108 billion, would be required to replace all Russian gas with US gas, not counting the tens of billions of dollars, and environmental impact, to build up US gas production from 687.60 bcm in 2013, by 162.40 bcm, to 850.30 bcm, or 23.7%, over a period of at least 10 years.

http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review-2014/BP-statistical-review-of-world-energy-2014-full-report.pdf 

This expensive geo-political folly, of great benefit to the US gas industry, would be harmful for the US and Europe economies, making them even less competitive with East Asia. In the US and Europe, it would increase energy costs for producing goods and services, and for building heating, and for gas-based fertilizer. Fertilizer and other chemicals production would shift to countries with low gas costs, such as Russia!

file://localhost/Users/wpost/Documents/Save Misc Energy Topics/Energy Articles on TEC/Russian Gas and Encroachments/US Can't Frack Europe Free of Russian Gas.webarchive

Replacing Russian gas with high-cost US LNG would require Europe’s gas pipeline network to be rearranged for west-to-east flow and for more interconnected flow between countries. It would require investments of tens of billions of dollars in European infrastructure over at least 5 - 10 years. The effects in the US and Europe would be to:

- Increase energy prices.

- Reduce industrial job creation.

- Reduced economic activity and growth.

- Reduced competitiveness on world markets.

- Increase trade and balance of payments deficits.

- Increase CO2 emissions per Btu, and per kWh, and per $ of GDP.

NOTE: The economies of West European countries have been handicapped with expensive traditional energy, including high-cost, imported oil and LNG, and for the past 10 - 15 years, also with ineffective, expensive renewable energy programs that inefficiently produce electrical energy at about 3 - 4 times grid prices, which makes Europe less competitive on world markets, restrains its economic growth to 1% or less, both of which are contributing factors creating near-permanent high unemployment in the EU-28, currently at about 12%. Hopefully, the Crimea events will act as a wake-up call towards more rational energy policies in Europe.

The US has also been handicapping itself with similar RE programs, but can better afford it, as it still has, unlike Europe, at least a 100-year supply of domestic, low-cost coal, gas, oil, hydro and nuclear energy.

http://theenergycollective.com/willem-post/332911/high-renewable-energy-...

http://theenergycollective.com/willem-post/338781/high-renewable-energy-...

UKRAINE AND ITS CORRUPT GOVERNMENTS

Ukraine was founded by the Kyivan Rus ca. 900. After being controlled by Mongol/Tatar, Polish and Lithuanian rulers, it came under the control of the Tsardom of Russia in 1667, and was made part of the Russian Empire under Catherine the Great in 1775.

http://en.wikipedia.org/wiki/History_of_Ukraine

Ukraine, a Country Owned and Controlled by Oligarchs: Since 1990, with privatization in vogue, Ukraine has become under the control of groups of oligarchs, who have served their own interests and stymied social and economic progress. One of them, Poroshenko, is the newly elected president, another, Kolomoisky, used to live in Switzerland, moved to Ukraine when he was appointed governor of a district, and finances his own private paramilitary army, as do other oligarchs.

NOTE: When Poroshenko went through the motions of a cease-fire (which he knew was a farce, as it would not be respected), these oligarchs and their paramilitary groups of ultranationalists, far-right extremists and neo-Nazis, dressed similar to Ukrainian solders, kept on fighting and the Separatists responded in kind. Poroshenko appears to have no control over them. When the cease-fire expired, the Ukraine armed forces resumed their ethnic warfare, mostly West Ukrainians plus paramilitary groups, against mostly East Ukrainians.

The below URLs reveal the extent of their power, influence, corruption and ruthlessness. The US and EU must be really proud to have acquired such new friends.

http://online.wsj.com/articles/ukraines-secret-weapon-feisty-oligarch-ih...

http://www.thenational.ae/arts-culture/the-review/behind-the-scenes-in-u...

http://www.forbes.com/sites/melikkaylan/2014/05/21/oligarchs-russia-and-...

http://voiceofrussia.com/news/2014_06_30/Hackers-crack-bank-system-owned...

http://www.osw.waw.pl/sites/default/files/prace_42_en.pdf

Ukraine's Stagnant Economy: Ukraine has about 46 million people. Its GDP is about $337.4 b (PPP, 2013), or $175.5 b (nominal), about equally divided between West and East Ukraine; about 50% of the economy is “off the books”, an indication of endemic corruption. Western Ukraine is culturally oriented towards Europe and hates eastern Ukraine, whereas eastern Ukraine is culturally oriented towards Russia and distrusts western Ukraine.

For the past 23 years, the culture, language, and political thinking of western Ukraine (Kiev is in western Ukraine) have been imposed upon the rest of Ukraine. Ostensibly this is for the sake of “unifying the country,” but, in fact, the objective is to suppress and humiliate Ukraine’s Russian-speaking population.

Corruption: Regarding corruption, Ukraine ranks 144th out of 177 nations, hardly a recommendation for joining NATO and the EU.

http://hereandnow.wbur.org/2014/02/27/ukraine-corruption-watchdog

The corrupt cliques in the Kiev government have been milking industrial eastern Ukraine for at least 23 years, and the people in that area feel exploited and as having no say in their affairs. That government’s 23-year achievement is an economy with a per capita income half of Poland's per capita income.

The corrupt cliques are eager to cash in on US, EU, IMF, and World Bank loans and grants, all under the umbrella of NATO. Instead of continuing their current ways of acquiring money, they are aiming to be seen as "respectable”, i.e., more or less rein in endemic corruption and play by EU, IMF and World Bank rules, to acquire money.

Human Rights: Recently, the Kiev government tried to outlaw the Russian language, and have only the Ukrainian language as the official language.

Language is part of culture. In the west of Ukraine, many people speak Polish, in the Crimea, almost all speak Russian, and in the east, a large percentage speaks Russian.

That callous, but typical government act says a lot about its democratic and human rights intentions, and treatment of minorities. It was aimed to diminish the Russian culture in Ukraine, to debase the ethnic Russians, on top of their economic exploitation.

Restructuring Ukraine: It would be best, if Ukraine became a Federal Republic of Ukraine consisting of self-governing states, each with its own president, parliament and judicial system, and each having its own defense and state departments. As an alternative, Ukraine could become 3 or 4 separate states, similar to Czechoslovakia and Yugoslavia. The people in Ukraine have just as much right to determine their future, as do people in Czechoslovakia and Yugoslavia. For the US, EU, etc., to brand these people as terrorists and their referenda as illegal, etc., is applying a double standard, is being inconsistent and irrational.

NOTE: Czechoslovakia became the Czech Republic and Slovakia; two successful, independent states.

NOTE: Yugoslavia became Croatia, Slovenia, Republic of Macedonia, Bosnia/Herzegovina, Montenegro, Serbia, Kosovo; all successful, independent states.

http://www.washingtonpost.com/blogs/worldviews/wp/2014/01/30/9-questions...

Restructuring the Ukraine Economy: It would require persistent efforts by a strong government, and hundreds of billions of dollars over several decades to turn around the Ukraine economy, to raise it to the level of Poland, and to do that with expensive gas would be an additional handicap. Ukraine is near bankruptcy and the current government cannot even maintain order in East Ukraine. Per capita income, purchasing power parity (PPP, current international $), of Poland and Ukraine are compared below.

Year ....................1991..........2000.........2013.......Increase 1991 to 2013 (%)

Poland.................5,725.......10,514........21,200................270

Ukraine...............5,503.........3,279..........7,500.................36

http://www.indexmundi.com/facts/poland/gdp-per-capita

http://www.indexmundi.com/facts/ukraine/gdp-per-capita

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita

Putin is well aware of such costs (adding Crimea will cost Russia at least $5 to $7 billion per year for many years, less $500 million/yr for the Sevastopel base rental and gas discounts of about $100/1000 cm on 28 bcm/yr = $2.8 b/yr. He has no desire to further burden the Russian economy by adding a much larger, more populous, impoverished, dysfunctional eastern Ukraine as well.

Eastern Ukraine and East Germany: By some estimates, the German government spent about 100 billion euro per year, totaling about 2 trillion euros ($2.7 trillion) between 1990 and 2009, to bring East Germany up to West German levels. The population of East Germany was just slightly larger than that of eastern Ukraine, and the difference in GDP per capita was also comparable to the current difference between Russia and Ukraine. If Russia were to spend a similar amount of money after annexing this region, it would be a huge economic burden, because Russia‘s GDP is much less than West Germany’s.

Ukraine and the EU:  Ukraine has a population of about 46 million people and a GDP about half of Poland’s. To bring Ukraine’s GDP to the level of Poland’s would take at least 100 billion euro per year for at least 20 years, using more expensive energy than during the past 20 years, and having to become competitive in EU markets, because Russia will erect a tariff wall to match the EU tariff wall, if Ukraine joins the EU. Which entities will provide 100 billion euro per year, for 20 years, to Ukraine? It surely will not be the EU or Russia.

http://www.nytimes.com/2012/05/26/world/europe/german-reunification-pain...

http://seekingalpha.com/article/2234353-ukraine-crisis-the-end-game-is-set?

http://www.thelocal.de/20140505/bill-for-german-reunification-runs-to-tw...

Crimea: The people in the Crimea overwhelmingly voted to join Russia (82% of the electorate voted, and they voted 96% in favor of joining Russia!), which is a rich country with an abundance of low-cost, natural resources. Crimea has about 2.5 million people; Russians 1.5, Ukranians 0.6 and Crimean Tatars 0.25. After the independence vote, Crimea uses 3 official languages: Russian, Ukranian and Crimean Tatar.

The Crimean people will be economically much better off than they were under a succession of corrupt Kiev governments. For starters, the monthly salaries of members of the armed forces and government workers, including firemen, policemen, teachers and medical personnel, and the pensions of 677,000 retirees, 32,400 of them Russian armed forces veterans, will be gradually increased by an average of about 100% to bring them up to Russian standards.

Average pension was 6,000 rubles ($168), will be 10,000 rubles ($281).

Average salary of 200,000 government workers was 12,500 rubles ($351), will be 30,000 rubles ($842).

http://www.themoscowtimes.com/opinion/article/the-high-price-of-crimea/4...

NOTE: Crimea, ruled by the Crimean Khanate Tatars from 1441 to 1783, became a Vassal of the Ottoman Empire in 1478. Crimea became a center for slave trade; at least 2 million Russians and others were sold as slaves to the Ottoman Empire over the years. Crimea was formally annexed by the Russian Empire in 1783, and transferred by Khrushchev to Ukraine in 1954; Khrushchev's early career was in eastern Ukraine. In January 1992, the Supreme Soviet of Russia questioned the constitutionality of the transfer, accusing Khrushchev of treason against the Russian people, and said the transfer was illegitimate. Akin to Nixon transferring San Diego, a US naval base, to Mexico!

WORLD PROVEN GAS RESERVES

Ten nations are the major holders of the world’s proven gas reserves at end 2013. The top six are:

Gas reserves...........tcm.................Exports; bcm

Iran.........................33,8....................3.90

Russia......................31.3................211.30; by pipeline

Qatar.......................24.7.................125.00; as gas 19, as LNG 106

Turkmenistan.............17.5..................40.00

US............................9.3..................37.13; net imports

Saudi Arabia...............8.2....................0.00

 

US 2013 exports...........44.52

US 2013 imports...........81.65; incl. LNG

The numbers indicate Iran is a big “prize”. If it were more cooperative, it could more properly develop its gas resources. The numbers also indicate, the US, a big consumer of gas, is not in any position to export gas in meaningful quantities to Europe or East Asia for geo-political reasons, because the US needs its low-cost gas for its own economy. To pretend otherwise, using various geo-political reasons, such as “checking Russian expansionist land-grabbing”, is irrational, to say the least.

http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review...

http://www.eia.gov/naturalgas/importsexports/annual/

WORLD GAS PRICES, $/million Btu

Adding the low-cost Russian gas to the European energy mix lowered the average European gas price with respect to East Asia, a significant competitive advantage on world markets.

Year............................................2011...........2012...........2013

Japan, 100% LNG..........................14.73..........16.75..........16.17

Germany, partial LNG.....................10.48..........11.03..........10.72

US, no LNG....................................4.01...........2.76............3.71

http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review...

US GAS PRODUCTION

The US is the largest gas producer in the world, largely due to its rapidly increasing gas production from shale.

Year.............................2008..........2009..........2010..........2011.........2012..........2013

Gas production, dry..........570.8.........584.0.........603.6........648.5........681.2..........687.6

Gas consumption..............659.1.........648.7.........682.1........693.1........723.0.........737.2

Conversion factor: 1 cm = 35.3147 cf; 1 cf  = 0.02832 cm; 1 Tcf  = 28.32 Bcm

http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review...

RUSSIAN GAS PRODUCTION AND EXPORTS TO EUROPE

Russia, the second largest gas producer in the world, has been supplying low-cost gas to East Europe since 1945. The pipeline network is arranged for flow from east to west. After 1990, this network was augmented and extended to West Europe, which was eager to reduce its dependence on imported, expensive LNG from politically unstable countries. Below are some data of Russian gas production and exports to Europe in 2013.

.......................................................bcm

Net production...................................604.800+

Self use...........................................413.500

Surplus............................................191.300

From storage......................................20.000

Exports by pipeline.............................211.300; 34.9% of net production

To Europe^.......................................162.400; 30.7% of Europe’s 529.584 bcm of gas consumption#

To Other............................................48.900; Belarus, Ukraine, Other former Soviet

Via Ukraine pipelines<...........................86.100, 52.9%, was 80% in 2010*

Via Other pipelines...............................76.300, 47.1%, was 20% in 2010

* Excludes Russian gas supply to Ukraine of 25.84 bcm/yr in 2013.

+ During December - January, the production is about 2.1 bcm/day, during June – July, about 1.6 bcm/day.

# Despite the annexing of the Crimea, Russia is sill planning to increase its gas exports to Europe to 173 bcm in 2020 and 198 bcm in 2035.

^ Includes EU28 + Turkey + Norway + Switzerland + non-EU Balkan States.

< Ukraine average daily transit rate = 86.100 bcm/365 days = 235.890 million cm. 

About 10 West European countries, including Germany, Italy, the UK and France, receive significant quantities of Russian gas. East Europe has greatly benefited from the low-cost Russian gas, because it attracted energy-intensive industries from West Europe, especially from Germany.

About 162.4/211.3 = 77% of Russia’s total gas exports were exported to Europe in 2013. The below table shows shipments to some countries:

Country..............................................bcm..........$/1000 cm

Germany............................................40.18.............397

Turkey...............................................26.61.............393

Ukraine .............................................25.80

Italy..................................................25.33.............440

Belarus..............................................19.80..............166

UK....................................................12.46

Poland.................................................9.80..............500

France..................................................8.21.............397

Czech Republic.......................................7.32.............500

Hungary...............................................6.00

Slovakia...............................................5.42

Austria.................................................5.23..............397

http://www.eia.gov/countries/cab.cfm?fips=RS

http://www.clingendaelenergy.com/files.cfm?event=files.download&ui=9C1DE...

http://en.ria.ru/business/20140113/186486506/Gazprom-Says-Europe-Gas-Exp...

http://www.rferl.org/content/russian-gas-how-much-gazprom/25442003.html

http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review...

The average gas price (at the Russian border) was about $387/1000 cm in 2013, which was below the $402 in 2012, when exports were 138.8 bcm.

NOTE: During the first quarter of 2014, Russian average gas price to the Baltic States was $425.9/1000 cm; it will be about $370/1000 cm for Lituania, due to a recent price reduction. Turkey imported 26.61 bcm at $393/1,000, in 2013; 13.7 bcm, or about 50% via the Blue Stream.

http://en.itar-tass.com/economy/733974

http://www.dailysabah.com/energy/2014/06/04/gazprom-cuts-gas-export-fore...

NOTE:

In 2013, Russian average gas price to Europe was $387/1000 cm, or about $10.54/million Btu, based on 1,040 Btu/cu ft.

http://www.bloomberg.com/news/2014-01-22/gazprom-says-china-natural-gas-...

In 2013, Russian average oil price to Europe was $793.8/mt, or about $18.49/million Btu, based on 5,879,000 Btu/barrel.

http://en.ria.ru/russia/20131101/184464665/Russia-Cuts-Oil-Export-Duty-t...

http://knoema.com/EIAIES2014/international-energy-statistics-2014?tsId=1...

UKRAINE GAS CONSUMPTION, IMPORTS AND PRODUCTION

Ukraine gas consumption, bcm, was 53.1, 59.0, and 61.9 for 2009, 2010 and 2011, respectively.

Year.....................................2012......................2013

Consumption..........................54.775...................50.358

Imports from Russia*..............32.940...................27.970*

Production..............................21.835...................22.388

* Gazprom 25.84 (Naftogaz 12.92, Ostchem 12.92) and EU reverse flow 2.13, in 2013

http://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/03/What-the-Uk...

http://www.energypost.eu/gas-market-chaos-ukraine-eu/

Russia, to increase its influence in Ukraine, agreed in December 2013 to reduce the gas price for Kiev to $268.50/1,000 cm, about 1/3 less than the $385.50 Ukraine had paid since 2009. As a result of recent events, Russia has rescinded the December 2013 gas price reduction, and increased the $385.50 price to $485.50.

Putin warned that Ukraine's mounting debt is forcing Moscow to demand advance payments for further gas supplies. He warned that if Ukraine failed to make such payments, Russia's state-controlled Gazprom would cease, or partially reduce gas deliveries via Ukraine.

Stopping Gas Flow to Ukraine for Non-Payment of Bills

Europe average daily import flow from Russia...............162.400 bcm/365 days = 445.753 million cm

Ukraine average daily transit flow rate to Europe.............86.100 bcm/365 days = 235.890 million cm

Ukraine average daily import flow rate from Russia..........25.840 bcm/365 days =   70.795 million cm

NOTE: With stopped gas flow from Russia:

- Ukraine average daily summer consumption of about 70 million cm would be mostly provided by its own production (61 mcm), with the rest from reduced consumption, reverse flow and its own storage.

- Ukraine average daily consumption during winter is at least 3 times as much, or more than 210 mcm, which would be provided by its own production (61 mcm), greatly increased reverse flow (which would not be physically possible at present and would likely violate Gazprom contracts) and its own storage (which is at too low levels at present and which also would be needed by Europe).

Per contract, the gas flow via Ukraine to Europe should continue unimpeded, i.e., no pilfering by Ukraine, but the gas flow for Ukraine’s own use would become zero, if Ukraine fails to pay its bills.

On June 16, 2014, Ukraine had 13.5 bcm in storage, but typically has 18 – 20 bcm by the end of summer to ensure supply to itself and Europe. How that storage will be built up remains a mystery.

On June 16, 2014, Russia was sending gas, via Ukraine, at a flow rate of about 185 million cm/d to Europe (about average for summer demand and adding to storage within Europe), and was sending nothing to Ukraine. The NORMAL winter flow rate via Ukraine is about 300 million cm/d. It is obtained from production and storage in Russia.

NOTE: Currently, Ukraine is taking some transit gas meant for Europe, and is paying the European countries accordingly, likely using IMF funds; Ukraine would not want to be accused of being a deadbeat by its new friends. Russia is paid for "gas delivered per contract" by the European countries.

Gazprom has known of this circumvention of the "gas cutoff" from day one, because Gazprom measures flows in all pipelines at many points. Putin has decided not to react for the time being.

http://www.renergyco.ca/natural-gas-production-in-russia.html

http://www.platts.com/latest-news/natural-gas/moscow/russias-gazprom-201...

http://russian-energy-co.com/natural-gas-production-in-russia.html

http://www.eia.gov/todayinenergy/detail.cfm?id=15411

http://www.nytimes.com/2014/03/06/world/europe/us-seeks-to-reduce-ukrain...

http://www.naturalgasintel.com/articles/97572-us-natural-gas-production-...

http://www.iea.org/media/presentations/Ukraine_Russia_Europe_Gas_Oil_Fac...

http://www.reuters.com/article/2014/03/03/ukraine-crisis-gas-idUSL6N0M00...

http://www.beg.utexas.edu/energyecon/Henderson_CEE2013.pdf

EXISTING LNG EXPORTING COUNTRIES

Total LNG exports were 237.7 million metric ton in 2012. Much of the world’s LNG exports are from politically unstable countries. The top 5 LNG exporters in 2012 were:

Qatar......................77.4

Malaysia..................23.1

Australia..................20.8

Nigeria....................20.0 

Indonesia.................18.1.

In 2012, Europe-Eurasia imported LNG mainly from Qatar 24.0 mmt, Algeria 11.1 mmt, and Nigeria 8.9 mmt.

In 2012, Asia-Pacific imported LNG mainly from Qatar 51.1 mmt, Malaysia 24.5 mmt, Australia 22.6 mmt, Indonesia 19.0 mmt, Russia 11.4 mmt, Nigeria 10.1 mmt, and Oman 8.6 mmt.

http://www.igu.org/gas-knowhow/publications/igu-publications/IGU_world_L...

Qatar, the Largest LNG Exporter: Qatar exported about 77.4 mmt of LNG in 2012, about 1/3 of the world’s supply. Qatar is increasing its LNG export capacity and its fleet of LNG vessels.

Qatar typical LNG production line..............4.0 mmt/yr.

Qatar new LNG production line.................7.8 mmt/yr.

EUROPEAN LNG IMPORT FACILITIES

As a result of low-cost Russian gas imports, Europe’s LNG import terminal and gas storage facilities, most of them built before 1991, are used at only 1/3 of capacity.

Displacing all of Russian gas imports to Europe with LNG imports from the US, Europe’s current terminal and storage capacity would be exceeded by 213.8/196 = 9.1%. Adding Ukraine’s gas requirements will exceed it by 238.8/196 = 21.8%. The current piping network is arranged for east-to-west flow. The cost of the additional, expensive LNG to the energy mix would raise European energy prices, making it less competitive on world markets.

Gas equivalent units...................................bcm/yr

LNG re-gasification capacity..........................196.0

LNG import in 2013.......................................51.4; 26.2% of capacity

LNG imports to replace Russian gas................162.4

LNG total imports.........................................213.8

LNG imports to replace Ukraine gas.................25.0; assumed future imports

LNG total imports.........................................238.8

http://www.ewi.info/idea/why-ukraine-crisis-political-earthquake-and-not...

http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review...

US LNG IMPORT AND EXPORT FACILITIES

The US has LNG import facilities, but no LNG export facilities. LNG from the US could not be shipped in meaningful quantities, as US gas production, currently nearly in balance with demand, would need to be significantly ramped up (mostly from shale), and LNG export terminal and storage facility capacity would need to be built up. At present, only one project is under construction after receiving all approvals. Several others are awaiting approvals.

Example of Cost and Schedule of LNG Export Facility: The Cheniere Sabin Pass LNG Project, Cameron Parish, Louisiana, converts a total of 2 bcf of gas/day, or 20.674 bcm of gas/yr to LNG. It includes: 4 LNG trains, each 4.5 mmt/yr, 4 LNG storage tanks total capacity 17 bcf equivalent, and 2 berths for LNG vessels. Capital cost, before financing costs, $7.8 billion. Start construction May 2013, trains on line 2017/2018.

http://www.cheniere.com/lng_industry/sabine_pass_liquefaction.shtml

Example of Cost and Schedule of LNG Export Facility: The Corpus Christi Liquefaction Project includes: 3 LNG trains, each 4.5 mmt/yr, 3 LNG storage tanks total capacity 10.1 bcf equivalent, and 2 berths for LNG vessels up to 267,000 cm. Capital cost estimate, before financing costs,  $10.5 - $11.0 billion, including owner's costs and contingencies. Start construction 2014, first train on line 2018.

http://www.bechtel.com/2013-12-13.htm

As LNG exporting businesses would sell to the highest bidder, any LNG would likely end up in Asia-Pacific markets where gas prices are much higher than in Europe, but the increased LNG supply would free up LNG from Qatar for shipment to Europe via the Suez Canal.

The US build-up of LNG export terminals and gas storage facilities, and LNG ships would take tens of billions of dollars, and at least 10 years to implement.

LNG TRANSPORT

At the end of 2012, 362 LNG tankers were engaged in the deep-sea movement of LNG and 96 tankers were on order. Most of them have capacities of less than 150,000 cm. Many new tankers have greater capacities to enable greater quantities of LNG to be transported around the world. Global LNG consumption is projected to increase at 10%/yr through 2015, whereas global oil consumption is increasing at about 1 – 2 %.

Large Capacity LNG Tankers: Samsung Heavy Industries Co has an order from Qatar to build 45 LNG tankers; 31 Q-Flex @ 209,000 cm and 14 Q-Max @ 266,000 cm. The Q-Max capacity is about 2 times standard LNG tanker capacity. A Q-Max has on-board re-liquefaction, takes about 15 months to build, and costs about $400 million. It can load and unload only at purpose-built ports with liquefaction/gasification facilities. One Q-Max holds enough LNG to power Korean households for about 2 days.

Transporting US LNG to Europe: Various US energy companies are eager to profit from selling low-cost US gas to East Asia, but a 1938 US law requires USDOE and FERC approvals. This would require a law change, and to provide meaningful quantities of LNG, multi-billion dollar investments in adequate pipeline capacity to multiple ports, and gas storage and liquefaction facilities at the ports. All of which would take at least 10 years to implement.

With much uninformed bravura, US media pundits have been writing the US could ship LNG to Europe in 2 months. This is an overstatement, to say the least. Here is a reality check:

It takes about 20 days for an LNG tanker to make a round trip from the US to Europe and back, i.e., at least 20 tankers are required to have one tanker/day arrive in Europe. The standard tanker capacity is assumed at 200,000 cm*, which is equivalent to 200,000 x 584 = 116,800,000 cm of gas.

Tanker loads/yr to displace all Russian gas to Europe = (162.400 Bcm x 1,000,000,000 cm/bcm)/116,800,000 cm = 1,390, or 3.82/d

Tankers required = 20 d/roundtrip x 3.82 = 76, say 80 to account for tanker downtime.

Tanker capital cost = 80 x $350 million = $28 billion.

Tanker construction time: at least 10 years.

Gas piping to ports, plus storage, liquefaction, and port facilities: tens of billions of dollars, and at least 10 years.

*200,000 cm LNG x 450 kg/cm/(1 metric ton/kg) = 90,000 metric ton of LNG/200,000 cm tanker.

Conversion factor: 1 cm of LNG = 584 cm of gas, or 1 cm of gas = 0.00171 cm of LNG

Average density of LNG = 0.45 kg/liter, or 450 kg/cm

http://www.lgasplants.com/conversiontables.html

http://en.wikipedia.org/wiki/LNG_carrier

http://www.lgasworldnews.com/presentigas-the-global-lgas-fleet-vol-1/

Photo Credit: Russian Gas Exports and the West/shutterstock