Cossack men install a Russian flag and a Crimean flag on the roof of the City Hall building on March 17, 2014 in Bakhchysarai, Ukraine.
In one of the better pieces dealing with European gas supply issues associated with the Russia-Ukraine political crisis, this article cites a recent study published by the Oxford Institute for Energy Studies which pinpoints Ukrainian fiscal instability as the most likely cause of a European gas supply disruption. “The difficulties that Naftogaz Ukrainy is having, and will have, in paying for Russian gas imports combined with the difficulties of negotiating a solution due to the political and military crisis, are the most likely potential cause of supply interruptions.” [Gastech News]
Famed energy economist Phil Verleger argues global oil prices could decrease by $10/bbl to $12/bbl if the US sold 500,000 b/d to 750,000 b/d of oil from the Strategic Petroleum Reserve for 2 years as a means of punishing Russian aggression in Ukraine. He says the Saudi reaction represents the biggest wildcard, but thinks the kingdom would get on board. “Saudi Arabia’s economy, unlike Russia’s, can tolerate lower oil prices because budgets are premised on lower oil prices, and because the country has accumulated large financial reserves that can be drawn when prices fall. Most likely the Saudis would say and do nothing as long as the US limited its price reduction goal to, say, 10 per cent rather than 50 per cent.” [Financial Times]
Energy sector corruption, subsidized gas price reform and pending Gazprom price increases add up to higher heating bills for Ukrainian citizens. The Ukrainian energy industry is known for being one of the most corrupt and inefficient in the world and as the new government tries to right itself, unwinding natural gas subsidies appears unavoidable. “Ukraine’s system of subsidies for household gas has long been abused. Typically, distributors buy government-allotted gas at low prices intended for families and resell it for far higher prices to businesses. Analysts estimate that the scheme robs hundreds of millions of dollars a year from state coffers in added subsidy costs, further destabilizing Ukraine’s economy, which is already teetering on the verge of default.” [Bloomberg News]
