Central Europe Activ

There is a serious gas shortage in Bulgaria, Hungary, Slovakia, Romania and Serbia. After the show of the French presidency, the European Union is under a real foreign pressure that effects a large group of member states devastatingly. Factories are closing, schools are shut, some part of the population is freezing at home. I think this is one of the greatest challenges on the cohesion of the Union since the historical eastern expansion in 2004.

The Russian claim is simple: it wants to charge world market prices on Ukraine, which is not able to pay this sum, so they do not supply them. Since Ukraine “steals” the European gas shipped through her territory, the Russians have cut down the supply. However, this is a false claim. There is no European or world market for natural gas in the absence of a transport network that would connect multiple buyers and sellers like in a marketplace. Russia strikes various government-level deals with European countries so we lack the legal framework for such a market, too. Russia behaves like a price-discriminiating monopoly, which is her rational economic interest, and as a research paper published by the Dutch Central Planning Bureau suggests, it is even tacitly co-ordinates its moves with Dutch, British and Norwegian producers. Russia has effectively became a petrostate in the past decade – some claim that even the Soviet Union was similar – and falling oil prices make them put more leverage where they can: to raise natural gas prices during the cold winter where there are no alternatives.

This forecast shows the possible natural gas sources for Europe. (LNG stands for liquid gas, which is very expensive to produce and transport but it is not connected to piplines. Otherwise, European, Norwegian or Russianrespect to its second greatest neighbor, Ukraine. Now they want to show that our political and economic interests are already integrated so we should take our partnership more seriously.

The European Union is hapless for two reasons. The Comission has been making proposals for an integrated European energy market in the past decade, but national interests have overruled them. Some Western European countries have access to North Sea gas and would not like to share it with new member states who are reliant on Russian gas imports. More damagingly, Germany has signed a pact with Russia to build a gas pipeline under the sea so that it can bypass Ukraine and Central Europe, especially Poland, and can cut bilateral deals with Russia. This reminded Central Europe to the Molotov-Ribbentrop pact signed by the foreign ministers of Hitler and Stalin, pushed the Central Euroepan governments into commitments with American-initated NATO projects and to seek individual deals with a much smaller bargaining power with Russia or the United States.

The current situation is damaging for Central Europe in many ways. Firstly, during a serious economic downturn it puts an additional burden on the industrial output. Some factories and other economic units simply have to halt. Secondly, it starts to effect the population: in some parts of Serbia people are already without heating in during this extremely cold winter. (So, it seems, that we are not heating!) A great opportunity to show if Serbia’s future lies in a Russian or a European orientation, by the way. In Bulgaria, the schools had to close down. Thirdly, it shows the weaknesses of this region and the lack of effective support from its economic and military allies. This will further undermine the European Union.

Luckily, the current presidency is for the first time held by a Central European government which is directly effected. (Although the Czech Republic, like Austria, receives some Northern gas from Germany that is not available in Poland, Hungary, Slovakia, Romania or Serbia). We will see how Central European solidarity works: Serbia already asked Hungary for emergency help with gas supplies. Some Central European EU countries have cut off gas supplies between each other, too.

Earlier posts: European energy dependence, the Visegrad Group dependence on Russian natural gas.

The gas war in numbers:

With budgets stretched in 2009 price remains the key issue in this conflict – Russia offered a price rise from USD 179 per 1,000 cubic meters to USD 250, while Ukraine was willing to accept an increase to just USD 201. Ukraine also insisted on hiking the transit tariff from the current USD 1.6 per meter cubic per 100 km. In response to Ukrainian demands, Gazprom retaliated and threatened a European market price of USD 450 per 1,000 cubic metres, double the Naftogaz offer.

Reposted from the broken central.blogactiv.eu server. Unfortunately previous comments are lost due to the breakdown.

The only good thing that happened in the meantime is that Austria opened a gas pipeline to Hungary and Hungary (too late, too little, but we did it!) offered some relief to Serbia. Hope that Central Europe learns the lesson.

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