How much is geopolitics today? | Latest news The Moscow Post
04 August 2021

How much is geopolitics today?

Does Ukraine continue to spin the "spring" of Russophobia?

The current leadership of Ukraine has announced that direct gas purchases from Russia threaten the state sovereignty of the country. At the same time, Kiev, with the participation of the United States, Poland, Slovakia, the Baltic states and other "do-gooders", without the slightest hesitation encroaches on the Nord Stream-2 project and, at least, on the sovereignty of Germany and Russia.

Recently, the attacks on NS-2 have taken the form of a hysterical political campaign. At a meeting with the leaders of parliamentary factions President Vladimir Putin asked: "Why is everyone so focused on Nord Stream-2? They want to force Russia to pay for their geopolitical project in Ukraine". Thus, "foreign sovereignty" in exchange for "own income" is regarded by Kiev as an acceptable practice.

As you know, "gas divorce" of Kiev and Moscow have been going on for more than a decade. Russia hoped to prevent a conflict by directly and indirectly funding the Kiev authorities. During his years as both an ambassador and Prime Minister, the founder of Gazprom Viktor Chernomyrdin has done a lot for Ukraine. This included preferential gas prices, loans to cover gas debts, deferrals on gas supply debts, and options for upgrading the aging gas transmission system. It is possible to understand these long-term and expensive efforts only in the context of hopes for the preservation of Ukraine as a part of the common economic space, a partner and a friendly neighbour.

Ukraine was the last Soviet republic with which Gazprom entered into contractual relations in 2009. Until 2006, the cost of Russian gas for Ukraine was no more than $50 per 1 thousand cubic metres. The volume of deliveries exceeded gas exports to Germany and Italy taken together. According to the "Kharkiv agreements" of 2010, Kiev extended the "permission" to base the Black Sea Fleet in Sevastopol for 25 years. Moscow has reduced the cost of 1 thousand cubic metres of gas by $100. Since January 2014, Naftogaz would have to pay for gas supplies at a significant discount, which would save about $7 billion annually. Russia also provided Kiev with a $3 billion loan to pay off gas debts and other purposes.

It is estimated that the total economic support for Ukraine in 1992-2014 cost Russia more than $100 billion, including $82.7 billion secured by preferential gas prices.

Over the same years, domestic gas consumption by all Ukrainian consumers decreased from 118.2 billion  cubic metres in 1991 to 29.8 billion cubic metres in 2019, with a drop in import volumes from 90 billion cubic metres in 1991 to 14.2 billion. cubic metres in 2019. Since November 2015, Ukraine has stopped direct gas purchases in Russia, bought and "imported" fuel through Slovakia, Hungary and Poland. Import dependence on gas decreased from 78% in 1991 to 46% in 2019, but at what price? Tariffs for the population and industry went up sharply. After the introduction of the hryvnia, in 1996-1999, the cost of gas for the population increased from 11.5 kopecks per cubic meter to 8.8 hryvnia per cubic meter (about 23 rubles). The cost of 1,000 cubic metres of gas for Ukrainian consumers has risen to $300 or more.

Now, Ukraine pursues two incompatible goals. On the one hand, it demands to stop the Nord Stream-2 project (NS-2) in order to preserve the revenue from transit through its gas transmission system. On the other hand, it does not stop at causing political damage to Russia and Germany, undermining the interests of Gazprom and other investors. Russia, including Gazprom, is tired of malicious attacks. The accumulated annoyance can not pass without a trace. The current political leadership in Kiev does not seem to see the option of a fading, and eventually, perhaps, a complete cessation of the transit of Russian gas.

An example of such a twisting of the "spring" of Russophobia is the recent changes in the relations between Rosneft and the Polish Orlen and Lotos companies, which until recently earned money from their geographical proximity to Russia, thereby minimizing the cost of transporting oil for their refineries.

Under the new contract for the transit of Russian gas in 2020-2024, Kiev expects to receive at least $15 billion. Under the terms of the agreement, Gazprom must deliver at least 225 billion cubic metres of gas to Europe over five years on a "pump or pay" basis. In 2020, the volume was supposed to be 65 billion cubic metres, but it was below this mark by 9 billion. cubic metres. Gazprom paid about $2 billion for the transit, according to Ukrainian data, and also paid $2.9 billion to Naftogaz according to the decision of the Stockholm Arbitration on previous disputes.

The reliability of the source of supply and the predictability of transit are the basis of the business reputation of both Gazprom and Ukraine as a transit state. In particular, violations in this "bundle" led to the idea of the Nord Stream project, which excluded Ukraine and Belarus from the route. The NS-2 gas pipeline has become a natural development of the transit risk hedging strategy.

However, Ukraine - with its unpredictable politics - is not the only factor. The NS-1 and NS-2 projects meet the requirements of cost-effectiveness and safety of the route, rely on new technologies, take into account the new geography of gas fields in the northern regions of Russia, straightening the route of the gas pipeline on its territory. The distance to Germany by sea on the NS-2 route is 1224 km, the distance from the border of the Russian Federation through Ukraine to its western border is 1192 km. The cost of pumping gas through the GTS is $2.66 per 1000 cubic metres per 100 km (about $32 from border to border). The transport tariff for the NS-2 is $2.1 per thousand cubic metres per 100 kilometres (about $ 25). In addition, the state of the GTS may require additional operating costs.

Nord Stream uses high-pressure pipes with a diameter of 1220 mm. The pressure at the outlet of the gas pipeline from the Portovaya compressor station located on the Russian coast is 220 bar (220 kg per 1 sq. cm), at the outlet of the pipe on land in Germany, the pressure is 106 bar. The offshore section of the gas pipeline does not require an intermediate compressor station.

In 2019, Europe used 560 billion cubic metres of natural gas. The task of the EU's energy policy since its foundation has been to develop competition in the European gas market, to overcome the "excessive dependence" on Russian gas. The ideology of energy supply to the European Union and individual European countries has noticeably "turned green" in recent years and provides for a comprehensive reduction in the volume of hydrocarbon consumption. But plans and forecasts often have to be adjusted to take into account various factors, from the weather to geopolitics.

Experts of the Norwegian independent consulting company "Raistad Energy" have calculated that by 2034 the demand for gas in Germany will grow from today's 90 billion to 110 billion cubic metres per year, including the share of nuclear and coal generation as a result of a decrease in in the energy balance. By 2030, the volume of European gas demand is expected to reach 534 billion cubic metres, and by 2040 it may decrease to 487 billion cubic metres.

It is possible that in the longer term, less methane will be consumed as a primary energy source, but more gas will be needed to produce hydrogen. How can we predict the volume of natural gas consumption if some of the hydrogen is produced locally and some is imported? According to the IHS forecast, given the desired transition to hydrogen fuel, the demand in Europe for natural gas in 2050 will not fall below 400 billion rubles. cubic metres per year.

Now about the gas interests and ambitions of the United States in Europe. American companies would like to sell their LNG, but put their commercial interests first. A cold and snowy winter this year has caused an explosive rise in LNG prices in East Asian markets. Prices have risen to a record high of a thousand dollars per thousand cubic metres. This has led many exporters to divert spare LNG shipments to these markets. The chairman of the board of Wintershall Dea recently noted that "the pipeline is a strong and real link between the consumer and the manufacturer, while the ship can turn around at any time and go to where it will be offered a higher price."

The commercial interests of American LNG exporters are not the main thing for Washington. Moreover, the interests of European gas importers are not in the first place. Both the "gas intrigue" with concern for the transit of Russian gas through Ukraine, and the opposition to the NS-2 project is connected with one central task – to harm Russia.

On the one hand, this means forcing Moscow to pay Naftogaz for gas transit to Europe, on the other hand - to prevent the rapprochement of Germany and Russia in the framework of a new promising project, such as the NS-2. In short, the task is to sow distrust and tension in the Russia-Ukraine-Germany triangle, not to let the bilateral relations between Moscow and Berlin go beyond this triangle, while remaining the leader of the Euro-Atlantic alliance.

Agree, it looks beautiful: Russia supports Ukraine with transit payments, Washington takes credit for this, and even keeps Germany and Europe on the hook! Isn’t this the Wild West, Hollywood and the Chicago mafia in one?

The NS-2 project has become a kind of veiled test of strength for European business and, perhaps, for European politicians who are able to face the truth. The transition to a "green energy" based on hydrogen and competitive electricity for the production of this hydrogen is unlikely to be easily achieved without Russian gas.

And for Russia, it may be time to decide where and how to build natural gas liquefaction plants, following the example of Yamal LNG, and to develop the Northern Sea Route with access to new export markets that are ready to accept Russian gas and become investors in LNG projects in Russia.

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