A Cold Start to the New Year

Central and Eastern Europe is held hostage by post-Soviet politics and European Union impotence

The New Year has so far gotten off to a cold start in many parts of Central and Eastern Europe as the political and economic dispute between the Ukraine and Russia has once again spilled over into the rest of Europe – just as it had done three years ago. The difference this time, however, is that most analysts fear that the dispute will last a lot longer and its effects will be a lot colder for many within Central and Eastern Europe.

Ironically, many had complained about the rather mild and damp winter weather which had dominated most of the region throughout December. Truly cold winter weather had only made its appearance the past week or so. Not only this, but it’s set to get even colder: by mid-week night-time temperatures will fall to between -5 and -10 degrees Celsius in most parts of Central and Eastern Europe; by the weekend it will be even colder with the temperature dipping below -15 degrees Celsius in many places. Day time temperatures are not expected to be that much better and will stay well below freezing. The only consolation is that the sun will shine. This is little consolation, however, for those who depend on gas for heating and cooking instead of sunshine.

As with three years ago, the dispute between Russia and the Ukraine is over the price of natural gas. Yet while Central and Eastern Europe desperately waits and hopes for some kind of resolution to the dispute, both the Ukraine and Russia have been pointing fingers at one another, with each side blaming the other for the drop in supplies to Europe. On Tuesday only 92 million cubic meters of gas reached Central and Eastern Europe compared to Monday’s already lowered level of 221 million cubic meters. The Ukrainian natural gas company, Naftogaz, said that Gazprom reduced the flow of gas westward by about a third.

Gazprom, on the other hand, had already warned on Monday that it would reduce the amount of gas flowing through pipelines that transit the Ukraine by 65 million cubic meters, that is, by the same amount that it claims that the Ukraine siphons off from Russia’s deliveries to Europe. In its place Putyin promised to pump this gas through pipelines via Belarus and Turkey, thereby going around the Ukraine altogether.

Gazprom now admits that it can only supply Europe with about one-seventh of the gas it usually sends because, as it claims, the Ukraine unilaterally shut off three quarters of the country’s transit capacity early on Tuesday. According to Russian sources, only 40 million cubic meters of gas gets through the Ukraine instead of the 225 million cubic meters it’s trying to send through.

The government in Kiev, however, denies that it’s stealing gas from the pipelines transiting the country, and accuses Russia of simply delivering less gas than it had promised. The reason for this, according to some observers, is that Moscow can then exert pressure on Kiev which had refused Gazproms’s latest price offers.

In 2006 a similar dispute between Russia and the Ukraine led to a drop in gas supplies by about 30 percent. As a result of this bitter cold experience, many EU countries had prepared themselves in advance and made sure that they had enough reserves stockpiled.

Not all countries are well prepared

The countries of Southeast Europe, namely Bulgaria, Romania, and Macedonia, were unable to prepare themselves and thus have few reserves to the fall back on. In Romania the government has noted that since Monday night it has seen a drop of about two-thirds in its gas supplies from Russia.

The situation is especially acute in Bulgaria and Macedonia. In Bulgaria the Economics Minister stated that gas supplies have completely stopped and that “we are in a crisis situation.” What makes the problem in Bulgaria and Macedonia so severe is that not only don’t they have enough reserves built up, but that they don’t have alternative pipelines through which they can be supplied. It also hasn’t helped that the weather has been much colder in places such as Bulgaria, where the temperature has already dipped below -15 degrees Celsius. Sofia has already begun to tap its only strategic reserve which can supply about 4.3 million cubic meters of gas. The country’s daily consumption, on the other hand, stands at about 11 million cubic meters, or is almost triple of what the strategic reserve can supply per day.

The situation is not much better elsewhere. In all, eleven European countries are adversely affected by the drop in gas supplies from Russia. Slovakia has issued a state of emergency and the government has already limited or restricted the use of gas by certain industries. Small consumers, on the other hand, won’t have to worry about such restrictions just yet.

Even those countries which are supposedly well prepared are feeling the pressure of less gas. In Hungary about 80% of its gas comes from Russia, the other 20% being domestically produced. Of the Russian gas that enters Hungary, about two-thirds come from the Ukraine, with the rest coming via Austria. Yet as Austria has experienced a severe drop in its supplies coming from Russia this reduction is likewise passed on to Hungary. It is estimated that Hungary now receives only a fraction of the gas it’s supposed to receive from its western neighbour.

The Hungarian Energy Minister, Csaba Molnar, stressed that Hungary’s reserves are enough to last for weeks. Nevertheless, the country will have to dip deep into its strategic reserves and if the dispute drags on for a couple of weeks then the country is in big trouble. But this isn’t the only problem. Although the government says that it has enough gas to last for a few weeks, the dilemma is that it can’t pump it out fast enough. Hungary is able to only provide about 52 million cubic meters of gas per day from its strategic reserves, whereas the population’s daily consumption is about 70 million cubic meters. In other words, the country can only supply about two-thirds of its daily requirements.

In order to squeeze out some savings from where it can, the Energy Minister called on the country’s energy suppliers and large industries to switch to fuels other than gas if possible, such as oil or coal. Yet the savings from such a move represent only 6-8 million cubic meters of gas; much more is needed.

Although the Hungarian government is putting a brave face on the situation, many are no doubt deeply concerned. Restrictions on large consumers (energy suppliers, industries) won’t be enough and some “communal” consumers have already introduced restrictions. This includes schools, hospitals, and other public buildings. In the end, if all this won’t be enough, then restrictions will be placed on domestic consumers. This will no doubt have a large impact since a vast majority of the population cook and heat with gas.

Russia to blame?

Many are still quite unsure of who is to blame for the present crisis, although most western observers and the EU prefer to blame Russia for the dispute. Sadly, politics appears to have come into play in this regard as western countries are not keen on criticizing the Ukraine since they hope to one day have the country as a part of NATO and possibly the EU.

Consequently, there has been some speculation into the possible motives for Russia’s intransigence. The first and most obvious reason is that the dispute is a way to help boost prices, not only in terms of forcing the Ukraine to accept a higher price for gas, but also on the world market. Since the dispute began the price of oil and gas has risen noticeably on world markets.

Another, perhaps more sinister, explanation is that the dispute is nothing more than a vulnerability test run by Moscow. In doing so, it is actually applying pressure to the EU concerning other issues by demonstrating to Brussels where the balance of power really lies. Without a doubt, Central and Eastern Europe is heavily dependent on Russia and a cessation of gas supplies could have severe consequences not only for the region, but for the entire EU.

Such observations, while they fit nicely in line with the EU’s anti-Russia attitudes, are a little too much to be taken seriously. Firstly, the price of natural gas doesn’t predominantly determine the price of oil; if anything, it’s the other way around. Furthermore, the price of oil was slowly moving upward anyway, this mainly the result of OPEC’s decision to cut production in order to boost prices. Russia isn’t the only country that is interested in a high oil price. Also, the notion that the dispute is merely a vulnerability test in order to send a message to the EU is similarly unfounded, as Russia is more interested in selling its oil and gas more than anything else.

Failure of Europe

While there is no doubt that the intransigence of both Russia and the Ukraine are to blame for the present crisis (with the EU preferring to lay most of the blame on Russia), some are actually pointing an incriminating finger at Eurocrats in Brussels. In effect, the EU has been caught with its collective pants down. Since the last Ukraine-Russia dispute in 2006, there has been a lot of hot air when talking about energy policy, but nothing substantial has been done. If only the EU could somehow convert the hot air coming from Brussels, then its energy problems would be solved (naturally, the problem of carbon emissions from this hot air is another story altogether).

Yet it’s not only the failure of the EU as a whole for taking concrete action to come up with a sound energy policy. Individual governments have likewise not adopted energy as an important issue, and thus have failed to develop a long term plan for securing energy sustainability. In Hungary, the problem has been further compounded by the government playing the same type of political game of misrepresenting the facts. The only difference is that now it’s not the state of the economy and the country’s finances, but its vulnerability in terms of energy supply. Just last week the energy minister had stated that Hungary’s reserves are full and that they are able to weather any storm should one break out. On Tuesday this same minister was already sounding the alarm bells.

At the very heart of the problem is the failure of Europe to devise a plan for the sustainable use of energy resources. Fossil fuels are still being subsidized while alternative energy sources have been relegated to the background. The question of over-consumption has also yet to be addressed. These are all problems that are not only important to resolve so as to mitigate the fallout from future disputes between countries, but also as a means to combat climate change and confront a future in where more and more people will compete for fewer and fewer resources. Unless these problems and issues are seriously addressed, Central and Eastern Europe can look forward to more cold winters in the future.