Natural gas creates political heat in Europe
AU students depend on gas to fuel their cars, their dorms and even their motorcycles. We hear a lot about gas disruptions that take place in the Middle East, but how often does the major Russian oil companies come to mind? It would behoove us all to examine the political eggshells the European Union is tiptoeing on to not anger state-run oil conglomerates.
The entire EU relies on a good deal of Russian natural gas imports, and should that system be disrupted, the area could see an increase in natural gas prices.
With the International Monetary Fund supporting Ukraine’s financial shortage in the form of more loans, there is concern that the former Soviet colony could free itself from Russia’s hold on petroleum and natural gas. According to Reuters, Ukraine serves as a major natural gas pathway for Russia. Unarguably, Ukraine is vital for Russian companies’ profit, such as Gazprom, Lukoil, Roseneft, etc.
The EU relies on Russia for at least a quarter of its natural gas. For Ukraine, the number is 60 percent.
Reuters notes that the IMF requested that Ukrainian policymakers increase their natural gas prices to local consumers, as well as install a flexible exchange rate for its own currency to offset potential harm inflicted by the Kremlin, according to Reuters. There is good news though: The IMF is joining with the EU to find an alternative pipeline to serve Ukraine.
The Nord Stream pipeline flows from Russia to Germany, and could be extended to flow into Ukraine. However, EU officials are concerned that because the pipeline would have to undergo “reverse flow,” Germany’s own natural gas prices would increase. Either way, the situation is grim. Reverse flow is when oil, or gas, is re-directed back towards the sending country followed by travelling through a new extension.
Analysts are worried about the state of the EU since Russia is such a large economic player. IMF officials say that, although the current $15 billion loan in discussion is a breath of fresh air compared to prior loans, they are still “miles apart” in its utility. Specifically, these loans are supposed to help Ukraine reestablish itself.
For students skeptical about the fate of natural gas pipelines, the crisis in Europe is a good reflection of the massive political and economical repercussions of natural gas. Only time will tell what happens, and how Russia will become more polarized as Eastern European countries grow impatient.
Marshall Bornemann is a junior in the School of International Service.