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Showing posts from June 4, 2014

Russia Allows Changes to Natural Gas Prices in Europe

Gazprom CEO Alexei Miller sits in on a press conference by the Russian Energy Minister following talks on energy security in Berlin, on May 30.(JOHN MACDOUGALL/AFP/Getty Images)

Summary


Natural gas prices in Europe are in the middle of a structural transition away from oil indexed contracts to contracts dependent on the spot price of natural gas. This transition has already occurred in more liberalized markets such as the United Kingdom, but now Russia is being forced to change its contract structure toward spot prices of natural gas. On May 23, Italian energy company Eni signed a deal with Gazprom in which, for the first time, Gazprom allowed the price to be determined by the spot market for natural gas instead of being linked to oil prices.

Russia has long fought to keep the price formulation linked to oil prices, as that arrangement is more lucrative. While Italy is the first country for which Moscow had to give up this pricing mechanism, it certainly will not be the last. With new su…

Ukraine, Russia: Signs of Compromise in the Energy Standoff

A valve is tightened at eastern Ukraine's Bilche-Volytsko-Uherske underground natural gas storage facility May 21.(ALEXANDER ZOBIN/AFP/Getty Images)

Analysis


It appears as though Ukraine and Russia are willing to compromise on energy deliveries despite concerns that they would not. On June 2, Gazprom CEO Alexei Miller announced that his company received payments from Ukraine for February and March natural gas deliveries, worth a total of $786 million. In response, Gazprom agreed to postpone the deadline by which Ukraine would fully repay its debts and begin pre-payments for future deliveries from June 2 to June 9. Gazprom has also indicated that it would be willing to lower the natural gas price from its initial offer of $485 per thousand cubic meters, or mcm, of gas to $385.50 per mcm if Kiev repaid its debts.

That is not to say the situation is resolved entirely. The price tag for natural gas is still much higher than Ukraine initially demanded ($268.50 per mcm), and the amount of …

Central and Eastern Europe Weigh More Cooperation

Romanian Prime Minister Victor Ponta (C) with Polish Prime Minister Donald Tusk in Warsaw.(JANEK SKARZYNSKI/AFP/Getty Images)

Summary


The crisis in Ukraine, and Russia's aggressive tactics there, have opened the door for greater cooperation among countries from the Baltic Sea to the Black Sea, especially on defense and energy issues. If Poland and Romania, the two largest countries in the region, decide to pursue a closer alliance structure, other smaller countries in the region could follow. However, most countries in Central and Eastern Europe are more interested in developing bilateral ties with the United States than with each other, and substantial foreign investment on energy and defense would be necessary for any alliance to work. As a result, the United States will have to play a significant role in developing a cohesive alliance in the region.

Analysis


The events in Ukraine have had a deep political and emotional impact in Central and Eastern Europe. Countries from Estonia on…