Passing gas: the new cold war

Happy new year to one and all! Did you stay warm over the holidays?

Oil and gas.
Most people in the world direct their attention to the middle east when those two words are mentioned. But forget about the blistering desert heat, the troubled Saudi royal family and the turmoil in Iraq with anemic petroleum production, rising gas prices and ousted oil ministers. The real power play is taking place at 20 below zero in Siberia.

Meet Gazprom. The former soviet era oil and gas behemoth turned quasi-free market energy giant (51% is still owned by the state). Gazprom is the world's largest natural gas company and is lifeblood of the Russian economy, generating billions of roubles for the state. It also owns the gas-transportation system and most of the gas fields in Russia, much of which are in Siberia. Despite the bitterly hostile conditions, many Russians gladly accept the well paying jobs and company perks that go with employment so far from home. In a further attempt for Gazprom to exercise its energy muscles, Russia and Germany signed a $5 billion deal (american) for a natural gas pipeline to run under the Baltic Sea. The pipeline will bypass Poland and the Baltic countries and give Russia access to new markets.

But all is not well on the giant eurasian continent. An icy cold attempt at price hikes has been taking place between Russia and Europe during the coldest days of 2005. Caught in the middle is Ukraine and its gateway supply routes to Europe. Gazprom plans to increase the price of gas to Ukraine to $230 (american) per 1000 cubic meters from the current $50 (american). That $50 price level reflects the still suffocating grip of antiquated Soviet-era subsidised rates. Ukraine agrees in principle with a price hike but wants a transitional period. Moscow does not want to wait and a nervous Europe watched as Moscow shut off natural gas supplies to Ukraine in a strong arm attempt to force the rapid price hike. Just as quickly, Moscow turned the gas pipelines back on when it caved in to worldwide reaction.

I don't believe we have heard the last of these Russian growing pains. The energy rich Russians, who's conquest and empire used to be secured by armies and weapons, have quickly learned that commodities and capitalism influence more than brute force.
Russia will soon look ever eastward to bolster its new found geo-political influence and it will find willing accomplices hungry for energy, foreign investments and modernization.

Next up: Stan the man and his oil guzzling panda!