Russian Gas: How Much Is That?
July 01, 2014
by Glenn Kates and Li Luo
One price does not fit all for Russia's European gas consumers.
A study of publicly available data shows that West European countries pay less to Gazprom, the Russian state-run gas giant, than do poorer Central and East European countries.
So why do Poland and the Czech Republic pay over $500 per thousand cubic meters of gas, while across the border Germany pays less than $400?
'Gazprom prices according to what the alternatives in those countries are,' says James Henderson, a Russian oil and gas industry expert at the Oxford Institute for Energy Studies. 'It essentially acts as a discriminating monopolist. If it has a significant market share in a country, or if it can see that a country has limited alternatives, then it prices accordingly.'
Here are some takeaways:
* Some of Europe's poorest countries pay the highest prices for Russian gas.
* Of the five poorest countries in Europe, only Moldova pays below average for Russian gas. Macedonia, the fifth poorest European nation according to IMF figures, pays more than any other country ($564 per thousand cubic meters). Bosnia-Herzegovina -- where the average monthly wage is around five times lower than in Germany -- pays $515 per thousand cubic meters.
* Some of Europe's richest countries that pay less for Russian gas have also been accused of being soft on Russia.
Following Russia's annexation of the Ukrainian peninsula of Crimea in March and subsequent fighting in Ukraine's east, where Russia has been accused of backing separatist fighters, the United States and the EU imposed targeted sanctions on Moscow.
But Germany, Austria, and France -- each of which pays less than $400 -- have been accused of resisting harsher penalties for Russia.
Germany, Gazprom's biggest customer, which in 2013 bought 40 billion cubic meters of gas -- that's the equivalent in volume of 40,000 Empire State Buildings -- has been pressured by German industrial leaders to avoid further sanctions. France has refused to back out of a multi-billion dollar deal to sell warships to Russia, and Austria, which pays $397 per thousand cubic meters, signed a deal in June to construct the Austrian section of a Russian pipeline that will bypass Ukraine.
But less than a week before Vienna agreed to terms with Moscow, the European Union successfully pressured Bulgaria, which pays $100 more per thousand cubic meters than Austria, into postponing its agreement with Russia for the same South Stream pipeline.
* The Kremlin uses cheap gas as a major enticement for countries to join its Customs Union.
Around the time that former Ukrainian President Viktor Yanukovych opted out of signing an Association Agreement with the EU in November, Russian President Vladimir Putin tried to win Kyiv over to joining the Russian-led Customs Union, which currently includes Belarus and Kazakhstan.
In addition to $15 billion in debt relief, he offered a sharp decrease in the amount Ukraine would be expected to pay for gas imports. But if gas were really a factor in Ukraine's decision on whether to join the Customs Union, it could have just looked at Belarus, which at $166 per thousand cubic meters pays less than any other country. Armenia, which last year abruptly announced its intention to join the Customs Union, is just behind Belarus -- paying $189 per thousand cubic meters. Both countries get all of their natural gas from Russia.
* Other former Soviet states get almost all their gas from Russia -- and pay a lot for it.
Some of the countries that rely most on Russia for gas are also fiercely critical of Moscow. The three Baltic countries -- Latvia, Lithuania, and Estonia -- all of which have been strong supporters of Ukraine in the current crisis, get 100 percent of their natural gas from Russia. Ukraine gets 72 percent from Russia. None of these countries pays less than $416 per thousand cubic meters of gas.
* But unless Moscow wants you in its Customs Union, political sympathies with Russia don't appear to carry much weight.
Outside of Belarus, Serbia is Russia's closest ally in Europe, but at $457 per thousand cubic meters, it is at the upper end of the spectrum in terms of price paid to Russia. Italy, which formed a close relationship with Russia during former Prime Minister Silvio Berlusconi's tenure, pays $440 per thousand cubic meters.
'It's pretty much always economic,' says Henderson. 'There's a political overlay to negotiations and sometimes the timing of discussions and obviously timing of the negotiations can have a political bent to it. But from what I can see Russia prices its gas according to what it thinks it can charge.'
Copyright (c) 2014. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036.
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