The Russian energy giant Gazprom has agreed to sell natural gas to Ukraine for a period of five years, ending an energy crisis between the two countries. Russia had cut off natural gas supplies to Ukraine on January 1, 2006 after its ex-Soviet neighbor refused to accept a four-fold price increase.
Most nations in Europe were hit hard by the energy supply crunch, and oil prices rose through the world. In response to the deal, however, oil prices gave back a little way in London on Wednesday. London Brent Crude fell at least 62 cents after rising $2.37 a barrel on Tuesday.
The energy shock has brought home many fears of the impending global energy crisis. Oil prices have risen significantly over the last year, and prognosis is not good for the near future.
Naftogaz, Ukraine’s energy company, will pay $95 per 1,000 cubic meters for natural gas supplies for the next five years, up from $50 under a previous arrangement with Gazprom. Russian gas will be mixed with cheaper gas supplies from Central Asia to arrive at the pricing level agreed by the two countries. Gazprom will sell gas to a joint venture between itself and Austria’s Raiffeisen Zentralbank Oesterreich AG for $230 per 1,000 cubic meters. RosUkrEnergo AG, will in turn sell the fuel to Ukraine for $95 per 1,000 cubic meters.
What was probably overlooked in the battle of the giants was that Gazprom cut off supplies to smaller Moldova as well, demanding a price of $150 per 1000 cubic meters from it. In 2004, Gazprom cut supplies by a day to Belarus, affecting Poland and Germany. Russia may have damaged its reputation as an energy supplier and a fair player in the global community, but in a seller’s market, it may be the short-term winner.
Thus everyone is satisfied, in principle, but the rise in gas prices will doubtless have a ripple, or perhaps, tsunami effect on the rest of the world.