I’m hard at work on a couple new reports, and on planning my next trip, so in the meantime, I thought I’d share with you some thoughts from a Taipan Publishing Group subscriber living in Poland.

He saw my report for Taipan Insider, talking about the ongoing natural gas conflict between Russia and Ukraine. Here’s how the email string took me from Ukraine back to Poland, where I’d recently visited on a previous trip…

Hi Sandy Franks,

I wish to comment on todays Taipan Insider. The map showing gas pipes in Europe is not correct and the shown dependency on Russian gas is also wrong.

There is a very high dependency on Russion gas in the Baltic States as well as in Finland.

The map doesn’t show gas pipes running from Russia through Ukraine and Belarus via Poland to Germany. The gas shipments through the pipe via Ukraine through Poland to Germany was halted completely but the shipments via Belarus through Poland to Germany were in fact increased by 12%. This, however, did not compensate for the lack of gas via Ukraine. Poland therefore halted major plants consuming large amounts of gas, such as chemical and petrochemical industries.

Anyway, the interesting part of this whole story is how it is possible that European leaders did not learn from the previous closing of the gas taps a few years ago. How could they rely on Russia for the European energy supply? How could they let Europe become hostage and subject to the unstable behaviour of Russia? Hasn’t history taught us anything?

Best regards,
P. [XXX]
Poland

***

Hello, P.,

That map was from the BBC. I don’t think it was meant to show every pipeline, just the ones affected by this mess between Russia and Ukraine, and the percentage quote was also taken from the BBC, and it refers to the percentage of Russian gas imports that pass through Ukraine, not all imports.

I should have been more clear on that, and I’ll make sure to mention it in our next Taipan Insider.

Here are links to the supporting articles from the BBC, should you care to look through them:

http://news.bbc.co.uk/2/hi/europe/7814743.stm
http://news.bbc.co.uk/2/hi/europe/7808465.stm

Both the map and the percentage quote come from the first link.

We seem to be on the same page, though with questioning why the EU hasn’t thrown itself into pipeline projects bypassing Russia.

By the way, how is Poland holding up in this global economic crisis? Have you seen any drastic measures being taken? I was there back in September, just at the start of things, so I haven’t seen first hand how the country’s being affected.

Thanks for writing in…

Cheers,

Sara Nunnally

***

Hi Sara,

The momentum of growth kept Poland going through the fall but now the steam seems to have evaporated.

I think Poland is in for a nasty surprise in 2009. Somehow the government and the central bank seem to believe that Poland will not see any recession but just a reduction in the growth rate. This is in stark contrast to what is going on in the markets. With the PLN down substantially during the last month, the cost of imports will of course be hit and since Poland is relying a lot on these imports, this will in my opinion weigh down the markets more than seems to be expected.

Furthermore, exports are falling despite the cheaper Zloty as demand around in EU and elsewhere dries up. Manufacturers started laying off workers a few months ago and this trend is continuing. The housing market has come to a standstill and credits are very hard to get and very expensive (commercial credits carry margins of 3,5-5% now). The Central Bank has been reluctant to reduce the base rate - it is still at 5%.

What I believe will surprise everybody here in the months to come will be a sharp increase in defaults and bankruptcies even among large companies. This could further reduce the access to credits and thereby worsen the situation.

I don’t see any decisive action from the government. There are basically no commitments in terms of support packages. Polish politics has a tendency to react when it is too late. First we watch the patient die, then we discuss for half a year what could have been done.

I am in fact Danish so my perspective here is different although I have been in Poland for almost 20 years (and am fluent in Polish).

Should you have any questions about Poland in the future, feel free to send me a mail and I will see if I have any comments you may or may not use.

Regards
P.

Just another perspective on the global financial crisis. Thank, P., for your comments. If you have any comments for me, just send them along!

The two problems we’ve been focusing on this past week both had false endings.

Last week, we were told that Israel and Gaza were talking about a cease-fire. Now, news reports have more Israeli troops pushing into Gaza City. More than 90,000 people have left their homes, and an estmated 900 people have died in the conflict.

We were also expecting Russia to begin shipping natural gas supplies through Ukraine again this morning. That hasn’t happened either. Russia is now claiming that Ukraine is purposefully blocking supplies. Hundreds of thousands of people have been without gas for a full week.

So, what happens next? Some analysts are saying the Israeli-Palestine conflict could go on for some time. But some Gaza survivors have been without water for four days and the humanitarian situation is worsening by the minute.

Russia will only begin pumping large amounts of natural gas if EU monitors determine that Ukraine isn’t stealing any for domestic consumption. This test of the taps has put the “truce” back at square one.

Natural gas sold on the NYMEX has been dropping for the past five trading days. But natural gas sold on London’s ICE ended higher today. The spread between WTI oil and ICE Brent crude oil is about $6.50, most likely due to these two conflicts.

So Europe is paying more for oil and gas as Russia and Ukraine lock horns, and as Israel continues to pound the Gaza Strip. We’re just starting to get into the middle of winter, too.

Yesterday, I told you Prague was going to hit an overnight low of 15 degreed F. Right now, it’s 9:00pm, and it feels like 12 degrees F.

In last Thursday’s Taipan Insider, I talked about the current dispute between Russia and Ukraine over natural gas supplies.

Since this latest row began, supplies to Eastern Europe have been nearly non-existant. And major Western European countries were starting to feel the pinch, too. Some countries were even forced to dip into reserves, this being the onset of the bitter winter season.

Now, Russia says it will resume supplying natural gas tomorrow morning. This is only after a monitoring deal has been agreed to by both parties and mediated by the European Union.

Still, it may be a while, reports the BBC, before supplies return to normal.

The overnight low temperature in Prague, Czech Republic, tonight is 15 degrees fahrenheit.

If you’ve been following my blog, you’ll know that I’ve been knee-deep in researching the energy ties in Central Asia. This area has become a hot bed for investment and news is swirling around just how much natural gas is in this region.

Let me spell it out for you: Russia ships nearly two-thirds of all its natural gas production to Europe, and one Central Asian country, Turkmenistan, helps fulfill its contracts.

But if Central Asia countries start making deals with Europe over Russia, Russia will be left out in the cold.

I don’t think that’ll happen though. You see, Russia’s got a contingency plan. It just met with Iran and Qatar to firm up an energy deal.

First let me explain the tug of war…

The Caspian Sea energy nations met last Friday in Azerbaijan. At the top of the list for discussion was the signing of a declaration to limit Russia’s monopoly over export routes to Western Europe. Now, results showed that there are some countries unwilling to sign the declaration, but the fact that a declaration was even up for discussion is promising for some.

This is big news particularly for the European Union.

For years now, the EU has imported 40% of its natural gas from Russia. These imports make up 25% of the EU’s total natural gas consumption. Those are extremely high numbers and the European Commission wants to do something about it.

“This is a problem we must address. We must shield European citizens from the risk that external suppliers cannot honor their commitments,” EU Commission President Jose Manuel Barosso told reporters from RussiaToday.

We all know that Russia is more than willing to turn of the tap. With Russia as the single largest supplier of imported gas, the EU is seeking diversity in its energy imports. RussiaToday notes that this will be accomplished a number of ways, from opening up a new North Sea offshore grid to new projects in the Mediterranean.

So where does that leave Russia?

Continue Reading »