The Cheque's in the Mail

Waking up today was probably a little harder for most people than normal. Nothing like a New Year's hangover to keep you under the covers in bed for the day. Unless of course your waking up in the Ukraine, where there's an even better reason to fight your hangover from the warmth of your sheets. Once again the Russian giant Gazprom has "lowered pressure" in gas pipelines to the Ukraine, making for some awfully cold New Year's mornings.

Well, things might not be so dire. While Ukraine's state energy firm Naftogaz confirmed that supplies began dropping off at 7:00 am GMT they also said they had begun to pump supplies from their reserves which should be sufficient for 'several' months. It's no fun dealing with utility companies, but imagine dealing with a Russian gas company and that gas company is called Gazprom. The cheque's in the mail probably has a very familiar sound to it for many of us. So, is this just a case of someone not paying their gas bill? On one side, yes, as even if Kiev paid $1.5 billion to RosUkrEnergo - a Switzerland-registered gas trading company acting as an intermediary - which Gazprom denies, the late payment fees have piled up to the point where they now owe double this amount. However, dealing with Gazprom isn't like dealing with your local gas supplier, Gazprom is Russia. The last few years has witnessed a consolidation of power in the Russian gas industry to the point of re-nationalization. That being the case, this becomes more than just an unpaid bill.

Russia turned off the gas to Georgia a couple of years back, also in the dead of winter. Now, the effect of the Ukraine's support for Georgia in last September's conflict with Russia is being seen in Gazprom's response to late payment. Further complicating negotiations between the two is that a contract for 2009 supplies has yet to be signed, with Gazprom demanding a hefty rise in price. You want more complications? Well, much of the rest of Europe's supply of gas from Russia flows through the same pipes, and seeing as Europe depends on Russia for about a quarter of its needs, things could get pretty tense. A similar episode back in 2006 led to gas shortages throughout the continent. Oh yeah, let's not forget that the Ukraine is in the middle of yet another political crisis and the fact that Gazprom may actually need the cash, with $10.6 billion in debt to be repaid by June. In fact this whole mess is just too much for me to wrap my head around with this pounding hangover. Maybe I'll just get back under the covers.