Pipeline Politics Putin Hails End of 'Cheap Gas' Era

If Russian Prime Minister Vladimir Putin has his way, your Gazprom bill will soon be going up. Despite fast-falling oil prices, he claims Europe will soon be hit with the bill for "sharply" rising gas field development costs.

Russian Prime Minister Vladimir Putin says European consumers will have to get used to surging natural gas prices. "The expenses necessary for developing fields are rising sharply," the Russian government head told attendees at a meeting of gas-exporting nations in Moscow on Tuesday.

Are higher gas prices in store for Europe's future?

Are higher gas prices in store for Europe's future?

"This means that despite the current problems in finances the era of cheap energy resources, of cheap gas, is of course coming to an end," he added in his keynote speech. Russian energy giant Gazprom supplies about one-quarter of all the natural gas consumed by European Union member states via pipelines.

Russia has been in a standoff for months with Ukraine over unpaid energy bills and a planned hike in January of the price of gas. Gazprom -- a monopoly controlled by the Kremlin -- claims it is owed $2 billion and wants payment from Ukraine by Jan. 1. Russia is threatening to cut off gas to its onetime Soviet satellite state, in the middle of winter -- again.

The last time Gazprom cut off supplies to Ukraine, on New Year's day 2006, gas deliveries to Western Europe were also disrupted. Moscow officials warned on Monday it could happen again. About 80 percent of Russian gas exports to Europe travel through pipes across Ukraine.

In 2005, Moscow had jacked up gas prices in Ukraine after the country voted in a pro-Western government during the Orange Revolution in 2004. The move was widely seen as political. Until then, the country had enjoyed favorable, post-Soviet prices compared to the rates paid in Western Europe.

Prices May Fall, Then Rise

This week, the most important gas-exporting nations have gathered in Moscow to further intensify cooperation. Russia, Iran and 12 other nations are members of the Gas Exporting Countries Forum (GECF). Gas importers fear that an effort is underway in Moscow to recast GECF into a gas cartel similar to Organization of Petroleum Exporting Countries (OPEC). The members have rejected such claims in the past, though, and observers say the structure of the gas industry would make it difficult for gas exporters to implement OPEC-like quotas.

From Russia to Western Europe: Important oil and gas pipelines

From Russia to Western Europe: Important oil and gas pipelines

On Tuesday, Putin spoke out against what he described as the "politicization" of international energy relationships. "The interests of producers, consumers and transit nations can only be unified through clear and long-term relations based on the foundations of a market economy," Putin said. GECF, which has been a loose-knit organization since its creation in 2001, is expected to pass a new charter on Tuesday that would formalize its structures and establish a permanent secretariat based in St. Petersburg.

Despite Putin's statements, energy experts in Germany anticipate that gas prices will drop in the near future. Holger Krawinkel of the Federal of German Consumer Organizations (VZVB) estimates that natural gas prices for the average German consumer will fall in the next year by up to 25 percent. The drop in prices is connected to the recent and precipitous decline in oil prices, which has seen the cost of a barrel of crude fall to about $43 -- from a high in July of over $147.

The price of natural gas is pegged to that of oil, with a delay of about six months.

Krawinkel warned that the slide in prices would be temporary, offering consumers a moment to breath again after record high prices. In the longer term, he said, gas prices would rise again because of growing global energy demand.

dsl -- with wire reports


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