Who Put the Gas in the Gas-a-lassa-ding dong?

Dear Readers:

Here is my big plan!

So, here is my plan for the next few days:  Today, I have this piece from VZGLIAD about Ukraine’s … er … gas problems.  Tomorrow, most likely, I will pen a review of the latest Metropolitan Opera Live in HD offering, of (drumroll)…. TURANDOT!  Which I am totally going to see later today.  Yay!  Monday will be my usual month-ending audit on “How’m I doin’ ?”  And after that, we shall just play it as we go.

How much does Gas cost?”

Turandot’s Question #1: “How much does Gas cost on the open market?”

The gas story begins with President Poroshenko contradicting his own Prime Minister Yats (who had been heard previously complaining about the brutal price-gauging practices of the Russians) and even himself, by admitting on his official website that the price of Russian gas is not so bad.  In fact, it’s cheaper than so-called “reverse gas” out of Europe.

So, here’s the setting:  Poroshenko was visiting an electro-power station in Rivne yesterday, where he emitted the following utterance:  “Russia thought to place us on our knees, by offering us gas at $212 [per 1,000 cubic meters].  I issued an order, our minister phones Russia, tells ’em:  ‘Nope, we’re not taking yer stinking gas.’  [yalensis:  I added the word “stinking”.]  And we have gotten ourselves through our first winter without Russian gas.”

Poroshenko went on to brag that the Ukraine is doing just great, buying gas from Europe.  This has led to a “fantastic result”, according to him, notwithstanding Russia’s aggressive actions.

Later in the day, after Russian and Ukrainian media had already transmitted Poroshenko’s utterances made at the Rivne plant, the Presidential Press Service released a statement on President Poroshenko’s official website.  This official statement actually contradicted Poroshenko’s earlier utterances completely.  The official statement declaring in black and white that Russia had offered to sell gas to the Ukraine at a rate 30% cheaper than what the Europeans offered.  Here is a translation of that paragraph of the official statement:

“I congratulate you!  This winter was the first winter when, in spite of the fact that the Russians completely shut off our gas, then offered us gas at 30% cheaper then the European market price, we still had the fortitude to say:  ‘No thanks!’  This type of behavior towards us — the aggression, the economic blockade, the embargo which they unleashed against us — demands a particular response.  But they will never force us to our knees, and we are firm in our resolve!”

In other words, Poroshenko contradicted Poroshenko.  He admitted that Russian gas is cheaper, European gas is more expensive; he claimed that the Ukrainian people are willing to pay extra for their gas, as the price to pay for their national pride and dignity.  Very commendable!  But bottom line:  people still need the gas.  So, how does this “dignity” thing work?  Why, by means of this thing called “Reverse Gas”.

What is Reverse Flow?

Turandot’s Question #2: “What is this thing called Reverse Gas?”

What is reverse gas flow? you may ask.  It sounds like a painful medical condition.  It’s okay if you don’t understand it:  Some of the parties involved have done their utmost to ensure that this matter is as opaque and confusing as it can possibly be.  I am no economist, but I think I can at least partially help break it down it for you.

Basically, so here is the scoop:  Reverse gas is Russian gas which is sold to Europe, and then European traders sell it back to the Ukraine, but with a mark-up.  Obviously.

Can Gas actually flow in reverse?

Turandot’s Question #3: “Where does the gas leave the pipe?”

There has been a lot of confusion about the actual physics involved in this:  Can gas literally turn around in the pipe and flow backwards?  Are there not valves and sphincters and the like, to prevent this?  Well, as it turns out, some pipes, say into and out of Slovakia, do permit bi-directional flow.  But most do not, according to my understanding of the matter.

Hence, most of the time we are not actually talking about a physical flow of gas backwards from, say, Hungary into the Ukraine.  The words themselves, “reverse flow” are a bit of a euphemism for something else.

I end this piece by translating a quote from Ukrainian economist Alexander Okhrimenko:

“What the President (Poroshenko) blurted out is not actually true.  Here is how it works:  The Ukraine deliberately purchased more expensive gas via the EU.  It’s no secret that the gas which the Ukraine purchased, supposedly from the EU, is actually ordinary Russian gas which the Ukraine syphons out of the pipe, but it is marked on the books as Polish or Hungarian gas.  As a result of this process, the price markup finds its home in the offshore accounts of the appropriate individuals.”


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3 Responses to Who Put the Gas in the Gas-a-lassa-ding dong?

  1. Patient Observer says:

    Wait, so the gas is actually purchased by, say, Poland but then the Polish says its OK for the Ukrainiacs to divert the gas directly to the Ukraine gas distribution network? The Poles then charge Ukraine a significant premium for said gas? So it s not reverse flow, just reverse payment?

    They have something wrong in the head.


    • yalensis says:

      Yep, that’s pretty much it, from what I understand.
      Poles buy gas from Russia at $X price. As the gas flows to Poland through the Ukraine, the Ukrainians syphon off a certain amount of gas which was intended for Poland. For which Poland, who formally owns the gas now, charges them $X + Y price.

      Aside from the ludicrosity of this, it makes sense, in a crazy sort of way. Because:
      (1) syphoning the gas in transit is more efficient than letting it flow to all the way to Poland, and then shipping it back in trucks; and
      (2) If you are a proud svidomite, then you would rather pay big money to a friend like Poland, rather than smaller money to an enemy like Russia.


      • Patient Observer says:

        Sure, and there could be all sorts of little side deals ,you know, to show appreciation to all those who helped bring freedom to Ukraine.


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