True price of natural gas

Commentary by Info-Prim Neo The Russian-Ukrainian „gas war” in late 2005 – early 2006, which had important effects on west European consumers, has challenged a true change of direction as regards perspectives of the European energy sector. The westerns have immediately realised the long-term dangers of dependence on one natural gas provider, while economists have count the losses of an eventual blockage of Russian gas deliveries. As a result, the Europeans are insistently speaking about a joint energy strategy at the level of the European Union, which would call above all for diversification of energy sources, reduction of dependences and strengthening of energy security. The Kiev government, which has faced a suspension of Russian gas deliveries, has recently tabled an energy strategy until 2030 that aims to reduce the dependence on Russia, to give an impulse to domestic energy production and to reduce the losses very much. Ukraine needs almost 200 billion dollars to fulfil the objectives of the strategy. This price requires a five-fold reduction of dependence on foreign sources, reduction of natural gas imports from 56.4 billion cubic metres down to 9.4 billion cubic metres and three-fold rise of electricity exports up to 25 billion kWh. Moldova, which was also included in the „gas dance”, is a peculiar case. Firstly, the problem of gas imports and price is postponed from three to three months rather than a long-term solution was found. It is not known exactly who pays the costs of this postponement and what volume. However, it seems that Chisinau pays it and it pays a high price. Economists say that the postponement of the rise of natural gas price is not a gift from Russians from generosity while the price of 110 dollars per 1,000 cubic metres is only the official side of the real price paid by Moldova. It was a joke on the Fool’s Day that Moldova did not cede anything in order to benefit of the current price three more months; the real price could become known after a couple of months, economists fear. In addition, Chisinau will pay the indirect costs resulting from instability of imports of „blue fuel”, which could be much higher than an eventual rise of natural gas prices from 110 dollars up to 160 dollars, though they cannot be count exactly. Thus, the new victory of Chisinau’s delegation from Gazprom is relative, while the perpetuation of this situation is dangerous enough. FIRST. The lack of a long-term agreement on natural gas deliveries, which would stipulate concrete volumes and prices, be they higher, turns the Moldovan energy sector and partly the industry into a weak sector to risks and instable enough. It means that eventual investors will postpone their projects or will withdraw their investments from Moldova’s energy sector, or they will be cautious enough because the risks are very high. Also, it may happen that a part of problems of the energy sector, which is of infrastructure, as well as due to fears on this sector, affect the entire economy. Thus, Moldova pays much more than 110 dollars on long term. SECOND. If the government does not draft a concrete and well-argued plan the next three months for negotiation of a long-term contract with Gazprom, but accepts small steps from three to three months and permanent concessions, there is a real danger that the Moldovan economy turn into a subdivision controlled by Russian giant. THIRD and the most important. Moldova along with other states shall urgently work out a clear strategy on real development costs of the energy sector, reduction of external dependences, development and exploitation of alternative energy sources. At the same time, it shall insist on a contract for at least five years regarding the importation of natural gas, with concrete volumes and a concrete price. We shall realise that the lack of a certainty that the gas will be delivered is the true problem, rather than the gas price that cannot exceed a maximal price. The government shall make clear in the strategy the projects that it wants to implement, the conditions of participation, terms of implementation, costs, and benefits and, not the last, its contribution (budget investments, facilities for investors or reinvestment of amounts raised from private economic agents participating in accomplishment of the project, etc.). The Moldovan energy sector, as well as the national economy in general will be labelled as very exposed to risks without such a strategy, which shall be have chances to be implemented, while processes of modernisation could develop very slowly. A proverb says, „Pay now more in order to pay less latter.”

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