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The Real Way the West Can Impact Ukraine

The weather is taking a decidedly better turn here in London these past few days.

It's a good thing, because all of the talk currently in British circles is about the deteriorating situation in Ukraine.

These concerns involve the all-too-obvious geopolitical impacts of a Russian takeover of Crimea and perhaps a broader swath of Eastern Ukraine.

However, there is another matter that has a more immediate impact on Europe, especially if the temperatures start falling again.

You see, despite the Russian-controlled natural gas pipelines under the Baltic Sea to northern Germany (Nord Stream) and across Belarus to Poland, most of the Russian natural gas coming to the continent still passes across Ukraine – about 80% in fact.

And Europe is still reliant upon this energy flow despite attempts to diversify.

That means the longer the crisis between Russia and Ukraine remains unresolved, the higher the tension level among Europeans will be.

Here's what that means…

Confronting a Critical Moment

The good news is that the situation is stabilizing. Not improving, mind you, but at least not becoming any worse. Stock markets in both London and in Europe are beginning to recover from recent massive declines.

But every economy needs to guarantee reliable sources of energy. Europe is hardly different in this regard. The massive hit in the investment markets from a possible interruption of the gas flow is hardly going to be a reassuring one.

The connection here is rather immediate and comes at a critical time. Despite a few improvements, both European economic prospects and credit markets are showing signs of another slide. Unemployment remains high, financial indicators are moving south, and the likelihood of another interruption in Russian natural gas is hardly encouraging for either the residential or industrial end user.

This is anything but an abstract concern. Everybody here remembers all too vividly the last Russian-Ukrainian spat. Back in January 2009, during one of the continent's coldest snaps in recent history, a disagreement broke out between Gazprom and the Ukrainian national gas company Naftogaz Ukrainy.

That resulted in a complete halt of the Russian gas pass-through across Ukraine, and some very cold folks further west. Now these concerns are already surfacing again.

Take earlier this week, for example.

Having just left our annual energy consultations at Windsor Castle, I found myself a guest in Bloomberg TV's London studio. The discussion quickly centered on the impact of what was transpiring in Crimea for gas prices in the European Union (EU) and the UK.

Even as crude oil prices spiked yesterday in both London (where the Brent benchmark price is set) and New York (West Texas Intermediate, or WTI), the attention was more directed at the level for natural gas.

In the United States, we usually view natural gas prices as essentially a function of the weather. In the winter, as has certainly been the case this year, waves of "polar vortex" temperatures from the north prompt additional drawdowns from gas stockpiles and an increase in futures contract pricing.

A similar connection exists during the summer. Then, however, a rise in temperatures results in additional gas consumption as more electricity generation moves from coal to gas as a primary fueling source. In addition, with gas-based propane being the primary energy source in rural America, the price of that gas has a rather direct effect on a whole range of agricultural products.

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About the Author

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle

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  1. Franklin D. Lomax, Sr. | March 6, 2014

    WastingtonDC: Slam American oil and natural gas into Europe, reducing or replacing Russia's major market, and eliminating its need to control every aspect of Ukraine, their people and their economy.

    With England, and then Europe relieved of any necessity to humor Russia, to keep up their energy purchases, we can enjoy the real and increasingly usual free world citizen approach, over the next century, thus forcing Russia to back off, clean up their act, and ease up on their citizens, and captive peoples, allowing all their victims to continue their measuring up to Western World Freedom, instead of savaging US, et al, peoples.

  2. Jeff P. from Canada | March 6, 2014

    I kept wondering how Vladimir Putin could have been so stupid as to invade Crimea. Here is someone who is not at all interested in human rights and yet he is touting the human rights of Russian speaking people in Ukraine as his reason for invading. That would be laughable if it wasn't so scary. So why else would he invade? How about this. FOLLOW THE MONEY!!! Crimea has offshore oil. Granted, the reserves are old and probably close to being depleted. But are those oil reserves of the old, shallow type? And if so, has Gazprom been doing some exploration in and around Crimea? I would be willing to bet that Gazprom has found very significant oil reserves at a deeper depth than previous oil wells, and that Putin invaded Crimea to secure those reserves.
    If that is not the case, then we are dealing with a half crazy leader of a nuclear nation. But again, my money is on the idea that Putin is seizing Crimea for its oil.

    • Sergei | March 8, 2014

      It's encouring for me that the money of some people in Canada is somehow more educated than this same folk. Taking this into account we can sleep more or less calmly. But, jokes aside, Putin has no choice because of the danger of the violent repressions against the Russian-speaking people in Crimea or other parts of Ukraine on behalf of nazi-like forces which seized power in Kiev. So we'got the situation when all so called civilised world blame and hate Putin for his desire to protect people from the neo-nazi. And don't say that there are no signs of such a danger, because those who say this run no responsibility for wtat they are saying.

  3. yngso | March 6, 2014

    Franklin, Google is known for its excellent maps. The Atlantic Pond is rather large…and North Africa and even the Arabian Peninsula are much closer to Europe, if one is looking for alternatives.
    Today I bought more STO because of its involvement in developing resources in Ukraine, too soon?
    The sabre rattling is dying down, because too much depends on everything staying the same, more or less.

  4. Josephus | March 6, 2014

    The US people think that they are the only ones who have the right to enter another country to "help". Russia has a longer history with the Ukraine and Crimea than the US has with anyone else. Why did the US invade Texas ? No reason at all, just some general wanted to take it away from the others. This has been the way the US is seen to be doing ever since.
    It is not what the US thinks is right. It is the way the other countries look at what the US is doing. I am not taking sides, just saying. So, RESPECT is what is missing from US politicians. To the poor nations of this planet, RESPECT is all that they can really get.

  5. ton goddard | March 7, 2014

    so…once again we have the 'western' persperctives on everything ukr and russia. ahh..the land of rus…now ukraine… and russia, the recipient of the name 'rus' which rankles the ukrs to this day. moscow didn't exist in 1243 ad ..only for the movement of peoples(ukr) north did moskva develop..over the many years since there has been invasions, takeovers etc by poles, swedes, moldovians, germans, turks , mongols, fins, cumans, cossacks. what a polygot lot indeed!! anyone for afternoon tea? leave the poor buggers to sort it out themselves..they always have and will do now. but no…'world leaders' : pompous fools, will get in on the act and make 'bold'
    moves..more pigs bottom! go read about russian ukr history from 180 a.d. and you will get the picture..maybe

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