Tuesday 22 April 2014

Russian gas: Monopsony vs monopoly*

From The Daily Mail:

Energy prices in Britain will rise unless urgent action is taken to prevent Russia holding countries to ransom by cutting off gas supplies, a minister has warned.

Energy Secretary Ed Davey warned aggression from Russian President Vladimir Putin could quickly force up costs for families in the UK. 
Energy security will be high on the agenda of a meeting of the G7 meeting in Rome early next month.

A quarter of Europe's gas comes from Russia, half of which passes through Ukraine which has been the focus of mounting tensions after the Crimea region was annexed by Moscow.

Last week President Putin insisted it was 'impossible' for Europe to stop buying gas from Russia...


According to Wiki, European Union countries use 460 bn m3 a year, so they import about 115 bn m3 from Russia. Russian exports are 173 bn m3 a year, so two-thirds of that goes to Europe.

So we are dependent on them - but they are equally dependent on us.

If the EU, or European countries acting in concert, really wanted to do something they would draw the lessons from the way Thatcher dealt with the miners or the way supermarkets squeeze their suppliers, and simply set a cap on the price which they are all willing to pay for imports of gas. This price can be any figure they like, as long as it exceeds the extraction and transport costs.

I can't see Russia's other customers buying all the spare capacity, indeed they could join the buying cartel, hence the exporters will just have to accept it.

(The only reason why the EU/European governments wouldn't do this is if a lot of the senior people are in the pocket of Russian oligarchs, which they probably are, it is certainly true for German politicians.)

Sorted.

* OK, technically that is probably oligopsony vs oligopoly.

9 comments:

JimS said...

Russia doesn't need to sell any gas - it can just leave it in the ground until Ed Davey has closed all our coal-burning power stations and a becalmed and cloudy Europe is without power.

We could buy gas from Quatar, we built the terminal and pipeline in Wales for that purpose. The only trouble is that we would have to outbid Japan who are currently paying twice the UK price and three times that of the US.

Better still we could power ourselves by burning EU directives and passing laws to place a legal obligation for the lights to stay on.

Perhaps one day the Canutists will realise that the EU IS the problem and NOT the solution.

Mark Wadsworth said...

JS, yes, the UK could (indeed, IMHO should) keep the coal-fired power stations going, and quite possibly get into open cast coal mining big time (if the costs-price justify it and the NIMBYs can be put firmly in their place). That's a separate topic.

Bayard said...

"they would draw the lessons from the way Thatcher dealt with the miners"

No, no, that's history. Politicians never take any notice of history (apart from the house prices fall, you get kicked out rule). This time, it will be different.

Mark Wadsworth said...

B, true, but it wasn't history when Thatcher did it.

Some people thought she was mad, but she had carefully planned it by stockpiling coal and waiting until North Sea gas was on stream, international coal prices were affordable etc.

With the benefit of hindsight, maybe she did the wrong thing, who knows, but at the time "it worked" whether you agree with it or not.

And what supermarkets do is very current.

Bayard said...

I think she did the right thing in the wrong way, as politicians so often do, because they do things for political, not economic reasons.

However, I do agree that if the EU can't get its act together to stand up to the Russians, what is the point of it, apart from a free trade bloc?

Mark Wadsworth said...

B: "if the EU can't get its act together to stand up to the Russians, what is the point of it?"

The EU is basically corporatist. There are some lofty ideals and some ways it which it bats down the worst excesses of national governments, but by and large, it's for the worse.

It's not a free trade bloc any more either - globally, tariffs and restrictions on trade have shrivelled away to nought over the last half century, there is little need for free trade blocs any more, you just sign up to the WTO GATT stuff and you are away.

DBC Reed said...

If you were living in the Ukraine,you might think twice about pissing off the neighbouring country that's supplying you with cheap energy through your playing footsy with the EU that will deliver a house price bubble followed by collapse leading to emigration as in Baltic stakes plus the EU will declare all your industry unsustainable.
Pretty much ditto for us in respect of Russia.

DBC Reed said...

I'm fairly sure that should be Baltic States in the above.

Bayard said...

If you were living in the Ukraine,you might think twice about pissing off the neighbouring country that's got lots of troops stationed in your country. Ditto us with the USA (or have they all gone home yet?).

This isn't about the Ukranian people. They just get shot by snipers. This is about the Ukranian pols working out who will give them the biggest bungs.