Jeremy Warner: Perils of being beholden to the Russian bear


Outlook Well, there's one thing Britain has managed to get right about its energy policy – thus far at least. The UK uses hardly any Russian gas. Unfortunately, that hasn't made the country entirely immune to the continuing row over access to the Ukrainian pipeline which supplies the majority of Russian gas to Europe.

Spot gas prices in the UK spiked markedly higher yesterday and not just because of near-record domestic demand as the Arctic weather closed in across the land. For the first time in ages, the interconnector between Britain and the Continent flipped negative, so that more gas was flowing out of the country to take advantage of even higher spot prices on the Continent than flowed in. The exporters were mainly continental players with operations here, such as Gaz de France and RWE.

It's nice to be able to help out with our continental friends. Liberalisation of the gas market is still in its infancy on the Continent, so when the boot is on the other foot, we tend not to enjoy the same level of assistance. Yet the truth of the matter is that we can ill afford our largesse.

From being self-sufficient in gas supply, Britain has in recent years become ever more reliant on imports, which this year will account for roughly 40 per cent of supply. At present, most of this imported gas comes from Norway and the Middle East, yet, as reserves of North Sea gas dwindle, we too may progressively have to fall back on Russian sources of supply, which means, to all intents and purposes, Gazprom.

As things stand, Britain is rather worse placed than the Continent to withstand a prolonged siege, with storage capacity for only 15 days supply, against the 80 days enjoyed by France and Germany. Energy security is something which with North Sea oil we didn't have to worry about. Yet the way things are going, it will soon be up there with the credit crunch, global warming and the war on terror as one of the nation's top concerns.

With a crumbling nuclear infrastructure and still highly reliant on environmentally unacceptable coal- fired power generation, Britain is in some respects worse placed than almost anywhere else in Europe, which is a terrible indictment of the way the blessing of North Sea oil has been squandered.

Alexander Medvedev, deputy chairman of Gazprom, was in London yesterday to persuade us that his dispute with Ukraine is not about politics. Rather, it was an entirely commercial, or contractual, dispute, he insisted. Ukraine had been siphoning off gas intended for others, it hadn't paid its bills, it was attempting to charge extortionate rates for transporting gas to Europe, and it was Ukraine, not Russia, which was responsible for the pipeline being turned off.

He's got a point. Yet there is politics as well as business at work here. Gazprom is up to its neck in debt, and energy prices, the foundation of Russia's economic renaissance, are going through the floor. Gazprom needs every penny it can get. What's more, it's plainly in Russia's geopolitical interests to alienate Europe from Ukraine, not just for the purpose of maintaining influence over this former satellite state, but also to bolster plans for an alternative pipeline into Europe via the Baltic.

The trouble with Gazprom is it is so much a creature of the Kremlin it is never entirely possible to disentangle the commercial from the political. One thing is certain. You do not want to become beholden for your energy needs to this grizzly old Russian bear. Even the 15 per cent of the UK gas market Gazprom aspires to seems too high.

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