The Russian economy (catch all)

[Firn]

1. About the Russian gas weapon

I wrote earlier:

1) Putin should not forgot that turning the valves will stop a large part of the revenues financing his budget and his invasion.

2) In the long run such threads incentives the substitution from other geographical and energy sources.

3) Russia needs Europe a lot more then the other side around.

I can not look into the mind of the governments of the Central Europe and don't know what they know and think. Maybe some truly ignore that in the short and the long run Russia needs Europe money far more then Europe needs Russias gas. See the Federal Clay Budget of Russia, the reliance on European demand to finance their state, the full NG reserves in Europe, the time of year, etc.

Re sanctions:

In the medium (10 years) or long term (>20 years) timeframe the Russian position is not strong when we consider decreasing demand for NG and oil in Europe, the increasing global LNG capacities, lack of Russian LNG capacity, and the structure of the Russian (export) economy. Most of the NG is used in central Europe for heating of buildings. Fortunately, these buildings have an poor insulation level. :-)

The best answer is to build one or two more LNG facilities in the Netherlands, UK and Germany, to ramp-up refitting programs for buildings (KfW) and simply wait. The goal is to compensate for decline of UK and Norwegian NG production with more non-Russian LNG imports, at the same time, efficiency gains will reduce demand for Russian NG.

As the economy of Ukraine is a mess - it is even worse than the Russian economy - an occupation of more territory than the Crim does not improve the Russian strategic position IMHO.

This article supports that take on the gas front. Lower demand through mostly higher efficiency and some alternative energy will hit the Russian state revenues hard in the long run.

For starters, we are not now in early January but in March, considered the final month of the continental European heating season, when demand is likely to be highest. Moreover, this has been a particularly mild winter – the mildest since 2008 – and higher than normal temperatures are forecast to continue for several weeks yet, significantly reducing demand for gas and leaving prices at their lowest for two years. Energy market analysts at the French bank Société Générale said in a briefing note last month that European gas demand in 2013 was at its lowest level since 1999. In the UK, gas consumption is currently approaching a 12-year low.

Partly as a result of weaker demand, but also because since the first "gas war" of 2006, many European countries have made huge efforts to increase their gas storage capacity and stocks are high. Some countries, such as Bulgaria, Slovakia and Moldova, which lack large storage capacity and depend heavily on gas supplies via Ukraine, would certainly suffer from any disruption in supplies. But Gas Infrastructure Europe (GIE), which represents the gas infrastucture industry, estimated that in late February European gas storage was 10 percentage points higher than this time last year and about half full; the National Grid puts Britain's stocks at about 25 percentage points above the average for the time of year.

"The conflict won't have any impact at all" on prices, a Frankfurt-based analyst told Bloomberg News. "The gas price is currently influenced by temperatures and storage levels, and both don't favour demand right now." Prices of gas for delivery next month have risen around 10%, but that reflects insecurities in the market about a possible military confrontation between Russia and Ukraine rather than worries about fundamental shortages of supply were Gazprom to turn off the taps, the analyst told the agency.