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01/10/2016

Yatsenyuk: Russia plans to cut gas to Europe this winter

Europe's East

Yatsenyuk: Russia plans to cut gas to Europe this winter

Ukrainian Prime Minister Arseniy Yatsenyuk. Kyiv, April 2014. [US Embassy Kyiv/flickr]

Europe faces the increasing threat of a disruption to gas supplies from its main provider Russia this winter due to the crisis in Ukraine, through which almost half of supplies flow.

Ukrainian Prime Minister Arseny Yatseniuk said today (27 August) Kyiv knew of Russian plans to halt gas flows this winter to Europe.

“The situation in [Ukraine’s] energy sector is difficult. We know of Russia’s plans to block [gas] transit even to European Union countries this winter, and that’s why their [EU’s] companies were given an order to pump gas into storage in Europe as fully as possible,” he told a government meeting, without disclosing how he knew about the Russian plans.

The warning came less than 24 hours after a meeting between Russian President Vladimir Putin and his Ukrainian counterpart Petro Poroshenko as well as Europe’s main energy diplomat Günther Oettinger, which included talks to secure Russian gas flows during the peak demand winter.

>> Read: Putin and Poroshenko shake hands, but discord prevails

Although Russian officials and state-controlled gas company Gazprom were not immediately available for comment, a Russian source said it would be more likely that Ukraine would start taking gas intended for the EU to meet its own demand than for Russia to cut off supplies to Europe.

“It’s unlikely that Russia would cut gas supplies. Ukraine will start siphon off it itself, as it has been the case in the past,” a senior source at the Russian Energy Ministry said.

“We have a Plan B for the worst-case scenario. But we don’t expect to need it,” European Energy Commissioner Guenther Oettinger said in Ungheni, Moldova on Wednesday.

Third cut in a decade

Russia halted gas supplies intended for Ukraine in June over a pricing dispute, but has continued supplies via the country that are contracted to customers in the EU, which make up around 80% Gazprom’s gas sales.

Russian gas flows to Ukraine have now been halted three times in the past decade, in 2006, 2009 and 2014, due to price disputes between Moscow and Kyiv, and flows to the EU were disrupted in 2006 and 2009 after Ukraine took some of the gas intended for the EU to meet its own winter demand.

European and Ukrainian power and gas providers have been preparing for a potential Russian supply cut by injecting as much gas as possible into storage over the low demand spring and summer seasons, and there have also been improvements to infrastructure that would allow Ukraine to receive some gas from within the EU.

“The government has amassed 15 billion cubic metres (bcm) of gas in storage,” Yatseniuk said, and the government has plans to boost storage to 25 bcm.

“Europe now has 16.52 bcm (31.2%) more gas in storage compared to the same time last year,” research firm Energy Aspects said, but added that “based on recent average rates of injection, Ukraine will only fill its storage to around 52% of capacity come the start of withdrawal season.”

Due to a lack of alternative supplies, analysts say Ukraine and central and southeastern European countries with no alternative to Russian gas supplies via Ukraine would not be able to cope with a winter gas cut without large-scale energy supply disruptions.

Russian gas is key

Russia is Europe’s biggest supplier of oil, coal and natural gas, meeting around a third of demand for all those fuels, according to Eurostat data, and receives in return some $250 billion (€190 billion) a year, making up around two-thirds of government revenue.

Last year, half of Russian gas exports to the EU were shipped via Ukraine. Gazprom declined immediate comment and the Energy Ministry was not immediately available to comment.

While buyers can switch oil and coal suppliers relatively quickly and easily, Europe receives most of its gas through pipelines that are fed by only one supplier, Gazprom, in annual exports worth $80 billion (€60 billion).

“Our main concern, no doubt, is gas. We have ongoing … negotiations between the Russian Federation and Gazprom on one hand and Ukraine and [Ukraine’s gas company] Naftogaz and our European Commission,” Oettinger said after meetings with Ukrainian and Russian officials during the night of Tuesday and Wednesday.

“On Friday we will be in Moscow for the next trilateral consultation between the Russian Federation/Gazprom and Ukraine/Naftogaz with the EU as a moderator of important process,” he added.

Yatseniuk said the government has been trying to diversify coal supplies as “Russia and their mercenaries are bombing and destroying mines”. Russia has denied any involvement in the conflict. 

Positions

Russian Energy Minister Alexander Novak refuted the claim by Ukrainian Prime Minister Arseniy Yatsenyuk that Russia is allegedly planning to halt gas transit to EU member states.
“Specific comments by Ukrainian politicians on alleged Russian intentions to stop gas transit to EU countries are puzzling. We can qualify them only
as absolutely baseless speculations aimed at confusing or deliberately misinforming of European consumers of Russian gas”, said Alexander Novak.
Next meeting between Alexander Novak and Vice President of the European Commission responsible for energy Günther Oettinger is scheduled to take place on Friday 29 August 2014 in Moscow. The whole range of issues related to Russia-EU energy cooperation, including those of Russian supply of gas to EU countries and its transit via the territory of Ukraine will be discussed, Russian diplomats said.

European Energy Commissioner Günther Oettinger said on 28 August the bloc was seeking to fill its gas storage facilities and de-escalate a row between Ukraine and Russia in order to safeguard its own gas shipments from Russia in the 2014/15 winter.

Oettinger told Germany's ARD television diplomacy to defuse tensions between Kyiv and Moscow was of the highest importance.

"We need a solution that prevents an escalation between Ukraine and Russia," he said. "We need Ukraine as a transit country. Ukraine needs gas in winter. In a long and cold winter, Ukraine will not have enough stored gas of its own."

Ukraine, which consumes over 50 billion cubic metres of gas (bcm) per annum, half that of Germany, could be tempted to divert gas aimed for the EU for its own uses, Oettinger said.

"We are getting ready. We have a daily debate - how can we fill those storage facilities," he said.

Background

Russia’s gas export monopoly Gazprom sells its gas to EU clients under secretive bilateral deals.

An illustration on how Gazprom uses the price of gas as a political weapon was provided in the context of the unfolding Ukraine crisis.

Ukraine was paying Gazprom a price of $400 per thousand cubic metres (tcm) under an agreement signed under former Prime Minister Yulia Tymoshenko, back in 2009.

Moscow dropped the price to $268.50 after then-President Viktor Yanukovich turned his back on a trade and association agreement with the European Union last year, but reinstated the original price after he was ousted in February.

Ukraine insists on a price of $268.50 per 1,000 cubic meters while Russia stands by its demand for $485. The European Commission is trying to get the two sides to agree in the middle.