Ukraine raises the stakes in gas gamble with Russia

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Ukraine stopped importing Russian gas last Friday over a pricing dispute, but the flow to Europe was unaffected, officials said yesterday (11 November).

The stoppage comes two weeks before Kyiv is due to sign an association agreement with the European Union, which has angered Moscow.

"There have been no supplies to Naftogaz since Friday," an industry source told Reuters yesterday (11 November).

Last week, Deputy Prime Minister Yuri Boyko announced that Ukraine planned to reduce Russian gas purchases.

Ukrainian Prime Minister Mykola Azarov has said that if Gazprom refuses to revise its contract, Ukraine would stop importing gas from Russia.

Ukraine, which pays around $400 per 1,000 cubic metres of Russian gas, one of the highest prices in Europe, has asked Moscow to ease terms it considers excessive and unaffordable for its debt-strapped economy. Meanwhile the country has been steadily reducing its Russian gas intake.

Last month, Gazprom said Ukraine had failed to pay for August deliveries in full.

The dispute has raised concerns of a new "gas war" over prices between the two neighbours, similar to those in the winter of 2009 which left part of Europe in the cold (see background).

Worrying moment

The supply worry comes at a vulnerable moment for Europe, whose second-biggest gas supplier Norway faces production constraints due to refurbishment works on ageing fields this winter.

Also, protesters in Libya have shut the country’s Greenstream gas pipeline to Italy, its only customer, Reuters announced yesterday.

Kremlin spokesman Dmitry Peskov told reporters yesterday that Russian President Vladimir Putin and his Ukrainian counterpart Viktor Yanukovich had met in Moscow at the weekend.

"They held talks, comprehensively discussed trade and economic relations of Ukraine and Russia," Peskov said, without elaborating.

Alternative supplies

According to Ukrainian political expert Valeriy Kucheruk, Kyiv has begun a real revolution in the diversification of natural gas supply for the reduction of energy dependence on Russia.

“Moscow's double standards in questions of gas policy left the Ukrainian authorities with no choice other than to start the process of the maximum gas diversification,” the expert said.

In the course of 2013, leaders of the world energy market have entered Ukraine and concluded production sharing agreements with the government. At first this was the Shell corporation, then came the turn of Chevron (both companies are to start shale gas production in Ukraine), and by the end of November an agreement on deep-water shelf gas production will be concluded with the consortium led by the American company ExxonMobil, Kucheruk said.

Also, the Minister of Energy and Coal Industry Eduard Stavitsky has already initialized the tripartite declaration of Ukraine, Croatia and Hungary on the implementation of the Adriatic Gas Corridor project. Accordingly, Ukraine could obtain access to gas received at the Croatian LNG terminal on the Krk island. However, the terminal is planned to be ready by 2017.

Off-shore gas and oil projects are also planned. The Italian ENI and the French Electricité de France (EDF) have also got particularly interested by energy resources production on the Ukrainian Black Sea shelf, Kucheruk reminds. According to him, another 5-10 billion cubic meters of gas are going to be replaced with other energy resources (primarily – coal) and introduction of energy saving and energy efficiency.

However ambitious, these Ukrainian plans would need several years before coming to fruition.  As a more immediate answer to the country’s energy needs, Ukraine plans to increase gas reverse from the EU from the present 2 billion cubic meters to 5-7 billion cubic meters.

EU countries ‘acting as Gazprom allies’

But Russia is trying to block Ukraine's possibilities of receiving reverse gas through Slovakia, Kucheruk said, this country is in fact acting according to Gazprom’s will. Hungary and Poland have already allowed reverse flows to Ukraine through their territory.

According to Valentin Zemlyanski, an independent expert and former press secretary of Naftogaz, Bulgaria too is playing the role “of the political ally of Gazprom”.

Referring to a recent statement by Bulgaria’s Economy and Energy Minister Dragomir Stoynev who warned of a possible repeat of the 2009 gas crisis as a result of the intensified conflict between Russia and Ukraine, Zemlyanski said that such forecasts were only an “aggravation of hysteria”.

“Bulgaria is one of the first countries which supported the idea of the South Stream. Therefore, being the partner of Gazprom, Bulgaria lobbies its interests in Europe,” Zemlyanski said.

The expert also said that he didn’t see the preconditions for the emergence of another gas conflict as was the case in 2009. According to Zemlyanski, at that time Gazprom needed to convince key partners of the need of the Nord Stream pipeline to be built. Nord Stream, an offshore pipeline which brings Russian gas directly to Germany, bypassing Ukraine and Belarus, was inaugurated in November 2011.

Besides, Zemlyanski argues that in the context of the Commission’s antitrust probe against Gazprom, it didn’t make any sense for the Russian gas monopoly to add new conflicts to this investigation.

Moreover, the expert argued that Russian gas supplies to Europe were decreasing for several successive years.

“Today the situation develops not to Gazprom’s advantage,” Zemlyanski said, mentioning that Europe was expecting to receive considerable volumes of LNG from the US, and that the Trans-Adriatic Pipeline (TAP), designed to bring gas from Azerbaijan to Italy, was now close to the stage of construction.

  • 28-29 Nov.: Eastern Partnership Summit, to be held in Vilnius under the Lithuanian EU presidency. Ukraine hopes to sign its EU association agreement there, coupled with a Deep and Comprehenisve Free Trade Agreement 

On 31 December 2008, Russia stopped supplying gas to Ukraine over a payment dispute. Russia said Ukraine was stealing natural gas destined for Europe for its own needs. Ukraine denied the charges, but said it needed "technical gas" to pump fuel through the pipeline system. 

On 6 January, supplies to Romania, Bulgaria, Greece, Macedonia, Serbia and Croatia were completely halted. It also emerged that several countries, including Bulgaria, did not have enough reserves to make up for a supply cut. 

But at a later stage, the conflict left Europe with no supply of Ukrainian gas. At this point, the EU agreed to send observers to monitor the supply of gas earmarked for Europe. 

At a summit in Moscow on 17 January 2009, Russian President Vladimir Putin and his Ukrainian counterpart Yulia Tymoshenko struck a deal, saying that the crisis was over. The EU reacted cautiously.

Three days later, on 20 January, supplies to Europe began to flow again. European Commission President José Manuel Barroso welcomed the resumption of deliveries, after a two-week standoff that left millions of Eastern Europeans without heating in the middle of winter. But he also warned that long-term lessons should be drawn from the crisis. 

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