EU leaders warned about emerging ‘major’ gas crisis

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European Commission President José Manuel Barroso warned EU leaders at a summit today (19 June) that European nations must avoid sleepwalking into another gas crisis, which he said could hit Europe within weeks as tensions between Ukraine and Russia resurface.

Barroso said he had informed EU heads of state and government of difficulties developing for Ukraine to pay for Russian gas. 

“It is in fact a major crisis,” Barroso said. “We have sent a fact-finding mission to Kiev and Moscow. I have spoken to Prime Ministers [Vladimir] Putin and [Yulia] Timoshenko, to IMF general director [Dominque] Strauss-Kahn and gas industry representatives. There is indeed the risk of another major crisis in weeks, not months, and we must protect European citizens.” 

Barroso said that in the following week the Commission would host a meeting with representatives of international financial institutions, European gas companies and member countries to look into whether a short-term package of stop-gap funding could be put together. 

He added that the Commission had already advised “vulnerable countries” to take immediate measures. During the January gas crisis, Bulgaria and Slovakia proved to be particularly vulnerable, lacking alternative supply sources or sufficient gas storage. 

“We are working for the better, but we should also be ready for the worse,” Barroso said. 

Asked by EURACTIV whether there was a risk that the EU would end up footing the bill over recurring gas disputes between Russia and Ukraine, the former Portuguese prime minister said that no operational financial decisions had been taken at this time. 

“This is of course the responsibility of Russia and Ukraine,” he said. 

Positions

On the risk of a new gas crisis, the European Council conclusions note "with concern potential problems concerning gas supply from Russia via Ukraine". 

"The European Council is convinced that all parties will honour their commitments in order to avoid repetition of disruption of gas supply to the EU and its member states. The Council and the Commission will continue to carefully monitor and assess the situation and will report to the European Council whenever appropriate. In this respect, it is of major importance for the EU to continue speaking with one voice with its partners." 

"With a view to the above, the European Council welcomes the agreement reached by the Council on the revised Oil Stocks Directive and looks forward to prompt presentation of the Security of Gas Supplies Directive by the Commission with a view to reaching agreement as soon as possible. At its October meeting, the European Council will take stock of progress regarding energy infrastructures and interconnections as well as crisis mechanisms, in line with the orientations it had agreed last March." 

The European Commission issued a press release on 19 June, following its recent contacts with Russia's Gazprom and Ukraine's Naftogaz, which reads as follows: 

"Due to the rising concerns on a possible disruption of Russian gas supplies to Europe coming through Ukraine, the Commission has chaired today a meeting of the Gas Coordination Group to assure a stronger EU coordination and to secure energy supplies to European citizens. After having listened to Gazprom and Naftogaz Ukrainy representatives on their supply and transit prospects for the next winter, the Gas Coordination Group discussed the risks and possible measures in the short and medium term to guarantee energy supplies to all European consumers." 

"The Commission urged both parties, Gazprom and Naftogaz, to reach a stable and long-term arrangement to secure transit towards the EU. The European Commission emphasised that all parties should fulfill their legal and contractual obligations as far as transit to EU is concerned." 

"The possibility of a new gas shortage in summer calls for an in-depth investigation of its impact on the next winter, as this will affect the preparedness of the EU shippers to supply their customers. Member states, national regulators and the European organisations representing the gas industry and the consumers gave their own assessment of the likely impact on their situation." 

"The Commission is to examine a more detailed level of preparedness of the authorities and the natural gas undertakings at a forthcoming meeting of the Gas Coordination Group to be held on 2 July 2009." 

Background

Gazprom needs to store gas in Ukraine, because the capacity of the transit system does not allow it to fully serve Europe's needs during a cold winter without additional gas use from Ukraine's underground storage. 

Gas needs to be pumped into storage during the summer when demand in Europe is low, but Gazprom says it cannot simply store it in Ukraine for fear that Kiev will misappropriate it. 

In recent years, Gazprom has thus been selling gas to Kiev and buying it back in winter: a scheme which works well when gas prices are on the rise, but which would trigger heavy losses for Ukraine’s Naftogaz this year, because gas prices are set to fall. 

Last month, Russia rejected a Ukrainian proposal to defer payment on up to $5 billion for gas storage, as energy talks on Friday between the prime ministers of the ex-Soviet neighbours ended in stalemate (EURACTIV 25/05/09). 

On the same day, Russian President Dmitry Medvedev, attending an EU-Russia summit in the far eastern city of Khabarovsk, challenged European leaders to help Ukraine pay its gas bills and help avert a new gas crisis. 

Russia said on 3 June that it may cut gas supplies to Ukraine if the country does not pay for gas to be pumped into underground storage (EURACTIV 04/06/09). 

Ukraine needs $4 billion in credits to buy Russian gas for its underground storage areas and hopes to raise the funds through European banks, Prime Minister Yulia Tymoshenko said on 16 June (EURACTIV 17/06/09). 

Further Reading