Digital Journal: 18. January 2015
By Ken Hanly
Gas pipes at the gas compressor station in Velke Kapusany, Slovakia, on Sept. 2, 2014.
Moscow - Russian president Vladimir Putin has ordered Gazprom to cut supplies to and through the Ukraine by 60 percent. He accuses the Ukraine of siphoning off supplies for Europe and stealing Russian gas.
Russia claims that due to "transit risks for European consumers in the territory of the Ukraine" the supply cuts had to be made. As a result of the move Gazprom gas supplies to Europe plunged by 60 percent. Ukraine confirmed that Russia had shut off the gas supply. A total of six countries reported a complete shut off of Russian supplied gas.
Bulgaria, Greece, Macedonia, Romania, and Turkey all reported there had been a stop to gas shipments from Russia coming through the Ukraine. Croatia said that it had to reduce supplies to industrial customers. Bulgaria claimed that it was in a crisis situation and had gas for only a few days. The EU immediately issued a statement condemning the cut off:'Without prior warning and in clear contradiction with the reassurances given by the highest Russian and Ukrainian authorities to the European Union, gas supplies to some EU member states have been substantially cut.'The statement went on to demand that the gas supplies be restored immediately and that Russia and the Ukraine negotiate an end to their commercial dispute, which is the root cause of the situation.
The head of Gazprom, Alexey Miller, said that Russia plans to shift all natural gas flows now crossing the Ukraine to an alternative route through Turkey, a move confirmed by Russian Energy Minister Alexander Novak who claimed that the decision to do this had already been made.
Maros Sefcovic of the European Commission said that the decision made no economic sense after talks with Russian and Gazprom officials in Moscow. He may be correct. Neither do western sanctions on Russia. They are a political move and no doubt the Russian move is also political rather than economic in nature. However, it may make economic sense as well since the risks of supplying to the EU through the Ukraine are surely significant given the conflicts between the Ukraine and Russia. Economic decisions must take into account the likely risks involved. EU objections already blocked an alternative route through Bulgaria suggested by Russia.According to Miller of Gazprom, Russia will send 63 billion cubic meters of natural gas through a proposed link from Russia under the Black Sea to Turkey. About 40 percent of present Russian gas shipments to Europe pass through the Soviet area link via the Ukraine. Originally Russia planned a link through Bulgaria but dropped the plan after EU opposition. Bulgaria is now being made to suffer as no supplies at all from Russia enter the country. Russia supplies about 30 percent of EU natural gas.
Sefcovic noted that the Turkish route would not fit in with the EU's gas system. Gazprom's viewpoint appears to be that the EU will be the one to deal with that problem as it will simply deliver gas to the border of Greece and it will be up to the EU how gas is delivered from that point. Sefcovic notes that the system is set up to deliver through the Ukraine system.There are he said "very clear specified places of delivery" as set out in Gazprom's long term contracts with its EU customers.
Russia may be using its plans as a bargaining chip but the EU is itself planning an energy union to reduce dependence on Russian gas and hence it may make sense for Russia to itself reduce reliance on the Ukrainian transit system, especially given the political conflict with the Ukraine. Disputes about gas had disrupted supplies to EU twice already and as recently as last June. Gazprom has cut transit via the Ukraine from 137 billion cubic meters in 2004 to about 62 billion meters last year.