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Ukrainian crisis can put a question mark over Russian gas supplies to Europe

March 04, 2014, 16:54 UTC+3 Alexandrova Lyudmila

MOSCOW, March 04. /ITAR-TASS/. Experts say the current situation in Ukraine as it is, there is a big question mark over the stability of Russian gas transit through that country to Europe. Should Gazprom cut gas supplies to Ukraine because of its debt, Kiev may resort to unauthorized use of gas from the export pipeline. This already happened in early 2009, when in response to Gazprom’s demand to repay gas debts and reduction of supplies to Ukraine the latter almost entirely stopped Russian gas traffic to Europe. Meanwhile, about half of Russian gas transit to the EU goes through Ukraine.

Gazprom has already warned about transit risks. According to the company’s memos and reference papers prepared for a meeting with investors in London, quoted by, the continuing political turbulence in Ukraine, aggravated by poor economic conditions, may cause interruptions in supplies to Europe.

Gazprom, whose shares dropped 15 percent on Monday morning (more than 12% on the London Stock Exchange) and whose cap declined 200 billion rubles, suffered most in the Russian stock market’s collapse on Monday amid the political crisis in Ukraine and tumult around the country. Two hours later the gas monopoly’s shares dipped 2.5 percent more. Clearly, investors doubt Gazprom will be able to supply the entire amount of fuel through Ukraine to the EU countries.

Last year Gazprom supplied 89 billion cubic meters of gas through Ukraine (52% of exports to Europe). The head of Gazprom Export, Alexander Medvedev, said on Monday the amount planned for this year was at least 70 billion cubic meters. All gas transit through Ukraine is supplied according to the plan, he is reported by Bloomberg as saying. According to earlier reports, total gas supplies to Europe this year can reach 161 billion cubic meters.

About 26 billion cubic meters of gas more is exported directly to Ukrainian consumers. Late last year Ukraine received a discount of about $130 per thousand cubic meters of Russian gas. This preference could enable Kiev to collect funds to repay debts to Gazprom and preserve budget funds for other purposes.

However, in late January Kiev asked Gazprom to defer repayment. Russia agreed but never saw the money; Ukraine is now on the verge of default and its treasury is empty. According to Ukrainian new prime minister, Arseniy Yatsenyuk, Ukraine’s sovereign debt amounts to about $75 billion, while the country’s aggregate debt, including that of private commercial companies, exceeds $130 billion.

In this situation Ukraine’s problems are Gazprom’s problems too. The gas concern cannot yet quit gas transit to EU countries. Yet strange as it may seem, so far the situation benefits the monopoly. European countries have boosted Russian gas imports — hydrocarbon prices rocketed in Britain, Germany and the Netherlands. The chances also emerged Europe can support the South Stream project which it previously dragged its feet over.

Despite relatively warm weather in Europe, Gazprom’s export to the EU increased almost 8% in the last ten days of February.

“This is a normal market reaction. The Europeans seem to be pumping gas reserves into underground storages, just in case,” head of East European Gas Analysis Mikhail Korchemkin is quoted by “And they are right in doing so, since Russian gas supplies through Ukraine may cease any moment.”

Deputy Head of the National Energy Security Fund Alexey Grivach quoted by VZGLYAD online paper also believes Europe is hedging against transit risks. “And they started doing it at the year-start pumping as much gas as possible into their storages. They now contain about 38 billion cubic meters, which is a record high amount for early March,” Grivach explains.

Pundits forecast that under such circumstances Europe will cease to hamper South Stream project - a pipeline with a 63 billion cubic meters capacity to supply gas to Southern and Central Europe through the Black Sea. Years have passed since Gazprom started South Stream negotiations with Europe, yet the EU has so far failed to present a common view of the problem. The European Commission believes the project breaches the Third Energy Package that excludes gas supplies and transportation by one company, whereas Gazprom insists the project should get an exemption. The talks have been futile so far.

“Both the Russian gas supplier and European consumers should fear interruptions of transit,” said Grivach. “If problems with Ukraine persist, without South Stream many of Gazprom’s counterparties will be just unable to receive stable gas supplies.”

Gazprom is already doing its utmost in an effort to become less dependent on Ukraine, says the director-general of the National Energy Security Fund Konstantin Simonov. “Two lines of Nord Stream and its two continuations OPAL and Gazelle have been completed,” the expert is quoted by the Moskovsky Komsomolets daily as saying. “As much as 95% of our transit to Europe and Turkey went through Ukraine in 1998, but only 52% last year. So our progress in diversifying transit is obvious. The events in Ukraine are the best response to all those experts who are in the habit of grumbling there was no need for all these 'streams'.”

Gazprom Export’s Medvedev confirmed on Monday the pipeline’s first line is planned to be commissioned in 2015. “Gas transit-related risks are inevitable without South Stream,” he said.


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