There were signs of a third gas supply crisis between Russia and Ukraine as Gazprom restated on March 3 that the Russian gas monopoly “has begun the procedure of termination for contracts with Naftogas Ukrainy.”
Gazprom spokesperson Sergey Kuprianov tried to reassure European consumers, telling RBC newswire that the Russian company would not stop gas transit through Ukraine in the nearest future. “If it were the case, we would have said that directly”, he said, asked whether the beginning of Naftogas contact termination procedure in Stockholm arbitration would mean an immediate halt of transit through Ukraine.
The Stockholm arbitration court ordered Gazprom this week to pay more than $2.5 billion to Naftogaz.
The European Union is concerned that the latest spat between Moscow and Kiev may lead to a supply cut to Europe as in 2006 and 2009 when Moscow turned off the tap due to a similar dispute.
“It’s pretty serious,” Dimitar Bechev of the University of South Carolina’s Center for Slavic, Eurasian and East European Studies, told New Europe in an interview at the Delphi Economic Forum on March 3 where a number of energy experts have gathered for wide-ranging discussions. “It’s, of course, important to see how long it goes, because the pervious two crises went on for several weeks. Secondly, it will be a test case for how much resilience there is in the system because the Commission, and the EU as a whole, has been mandating to the Member States to build up storage capacity and contingency plans in case of a gas crisis. So we will see what the downstream counties now have to do. But if it lasts for at least a week, then it will be event on the scale of what happened in 2006 and 2009,” Bechev said.
He noted that Russia has increased its gas deliveries through Russia’s Nord Stream to Germany and Blue Stream to Turkey, which is a “compensatory move” by Gazprom.
“Many of the countries in Central and Eastern Europe now have interconnectors so they can import gas to compensate for the shortfall, but they can bring Russian gas from the West so this is going to happen as well. Ukraine can import from Slovakia thanks to interconnectors… ultimately some of the gas will find its way to the countries that are now cut off,” Bechev said.
European Union Commission Vice President for Energy Union Maroš Šefčovič was quoted as saying in a statement that the EU is “ready to steer a trilateral process which, in the past, already proven to be effective in situations of disagreement.”
“I think they’ll try to minimise the negative fall out in commercial terms,” Bechev told New Europe. “Despite the political tensions, Gazprom has remained a reliable supplier. I remember in the winter of 2013-2014 there were talks between Naftogaz and Gazprom and the European Commission stepped in as a mediator to ensure that there wouldn’t be another disruption. And now, several years down the line, we’re back to square one despite the kind stability that lasted for a couple of years,” he said.
Gazprom argued in a press statement, “the Stockholm arbitration, following double standards, has taken an asymmetrical decision regarding the supply and transit contracts with Naftogaz Ukrainy.” The continuation of contracts for Gazprom is economically unreasonable and not beneficial, the Russian company said.
Gazprom Chairman Alexey Miller said earlier “Gazprom is forced to immediately initiate the procedure of termination for gas supply and transit contracts with Naftogas as a result of the Stockholm arbitration.”
Bechev noted that “those arbitration cases are quite common, it’s kind of a standard commercial practice, Gazprom has seen a lot of them in various issues and different companies, as well as trading partners, but obviously Ukraine is a different kettle of fish because the political element is built in.”
The role of Ukraine as a transit country for Russian gas supplies to Europe will change after the current transit contract between Gazprom and Naftogaz Ukrainy expires on December 31, 2019.
“There is a cutoff date at the end of 2019, when the transit agreement expires. We knew that at some point Russia will try to eliminate the Ukrainian route once it doesn’t have the legal obligation,” Bechev said. “In other words, it could have waited to do it in a smooth way without causing as much trouble because consumer countries have factored in the expectation that Ukraine won’t be the main transit route and there will be changes after 2019.”